<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERFERON SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2313648
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
783 JERSEY AVENUE
NEW BRUNSWICK, NEW JERSEY 08901
(908) 249-3250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAWRENCE M. GORDON, ESQ.
GENERAL COUNSEL
INTERFERON SCIENCES, INC.
9 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 230-9513
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ROBERT J. HASDAY, ESQ. KENNETH R. KOCH, ESQ.
DUANE, MORRIS & HECKSCHER SQUADRON, ELLENOFF, PLESENT, SHEINFELD & SORKIN, LLP
SUITE 2125 551 FIFTH AVENUE
122 EAST 42ND STREET NEW YORK, NEW YORK 10176
NEW YORK, NEW YORK 10168
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable 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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value $.01 per share................ 8,000,000 shares $ 1.50 $ 12,000,000 $ 4,137.93
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Underwriter's Purchase Options(2)..................... 800,000 Options $ .001 $ 800 $ .28
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Common Stock, par value $.01 per share(3)............. 800,000 shares $ 1.80 $ 1,440,000 $ 496.55
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Total......................................... $ 4,634.76
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) To be issued to the Underwriter.
(3) Shares issuable upon exercise of the Underwriter's Purchase Options.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INTERFERON SCIENCES, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------ --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Summary Financial
Information; Risk Factors; and Selected
Financial Information
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds; Risk
Factors
5. Determination of Offering Price........... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Description of
Securities; Underwriting
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant................................ Inside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk
Factors; Dilution; Use of Proceeds; Price
Range of Common Stock; Dividend Policy;
Capitalization; Selected Financial
Information; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Principal Stockholders; Certain
Transactions; Description of Securities;
Financial Statements
12. Incorporation of Certain Information by
Reference................................. Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
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.
Subject to Completion, Dated , 1995
PROSPECTUS
INTERFERON SCIENCES, INC.
MINIMUM: 5,000,000 SHARES OF COMMON STOCK
MAXIMUM: 8,000,000 SHARES OF COMMON STOCK
The shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Interferon Sciences, Inc., a Delaware corporation (the "Company"), being
offered hereby are being sold by the Company.
The Common Stock is quoted on the NASDAQ National Market System under the
symbol "IFSC." On , 1995, the last reported sale price of the Common
Stock on the NASDAQ National Market System was $ per share.
------------------------
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
------------------------
THESE SECURITIES HAVE 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.
<TABLE>
<S> <C> <C> <C>
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UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)(3)
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Per Share............... $ $ $
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Total Minimum........... $ $ $
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Total Maximum........... $ $ $
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</TABLE>
(1) Excludes additional compensation to be received by the Underwriter,
including (i) a 1.75% non-accountable expense allowance, (ii) a
non-accountable expense allowance for legal fees in an amount not to exceed
the lesser of (a) $100,000 and (b) 1% of the gross proceeds of the Offering,
(iii) an accountable expense allowance for disbursements of counsel to the
Underwriter, and (iv) options to purchase up to a number of shares of Common
Stock equal to 10% of the number of shares of Common Stock sold in the
Offering, exercisable over a period of four years commencing one year from
the date of this Prospectus at an exercise price equal to 110% of the public
offering price of the shares offered hereby (the "Underwriter's Purchase
Options"). The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $ if the
minimum number of shares are sold and $ if the maximum number of
shares are sold, including the Underwriter's expense allowances. See
"Underwriting."
(3) The shares of Common Stock are being offered by the Underwriter as the agent
for the Company on a "best efforts" 5,000,000 share minimum, 8,000,000 share
maximum, basis for 30 days from the date of this Prospectus (which period
may be extended for an additional 30 days by the Underwriter). The Company's
officers, directors, employees, and principal stockholders may purchase
shares of Common Stock in the Offering. All such purchases may be used to
satisfy the 5,000,000 share minimum. Pending the sale of the 5,000,000 share
minimum, all proceeds will be deposited into an escrow account with
, Escrow Agent for the Offering. After the sale of the initial
5,000,000 shares, the remaining 3,000,000 shares will also be offered on a
"best efforts" basis. In the event the minimum number of shares is not sold
within the offering period or any extension thereof, the Offering will
terminate and all funds will be returned promptly to subscribers by the
Escrow Agent without any deduction therefrom or interest thereon.
The shares of Common Stock are being offered on a "best efforts" 5,000,000
share minimum, 8,000,000 share maximum, basis by the Underwriter, subject to
prior sale, withdrawal, or cancellation of the Offering without notice. Any
modification to the Offering will be made by means of an amendment to this
Prospectus. The Company reserves the right to modify, withdraw, or cancel the
Offering without notice, and to reject any orders for the shares of Common Stock
offered hereby, in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of Sunrise Securities Corp., 919 Third Avenue, New York, New York 10022.
------------------------
SUNRISE SECURITIES CORP.
THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE> 4
AVAILABLE INFORMATION
The Prospectus omits certain of the information contained in the
Registration Statement relating to the securities offered hereby which is on
file with the Securities and Exchange Commission (the "Commission"). The Company
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith, files
periodic reports, proxy statements, and other information with the Commission.
Such Registration Statement, reports, proxy statements, and other information
can be inspected, without charge, and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at its regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60061. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994; and
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies, supersedes, or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Any person receiving a copy of this
Prospectus may obtain without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein, except for exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the documents which this Prospectus incorporates). Requests should be
directed to: Corporate Secretary, Interferon Sciences, Inc., 783 Jersey Avenue,
New Brunswick, New Jersey 08901, telephone number (908) 249-3250.
------------------------
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes that the minimum number of shares of
Common Stock is sold and that no outstanding stock options or warrants are
exercised.
THE COMPANY
General
Interferon Sciences, Inc. (the "Company") is a biopharmaceutical company
currently engaged in the manufacture and sale of ALFERON N Injection, the only
product approved by the United States Food and Drug Administration ("FDA") that
is based upon a natural source, multi-species alpha interferon ("Natural Alpha
Interferon"). ALFERON N Injection is approved for the treatment by injection of
certain types of genital warts and is being developed by the Company for the
potential treatment of hepatitis C, hepatitis B, HIV, multiple sclerosis,
cancers, and other indications. The Company believes that the existing FDA
approval of ALFERON N Injection for one indication should facilitate obtaining
approvals for other indications. The Company also is developing ALFERON N Gel
and ALFERON LDO, the Company's topical and oral formulations of Natural Alpha
Interferon.
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 60 countries, are, as a group, one of the largest
selling of all biopharmaceuticals, with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting several million people worldwide,
including two to three million people in the United States and three million
people in Japan. As described below, the Company is presently conducting three
multi-center Phase 2 trials using Natural Alpha Interferon for the treatment of
hepatitis C.
Natural Alpha Interferon
A substantial portion of worldwide sales of interferon consists of sales of
alpha interferon produced from genetically engineered cells (recombinant alpha
interferon). Based on laboratory studies and clinical trials involving Natural
Alpha Interferon, the Company believes that Natural Alpha Interferon has certain
potential advantages over recombinant alpha interferon including:
Efficacy. Natural Alpha Interferon is used at significantly lower doses
than the competing recombinant alpha interferon product for the
treatment of genital warts and, in laboratory studies, was shown to be
10 to 100 times more effective than recombinant alpha interferon in
blocking replication of HIV. This unusually potent anti-HIV activity may
be due to specific members of the interferon family of proteins which
are present in Natural Alpha Interferon but not found in the presently
marketed recombinant interferons.
Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. In a Phase 1 clinical trial on 20 asymptomatic
HIV-infected patients, investigators at Walter Reed Army Institute of
Research ("Walter Reed") reported that significantly fewer of the
typical side effects associated with recombinant alpha interferon were
observed with Natural Alpha Interferon. In addition,
interferon-neutralizing antibodies, which may limit alpha interferon's
therapeutic benefit, have not been observed to date in clinical trials
with Natural Alpha Interferon, even in HIV and hepatitis C patients
treated with high doses of such product three times a week for up to six
months. There have been reports of these antibodies developing in
patients being treated with recombinant alpha interferons.
3
<PAGE> 6
Although, as described above, the Company believes that Natural Alpha
Interferon may have certain advantages over recombinant alpha interferon, there
can be no assurance that these advantages will enable the Company to obtain a
significant market share for products made with Natural Alpha Interferon.
Moreover, at the present time, the Company is limited in its ability to make
product marketing claims related to these potential advantages until additional
data are available and, in certain instances, until further FDA approvals are
obtained. Additionally, the Company derives Natural Alpha Interferon from human
white blood cells, the cost and availability of which are subject to
fluctuation, in part because the Company does not presently have long-term
agreements or multiple sources for the supply of such cells. Recombinant alpha
interferon products are not dependent on a source of human white blood cells
and, therefore, can be produced in greater volume and at a lower cost per unit
than the Company's formulations of Natural Alpha Interferon products. See
"Business -- Scientific Background."
Marketing, Distribution, and Production
ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is marketed and distributed in the
United States exclusively by Purdue Pharma L.P. ("Purdue Pharma" and,
collectively with its affiliates, "Purdue"). The Company has an option to
repurchase the marketing rights for ALFERON N Injection in the United States and
Canada from Purdue, which it intends to exercise. See "Business -- ALFERON N
Injection -- Approved Indication," "Business -- ALFERON N Injection -- Marketing
and Distribution -- Agreements with Purdue," and "Use of Proceeds."
In February 1995, the Company entered into an agreement with Fujimoto
Diagnostics, Inc. ("Fujimoto") for the development and marketing of ALFERON N
Injection and ALFERON N Gel in Japan. Japan is currently the world's largest
market for interferon products, with 1994 annual sales approaching $900 million.
Under the terms of the agreement, Fujimoto agreed to purchase $2,000,000 of the
Company's Common Stock and to use its best efforts to develop, and obtain
Japanese regulatory approvals for, ALFERON N Injection and ALFERON N Gel
products. The Company believes that Fujimoto's development effort will entail a
substantial expense on Fujimoto's part. In addition, the Company's Natural Alpha
Interferon injectable product was recently approved for sale in Mexico for the
treatment of genital warts and will be marketed under the trade name ALTEMOL(R)
by Industrica Farmaceutica Andromaco S.A. De C.V. ("Andromaco"). See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV-infected patients, and cancer. See
"Risk Factors -- Dependence on Certain Distributors; Limited Marketing Program."
The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi Winthrop Pharmaceutical L.P. ("Sanofi") at a production
facility located in MacPherson, Kansas. See "Business -- ALFERON N Injection --
Manufacturing."
Recently Expanded License
As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann-LaRoche, Inc. ("Hoffmann") and F. Hoffmann-LaRoche Ltd. ("Roche") which
grants the Company the worldwide rights to make, use, and sell, without a
potential patent infringement claim from Hoffmann or Roche, any formulation of
Natural Alpha Interferon. The 1995 license replaced a 1988 non-exclusive license
from Hoffmann which granted the Company the rights to make, use, and sell in the
United States, without a potential patent infringement claim from Hoffmann,
injectable formulations of Natural Alpha Interferon for the treatment of genital
warts or patients with diseases refractory to recombinant interferon therapy.
The 1995 license will enable the Company, if successful in obtaining necessary
regulatory approvals, to expand the formulations of Natural Alpha Interferon it
makes, uses, and sells in the United States and the rest of the
4
<PAGE> 7
world and to market its products for the treatment of additional indications.
See "Risk Factors -- Potential Patent Infringement Claims," "Business -- ALFERON
N Injection -- Patents and Licenses," and "Business -- ALFERON N
Injection -- Royalty Obligations."
Clinical Trials
The Company is conducting or planning various clinical trials in an effort
to obtain approval to market ALFERON N Injection for additional indications in
the United States and around the world.
The Company is presently conducting three multi-center, randomized,
open-label, dose-ranging Phase 2 clinical trials in patients infected with
hepatitis C virus (HCV). The objective of these HCV clinical studies is to
compare the safety and efficacy of different doses of Natural Alpha Interferon
injected subcutaneously in naive (previously untreated), refractory
(unsuccessfully treated with recombinant alpha interferon), and relapsing
(initially responded to recombinant alpha interferon but later relapsed)
patients. The Company believes that the preliminary results of such trials are
promising.
In a recent follow-up analysis of patients in the Walter Reed Phase 1
clinical trial, it was found that an average of 16 months after treatment, CD4
lymphocyte levels (the white blood cells which normally decline in HIV-infected
patients) remained essentially unchanged or were higher than at the onset of the
trial in 11 of 20 patients. In addition, the amount of HIV detectable in the
patients' blood, as measured by a quantitative PCR (Polymerase Chain Reaction)
technique, declined in a dose dependent manner (the greatest declines were
observed in the highest dose group). Although there can be no assurance that the
results of laboratory studies and the Phase 1 clinical trial will be reproduced
in a large-scale, controlled clinical trial, based upon the foregoing, the
Company believes that Natural Alpha Interferon may have potential clinical value
in the treatment of HIV-infected patients. The Company is planning to conduct a
multi-center clinical trial with HIV-infected patients, which is expected to
commence in 1995.
Two additional Phase 2 clinical studies are in progress. One is for the
treatment of Kaposi's sarcoma in patients with AIDS and the other is a
multi-center study in small cell lung cancer patients following successful
treatment by conventional chemotherapy. The goal of the small cell lung cancer
study is to see if Natural Alpha Interferon can alter the high relapse rate in
this disease.
Based upon encouraging anecdotal data, the Company is planning, subject to
obtaining funding or a sponsor, to conduct clinical trials utilizing Natural
Alpha Interferon for the treatment of multiple sclerosis, which affects more
than 250,000 Americans. See "Business -- ALFERON N Injection -- Clinical Trials
for New Indications."
Commercial sales of ALFERON N Injection for any indication other than its
approved use in the United States and Mexico for the treatment of genital warts
and commercial sales of either ALFERON N Gel or ALFERON LDO will be contingent
upon the completion of necessary studies and the approval of such products for
such uses by the FDA and other foreign regulatory authorities. Submissions for
regulatory approval to sell ALFERON N Injection for the treatment of genital
warts have been filed in various other countries. See "Business -- Governmental
Regulation," "Risk Factors -- Regulating Approvals," and "Risk
Factors -- Foreign Regulatory Approvals."
Although the Company received FDA approval to market ALFERON N Injection in
1989, to date, it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1994, the Company had an accumulated
deficit of approximately $62.8 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
5
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby............... A minimum of 5,000,000 shares and a
maximum of 8,000,000 shares, on a best
efforts basis.
Common Stock to be outstanding after the
Offering................................ A minimum of shares and a
maximum of shares(1)(2).
Use of Proceeds........................... The Company anticipates that approximately
$ of the net proceeds of the
Offering will be used for research,
product development, and clinical trials;
$2,479,976 will be used to repurchase
certain marketing rights from Purdue; and
the balance will be used for working
capital and general corporate purposes.
See "Use of Proceeds."
NASDAQ National Market System Symbol...... IFSC.
Risk Factors.............................. Purchase of the Common Stock offered
hereby involves a high degree of risk.
Prospective purchasers should consider
carefully the factors specified under
"Risk Factors."
</TABLE>
- ---------------
(1) Does not include (i) 3,155,320 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 886,000 shares reserved for issuance upon the exercise of
currently outstanding warrants, and (iii) 800,000 shares reserved for
issuance upon the exercise of the Underwriter's Purchase Options. See
"Underwriting."
(2) Gives effect to (i) the issuance of 2,500,000 shares of Common Stock (which
the Company has guaranteed will have a value of approximately $9 million) to
Purdue and the cancellation of 619,994 shares of Common Stock held by Purdue
in connection with the repurchase of certain marketing rights from Purdue,
(ii) the exchange of $1,070,000 principal amount of indebtedness of the
Company to certain of its principal stockholders for 713,333 shares of
Common Stock, assuming that the offering price of the Common Stock is $1.50
per share, and (iii) the repurchase required in April 1995 of 62,500 shares
of Common Stock held by Purdue. See "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue," and
"Certain Transactions -- Other Transactions."
6
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)............................... $ 180 $ 1 $ 1,166 $ 51 $ 3,306
Research and development costs, net....... 960 1,169 5,196 4,151 3,983
Loss from operations...................... (1,795) (2,371) (11,782) (8,347) (5,953)
Net loss.................................. (1,798) (2,346) (12,078) (8,460) (5,997)
Net loss per share of Common Stock........ (.09) (.12) (.62) (.55) (.42)
Weighted average number of shares of
Common Stock outstanding................ 21,125 19,417 19,594 15,432 14,357
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------
AS ADJUSTED(2) DECEMBER
------------------- 31,
ACTUAL MINIMUM MAXIMUM 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets......................................... $ 7,786 $ $ $8,182
Working capital (deficiency)......................... (907) (782 )
Current maturities of long-term debt................. 274 409
Long-term debt, net of current maturities............ -- -- -- --
Common Stock subject to repurchase commitment........ 2,730 -- -- 2,730
Stockholders' equity................................. 2,664 2,979
</TABLE>
- ---------------
(1) Substantially all of the Company's revenues in 1992, 1994, and the three
months ended March 31, 1995 were from sales of ALFERON N Injection to
Purdue. Purdue did not purchase ALFERON N Injection from the Company in 1993
or the three months ended March 31, 1994. Purdue has informed the Company
that during 1993, 1994, and the three months ended March 31, 1995, Purdue
sold approximately 23,000, 25,000, and 6,800 vials, respectively, and
distributed as free samples approximately 2,800, 2,000, and 200 vials,
respectively, of ALFERON N Injection from its inventory. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources."
(2) Adjusted to give effect to (i) the sale of the minimum and maximum number of
shares of Common Stock in the Offering, (ii) the application of $2,479,976
of the net proceeds therefrom for the repurchase of certain marketing rights
from Purdue and the related issuance of 2,500,000 shares of Common Stock
(which the Company has guaranteed will have a value of approximately $9
million) to Purdue and cancellation of 619,994 shares of Common Stock held
by Purdue, and (iii) the exchange at the closing of the Offering of
$1,070,000 principal amount of indebtedness of the Company to certain of its
principal stockholders for 713,333 shares of Common Stock, assuming that the
offering price of the Common Stock is $1.50 per share, and (iv) the
repurchase required in April 1995 of 62,500 shares of Common Stock held by
Purdue. See "Use of Proceeds," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources," "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue," and "Certain Transactions -- Other
Transactions."
7
<PAGE> 10
THE COMPANY
The Company, which was incorporated in Delaware in May 1980, commenced
operations in January 1981 by obtaining from National Patent Development
Corporation ("NPDC"), a principal stockholder of the Company and then its
parent, assets relating to NPDC's programs in human alpha interferon. The
Company's principal offices and research and production facilities are located
at 783 Jersey Avenue, New Brunswick, New Jersey 08901 and its telephone number
is (908) 249-3250.
RISK FACTORS
Prospective investors should consider carefully the following factors,
together with the other information contained in this prospectus, in evaluating
an investment in the Common Stock offered hereby.
CONTINUING AND INCREASING OPERATING LOSSES; ACCUMULATED DEFICIT. The
Company has experienced significant operating losses since its inception in
1980. As of March 31, 1995, the Company had an accumulated deficit of
approximately $64.6 million. For the three months ended March 31, 1995 and the
years ended December 31, 1994, 1993, and 1992, the Company had losses from
operations of approximately $1.8 million, $11.8 million, $8.3 million, and $6.0
million, respectively. The Independent Auditors' Report on the Company's 1994
financial statements indicates that such accumulated deficit and operating
losses raise substantial doubt about the Company's ability to continue as a
going concern.
Although the Company received FDA approval to market ALFERON N Injection in
October 1989, it has had only limited revenue from the sale of ALFERON N
Injection to date. In order for the Company to operate profitably, the Company
must sell significantly more ALFERON N Injection. Increased sales will depend
primarily upon the expansion of existing markets and/or successful attainment of
FDA approval to market ALFERON N Injection for additional uses, of which there
can be no assurance. See "Products Under Development" below in this section.
There can be no assurance that sufficient quantities of ALFERON N Injection will
be sold to allow the Company to operate profitably. Moreover, the Company cannot
market ALFERON N Injection for such other uses unless appropriate regulatory
approvals are obtained.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company will
require substantial funds to conduct research and development and preclinical
and clinical testing, to market its products, and either to repurchase certain
marketing rights from Purdue (which the Company intends to do) or to repurchase
619,994 shares of Common Stock that it is obligated to repurchase at $4 per
share from Purdue by July 26, 1995. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." For the
three months ended March 31, 1995 and the years ended December 31, 1994, 1993,
and 1992, the cash utilized by the Company's operations was approximately $1.7
million, $7.8 million, $7.8 million, and $4.4 million, respectively. In January
1994, the Company amended certain agreements with Purdue pursuant to which the
Company agreed to bear the costs of conducting clinical trials required to
develop new indications for ALFERON N Injection, most of which costs previously
had been borne by Purdue. The Company's future capital requirements will depend
on many factors, including: continued scientific progress in its drug
development programs; the magnitude of these programs; progress with preclinical
testing and clinical trials; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting, and enforcing patent
claims; competing technological and market developments; changes in its existing
research relationships; the ability of the Company to establish collaborative
arrangements; and effective commercialization activities and arrangements.
Management believes that the cash currently available and the proceeds from
the Offering will be sufficient to enable the Company to continue operations for
approximately months from the date of this Prospectus if the minimum
number of shares of Common Stock is sold in the Offering and months if the
maximum number is sold, although no assurance can be given in this regard. To
fund the Company's operations beyond such periods, the Company will require
additional funding, whether through financial markets or collaborative or other
arrangements with corporate partners or from other sources, which may not be
available when needed or on terms acceptable to the Company. Insufficient funds
will require the Company further to delay, scale back, or eliminate certain or
all of its research and development programs or to license
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third parties to commercialize products or technologies that the Company would
otherwise seek to develop itself and may cause the Company to be in default
under its agreements with third parties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
NO GUARANTEED SOURCE OF REQUIRED MATERIALS. The Company uses a number of
essential materials in the production of Natural Alpha Interferon, including
human white blood cells, and has limited sources from which to procure such
materials. The Company does not have long-term agreements for the supply of most
of such materials. There can be no assurance that long-term supply agreements
covering essential materials can be entered into on commercially reasonable
terms, if at all. Although the Company currently obtains human white blood cells
from several sources, the loss of any one source of supply could have a material
adverse effect on the Company. In such event, the Company may be required to
scale back its operations or stop manufacturing such product. The costs and
availability of products and materials required by the Company for the
commercial production of ALFERON N Injection and other products which the
Company may commercially produce are subject to fluctuation depending on a
variety of factors beyond the Company's control, including competitive factors,
changes in technology, and FDA and other governmental regulation and there can
be no assurance that the Company will be able to obtain such products and
materials on terms acceptable to the Company or at all.
DEPENDENCE ON CERTAIN DISTRIBUTORS; LIMITED MARKETING PROGRAM. The Company
currently has marketing arrangements for the distribution of ALFERON N Injection
in North America and several other countries. Unless the Company enters into
marketing arrangements with other companies or develops its own sales force, the
Company will be dependent on the ability of its current distributors to sell
sufficient quantities of ALFERON N Injection to allow the Company to operate
profitably. There can be no assurance that the Company will be able to enter
into any such marketing arrangements on acceptable terms, if at all. See
"Business -- ALFERON N Injection -- Marketing and Distribution" and
"Business -- Products under Development -- Marketing and Distribution."
The Company has obtained an option, exercisable until June 30, 1995, to
reacquire from Purdue marketing rights for ALFERON N Injection in the United
States and Canada for $2,479,976 plus 2,500,000 shares of Common Stock (which
the Company has guaranteed will have a value of approximately $9,000,000). While
the Company intends to exercise such option using the proceeds of the Offering
to pay the cash portion of the exercise price, it is unlikely that the Company
will enter into another marketing arrangement for ALFERON N Injection in the
United States and Canada before the option expires on June 30, 1995. If the
Company exercises such option and another such arrangement is not entered into,
the Company would be left without a marketing arrangement for ALFERON N
Injection in the United States and Canada. If the Company does not exercise such
option, it will have an obligation to repurchase 619,994 shares of Common Stock
from Purdue for $2,479,976 by July 1995 and Purdue will retain the marketing
rights for ALFERON N Injection in the United States and Canada. See "Use of
Proceeds," "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue," and "Capitalization."
PRODUCTS UNDER DEVELOPMENT. The Company's products under development
include (i) expansion of the approved uses of ALFERON N Injection for the
potential treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis,
cancers, and other indications, (ii) ALFERON N Gel for the potential treatment
of cervical dysplasia, recurrent genital herpes, other viral diseases, and
cancers, and (iii) ALFERON LDO for the potential treatment of certain symptoms
of patients infected with the HIV virus and the treatment of other viral
diseases. However, there can be no assurance that these products will be
cost-effective, safe, and effective treatments for these diseases, and there is
no assurance of receiving regulatory approvals to market these other products.
The Company cannot market such other products until such approvals are obtained.
Even if such approvals are obtained, there can be no assurance that any of these
products will be successful or will produce significant revenues or profits for
the Company. The ability of the Company to become profitable depends on the
successful commercial development of these products.
POTENTIAL ADVERSE SIDE EFFECTS. The Company is engaged in the manufacture
and sale of a single FDA approved product, ALFERON N Injection for the treatment
of refractory or recurring external genital warts
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in adults. In clinical trials conducted for the treatment of genital warts with
ALFERON N Injection, patients have not experienced serious adverse side effects;
however, there can be no assurance that unexpected or unacceptable adverse side
effects will not be found in the future for this use or for the other potential
uses of this product or any other product the Company might develop which could
threaten or limit such product's usefulness. See "Risk of Product Liability"
below.
SUBSTANTIAL COMPETITION. In the United States, the Company currently
competes with Schering-Plough Corp.'s ("Schering") injectable recombinant
interferon product and other therapies in the treatment of genital warts. If and
when the Company obtains additional approvals of uses of its products, it
expects to compete primarily on the basis of product performance and price with
a number of additional pharmaceutical companies, both in the United States and
abroad, including Hoffmann, Roche, Amgen Inc., and Burroughs Wellcome Co. The
Company's potential competitors have developed or may develop products
(containing either alpha interferon or other therapeutic compounds) or other
treatment modalities for those uses. Many of the Company's potential competitors
are among the largest pharmaceutical companies in the world, are well known to
the public and the medical community, and have substantially greater financial
resources, product development, and manufacturing and marketing capabilities
than the Company or its marketing partners. Schering's recombinant interferon
product has achieved market dominance for the treatment of hepatitis C and
hepatitis B in the United States and other markets, and there is no assurance
that if the Company is able to obtain regulatory approval of ALFERON N Injection
for the treatment of those diseases, it will be able to achieve any significant
penetration into those markets. In addition, because certain of the competitive
products are not dependent on a source of human blood cells, such products may
be able to be produced in greater volume and at a lower cost than ALFERON N
Injection and the Company's other Natural Alpha Interferon formulations. Other
companies may succeed in developing products earlier than the Company, obtaining
approvals for such products from the FDA more rapidly than the Company, or
developing products that are more effective than those proposed to be developed
by the Company. While the Company will seek to expand its technological
capabilities in order to remain competitive, there can be no assurance that
research and development by others or other medical advances will not render the
Company's technology or products obsolete or non-competitive or result in
treatments or cures superior to any therapy developed by the Company, or that
any therapy developed by the Company will be preferred to any existing or newly
developed technologies. See "Business -- ALFERON N Injection -- Competition,"
"Business -- Products under Development -- ALFERON N Gel," and
"Business -- Products under Development -- ALFERON LDO."
POTENTIAL PATENT INFRINGEMENT CLAIMS. On March 5, 1985, the United States
Patent and Trademark Office issued a patent to Hoffmann claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). On May 6, 1994,
the United States Patent and Trademark Office issued an Office Action in
Reexamination on the Hoffmann patent and rejected all of the 14 claims in the
Hoffmann patent. Claims in a patent under reexamination are valid and
enforceable until such time as a final disposition on the claims is reached. On
July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. The outcome of such reexamination of the Hoffmann
patent cannot be determined at this time. Roche, the parent of Hoffmann, also
has been issued patents covering human alpha interferon in many countries
throughout the world. As of March 31, 1995, the Company obtained a non-exclusive
license from Hoffmann and Roche which grants the Company the worldwide rights to
make, use, and sell, without a potential patent infringement claim from Hoffmann
or Roche, any formulation of Natural Alpha Interferon. The license permits the
Company to grant marketing rights with respect to Natural Alpha Interferon
products to third parties, except that the Company cannot grant marketing rights
with respect to ALFERON N Injection to any third party not listed on a schedule
of approximately 50 potential marketing partners without the consent of Hoffmann
and Roche, which consent cannot be unreasonably withheld. There can be no
assurance that the Company will not want to grant such marketing rights to a
third party not listed on such schedule, or that Hoffmann and Roche will not
withhold the required consent. In addition, if such license were terminated, the
Company may be subject to a patent infringement lawsuit by Hoffmann and Roche.
If such a suit were brought, the Company would have to either counterclaim to
attempt to invalidate the Hoffmann and Roche patents or prove that it did not
infringe such patents.
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In addition, there may have been other patent applications filed in the
United States and in foreign countries, some of which may have been filed by
potential competitors of the Company, with respect to the technologies and/or
products which may be required by the Company to produce its current and
proposed products. If any of such patents issue in the United States or in
foreign countries in a form which covers the Company's products or processes,
the Company would be required to obtain licenses under such patents in
connection with the domestic and international commercialization of such
products. There can be no assurance that the Company could obtain licenses under
any of such patents if so issued, particularly if they were issued to companies
directly in competition with the Company, or that even if the Company could
obtain licenses, it could do so on commercially reasonable terms.
If the sale or use of any of the Company's products were to become the
basis of a patent infringement lawsuit, assuming the Company could not obtain a
license on satisfactory terms, the Company may be required to incur substantial
litigation expenses, and such litigation could also consume substantial
management time, which could have a material adverse effect upon the financial
condition of the Company even if it were to be successful in the litigation. If
the Company proved unsuccessful in such litigation, it may be required to pay a
royalty for the use of the claimed patents or cease producing the products and
redevelop the products in such a way as to avoid infringing any claimed patent
rights. There can be no assurance in such case that the Company could obtain a
license under such patents on commercially reasonable terms or at all, or that
it could successfully redevelop the products to fall outside the scope of the
claim.
It is the Company's policy to seek licenses if it believes that the terms
of such licenses, when weighed against the expense and uncertainties of
potential litigation, are cost effective.
POSSIBLE INABILITY TO PROTECT TECHNOLOGY. To a significant extent, the
ability of the Company to protect its rights in any products or technology it
may develop depends upon its ability to obtain suitable patent or similar
protection. The ability of the Company to obtain patents, and the nature,
extent, and enforceability of the intellectual property rights that are obtained
as a result of the Company's research, involve complex legal and factual issues.
New technology and products developed by the Company may not qualify for patent
protection or, if they do qualify, may be subject to challenge or to protracted
judicial proceedings. In addition, the Company may determine not to seek
additional patent or other protection for its technology or products. It is not
certain that other patents will be issued or, if issued, that they will afford
the Company protection from competitive products. Although the Company's
practice is to require its technical and scientific employees and consultants to
execute confidentiality agreements covering proprietary information, there can
be no assurance that others will not independently make similar discoveries or
otherwise obtain access to proprietary information of the Company. In addition,
the Company has a non-exclusive license agreement with Hoffmann and Roche which
enables the Company to sell its products. There can be no assurance that
Hoffmann or Roche has not or will not grant a similar license to another company
with considerably greater financial, technical, and marketing resources than the
Company or that Hoffmann or Roche will not enter the market itself with a
competitive product.
While the Company has several patent applications pending, it does not
currently have significant patent protection for its products or technology. In
addition, even if such protection were obtained, it is possible that others have
or may develop equivalent or superior products or technologies which would not
fall within the scope of the Company's patent claims or which might involve
inventions similar in scope to those of the Company for which patent or similar
rights are obtained by others prior to the time that the Company is able to do
so. See "Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- Products under Development -- Patents and Licenses."
REGULATORY APPROVALS. The production and marketing of the Company's
products in the United States, as well as its ongoing research and development
activities, are subject to regulation by governmental agencies, most
significantly the FDA. Such regulation includes requirements for obtaining FDA
approval prior to marketing each of its products in the United States. In order
to obtain such FDA approval, the Company must demonstrate, among other things,
the safety and efficacy of each product through pre-clinical and clinical
testing. Obtaining such approvals is a time-consuming process and requires the
expenditure of substantial resources. Each facility in which the products are
produced and packaged, whether operated by the Company
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or a third party, must meet the FDA's standards for current good manufacturing
practices and must also be approved prior to marketing any product produced or
packaged in such facility. Any significant change in the production process
which may be commercially required, including changes in sources of certain raw
materials, or any change in the location of the production facilities will also
require FDA approval. To the extent a portion of the manufacturing process for a
product is handled by an entity other than the Company, the Company must
similarly receive FDA approval for the participation by such third party in the
manufacturing process. For example, the Company has entered into an agreement
with Sanofi Winthrop Pharmaceuticals L.P. ("Sanofi"), formerly Sterling Drug
Inc., pursuant to which Sanofi formulates and packages ALFERON N Injection. The
Company presently has a biologic establishment license for the facilities in
which it produces ALFERON N Injection, which includes the facilities in which
Sanofi formulates and packages ALFERON N Injection. If the Company's present
manufacturing facilities were damaged or destroyed or the Company's arrangements
with Sanofi were terminated, there can be no assurance that FDA approval could
be obtained for another facility or another facility could be built and approved
on a timely basis or on commercially reasonable terms. Delays in obtaining, or
the failure to obtain, any necessary regulatory approvals could have a material
adverse effect on the Company's ability to develop, produce, and sell its
products. In addition, failure of the Company to comply in any respect with FDA
requirements with respect to the production and marketing of drug products can
subject the Company to potential civil and criminal penalties and its products
to seizure and other civil enforcement action. Because of the uncertain nature
of many of these requirements, there can be no assurance that regulatory
problems of this type will not occur. See "Business -- Governmental Regulation."
FOREIGN REGULATORY APPROVALS. To market its products outside of the United
States, the Company is subject to numerous and varying foreign regulatory
requirements, implemented by foreign health authorities, governing the design
and conduct of human clinical trials and marketing approval. The approval
procedure varies among countries and can involve additional testing, and the
time required to obtain approval may differ from that required to obtain FDA
approval. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union (the "EU"), certain
registration procedures are available to companies wishing to market a product
in more than one EU member country. If a regulatory authority is satisfied that
adequate evidence of safety, quality, and efficacy has been presented, marketing
authorization is usually granted. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries. There
can be no assurance that the Company's products will receive such approvals. In
addition, in most cases, the Company may not export its products for commercial
sale for any use other than an FDA-approved use except that the FDA may under
certain circumstances authorize exportation of such products to one or more of
21 specifically-approved countries. However, these FDA export restrictions
generally do not apply if the Company's products are manufactured outside the
United States. At the present time, the Company does not have any foreign
manufacturing facilities.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT. The future revenues and profitability of, and availability of
capital for, biotechnology companies may be affected by the continuing 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, the pricing
and profitability of prescription pharmaceuticals is subject to government
control. In Japan, which is currently the world's largest market for interferon
products, the government imposed price cuts on interferon products ranging from
13.5% to 22.7% in 1994. There have been, and the Company expects there to
continue to be, a number of United States federal and state proposals to
implement similar government control. It is uncertain what form any health care
reform legislation may take or what actions the federal, state, and private
payors may take in response to the suggested reforms. The Company cannot predict
when any suggested reforms will be implemented, if ever, or the effect of any
implemented reform on the Company's business. There can be no assurance,
however, that any implemented reform will not have a material adverse effect on
the Company's future results of operations. The Company's long-term ability to
market its products successfully may depend in part on the extent to which
reimbursement for the cost of such products and related treatment will be
available from public and private health insurers and other organizations.
Third-party payors are increasingly challenging the prices of medical products
and services. The reimbursement status of newly-approved health care products is
highly
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uncertain, and there can be no assurance that third-party coverage will be
available or that available third-party coverage will enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. While recombinant alpha interferon products
can be produced at a lower cost per unit than the Company's formulations of
Natural Alpha Interferon products, until dose regimens and treatment durations
are determined, the Company is unable to determine whether the cost of treatment
with the Company's products will be greater, equal to, or less than the cost of
competing treatments.
ROYALTY OBLIGATIONS. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of its products. Royalty payments under such license agreements
with respect to ALFERON N Injection, ALFERON N Gel, and ALFERON LDO could
aggregate up to 9.5%, 13.5%, and 19.5%, respectively, of the Company's net sales
of such products. See "Business -- ALFERON N Injection -- Royalty Obligations"
and "Business -- Products under Development -- Royalty Obligations." In
addition, under the terms of a marketing agreement, the Company may be obligated
to pay an additional royalty equal to a maximum of 3% of the net sales of
ALFERON N Injection in certain territories. See "Business -- ALFERON N
Injection -- Marketing and Distribution." Such royalty obligations, together
with any additional royalties which may be payable by the Company, may limit the
Company's marketing strategies and prevent it from obtaining adequate profit
margins and could have a material adverse effect on the commercial exploitation
of the Company's products.
In connection with the acquisition of certain intellectual property and
technology rights from NPDC, the Company agreed to pay NPDC a royalty of $1
million. Such amount is payable if and when the Company generates income before
income taxes, limited to 25% of such income before income taxes per year until
the amount is paid in full. See "Certain Transactions -- Agreements with
NPDC -- Transfer Agreement."
LIMITED PRODUCTION EXPERIENCE. Although the Company has produced ALFERON N
Injection in accordance with its commercial requirements, it has never produced
ALFERON N Injection at levels which would allow the Company to operate
profitably. There can be no assurance that if the Company's commercial
requirements increase to such levels, the Company will be able to produce
ALFERON N Injection at such levels and at a competitive price.
RISK OF PRODUCT LIABILITY. The Company's products have undergone or will
undergo extensive clinical testing prior to the granting of any regulatory
approval for the purpose, among other things, of determining the safety of such
products. The Company may sell products which cause unexpected adverse reactions
or result in an allergic or other reaction or which are alleged to have
unacceptable adverse side effects. Product liability risk is inherent in the
testing, manufacture, marketing, and sale of the Company's products, and there
can be no assurance that the Company will be able to avoid significant product
liability exposure. Such liability might result from claims made directly by
consumers or by pharmaceutical companies or others selling such products. It is
impossible to predict the scope of injury or liability from such unexpected
reactions, or the measure of damages which might be imposed as a result of any
claims or the cost of defending such claims. The Company has a product liability
insurance policy in the amount of $10,000,000. Although the Company believes
this amount is sufficient, there is no assurance that the Company will be able
to maintain such coverage, and even if it does maintain it, in the event that
the Company becomes subject to liability claims in excess of any insurance
coverage it may have in effect, the Company may not have sufficient assets or
liquidity to satisfy such claims which could result in the Company's inability
to continue its operations. Furthermore, any published reports or rumors
suggesting a link between a Company product and injury to a person could be
expected to materially impair the Company's ability to market such product.
RETENTION OF KEY PERSONNEL. Because of the specialized scientific nature
of the Company's business, it is necessary to attract and retain personnel with
a wide variety of scientific capabilities. Competition for such personnel is
intense. There can be no assurance that the Company will continue to attract and
retain personnel of high scientific caliber. None of the Company's key employees
have employment agreements. The Company does not maintain key man life insurance
for any of its key employees and does not intend to obtain such insurance. The
Company's loss of services of certain of its employees or other members of its
staff could have a material adverse effect on the Company's operations. See
"Business -- Research Staff and Employees" and "Management."
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CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST. Based, in part,
on a Schedule 13D filed by the beneficial owner with the Securities and Exchange
Commission, NPDC, David Blech ("Blech"), three trusts of which Blech is the
income beneficiary but not the trustee (the "Blech Trusts"), and Biotechnology
Investment Group L.L.C. beneficially own approximately 31.0%, 4.3%, 9.6%, and
11.2%, respectively, of the outstanding shares of Common Stock, certain of which
shares have been pledged to their respective banks as collateral to secure
indebtedness owed to such banks. Upon completion of the Offering of the minimum
number of shares of Common Stock and after giving effect to (i) the issuance of
2,500,000 shares of Common Stock to Purdue and the cancellation of 619,994
shares of Common Stock held by Purdue in connection with the repurchase of
certain marketing rights from Purdue and (ii) the exchange of indebtedness of
the Company to certain of such stockholders for shares of Common Stock, such
stockholders beneficially will own approximately %, %, %, and
%, respectively, of the then outstanding shares of Common Stock.
Certain conflicts of interest may arise as a result of NPDC's stock
ownership in the Company and certain related transactions between the Company
and NPDC. Furthermore, certain officers of the Company also serve as officers of
NPDC and may have conflicts of interests in allocating management time,
services, and functions between the Company and NPDC. Presently, Samuel H.
Ronel, Ph.D., President and Chief Executive Officer, Stanley G. Schutzbank,
Ph.D., Executive Vice President, Lawrence M. Gordon, Vice President and General
Counsel, Drew R. Stoudt, Vice President Regulatory Affairs and Quality, and
Donald W. Anderson, Controller, devote a portion of their time to the business
of NPDC, which includes some overlapping responsibilities for the benefit of the
Company. In addition, certain directors of NPDC also serve as directors of the
Company. Transactions in which certain members of the Board of Directors or
principal stockholders of the Company may have a conflict of interest must be
approved by a majority of the disinterested directors. See "Principal
Stockholders," "Certain Transactions," "Description of Securities," and
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."
PREFERRED STOCK. The Company's charter provides for 5,000,000 authorized
but unissued shares of Preferred Stock, the rights, preferences, qualifications,
limitations, and restrictions of which may be fixed by the Board of Directors
without any further vote or action by the stockholders. The ability to issue the
Preferred Stock could have the effect of delaying, deferring, or preventing a
change of control of the Company.
SHARES AVAILABLE FOR FUTURE SALE; UNDERWRITER'S PURCHASE OPTIONS. The
Company, subject to certain exceptions, the Company's directors and officers
(who own in the aggregate shares of Common Stock and options and
warrants to purchase shares of Common Stock), and the Company's
principal stockholders (who after consummation of the Offering will own in the
aggregate shares of Common Stock and options and warrants to purchase
shares of Common Stock), have agreed not to sell, directly or
indirectly, any of their shares of Common Stock for periods ranging from six to
24 months following the date of this Prospectus, without the consent of the
Underwriter and the Company. However, certain of such principal stockholders
have pledged an aggregate of shares of Common Stock beneficially owned
by them to their respective banks as collateral to secure indebtedness owed to
such banks. Any shares acquired by lenders pursuant to such pledge arrangements
would not be subject to any agreements not to sell. In addition, any shares held
by a principal stockholder who was in bankruptcy proceedings might be released,
in the discretion of the bankruptcy court, from any agreement not to sell.
Moreover, the Underwriter and the Company may, in their sole discretion and at
any time without notice, release all or any portion of the securities subject to
agreements not to sell. On the expiration of the agreements not to sell, and
subject to the pledge arrangements, the principal stockholders may sell certain
of the shares of Common Stock held by them pursuant to Rule 144 under the
Securities Act of 1933 (the "Securities Act") or otherwise. In addition, certain
of the principal stockholders have certain demand and "piggyback" registration
rights with respect to the Common Stock beneficially owned by them. The sale of
a significant number of shares of Common Stock, whether by the principal
stockholders, the lenders pursuant to such pledge arrangements, or otherwise,
may adversely affect the market price of the Common Stock. See "Principal
Stockholders," "Certain Transactions," and "Underwriting."
The Company currently has outstanding options to purchase 3,155,320 shares
and warrants to purchase 886,000 shares of Common Stock. Moreover, the Company
will sell to the Underwriter and/or its designees,
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for nominal consideration, the Underwriter's Purchase Options to purchase up to
800,000 shares of Common Stock. For the life of the outstanding options and
warrants and the Underwriter's Purchase Options, the holders are given, at
nominal cost, the opportunity to profit if the price for the Common Stock in the
public market exceeds the exercise price of the options, warrants, or
Underwriter's Purchase Options, without assuming the risk of ownership, with a
resulting dilution in the interest of other security holders. If the public
market price of the Common Stock does not rise above the exercise price of the
options, warrants, or Underwriter's Purchase Options during the exercise period,
then such securities will expire worthless. As long as the outstanding options,
warrants, and the Underwriter's Purchase Options remain unexercised, the terms
under which the Company could obtain additional capital may be adversely
affected. Moreover, the holders of these securities may be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital by a new offering of its securities on terms more favorable than
those provided by these securities.
In addition, if the Company exercises its option to repurchase certain
marketing rights from Purdue, the Company will issue 2.5 million shares of
Common Stock to Purdue which the Company has agreed to utilize its best efforts
to ensure will be registered and freely tradeable 18 months from the date of
exercise. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
VOLATILITY OF SHARE PRICE; LACK OF LIQUIDITY. There has been significant
volatility in the market prices for publicly traded shares of biotechnology
companies, including the Company. There can be no assurance that the price of
the Common Stock will remain at or exceed current levels. Factors, such as
announcements of technological or product developments by the Company or its
competitors, governmental regulation, or patent or proprietary rights
developments may have a significant impact on the market price of the Common
Stock.
DILUTION. Based on the net tangible book value per share of the Common
Stock as of March 31, 1995, investors in the Offering will experience
substantial dilution of $ per share if the minimum number of shares is sold
and $ per share if the maximum number of shares is sold, from an
assumed offering price of $1.50 per share. See "Dilution."
DIVIDENDS ON COMMON STOCK UNLIKELY. The Company does not, in the
foreseeable future, anticipate paying any dividends on the Common Stock. See
"Price Range of Common Stock and Dividend Policy."
NO MARKET MAKING ACTIVITY BY UNDERWRITER. The Underwriter has indicated
that it does not intend to act as a market maker in the Common Stock, which may
adversely affect the price and liquidity of the Common Stock. While firms
currently make a market in the Common Stock, all or some of such firms may
discontinue such activities at any time or from time to time.
LIMITED UNDERWRITING HISTORY. The Underwriter was first registered as a
broker-dealer in February 1992 and has not previously participated in any public
offerings as an underwriter, though it has acted as syndicate member, sole
placement agent, co-placement agent, selected dealer, or sole participating
broker in more than a dozen public or private offerings. Prospective purchasers
of the Common Stock offered hereby should consider the Underwriter's limited
experience in evaluating an investment in the Common Stock. See "Underwriting."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $ if the minimum number of shares are sold
and $ if the maximum number are sold, assuming that the offering
price of the Common Stock is $1.50 per share.
The Company anticipates that of the net proceeds it will use approximately
$ for research, product development, and clinical trials of the
Company's products; $2,479,976 to repurchase certain marketing rights from
Purdue; and the balance for working capital and general corporate purposes. The
Company reserves the right to reapportion the net proceeds of the Offering among
the foregoing categories or to other uses if it determines that to do so would
be in the best interests of the Company.
Until utilized, the proceeds of the Offering are expected to be invested
principally in short- and medium-term, interest-bearing investments.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded in the over-the-counter market and is quoted on
the NASDAQ National Market System under the symbol IFSC. The following table
sets forth for each period indicated the high and low sales prices for the
Common Stock as reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
--- ---
<S> <C> <C>
1993
First Quarter................................................ $ 3 15/16 $ 2 1/8
Second Quarter............................................... 5 3/4 1 7/8
Third Quarter................................................ 5 1/8 3 3/8
Fourth Quarter............................................... 6 1/4 4 3/8
1994
First Quarter................................................ 5 3/8 3 5/8
Second Quarter............................................... 4 1/8 2 3/4
Third Quarter................................................ 3 7/8 1 1/2
Fourth Quarter............................................... 2 5/8 1 1/4
1995
First Quarter................................................ 3 1 5/16
Second Quarter (through , 1995)..................
</TABLE>
On , 1995, the last reported sale price of the Common Stock was
$ per share. As of , 1995, the Company had approximately
stockholders of record.
The Company has not paid any dividends on the Common Stock since its
inception and does not contemplate paying dividends on the Common Stock in the
foreseeable future.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1995 and as adjusted to give effect to (i) the sale of the minimum and
maximum number of shares of Common Stock in the Offering, (ii) the application
of $2,479,976 of the net proceeds therefrom for the repurchase of certain
marketing rights from Purdue and the related issuance of 2,500,000 shares of
Common Stock (which the Company has guaranteed will have a value of
approximately $9 million) to Purdue and cancellation of 619,994 shares of Common
Stock held by Purdue, as described in footnote (1) below, (iii) the exchange of
$1,070,000 principal amount of indebtedness of the Company to certain of its
principal stockholders for 713,333 shares of Common Stock, and (iv) the
repurchase required in April 1995 of 62,500 shares of Common Stock held by
Purdue (assuming that the offering price of the Common Stock is $1.50 per share
and assuming no other changes in the net tangible book value after March 31,
1995). See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
<TABLE>
<CAPTION>
MARCH 31, 1995 (UNAUDITED)
------------------------------------------
AS ADJUSTED(1)
-------------------------
ACTUAL MINIMUM MAXIMUM
------------ ------------ --------
<S> <C> <C> <C>
Short-term debt:
Current maturities of long-term debt(2)........... $ 274,370 $ 274,370 $274,370
=========== =========== ========
Common Stock subject to repurchase commitment
(682,494 shares and no shares as adjusted)(3)..... 2,729,976 -- --
Stockholders' equity:
Preferred Stock, par value $.01 per share,
5,000,000 shares authorized; none issued and
outstanding.................................... -- -- --
Common Stock, par value $.01 per share, 40,000,000
shares authorized; 20,876,274 shares issued and
outstanding and shares and
shares issued and outstanding, as
adjusted(4).................................... 208,763
Capital in excess of par value...................... 67,041,073
Accumulated deficit................................. (64,586,010)
------------ ------------ --------
Total stockholders' equity................ $ 2,663,826 $ $
------------ ------------ --------
Total capitalization.............................. $ 5,393,802 $ $
=========== =========== ========
</TABLE>
- ---------------
(1) The Company obtained an option, exercisable until June 30, 1995 (the
"Option"), to reacquire certain marketing and distribution rights from
Purdue. The exercise price of the Option is (i) $2,962,193 in cash (less any
amounts paid after March 29, 1995 for the repurchase of shares of Common
Stock from Purdue that are subject to a repurchase obligation) and (ii) 2.5
million shares of Common Stock. As of May 12, 1995, an aggregate of $372,217
had been so paid after March 29, 1995, and an additional $110,000 will be so
paid prior to any exercise of the Option, reducing the cash component of the
Option exercise price to $2,479,976. The cash component of the exercise
price is equal to the amount of the remaining Common Stock repurchase
obligation. If 18 months from the date of exercise of the Option by the
Company (the "Valuation Date"), the 2.5 million shares of Common Stock do
not have a value of at least $9,037,807 (which value will be calculated
using the average of the closing bid and asked prices of the Common Stock as
quoted by the NASDAQ National Market System for the ten trading days ending
two days prior to the Valuation Date), the Company must issue a note (the
"Shortfall Note") for the shortfall. The Shortfall Note will bear interest
at the prime rate and will become due and payable 24 months from the
Valuation Date. If the Option is exercised, the cash component of the
exercise price will be deemed to constitute payment for the remaining
619,994 shares of Common Stock subject to the repurchase obligation, and the
Company will receive such shares for no additional consideration. See
"Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
The Company will account for the exercise of the Option as payment for the
cancellation of the Company's marketing and distribution agreement with
Purdue, and if the Option is exercised will charge
17
<PAGE> 20
to operations the value of the non-cash consideration paid upon exercise.
If the Option is exercised, the cash component of the exercise price of the
Option will be deemed to constitute payment for the remaining shares of
Common Stock and will be charged against Common Stock subject to repurchase
commitment.
If the Option is exercised, the market value of the 2.5 million shares of
Common Stock (the "Common Stock Value") at the time of exercise will be
recorded as capital stock and additional paid in capital. There would be
recorded as a liability (the "Note Liability") the present value of the
Shortfall Note assuming that the principal amount of the Shortfall Note is
equal to $9,037,807 minus the Common Stock Value at the time of exercise.
The discount on the Shortfall Note would be accreted to the date of
issuance of the Shortfall Note and would be an additional charge to
operations as it accreted. In addition, transfers will be made at least
quarterly between the Note Liability and additional paid in capital to
reflect changes in the expected principal amount of the Shortfall Note
resulting from changes in the Common Stock Value.
The "As Adjusted" columns assume that the Common Stock Value at the time of
exercise will be $3,750,000 ($1.50 per share) and that there will be a
charge to operations of $8,345,369, that capital stock and additional paid
capital will increase by $3,750,000 as a result of the issuance of the 2.5
million shares of Common Stock, and that a Note Liability will be recorded
in the amount of $4,595,369.
(2) See Note 9 of "Notes to Consolidated Financial Statements." This loan was
repaid in April, 1995.
(3) See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(4) Does not include (i) 3,155,320 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 886,000 shares reserved for issuance upon the exercise of
currently outstanding warrants, and (iii) 800,000 shares reserved for
issuance upon the exercise of the Underwriter's Purchase Options. See
"Underwriting" and "Description of Securities."
The Company has no material long-term lease obligations.
18
<PAGE> 21
DILUTION
As of March 31, 1995, the net tangible book value of the Company was
approximately $2,314,202 (after giving effect to the commitment to repurchase
Common Stock from Purdue), or $.11 per share of Common Stock outstanding. Net
tangible book value per share is determined by dividing the tangible net worth
of the Company (tangible assets less liabilities) by the number of shares of
Common Stock outstanding, net of shares of Common Stock subject to repurchase
commitment. After giving effect to the sale of the minimum number of shares in
the Offering and the transactions described in footnote 3 (assuming that the
offering price of the Common Stock is $1.50 per share and assuming no other
changes in the net tangible book value after March 31, 1995), the pro forma net
tangible book value of the Company as of March 31, 1995 would have been
approximately $ ($ if the maximum number of shares are sold
in the Offering) or approximately $ ($ if the maximum number of
shares are sold in the Offering) per share. This represents an immediate
increase in pro forma net tangible book value of $ ($ if the maximum
number if shares are sold in the Offering) per share to current stockholders and
an immediate dilution of $ ($ if the maximum number of shares are
sold in the Offering) per share to new investors purchasing shares of Common
Stock.
The following table summarizes such per share dilutive effect:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
-------------- --------------
<S> <C> <C> <C> <C>
Assumed offering price(1)..................................... $1.50 $1.50
Net tangible book value per share before the Offering....... $.11 $.11
Increase attributable to shares offered hereby(2)(3)........
---- ----
Pro forma net tangible book value per share after the Offering
and the transactions described in footnote 3................
----- -----
Dilution to new investors(4)..................................
===== =====
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
(2) After deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
(3) Also gives effect to (i) the issuance of 2,500,000 shares of Common Stock
(which the Company has guaranteed will have a value of approximately $9
million) to Purdue and the cancellation of 619,994 shares of Common Stock
held by Purdue in connection with the repurchase of certain marketing rights
from Purdue, (ii) the exchange of $1,070,000 principal amount of
indebtedness of the Company to certain of its principal stockholders for
713,333 shares of Common Stock, assuming that the offering price of the
Common Stock is $1.50 per share, and (iii) the repurchase required in April
1995 of 62,500 shares of Common Stock held by Purdue. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue," and "Certain Transactions -- Other Transactions."
(4) Dilution represents the difference between the offering price per share and
the pro forma net tangible book value per share after giving effect to the
Offering and the transactions described in footnote 3.
19
<PAGE> 22
SELECTED FINANCIAL INFORMATION
The following table sets forth the selected financial data of the Company
as of March 31, 1995 and December 31, 1994, 1993, 1992, 1991, and 1990, and for
the three months ended March 31, 1995 and 1994 and for the years ended December
31, 1994, 1993, 1992, 1991, and 1990, and should be read in conjunction with the
consolidated financial statements and notes thereto contained elsewhere in this
Prospectus. The financial data as of March 31, 1995 and for the three months
ended March 31, 1995 and March 31, 1994 are unaudited and reflect all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary to present fairly the data as of such date
and for such periods. The results for interim periods are not necessarily
indicative of results to be expected for the year. The financial data as of and
for the five-year period ended December 31, 1994 have been derived from the
audited financial statements of the Company.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1)......................................... $ 180 $ 1 $ 1,166 $ 51 $ 3,306 $ 2,503 $ 622
Research and development costs, net................. 960 1,169 5,196 4,151 3,983 3,162 5,596
General and administrative expense.................. 446 740 4,974(2) 2,367 2,113 1,872 1,840
Loss from operations................................ (1,795) (2,371) (11,782) (8,347) (5,953) (5,087) (7,579)
Interest and other income (expense), net............ (3) 25 (295) (113) (44) (809) (735)
Net loss............................................ (1,798) (2,346) (12,078) (8,460) (5,997) (5,896) (8,314)
Net loss per share of common stock.................. (.09) (.12) (.62) (.55) (.42) (.62) (1.34)
Dividends........................................... -- -- -- -- -- -- --
Weighted average number of shares of Common Stock
outstanding....................................... 21,125 19,417 19,594 15,432 14,357 9,501 6,212
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ------------------------------------------------
1995 1994 1993 1992 1991 1990
------------- -------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $ 7,786 $ 8,182 $20,301 $21,096 $25,035 $12,001
Current maturities of long-term debt................... 274 409 1,999 2,001 1,188 195
Long-term debt, net of current maturities.............. -- -- 138 1,679 3,680 4,409
Common Stock subject to repurchase commitment(3)....... 2,730 2,730 -- -- -- --
Working capital (deficiency)........................... (907) (782) 7,985 7,706 12,002 (2,298)
Stockholders' equity................................... 2,664 2,979 17,131 16,157 19,045 608
</TABLE>
- ---------------
(1) Substantially all of the revenues in 1991, 1992, 1994 and the three months
ended March 31, 1995 were from sales of ALFERON N Injection to Purdue.
Purdue did not purchase ALFERON N Injection from the Company in 1993 or the
three months ended March 31, 1994. Purdue has informed the Company that
during 1993, 1994 and the three months ended March 31, 1995, Purdue sold
approximately 23,000, 25,000, and 6,800 vials, respectively, and distributed
as free samples approximately 2,800, 2,000, and 200 vials, respectively, of
ALFERON N Injection from its inventory. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources."
(2) Includes $2,100,000 resulting from the write-off of certain prepaid
royalties. See Note 4 of "Notes to Consolidated Financial Statements."
(3) Represents the Company's obligation to purchase an aggregate of 682,494
shares of Common Stock from Purdue if certain marketing rights are not
repurchased, of which 62,500 shares were required to be repurchased in April
1995 and 619,994 shares are required to be repurchased in July 1995. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," and
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since January 1981, the Company has been primarily engaged in the research
and development of pharmaceutical products containing Natural Alpha Interferon
for the treatment of viral diseases, cancers, and diseases of the immune system.
The Company has experienced significant operating losses since its inception.
Although the Company received FDA approval in October 1989 to market ALFERON N
Injection in the United States for the treatment of certain genital warts, it
has had limited revenues from the sale of ALFERON N Injection to date. ALFERON N
Injection currently is marketed and sold in the United States by Purdue. In
order for the Company to operate profitably, the Company must sell significantly
more ALFERON N Injection. Increased sales will depend primarily upon the
expansion of existing markets and/or successful attainment of FDA approval to
market ALFERON N Injection for additional uses. The Company has primarily
financed its operations to date through private placements and public offerings
of the Company's securities.
LIQUIDITY AND CAPITAL RESOURCES
As of May 12, 1995, the Company had an aggregate of $350,000 in cash.
Consequently, management is actively pursuing raising required additional
capital by taking one or more of the following actions: (i) issuing securities
in a public or private equity offering, (ii) licensing rights to its injectable,
topical, or oral formulations of alpha interferon (as it did with Fujimoto
Diagnostics, Inc. ("Fujimoto") as described below), or (iii) entering into
collaborative or other arrangements with corporate partners. Lack of funds has
caused the Company to delay or scale back some of its clinical activities and
continued lack of funding will require the Company to eliminate certain or all
of its activities or license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself.
On May 3, 1995, three principal stockholders of the Company committed to
loan the Company an aggregate of $1,070,000, all but $250,000 of which was
received by May 12, 1995. Such loans bear interest at prime plus 2% and mature
on the earlier of (i) the first date that the Company receives gross proceeds of
at least $7,500,000 from a public offering (the "Public Offering") of Common
Stock and (ii) November 2, 1995. If the indebtedness matures as a result of a
Public Offering, repayment of principal of the indebtedness may be made, at the
option of the Company (which option the Company intends to exercise), by
delivery of shares of Common Stock valued at the public offering price per share
in the Public Offering.
In April 1995, Amarillo Cell Culture Company, Incorporated and its licensee
agreed to purchase an aggregate of $750,000 of the Company's Common Stock at
$2.00 per share, all of which cash was received by May 12, 1995. See
"Business -- Products Under Development -- ALFERON LDO."
On February 7, 1995, the Company concluded an agreement with Fujimoto, a
pharmaceutical company located in Osaka, Japan, for the commercialization of the
Company's ALFERON N Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased $1,500,000 of the Company's Common Stock at $1.45
per share (the then market price), all of which cash was received by May 12,
1995, and is committed to purchase an additional $500,000 of Common Stock in
February 1996 at the then market price. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Other Marketing and Distribution
Arrangements."
In connection with the amendments to agreements with Purdue as described
below, during January 1994, Purdue ordered 45,000 vials of ALFERON N Injection
at an agreed upon price. With respect to this order, approximately
three-quarters of the purchase price of the vials was payable upon shipment by
the Company to Purdue and the balance was payable upon sale by Purdue. A portion
of the shipments to fill this order was made on a consignment basis, i.e. the
purchase was subject to a right of return until notification by Purdue that such
vials have been resold. In June and August 1994, the Company began to fill this
order by making shipments of 10,000 and 10,735 vials, respectively, of ALFERON N
Injection to Purdue on a consignment basis. In addition, shipments of 5,928 and
10,040 vials of ALFERON N Injection were made to Purdue in September 1994 and
April 1995, respectively, on a non-consignment basis. The 8,297 vial balance of
this order is expected to be shipped prior to the end of 1995.
21
<PAGE> 24
Purdue has informed the Company that from June 1994 through December 31,
1994, it had sold or distributed as free samples approximately 15,800 vials of
the 20,735 vials purchased on a consignment basis, and that as of March 1995,
Purdue had sold or distributed as free samples the balance of such consignment
inventory. Purdue has also informed the Company that during the three months
ended March 31, 1995 and the year ended December 31, 1994, it sold approximately
6,800 vials and 25,000 vials, respectively, and distributed as free samples
approximately 200 vials and 2,000 vials, respectively, of ALFERON N Injection
from its inventory.
In January 1994, the Company amended its marketing and distribution
agreements with Purdue and related parties. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." Pursuant to
such amended agreements, the Company assumed sole responsibility to conduct and
fund clinical trials required to obtain FDA approval for additional indications
for ALFERON N Injection. Prior to these amendments, Purdue was responsible for
the payment of the costs of such clinical trials. The Company anticipates that
the expansion of its research and development efforts and clinical trial
activities and its assuming responsibility for the conduct and funding thereof
will increase operating expenses. The Company intends to seek to enter into
joint venture or other arrangements with strategic partners who agree to bear
all or part of such expenses.
In connection with the amendments to the agreements with Purdue, the
Company agreed to purchase an aggregate of 994,994 shares of its Common Stock
for $3,979,976 ($4.00 per share) from Purdue and two related entities over a
period of 18 months. The Company purchased 62,500 of such shares of Common Stock
for $250,000 in January 1994 and was obligated to purchase an additional 250,000
shares of Common Stock for $1,000,000 in 1994. In 1994, the Company and Purdue
agreed to offset $700,000 owed to the Company by Purdue, for the purchase of
ALFERON N Injection during 1994, against the Company's obligation to purchase
$1,000,000 of the Company's Common Stock from Purdue in 1994. As of December 31,
1994, $300,000 of this obligation to Purdue had not been paid and was reflected
as a current liability on the balance sheet. In addition, as of March 31, 1995,
the Company had an additional $67,783 of offsets based upon additional sales of
ALFERON N Injection by Purdue. In April 1995, the Company was required to
purchase 62,500 shares of Common Stock for $250,000 and in July 1995 is
obligated to purchase 619,994 shares of Common Stock for $2,479,976. As of May
12, 1995, the Company had generated sufficient additional offsets based upon
additional sales of ALFERON N Injection to and by Purdue to repay the $232,217
owed to Purdue as of March 31, 1995 and to pay $140,000 of the $250,000 owed to
Purdue for the April 1995 stock repurchase. The Company anticipates that the
$110,000 unpaid balance of the purchase price for the 62,500 shares required to
be repurchased in April 1995 will be paid through additional offsets or from
working capital or both. The Company intends to exercise its option to
repurchase the remaining marketing rights from Purdue for $2,479,976 in cash and
2.5 million shares of Common Stock, using a portion of the proceeds of the
Offering to fund the cash portion of the exercise price. If 18 months from the
date of exercise of the option by the Company (the "Valuation Date"), the 2.5
million shares of Common Stock do not have a value of at least $9,037,807 (which
value will be calculated using the average of the closing bid and asked prices
of the Common Stock as quoted by the NASDAQ National Market System for the ten
trading days ending two days prior to the Valuation Date), the Company must
issue a note for the shortfall. Such note will bear interest at the prime rate
and will become due and payable 24 months from the Valuation Date. The Company
agreed that it will utilize its best efforts to ensure that the 2.5 million
shares of Common Stock will be registered and freely tradeable 18 months from
the date of exercise of the Company's option. If the Company repurchases such
marketing rights, the cash component of the option price will be deemed to
constitute payment for the 619,994 shares required to be repurchased from Purdue
in July 1995, and the Company will receive such shares for no additional
consideration. See "Use of Proceeds" and "Business -- ALFERON N Injection --
Marketing and Distribution -- Agreements with Purdue." In addition, as of March
31, 1995, the Company was obligated to pay an aggregate of $286,000 to U.S.
Capital Corporation, which was past due. Such amount was paid in April, 1995.
Management believes that the cash currently available and the proceeds from
the Offering will be sufficient to enable the Company to continue operations for
approximately months from the date of this Prospectus if the minimum
number of shares of Common Stock is sold in the Offering and months if
22
<PAGE> 25
the maximum number is sold, although no assurance can be given in this regard.
To fund the Company's operations beyond such periods, the Company will require
additional funding, whether from financial markets or collaborative or other
arrangements with corporate partners or from other sources, which may not be
available when needed, or on terms acceptable to the Company. Insufficient funds
will require the Company further to delay, scale back, or eliminate certain or
all of its research and development programs or license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself and may cause the Company to be in default under additional
agreements with third parties.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 versus Three Months Ended March 31, 1994
For the three months ended March 31, 1995, the Company's revenue of
$179,619 included $174,710 from the sale of ALFERON N Injection and the balance
was derived from sales of research products. Revenue of $1,316 for the three
months ended March 31, 1994 was derived from sales of research products.
Notwithstanding the suspension of ALFERON N Injection production during a
portion of the three months ended March 31, 1995 and during all of the three
months ended March 31, 1994, the Company recorded cost of goods sold and ongoing
production facility costs of $568,095 and $462,786, respectively.
Research and development expenses during the three months ended March 31,
1995 of $960,152 decreased by $209,148 from $1,169,300 for the same period in
1994, principally because the Company reduced its level of research and product
development on ALFERON N Injection. The Company received $45,498 and $37,500
during the three months ended March 31, 1995 and 1994, respectively, as rental
income from NPDC for the use of a portion of the Company's facilities, which
offset research and development expenses.
General and administrative expenses for the three months ended March 31,
1995 were $446,392 as compared to $739,943 for the same period in 1994. The
decrease of $293,551 was principally due to decreases in payroll and other
expenses. NPDC provides certain administrative services for which the Company
paid NPDC $30,000 for each of the three month periods ended March 31, 1995 and
1994. In addition, NPDC provides to the Company, at its estimated cost, certain
personnel and services which the Company uses in its operations. For the three
months ended March 31, 1995 and 1994, such charges amounted to $274,654 and
$441,664, respectively.
Interest and other income for the three months ended March 31, 1995 was
$6,776 as compared to $90,224 for the same period in 1994. The decrease of
$83,448 was due to less funds available for investment in the current period.
Interest expense for the three months ended March 31, 1995 and 1994 was
$9,909 and $65,305, respectively. The decrease of $55,396 was due to reduced
long-term debt.
As a result of the foregoing, the Company incurred net losses of $1,798,153
and $2,345,794 for the three months ended March 31, 1995 and 1994, respectively.
Year Ended December 31, 1994 versus Year Ended December 31, 1993
For the year ended December 31, 1994 (the "1994 Period"), the Company's
revenues of $1,165,931 included $979,425 from the sale of ALFERON N Injection
and the balance from sales of research products, contract research and other
revenues. The revenues of $51,323 for the year ended December 31, 1993 (the
"1993 Period') were derived from sales of research products. Cost of goods sold
for the 1994 Period was the same as the sales of ALFERON N Injection since the
inventory which was sold had been written down to its net realizable value.
Notwithstanding the suspension of ALFERON N Injection production during a
portion of both the 1994 Period and the 1993 Period, the Company recorded
ongoing production facility costs of $1,798,684 and $1,880,563, respectively.
For the portion of the 1994 Period during which the facility was operating,
these costs primarily represented current production costs in excess of the
estimated net realizable value of inventory produced which resulted from limited
production volumes.
Research and development expenses during the 1994 Period of $5,195,699
increased by $1,044,541 from $4,151,158 for the 1993 Period, principally
because, effective January 1994, the Company took over the responsibility for
conducting and funding the hepatitis C clinical studies from Purdue and
increased its level of
23
<PAGE> 26
research and product development of ALFERON N Injection. The Company received
$150,000 and $138,996 during the 1994 Period and 1993 Period, respectively, as
rental income from NPDC for the use of a portion of the Company's facilities,
which offset research and development expenses.
General and administrative expenses for the 1994 Period were $4,974,224 as
compared to $2,366,897 for the 1993 Period. The increase of $2,607,327 was
principally due to the amortization and subsequent write-off of prepaid
royalties totalling $2,100,000, increases in payroll, and certain costs related
to a proposed public stock offering which was not consummated. NPDC provides
certain administrative services for which the Company paid NPDC $120,000 for
each of the 1994 Period and the 1993 Period. In addition, NPDC provides to the
Company, at its estimated cost, certain personnel and services which the Company
uses in its operations. For the 1994 Period and the 1993 Period, such charges
amounted to $1,194,380 and $895,700, respectively.
Interest and other income for the 1994 Period was $157,929 as compared to
$255,344 for the 1993 Period. The decrease of $97,415 was due to less funds
available for investment in the current year.
For the 1994 Period, the Company realized a net loss of $300,430 from sales
of marketable securities which resulted from declines in the fair value of the
Company's investments in obligations of agencies of the United States
Government. During the 1993 Period, the Company realized a net gain of $3,297
from sales of such investments.
Interest expense for the 1994 Period and 1993 Period was $152,935 and
$371,208, respectively. The decrease of $218,273 was due to reduced long-term
debt.
As a result of the foregoing, the Company incurred net losses of
$12,077,537 and $8,459,862 for the 1994 Period and the 1993 Period,
respectively.
Year Ended December 31, 1993 versus Year Ended December 31, 1992
For the 1993 Period, the Company's revenue of $51,323 was principally
derived from the sale of research products. Revenue of $3,306,397 for the year
ended December 31, 1992 (the "1992 Period") included $3,267,351 from sales of
ALFERON N Injection and the balance was derived from sales of research products.
ALFERON N Injection production was suspended during a portion of the 1993
Period; nevertheless, the Company recorded an idle production facility expense
of $1,880,563, which included a $486,000 write-down at December 31, 1993 of
finished goods inventories to their estimated net realizable value. Cost of
goods sold for the 1992 Period was $3,162,670 resulting in a positive gross
margin of $104,681 on sales of ALFERON N Injection.
Research and development expenses during the 1993 Period of $4,151,158
increased by $167,963 from $3,983,195 during the 1992 Period, principally
because the Company increased its level of research and product development. A
portion of the increase in research and development was also due to increased
activity in support of obtaining regulatory approvals for ALFERON N Injection.
The Company received $138,996 and $141,996 during the 1993 Period and 1992
Period, respectively, as rental income from NPDC for the use of a portion of the
Company's facilities.
General and administrative expenses for the 1993 Period were $2,366,897 as
compared to $2,113,493 for the 1992 Period. The increase of $253,404 was
principally due to increases in expenditures related to exploring foreign
marketing interest in ALFERON N Injection and increases in insurance and payroll
costs. NPDC provides certain administrative services for which the Company paid
NPDC $120,000 for each of the 1993 and 1992 Periods. In addition, NPDC provides
to the Company, at its estimated cost, certain shared personnel and services
which the Company uses in its operations. For the 1993 and 1992 Periods, such
charges amounted to $895,700 and $864,615, respectively. See "Certain
Transactions -- Agreements with NPDC."
Interest and other income for the 1993 Period was $255,344 as compared to
$544,322 for the 1992 Period. The decrease of $288,978 was due to a reduction in
cash available for investment as well as lower interest rates.
24
<PAGE> 27
Interest expense for the 1993 Period and 1992 Period was $371,208 and
$563,294, respectively. The decrease of $192,086 was due to a reduction in the
1993 Period in long-term debt.
As a result of the foregoing, the Company incurred net losses of $8,459,862
and $5,996,855 for the 1993 Period and 1992 Period, respectively.
Recent Tax and Accounting Developments
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"and effective
January 1, 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
There was no material effect on the Company's financial condition, results of
operations, or cash flows as a result of the adoption of these principles.
25
<PAGE> 28
BUSINESS
THE COMPANY
The Company is a biopharmaceutical company currently engaged in the
manufacture and sale of ALFERON N Injection, the only product approved by the
FDA that is based upon Natural Alpha Interferon. ALFERON N Injection is approved
for the treatment by injection of certain types of genital warts and is being
developed by the Company for the potential treatment of hepatitis C, hepatitis
B, HIV, multiple sclerosis, cancers, and other indications. The Company believes
that the existing FDA approval of ALFERON N Injection for one indication should
facilitate obtaining approvals for other indications. The Company also is
developing ALFERON N Gel and ALFERON LDO, the Company's topical and oral
formulations of Natural Alpha Interferon.
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 60 countries, are, as a group, one of the largest
selling of all biopharmaceuticals with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting several million people worldwide,
including two to three million people in the United States and three million
people in Japan. As described below, the Company is presently conducting three
multi-center Phase 2 trials using Natural Alpha Interferon for the treatment of
hepatitis C.
Natural Alpha Interferon
A substantial portion of worldwide sales of interferon consists of sales of
alpha interferon produced from genetically engineered cells (recombinant alpha
interferon). Based on laboratory studies and clinical trials involving Natural
Alpha Interferon, the Company believes that Natural Alpha Interferon has certain
potential advantages over recombinant alpha interferon including:
Efficacy. Natural Alpha Interferon is used at significantly lower doses
than the competing recombinant alpha interferon product for the
treatment of genital warts and, in laboratory studies, was shown to be
10 to 100 times more effective than recombinant alpha interferon in
blocking replication of HIV. This unusually potent anti-HIV activity may
be due to specific members of the interferon family of proteins which
are present in Natural Alpha Interferon but not found in the presently
marketed recombinant interferons.
Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. In a Phase 1 clinical trial on 20 asymptomatic
HIV-infected patients, investigators at Walter Reed reported that
significantly fewer of the typical side effects associated with
recombinant alpha interferon were observed with Natural Alpha
Interferon. In addition, interferon-neutralizing antibodies, which may
limit alpha interferon's therapeutic benefit, have not been observed to
date in clinical trials with Natural Alpha Interferon, even in HIV and
hepatitis C patients treated with high doses of such product three times
a week for up to six months.. There have been reports of these
antibodies developing in patients being treated with recombinant alpha
interferons.
Although, as described above, the Company believes that Natural Alpha
Interferon may have certain advantages over recombinant alpha interferon, there
can be no assurance that these advantages will enable the Company to obtain a
significant market share for products made with Natural Alpha Interferon.
Moreover, at the present time, the Company is limited in its ability to make
product marketing claims related to these potential advantages until additional
data are available and, in certain instances, until further FDA approvals are
obtained. Additionally, the Company derives Natural Alpha Interferon from human
white blood cells, the cost and availability of which are subject to
fluctuation, in part because the Company does not presently have
26
<PAGE> 29
long-term agreements for the supply of such cells. Recombinant alpha interferon
products are not dependent on a source of human white blood cells and,
therefore, can be produced in greater volume and at a lower cost per unit than
the Company's formulations of Natural Alpha Interferon products. See
"Business -- Scientific Background."
Marketing, Distribution, and Production
ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is marketed and distributed in the
United States exclusively by Purdue. The Company has an option to repurchase the
marketing rights for ALFERON N Injection in the United States and Canada from
Purdue, which it intends to exercise. See "Business -- ALFERON N
Injection -- Approved Indication," "Business -- ALFERON N Injection -- Marketing
and Distribution -- Agreements with Purdue," and "Use of Proceeds."
In February 1995, the Company entered into an agreement with Fujimoto for
the development and marketing of ALFERON N Injection and ALFERON N Gel in Japan.
Japan is currently the world's largest market for interferon products, with 1994
annual sales approaching $900 million. Under the terms of the agreement,
Fujimoto agreed to purchase $2,000,000 of the Company's Common Stock and to use
its best efforts to develop, and obtain Japanese regulatory approvals for,
ALFERON N Injection and ALFERON N Gel products. The Company believes that
Fujimoto's development effort will entail a substantial expense on Fujimoto's
part. In addition, the Company's Natural Alpha Interferon injectable product was
recently approved for sale in Mexico for the treatment of genital warts and will
be marketed under the trade name ALTEMOL(R) by Andromaco. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV-infected patients, and cancer. See
"Risk Factors -- Dependence on Certain Distributors; Limited Marketing Program."
The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi at a production facility located in MacPherson, Kansas.
See "Business -- ALFERON N Injection -- Manufacturing."
Recently Expanded License
As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann and Roche which grants the Company the worldwide rights to make, use,
and sell, without a potential patent infringement claim from Hoffmann or Roche,
any formulation of Natural Alpha Interferon. The 1995 license replaced a 1988
non-exclusive license from Hoffmann which granted the Company the rights to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, injectable formulations of Natural Alpha
Interferon for the treatment of genital warts or patients with diseases
refractory to recombinant interferon therapy. The 1995 license will enable the
Company, if successful in obtaining necessary regulatory approvals, to expand
the formulations of Natural Alpha Interferon it makes, uses, and sells in the
United States and the rest of the world and to market its products for the
treatment of additional indications. See "Risk Factors -- Potential Patent
Infringement Claims," "Business -- ALFERON N Injection -- Patents and Licenses,"
and "Business -- ALFERON N Injection -- Royalty Obligations."
Clinical Trials
The Company is conducting or planning various clinical trials in an effort
to obtain approval to market Natural Alpha Interferon for additional indications
in the United States and around the world.
ALFERON N Injection. The Company is presently conducting three
multi-center, randomized, open-label, dose-ranging Phase 2 clinical trials in
patients infected with hepatitis C virus (HCV). The objective of these HCV
clinical studies is to compare the safety and efficacy of different doses of
Natural Alpha Interferon injected subcutaneously in naive (previously
untreated), refractory (unsuccessfully treated with recombinant
27
<PAGE> 30
alpha interferon), and relapsing (initially responded to recombinant alpha
interferon but later relapsed) patients. Enrollment of naive patients has been
completed at six centers, and all patients have now finished the six-month
treatment and six-month follow-up periods. Results from this study will be
available later this year. Enrollment of refractory patients has been completed
at seven centers, and most patients have finished the treatment period and
entered the six-month follow-up period. Results from this trial will be
available in 1996. Enrollment is actively continuing in five centers for
relapsing patients. The Company believes that the preliminary results of such
trials are promising.
In a recent follow-up analysis of patients in the Walter Reed Phase 1
clinical trial, it was found that an average of 16 months after treatment, CD4
lymphocyte levels (the white blood cells which normally decline in HIV-infected
patients) remained essentially unchanged or were higher than at the onset of the
trial in 11 of 20 patients. In addition, the amount of HIV detectable in the
patients' blood, as measured by a quantitative PCR (Polymerase Chain Reaction)
technique, declined in a dose dependent manner (the greatest declines were
observed in the highest dose group). Although there can be no assurance that the
results of laboratory studies and the Phase 1 clinical trial will be reproduced
in a large-scale, controlled clinical trial, based upon the foregoing, the
Company believes that Natural Alpha Interferon may have potential clinical value
in the treatment of HIV-infected patients. The Company is planning to conduct a
multi-center clinical trial with HIV-infected patients, which is expected to
commence in 1995.
Two additional Phase 2 clinical studies are in progress. One is for the
treatment of Kaposi's sarcoma in patients with AIDS and the other is a
multi-center study in small cell lung cancer patients following successful
treatment by conventional chemotherapy. The goal of the small cell lung cancer
study is to see if Natural Alpha Interferon can alter the high relapse rate in
this disease.
Based upon encouraging anecdotal data, the Company is planning, subject to
obtaining funding or a sponsor, to conduct clinical trials utilizing Natural
Alpha Interferon for the treatment of multiple sclerosis, which affects more
than 250,000 Americans. See "Business -- ALFERON N Injection -- Clinical Trials
for New Indications."
ALFERON N Gel. ALFERON N Gel is a topical Natural Alpha Interferon
preparation which the Company believes has potential in the treatment of
cervical dysplasia, recurrent genital herpes, other viral diseases, and cancers.
The Company has completed a Phase 2 dose ranging study using ALFERON N Gel
at the Columbia Presbyterian Medical Center in New York for the treatment of
mild cervical dysplasia. Based upon Pap Smears, identification tests for the
presence of virus and cervical biopsies, ALFERON N Gel appears to have the
potential for improving the course of cervical dysplasia in the majority of
patients who completed the treatment course. However, since this study utilized
small numbers of patients, there can be no assurance that these results will be
reproduced on a large scale placebo-controlled trial.
In light of the above results, a physician-sponsored study in HIV-infected
women with cervical dysplasia is expected to commence in 1995.
ALFERON LDO. ALFERON LDO is a low dose oral liquid Natural Alpha
Interferon preparation which the Company believes has potential for treating
certain symptoms of patients infected with the HIV virus and treating other
viral diseases.
At New York's Mount Sinai Hospital, the Company conducted two clinical
trials using ALFERON LDO on patients infected with the HIV virus. Based in part
upon information from these trials, The National Institute of Allergy and
Infectious Disease ("NIAID") is planning to conduct in 1995 a randomized,
double-blind, placebo-controlled clinical study with low dose alpha interferons
administered orally (including ALFERON LDO) to determine interferon's effect on
HIV-related symptoms. See "Business -- Products under Development."
Commercial sales of ALFERON N Injection for any indication other than its
approved use in the United States and Mexico for the treatment of genital warts
and commercial sales of either ALFERON N Gel or ALFERON LDO will be contingent
upon the completion of necessary studies and the approval of such
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<PAGE> 31
products for such uses by the FDA and other foreign regulatory authorities.
Submissions for regulatory approval to sell ALFERON N Injection for the
treatment of genital warts have been filed in various other countries. See
"Business -- Governmental Regulation," "Risk Factors -- Regulatory Approvals,"
and "Risk Factors -- Foreign Regulatory Approvals."
Although the Company received FDA approval to market ALFERON N Injection in
1989, to date, it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1994, the Company had an accumulated
deficit of approximately $62.8 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CLINICAL TRIALS SUMMARY
The table appearing below summarizes the more detailed information
contained elsewhere in this Prospectus concerning clinical trials of ALFERON N
Injection, ALFERON N Gel, and ALFERON LDO being conducted or proposed to be
conducted and is qualified in its entirety by reference to that information.
<TABLE>
<CAPTION>
POTENTIAL STATUS OF CLINICAL
PRODUCT APPLICATION/INDICATIONS TRIALS(1) SPONSOR
- -------------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
ALFERON N Injection HIV-infected patients Initial Phase 1 completed Water Reed(2)
Phase 2/3 in final stages Company(3)
of planning
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with recombinant
alpha interferon
Hepatitis C Three multi-center Phase Company(3)(4)
2 in progress
Kaposi's sarcoma Phase 2 in progress Company
(in AIDS patients)
Small cell lung cancer Phase 2 to commence Investigator(5)
shortly
Multiple sclerosis Phase 2 being planned Company(3)
Hepatitis B Phase 2 proposed (6)
ALFERON N Gel Cervical dysplasia Phase 2 completed Company
Cervical dysplasia Phase 2 to commence Investigator(5)
(in HIV-infected shortly
patients)
Mucocutaneous herpes in Phase 2 proposed (3)
immunocompromised
patients
Recurrent genital herpes Phase 2 proposed (6)
ALFERON LDO HIV-infected patients Initial Phase 2 completed Company
HIV-infected patients Phase 2 in final stages NIAID
of planning
</TABLE>
- ---------------
(1) Generally, clinical trials for pharmaceutical products are conducted in
three phases. In Phase 1, studies are conducted to determine safety and
tolerance. In Phase 2, studies are conducted to gain preliminary evidence as
to the efficacy of the product as well as additional safety data. In Phase
3, studies are conducted to provide sufficient data to establish safety and
statistical proof of efficacy in a specific dose. Phase 3 is the final stage
of such clinical studies prior to the submission of an application for
approval of a new drug or licensure of a biological product or for new uses
of a previously-approved product. See "Business -- Governmental Regulation."
(2) Partially funded by Purdue and the Company.
(3) This trial may be funded in whole or in part from the proceeds of the
Offering. If not funded in whole from the proceeds of the Offering, the
timing of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.
(4) Previously funded by Purdue; currently funded by the Company.
(footnotes continued on next page)
29
<PAGE> 32
(5) Investigator-sponsored Claimed Investigational Exemption for a New Drug.
(6) This trial will not be funded from the proceeds of the Offering. The timing
of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.
SCIENTIFIC BACKGROUND
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma, and omega. The Company's three ALFERON products
contain a form of alpha interferon. The worldwide market for injectable alpha
interferon-based products has experienced rapid growth and various alpha
interferon injectable products are approved for 17 different medical uses in
more than 60 countries.
Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. In the United
States, only two types of alpha interferon are approved for commercial sale:
recombinant (genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells. Outside of the
United States, sales of alpha interferon produced by cell culture account for a
significant portion of the market.
The Company believes that the potential advantages of Natural Alpha
Interferon over recombinant interferon may be based upon their respective
molecular compositions. An analysis of Natural Alpha Interferon shows that it is
composed of a family of proteins containing many different molecular species of
interferon. In contrast, recombinant alpha interferons each contain only a
single species. Researchers have reported that the various species of interferon
may have differing anti-viral activity depending upon the strain of virus.
Natural Alpha Interferon presents a broad complement of species which the
Company believes may account for its higher efficacy in laboratory studies with
the HIV virus compared with that of single species recombinant alpha interferon.
Natural Alpha Interferon is also glycosylated, or partially covered with sugar
molecules, which does not occur with recombinant alpha interferon. The Company
believes that the absence of glycosylation may be responsible for the production
of interferon-neutralizing antibodies seen in patients treated with recombinant
alpha interferon.
The production of Natural Alpha Interferon is dependent upon a supply of
human white blood cells and other essential materials. The Company currently
obtains white blood cells from FDA-licensed blood donor centers. The Company
currently has no long-term commitments for a supply of such white blood cells.
ALFERON N INJECTION
Approved Indication. On October 10, 1989, the FDA approved ALFERON N
Injection for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in patients 18 years of age or
older. Substantially all of the Company's revenues, to date, have been generated
from the sale of ALFERON N Injection for such treatment. Genital warts, a
sexually transmitted disease, are caused by certain types of human papilloma
viruses. A published report estimates that approximately eight million new and
recurrent cases of genital warts occur annually in the United States alone.
Genital warts are usually treated using caustic chemicals or through physical
removal methods. These procedures can be quite painful and effective treatment
is often difficult to achieve.
Clinical Trials for New Indications. In an effort to obtain approval to
market Natural Alpha Interferon for additional indications in the United States
and around the world, the Company is focusing its research program on conducting
and planning various clinical trials for new indications.
Hepatitis C. Chronic viral hepatitis is a liver infection caused by
various hepatitis viruses. The United States Centers for Disease Control
estimates that approximately 2 to 3 million people in the United States are
presently infected with the hepatitis C virus ("HCV") and an estimated 170,000
persons become newly infected each year, a majority of whom become chronic
carriers and will suffer gradual deterioration of their liver and possibly
cancer of the liver. Several brands of recombinant and cell-cultured interferon
have been approved by various regulatory agencies worldwide for the treatment of
hepatitis C, including a recombinant product in the United States. See
"Business -- ALFERON N Injection -- Competition." However, reports have
indicated that many patients either do not respond to treatment with the
recombinant product or relapse
30
<PAGE> 33
after treatment. The Company presently is conducting three multi-center,
randomized, open-label, dose-ranging Phase 2 clinical trials utilizing ALFERON N
Injection with patients infected with HCV. The objective of the Company's HCV
clinical studies is to compare the safety and efficacy of different doses of
Natural Alpha Interferon injected subcutaneously in naive (previously
untreated), refractory (unsuccessfully treated with recombinant interferon), and
relapsing (initially responded to recombinant interferon but later relapsed)
patients.
Enrollment of naive patients has been completed at six centers, and all
patients have now finished the six-month treatment and six-month follow-up
periods. Presently, the patients' records are being retrieved and prepared for
data entry and analysis. Results from this study will be available later this
year.
Enrollment of refractory patients is now complete at seven centers, and
most patients have finished the treatment period and entered the six-month
follow-up period. Results from this trial will be available in 1996.
Enrollment is actively continuing in five centers for relapsing patients.
The original study protocol only permitted patients who had been previously
treated with a single six-month course of recombinant interferon therapy.
However, since so many patients have a disease relapse after a single course of
recombinant interferon therapy, many of them had been treated with two or more
courses of this therapy, and therefore did not qualify for this study. The
inability to enroll qualified patients has delayed the trial and led the Company
recently to amend its protocol to allow for enrollment of patients who have
received up to three six-month courses of recombinant interferon therapy. This
protocol change should help to accelerate enrollment.
The purpose of these multi-center trials is to help determine the optimal
treatment dose and to study the treatment's utility in different patient
populations. These results will assist in the design of the next phase of these
investigations. The Company believes that the preliminary results of such trials
are promising.
HIV-infected patients. The Human Immunodeficiency Virus ("HIV") infection
is at epidemic levels in the world. The World Health Organization projects that
this virus will affect 40 to 100 million people by the year 2000. HIV infection
usually signals the start of a progressive disease that compromises the immune
systems, ultimately resulting in Acquired Immune Deficiency Syndrome or AIDS.
HIV-infected patients can be asymptomatic for many years before being afflicted
by opportunistic infections or cancer. The Company believes that slowing the
progression of the HIV infection in healthier patients may help fight against
the development of opportunistic infections and cancer.
An article published in AIDS Research and Human Retroviruses in 1993 by
investigators at Walter Reed in collaboration with the Company's scientists
indicated that the various interferon species display vast differences in their
ability to affect virus replication. Walter Reed researchers found that the
Company's Natural Alpha Interferon was 10 to 100 times more effective than
recombinant interferons in blocking the replication of HIV-1, the AIDS virus, in
infected human cells in vitro.
Moreover, the Company's scientists were able to separate members of the
interferon family in single protein fractions or clusters of proteins using
advanced fractionation techniques. The individual fractions were tested for
their ability to block HIV replication in the laboratory by researchers at
Walter Reed. They found that the unusual anti-HIV activity was attributable to
very specific fractions in the Company's product. The most active fractions are
not present in marketed recombinant interferon.
This information provided additional support for a long-held belief of the
Company that its Natural Alpha Interferon has unique anti-viral properties
distinguishing it from recombinant interferon products. These promising findings
led the Walter Reed researchers to conduct a Phase 1 clinical trial with the
Company's product in asymptomatic HIV-infected patients.
In March 1992, Walter Reed launched a Phase 1 clinical trial with
asymptomatic HIV-infected patients to investigate the safety and tolerance, at
several dose regimens, of Natural Alpha Interferon, self-injected subcutaneously
for periods of up to 24 weeks. The investigators concluded that the treatment
was "surprisingly" well tolerated by patients, at all dose regimens. Preliminary
findings were reported by Walter Reed at the IXth International Conference on
AIDS in Berlin in 1993. The investigators also reported that the
31
<PAGE> 34
expected interferon side effects, such as flu-like symptoms and a drop in CD4
white blood cell counts, were rare or absent in the majority of patients treated
with the Company's product.
Although this Phase 1 clinical trial was designed primarily to provide
safety information on various doses of Natural Alpha Interferon used for
extended periods of time, there were encouraging indications that certain
disease parameters had stabilized or even improved in certain patients by the
end of the experimental treatment.
In a recent follow-up analysis of patients' blood testing data, it was
found that after an average of 16 months after treatment, CD4 lymphocyte levels
(the white blood cells which normally decline in HIV infected patients) remained
essentially unchanged or were higher than at the onset of the trial in 11 of 20
patients. In addition, the amount of HIV detectable in the patients' blood, as
measured by a quantitative PCR (Polymerase Chain Reaction) technique, declined
in a dose dependent manner (the greatest declines were observed in the highest
dose group). Also, none of the patients were found to have developed
neutralizing antibodies to Natural Alpha Interferon, even after being treated
three times weekly for many months. These results were reported at the Third
International Congress on Biological Response Modifiers held in Cancun, Mexico
in January 1995, and an extensive report is being prepared and is expected to be
submitted for publication in 1995.
It is important to note that, because of the small number of study
participants and the absence of a control group, no firm conclusions can be
drawn from these observations. However, the information obtained from this trial
has been helpful in designing the next phase of the clinical program, which will
be initiated in the near future provided adequate funding is secured.
Kaposi's sarcoma (in AIDS patients). Kaposi's sarcoma is a cancerous
growth characterized by vascular skin tumors and that affects approximately 10%
of AIDS patients. It is often the first notable manifestation of AIDS, and as
the tumors become more widely disseminated on the skin, it is associated with
visceral lesions and lymph node involvement. Traditional treatment involves
single agent or combination chemotherapy, but the typical side effects of
chemotherapy can be severe. In the United States, recombinant alpha interferon
has been approved for the treatment of Kaposi's sarcoma in AIDS patients.
However, response has been limited and often followed by relapse. The Company
presently is conducting a Phase 2 clinical trial in Mexico utilizing ALFERON N
Injection for the treatment of Kaposi's sarcoma in patients with AIDS.
Small Cell Lung Cancer. Small Cell Lung Cancer ("SCLC") represents
approximately 25% of all newly-diagnosed cases of lung cancer and affected
approximately 42,000 people in 1992. Although patients with SCLC initially
respond to high-dose combination chemotherapy regimens, the rate of relapse is
high and such patients have a median survival rate of only 7 to 16 months,
depending upon the extent of disease.
The Company has agreed to supply Natural Alpha Interferon for a
multi-center, physician-initiated, Phase 2 study which is being conducted at
Allegheny General Hospital and at the University of Pittsburgh. Patients who are
in remission following successful treatment with standard chemotherapy will be
entered into this study. They will first receive high dose combination
chemotherapy, followed by peripheral blood stem cell augmentation. One month
after hematologic recovery, patients will then be given Natural Alpha Interferon
injections until evidence of disease progression or intolerable toxicity occurs.
The expected duration of treatment is up to 12 months. The goal of this study is
to investigate Natural Alpha Interferon's potential to extend the disease-free
period and overall survival of these patients.
Multiple Sclerosis. Multiple sclerosis ("MS") is a chronic, sometimes
progressive, immune-mediated disease of the central nervous system that is
believed to occur in genetically predisposed individuals following exposure to
an environmental factor, such as virus infection. The disease affects an
estimated 250,000 to 350,000 people in the United States, primarily young
adults. Symptoms of MS, including vision problems, muscle weakness, slurred
speech, and poor coordination, are believed to occur when the patient's own
cells attack and ultimately destroy the insulating myelin sheath surrounding the
brain and spinal cord nerve fibers, resulting in improper transmission of
signals throughout the nervous system.
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In the United States, a recombinant form of beta interferon has been
approved for the treatment of relapsing-remitting MS. However, reports in the
scientific literature and elsewhere have indicated that the significant adverse
reactions associated with the treatment may limit its usefulness. Once
sufficient funding has been obtained, the Company is planning to conduct a
clinical trial in order to investigate the potential use of Natural Alpha
Interferon for MS.
Chronic Viral Hepatitis B. Hepatitis B ("HBV") is currently the most
common form of hepatitis virus. Approximately three and a half to four million
people in the United States are infected with this virus, with some 300,000 new
infections occurring annually and over 200 million infected people worldwide.
HBV is transmitted through contact with infected blood, sexual intercourse, and
needle-sharing among intravenous drug users. Infants born to infected mothers
may become infected as they pass through the birth canal. According to the
Centers for Disease Control, approximately 25% of hepatitis B patients develop
irreversible chronic liver conditions, and about 10% of all patients become
lifetime carriers and can transmit the virus to others. The Company is currently
planning clinical trials using ALFERON N Injection in persons infected with
hepatitis B; however, the Company does not anticipate starting the clinical
trials unless funding is secured.
Marketing and Distribution.
Agreements with Purdue. In 1988, the Company entered into exclusive
marketing and distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue Pharma, with respect to ALFERON N
Injection, which agreements have been amended from time to time (as amended, the
"Purdue Marketing Agreements"). In 1991, Mundipharma assigned the right to
market and distribute ALFERON N Injection in the United States to Purdue Pharma
and retained the right to market and distribute ALFERON N Injection in Canada,
Western Europe, Israel, India, Japan, and Australia. In 1993, the Company
reacquired the right to market and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into (the "1994
Purdue Amendment") pursuant to which the Company reacquired the right to market
ALFERON N Injection in Western Europe and other countries and took over from
Purdue the conduct and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel, India, and
Australia (the "Returned Territories"), subject to the payment to Mundipharma of
a royalty equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of net sales thereafter; (ii) Purdue Pharma
and Mundipharma retained the right to market and distribute ALFERON N Injection
in the United States and Canada, respectively, subject to the Company's option
(the "Repurchase Option") to reacquire such rights at a price of $12 million
until July 1995 ($10 million if the Repurchase Option had been exercised before
January 1995); (iii) the Company assumed responsibility for the conduct and
funding of clinical trials to develop new indications for ALFERON N Injection;
and Purdue was granted the right to obtain marketing and distribution rights for
each additional indication of ALFERON N Injection at such time as the Company
receives FDA approval for any such additional indication, by reimbursing the
Company for some or all of its clinical costs plus an additional lump-sum
payment; (iv) the Company agreed to purchase for $4.00 per share 994,994 shares
of Common Stock held by Purdue and certain related parties; provided, however,
that if the Company exercises the Repurchase Option, the Company will receive
the remainder of such shares of Common Stock and the Company's obligation to pay
for such shares will be cancelled; and (v) Purdue ordered 45,000 vials of
ALFERON N Injection at an agreed upon price. Unless certain minimum purchase
levels are reached during certain annual periods, or minimum payments are made
to the Company in lieu of such minimum purchases, the Company can terminate
Purdue Pharma and Mundipharma's exclusive marketing and distribution rights. All
marketing and distribution costs are borne by Purdue Pharma and Mundipharma in
their respective territories. The Company's right to market ALFERON N Injection
in the Returned Territories may be forfeited if the Company does not pay for the
shares of Common Stock which it is obligated to purchase in accordance with the
terms of the 1994 Purdue Amendment.
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In March 1995, the Company entered into an amendment of the 1994 Purdue
Amendment (the "1995 Purdue Amendment") pursuant to which the Company obtained
an option, exercisable until June 30, 1995 (the "Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma and Mundipharma.
The exercise price of the Option is (i) $2,962,193 in cash (less any amounts
paid after March 29, 1995 for the repurchase of Common Stock described above)
and (ii) 2.5 million shares of Common Stock. As of May 12, 1995, an aggregate of
$372,217 had been so paid after March 29, 1995, and an additional $110,000 will
be so paid prior to any exercise of the Option, reducing the cash component of
the Option exercise price to $2,479,976. If 18 months from the date of exercise
of the Option by the Company (the "Valuation Date"), the 2.5 million shares of
Common Stock do not have a value of at least $9,037,807 (which value will be
calculated using the average of the closing bid and asked prices of the Common
Stock as quoted by the NASDAQ National Market System for the ten trading days
ending two days prior to the Valuation Date), the Company must issue a note for
the shortfall. Such note will bear interest at the prime rate and will become
due and payable 24 months from the Valuation Date. The Company agreed that it
will utilize its best efforts to ensure that the 2.5 million shares of Common
Stock will be registered and freely tradeable 18 months from the date of
exercise of the Option. If the Option is exercised, the Repurchase Option, the
royalty obligations, and Purdue's right to obtain marketing and distribution
rights for new indications contained in the 1994 Purdue Amendment will
terminate, and the cash component of the Option exercise price will be deemed to
constitute payment for the remainder of the shares of Common Stock subject to
the repurchase obligation, and the Company will receive such shares for no
additional consideration.
The Company entered into the 1994 Purdue Amendment and the 1995 Purdue
Amendment to provide it with greater financial flexibility and control over the
worldwide marketing and distribution of ALFERON N Injection. The 1995 Purdue
Amendment provides the Company with the flexibility to enter into a strategic
alliance with a multinational marketing partner if it elects to exercise the
Option prior to June 30, 1995. The Company intends to exercise the Option using
the proceeds of the Offering to fund the cash portion of the exercise price. See
"Use of Proceeds."
Under the terms of the Purdue Marketing Agreements, the Company receives a
transfer price for the sale of the product to Purdue Pharma or Mundipharma. Such
transfer price is calculated based on either a manufacturing cost formula or a
fixed price formula (subject to consumer price index adjustments); provided,
however, that if the Company chooses the fixed price formula, the Company may be
entitled to additional payments if the net sales price received by Purdue Pharma
or Mundipharma for ALFERON N Injection exceeds certain levels. The Company may
choose the applicable formula every six months. Except as described below,
Purdue Pharma and Mundipharma have no recourse against the Company in the event
that they are unable to resell ALFERON N Injection to third parties.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." In addition, the Company agreed,
under certain circumstances, to replace up to 15,000 vials of ALFERON N
Injection from Purdue's existing inventory at an agreed upon discounted price.
The Company also granted Purdue an option, exercisable (in whole only) until
July 26, 1995, to purchase an additional 100,000 vials of ALFERON N Injection at
an agreed upon discounted price.
Purdue Pharma utilizes its affiliate's, The Purdue Frederick Company's,
sales force in the United States. The Purdue Frederick Company's principal
products include BETADINE(R) antiseptics, UNIPHYL(R)controlled release
theophylline, TRILISATE(R) analgesic/anti-inflammatory products, and M.S.
CONTIN(R) tablets for the prolonged relief of pain in cancer patients.
Other Marketing and Distribution Arrangements. On February 7, 1995 the
Company concluded an agreement with Fujimoto for the commercialization of
ALFERON N Injection and ALFERON N Gel in Japan (the "Fujimoto Agreement").
Fujimoto is affiliated with Fujimoto Pharmaceutical Company, a 60-year old
company with facilities in central Japan. The Fujimoto Agreement grants Fujimoto
exclusive rights to develop, distribute, and sell ALFERON N Injection and
ALFERON N Gel in Japan. Pursuant to the terms of the Fujimoto Agreement,
Fujimoto agreed to fund and conduct all preclinical and clinical studies
required
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for Japanese regulatory approval. For the injectable product, ALFERON N
Injection, Fujimoto has advised the Company that it will initially focus on the
use of the product for the treatment of patients infected with the hepatitis C
virus. The Company will supply Fujimoto with ALFERON N Injection and will also
manufacture and supply Fujimoto with ALFERON N Gel. The first indication to be
developed for ALFERON N Gel has not yet been determined. Fujimoto will also
purchase certain quantities of ALFERON N Injection and ALFERON N Gel at
agreed-upon prices during the preclinical and clinical phases. In connection
with the Fujimoto Agreement, Fujimoto purchased $1,500,000 of Common Stock for
$1.45 per share (the then current market price), and agreed to purchase an
additional $500,000 of Common Stock on February 6, 1996 at the then current
market price.
In February 1994, the Company entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Andromaco, a privately-held
pharmaceutical company headquartered in Mexico City which specializes in
oncology and immunology products. Under the agreement, Andromaco applied for and
recently obtained approval from the Mexican regulatory authorities to sell
ALFERON N Injection for the treatment of genital warts, which will be marketed
under the trade name ALTEMOL(R). Andromaco has also agreed to sponsor, under a
United States Notice of Claimed Investigational Exemption for a New Drug, a
clinical trial in Mexico of the use of ALFERON N Injection in patients infected
with the hepatitis C virus. The agreement establishes performance milestones for
the maintenance of exclusive distribution rights by Andromaco in Mexico. In
addition, the Company has a buy-out option to reacquire the marketing and
distribution rights in Mexico under certain terms and conditions. In March 1995,
the agreement was amended to provide that Andromaco would grant to a designee of
the Company an exclusive sublicense to market and distribute ALFERON N Injection
in Mexico if the Company exercised the Option and entered into a distribution
agreement with another pharmaceutical company prior to September 30, 1995.
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV-infected patients, and cancer.
Although the Company has exclusive marketing and distribution agreements
with Purdue Pharma, Mundipharma, Fujimoto, and Andromaco, and has the right to
sell ALFERON N Injection in the Returned Territories, no sales of ALFERON N
Injection can be made in Canada or the Returned Territories until such product
is approved for sale in these countries. Submissions for regulatory approval to
sell ALFERON N Injection for treatment of genital warts have been filed in a
number of countries other than the United States and regulatory approval has
been obtained in Mexico. There can be no assurance, however, that any additional
approvals will be granted. See "Business -- Governmental Regulation," "Risk
Factors -- Regulatory Approvals," and "Risk Factors -- Foreign Regulatory
Approvals."
Manufacturing. The purified drug concentrate utilized in the formulation
of ALFERON N Injection is manufactured in the Company's facility located in New
Brunswick, New Jersey, and ALFERON N Injection is formulated and packaged at a
production facility located in MacPherson, Kansas and operated by Sanofi
pursuant to a processing and supply agreement entered into in September 1994.
Under the terms of the agreement with Sanofi, the Company pays Sanofi an agreed
price to formulate and package ALFERON N Injection in accordance with
specifications provided by the Company. These facilities received FDA approval
in October 1989. Subsequently, the Company developed process improvements and
completed an expansion of its manufacturing facility, both of which were
approved by the FDA in June 1991. The process improvements and expanded facility
enabled the Company to reduce the manufacturing costs of ALFERON N Injection and
gave the Company increased production capacity for ALFERON N Injection. See
"Risk Factors -- Regulatory Approvals" and "Business -- Governmental
Regulation."
Competition. Presently, INTRON(R) A, manufactured by Schering, is the one
other injectable interferon product approved by the FDA for the treatment of
genital warts. INTRON(R) A is made from recombinant alpha interferon. ALFERON N
Injection also competes with surgical, chemical, and other methods of treating
genital warts. The Company cannot assess the impact products developed by the
Company's competitors or advances in other methods of the treatment of genital
warts will have on the commercial viability of its product.
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If and when the Company obtains approvals for additional indications of
ALFERON N Injection and its proposed products, it expects to compete primarily
on the basis of product performance and price with a number of pharmaceutical
companies (such as Hoffmann, Roche, Schering, Amgen Inc., and Burroughs Wellcome
Co.), both in the United States and abroad. In addition, the Company's potential
competitors have developed or may develop products (containing either alpha
interferon or other therapeutic compounds) or other treatment modalities which
may compete with the Company's products. For example, Schering's recombinant
interferon product is already approved for the treatment of hepatitis C and
hepatitis B in the United States and other markets, as well as for many other
medical uses, and there is no assurance that if the Company is able to obtain
regulatory approval of ALFERON N Injection for the treatment of those diseases,
it will be able to achieve any significant penetration into those markets. In
addition, since production of the competitive products is not dependent on a
source of human blood cells, such products may be able to be produced in greater
volume and at a lower cost than ALFERON N Injection. Many of the Company's
potential competitors are among the largest pharmaceutical companies in the
world, are well known to the public and the medical community, and have
substantially greater financial resources and product development,
manufacturing, and marketing capabilities than the Company or its marketing
partners.
Patents and Licenses. On March 5, 1985, the United States Patent and
Trademark Office issued a patent to Hoffmann claiming purified human alpha
(leukocyte) interferon (regardless of how it is produced). In 1988, the Company
obtained a non-exclusive license from Hoffmann which allowed the Company to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, (i) ALFERON N Injection for the treatment of
genital warts and (ii) injectable formulations of interferon alfa-n3 (which is
the same active ingredient contained in ALFERON N Injection), for the treatment
of patients with diseases which are refractory to recombinant interferon
therapy. On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Hoffmann patent and rejected all of the 14
claims in the Hoffmann patent. Claims in a patent under reexamination are valid
and enforceable until such time as a final disposition on the claims is reached.
On July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. The outcome of such reexamination of the Hoffmann
patent cannot be determined at this time. Roche also has been issued patents
covering human alpha interferon in many countries throughout the world. As of
March 31, 1995, the Company obtained a non-exclusive license from Hoffmann and
Roche (the "Hoffmann Agreement") which grants the Company the worldwide rights
to make, use, and sell, without a potential patent infringement claim from
Hoffmann or Roche, any formulation of Natural Alpha Interferon. The Hoffmann
Agreement permits the Company to grant marketing rights with respect to Natural
Alpha Interferon products to third parties, except that the Company cannot grant
marketing rights with respect to ALFERON N Injection to any third party not
listed on a schedule of approximately 50 potential marketing partners without
the consent of Hoffmann and Roche, which consent cannot be unreasonably
withheld. The Hoffmann Agreement will enable the Company, if it is successful in
obtaining necessary regulatory approvals, to expand the formulations of Natural
Alpha Interferon it makes, uses, and sells in the United States and the rest of
the world and to market its products for the treatment of additional
indications. See "Risk Factors -- Potential Patent Infringement Claims" and
"Business -- ALFERON N Injection -- Royalty Obligations."
Royalty Obligations. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of Natural Alpha Interferon products. Under the terms of the
Hoffmann Agreement, the Company is obligated to pay Hoffmann and Roche an
aggregate royalty equal to 8% of net sales (as defined) of Natural Alpha
Interferon products by the Company up to $75,000,000 and 9.5% on net sales in
excess of $75,000,000 in any calendar year, provided that the total royalty
payable in any calendar year shall not exceed $8,000,000. When the Company
received FDA approval for ALFERON N Injection for the treatment of genital warts
in 1989, the Company became obligated to issue shares of Common Stock to
Hoffmann as a prepaid royalty against future net sales by the Company. Under the
terms of the Hoffmann Agreement, certain payments previously made to Hoffmann
(including a portion of the value of the Common Stock previously issued to
Hoffmann) are available as offsets against the Company's future royalty
obligations to Hoffmann and Roche until the Company obtains an FDA approval to
market ALFERON N Injection for an additional indication. As of December 31,
1994, the Company had
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approximately $459,485 of credits available to offset its future royalty
obligations to Hoffmann and Roche. See Note 4 of "Notes to Consolidated
Financial Statements."
Under the terms of the Purdue Marketing Agreements, unless the Option is
exercised and the royalty obligation is terminated as provided in the 1995
Purdue Amendment, the Company is obligated to pay Mundipharma a royalty equal to
3% of the net sales of ALFERON N Injection in the Returned Territories until
Mundipharma has received royalty payments equal to $3 million ($5 million under
certain circumstances) and 1% of the Company's net sales in the Returned
Territories thereafter. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
In addition, the Company agreed to pay NPDC a royalty of $1 million in
connection with the acquisition of certain intellectual property and technology
rights from NPDC. Such amount is payable if and when the Company generates
income before taxes, limited to 25% of such income before income taxes per year
until the amount is paid in full. See "Risk Factors -- Royalty Obligations" and
"Certain Transactions -- Agreements with NPDC -- Transfer Agreement."
PRODUCTS UNDER DEVELOPMENT
ALFERON N Gel.
ALFERON N Gel is a topical interferon preparation which the Company has
developed and believes has potential in the treatment of cervical dysplasia,
vaginal human papilloma virus infection, recurrent genital herpes, other viral
diseases, and cancers.
Clinical Trials for ALFERON N Gel. The Company has completed one clinical
trial and plans to conduct various other clinical trials for its ALFERON N Gel
formulation to develop applications and obtain initial approvals for such
products.
Cervical Dysplasia. Affecting approximately 500,000 to one million women
each year in the United States alone, cervical dysplasia, or abnormal cervical
cells, has been identified as a potential precursor to cervical cancer, which
strikes approximately 13,000 women in the United States each year. Cervical
dysplasia is caused by certain strains of the human papilloma virus (HPV), the
same family of viruses that causes genital warts. The Company has completed a
Phase 2 dose-ranging study using ALFERON N Gel at the Columbia Presbyterian
Medical Center in New York for the treatment of mild cervical dysplasia. In this
pilot study, patients were treated with either a high or low dose of ALFERON N
Gel, both of which were well-tolerated. From both the high and low dose groups,
cytological analyses of Pap smears, identification tests for the presence of
HPV, and cervical biopsies indicated that ALFERON N Gel potentially improved the
course of cervical dysplasia in the majority of patients who completed the
treatment course. Based upon these initial results, a physician-sponsored study
in HIV-infected women with cervical dysplasia is expected to commence shortly,
as described below.
Cervical Dysplasia (in HIV-infected patients). Cervical dysplasia is
particularly difficult to treat in HIV-infected women. These women have a high
recurrence rate of cervical dysplasia after their initially successful surgical
treatment. As a result of the preliminary results in the initial cervical
dysplasia study described above, the investigator at Columbia-Presbyterian
Medical Center will be conducting this physician-sponsored study in which
ALFERON N Gel will be used as an adjuvant to surgical treatment in HIV-infected
women with mild and more severe forms of cervical dysplasia.
Other widespread dermatological lesions potentially treatable with ALFERON
N Gel therapy. Nearly 30 million people in the U.S. are infected with the
herpes simplex type II virus, which is the infectious virus that causes genital
herpes. Up to a half-million new cases are reported each year, according to the
U.S. Department of Health and Human Services. To date, there is no cure for
genital herpes. Preliminary findings with a previous formulation of recombinant
interferon in the Company's proprietary gel showed significant shortening of the
contagious period and relief of symptoms. ALFERON N Gel may also be of benefit
to immunocompromised patients with mucocutaneous herpes. Patients with this form
of herpes suffer from persistent skin lesions which have become resistant to
existing therapies. While these diseases represent
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important potential targets for ALFERON N Gel treatment, additional studies in
these areas are dependent upon future funding.
Competition. The Company believes that only one product presently sold in
the United States is indicated for the treatment of recurrent genital herpes.
This product, ZOVIRAX(R), produced by Burroughs Wellcome Co., contains a drug
called acyclovir which is administered orally in either solution or capsule form
for the management of recurrent episodes of genital herpes. Two other ZOVIRAX(R)
formulations, one of which is an ointment and the other of which is an
intravenous product, also are sold by Burroughs Wellcome Co. in the United
States for this use.
ALFERON LDO.
ALFERON LDO is a low dose oral liquid alpha interferon preparation. In
October 1989, the Company entered into an agreement (as amended, the "ACC
Agreement") with Amarillo Cell Culture Company, Incorporated ("ACC"), a
privately-held company located in Amarillo, Texas, engaged in the research and
development of animal health products. Under the terms of the ACC Agreement, the
Company has a non-exclusive license under all of ACC's issued patents, patent
applications, and "know-how" relating to the treatment of humans by the oral
administration of Natural Alpha Interferon in low doses. The Company will be
obligated to pay ACC royalties on the sales of Natural Alpha Interferon products
using ACC's patented technology as determined under the ACC Agreement. In
addition, ACC has the right to purchase the Company's Natural Alpha Interferon
for use in the animal health market and is obligated to pay royalties to the
Company based upon sales using the Company's Natural Alpha Interferon. In April
1995, in connection with certain amendments to the ACC Agreement, ACC agreed to
purchase 312,500 shares of Common Stock at $2.00 per share and Pharma Pacific
Management Pty. Ltd. ("PPM"), a company which has also obtained a license from
ACC, agreed to purchase 62,500 shares of Common Stock at $2.00 per share.
Clinical Trials for ALFERON LDO. The Company has conducted and plans to
conduct various clinical trials for its ALFERON LDO formulation to develop
applications and obtain initial approvals for such products.
HIV-infected patients. The Company has completed two studies at Mount
Sinai Medical Center in New York involving ALFERON LDO. One was a
placebo-controlled study in AIDS-related complex ("ARC") patients, and the other
was a dose ranging study in AIDS or ARC patients. The results from the
placebo-controlled study did not demonstrate a significant improvement or
alteration in the expected progression of the disease, although patients
receiving ALFERON LDO reported greater energy and appetite than those given the
placebo. Preliminary results from the dose ranging study indicate that one of
the doses may promote weight gain and increased energy.
At the insistence of AIDS groups and community-based physicians who had
been using low-dose formulations of interferon in their practice, the NIAID
agreed to launch a trial of low-dose oral interferon in the United States. An
advisory committee comprised of representatives from interferon manufacturers,
AIDS support groups, FDA, and National Institutes of Health was organized to
design a nationwide, controlled study. This study will investigate the effect of
a number of oral dosage forms of alpha interferon on several quality-of-life
parameters of importance to patients infected with the AIDS virus.
The Company has been active in helping plan this trial, and has agreed to
make clinical quantities of ALFERON LDO available for use in the study. In a
February 23, 1995 press release, the NIAID AIDS Research Advisory Committee
reaffirmed the need to conduct this study and stated that the NIAID will now
begin implementation of this trial. Based upon this press release, the Company
believes that this trial will begin later this year if the NIAID completes all
the necessary steps to initiate this trial.
Competition. Under the terms of the ACC Agreement, (i) the Company has the
exclusive right to sell ALFERON LDO, containing Natural Alpha Interferon, in the
United States and all foreign countries other than Japan, (ii) ACC and PPM each
has the right to sell any interferon other than Natural Alpha Interferon in the
United States and all foreign countries other than Japan, and (iii) Hayashibara
Biochemical Laboratory has the right to sell its low dose alpha interferon in
Japan. Therefore, with respect to low dose oral interferon
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products, the Company will potentially compete with ACC and PPM in the United
States and in the rest of the world except Japan.
ALFERON N Gel and ALFERON LDO.
Sales and Marketing Staff. The Company does not have a marketing or sales
staff nor does it have a marketing agreement with respect to ALFERON N Gel
(other than the Fujimoto Agreement) or ALFERON LDO and, if FDA marketing
approval of ALFERON N Gel OR ALFERON LDO is obtained, no assurance can be given
that the Company will be able to enter into a marketing agreement for such
products on terms satisfactory to the Company. In February 1995, the Company
entered into the Fujimoto Agreement which, among other things, grants Fujimoto
the exclusive right to develop, distribute, and sell ALFERON N Gel in Japan. See
"Business -- ALFERON N Injection -- Other Marketing and Distribution
Agreements."
Patents and Licenses. The United States Patent and Trademark Office issued
two patents to the Company which disclose and claim topical interferon
preparations. The patents encompass interferon preparations for the topical
delivery of one or more interferons to the site of a disease which responds
therapeutically to interferon, and a system for delivering interferon topically
which prevents oxidation of the protein. The inventions specifically encompass
the topical treatment for treating viral diseases, such as herpes genitalis,
with alpha interferon. The Company has various other issued patents and patent
applications pending in the field of biotechnology, purification processes, and
therapeutics. See "Business -- ALFERON N Injection -- Patents and Licenses."
Royalty Obligations. The Company is a party to certain license agreements,
including the Hoffmann Agreement, pursuant to which it is obligated to pay
royalties based upon commercial exploitation of ALFERON N Gel and ALFERON LDO.
Under the terms of such license agreements, the Company would pay royalties of
up to 13.5% and 19.5% of net sales of ALFERON N Gel and ALFERON LDO,
respectively.
GOVERNMENTAL REGULATION
Regulations imposed by U.S. federal, state, and local authorities, as well
as their counterparts in other countries, are a significant factor in the
conduct of the research, development, manufacturing, and marketing activities
for present and proposed products developed by the Company.
The Company's or its licensees' potential products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human medical products are subject to rigorous pre-clinical and clinical testing
and other approval procedures by the FDA in the United States and similar health
authorities in foreign countries. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, recordkeeping, and marketing of such products, including the
use, manufacture, storage, handling, and disposal of hazardous materials and
certain waste products. The process of obtaining these approvals and the
subsequent compliance with applicable federal and foreign statutes and
regulations involves a time-consuming process and requires the expenditure of
substantial resources.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or impose costly procedures on the Company's activities, the result
of which may be to furnish an advantage to the Company's competitors. Any delay
in obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's products and the ability to earn product revenue.
Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. These data, obtained from studies in
several animal species, as well as from laboratory studies, are submitted in a
Notice of Claimed Investigational Exemption for a New Drug ("IND") or its
equivalent in countries outside the U.S. where clinical studies are to be
conducted. If the necessary authorizations are received, the Company then
conducts clinical tests of its products on human beings at various unaffiliated
medical centers and institutions. Initial
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<PAGE> 42
trials (Phase 1) are conducted on a small number of volunteers to determine
whether the drug is safe for human beings. If the initial trials demonstrate the
safety of the product, trials (Phase 2) are then conducted on patients affected
with the disease or condition under investigation to establish the proper dose
and dosing interval. The findings of these trials are then used to design and
implement large-scale controlled trials (Phase 3) to provide statistical proof
of effectiveness and adequate evidence of safety to meet FDA and/or foreign
approval requirements.
The FDA closely monitors the progress of each of the phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend, or terminate
the testing based on the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for completing clinical testing vary between four and ten years. Upon
successful completion of clinical testing of a new drug, a company typically
submits a New Drug Application ("NDA"), or for biological products such as
Natural Alpha Interferon, a Product and Establishment License Applications
("PLA/ELA") to the FDA summarizing the results and observations of the drugs
during the clinical trials.
To the extent a portion of the manufacturing process for a product is
handled by an entity other than the Company, the Company must similarly receive
FDA approval for the other entity's participation in the manufacturing process.
The Company has entered into an agreement with Sanofi, pursuant to which Sanofi
formulates and packages ALFERON N Injection. The Company presently has a
biologic establishment license for the facilities in which it produces ALFERON N
Injection, which includes the facilities in which Sanofi formulates and packages
ALFERON N Injection. In addition, FDA approval would have to be obtained if the
Company should choose to use an outside formulator and/or packager for ALFERON N
Gel or ALFERON LDO.
Once the manufacture and sale of a product is approved, various FDA
regulations govern the production processes and marketing activities of such
product. A post-marketing testing, surveillance, and reporting program may be
required to continuously monitor the product's usage and effects. Product
approvals may be withdrawn, or other actions may be ordered, if compliance with
regulatory standards is not maintained.
Each individual lot of Natural Alpha Interferon produced must be tested for
compliance with specifications and released for sale by the FDA prior to
distribution in the marketplace. Even after initial FDA marketing approval for a
product has been granted, further studies may be required to provide additional
data on safety or efficacy; to obtain approval for marketing a product as a
treatment for specific diseases other than those for which the product was
originally approved; to change the dosage levels of a product; to support new
safety or efficacy claims for the product; or to support changes in
manufacturing methods, facilities, sources of raw materials, or packaging.
In many markets, effective commercialization also requires inclusion of the
product in national, state, provincial, or institutional formularies or cost
reimbursement systems. The impact of new or changed laws or regulations cannot
be predicted with any accuracy. The Company uses its own staff of regulatory
affairs professionals and outside consultants to enable it to monitor
compliance, not only with FDA laws and regulations, but also with state and
foreign government laws and regulations. See "Risk Factors -- Regulatory
Approvals."
Promotional and educational communications by the Company and its
distributors also are regulated by the FDA and are governed by statutory and
regulatory restrictions and FDA policies regarding the type and extent of data
necessary to support claims that may be made. The Company currently does not
have data adequate to satisfy FDA requirements with respect to potential
comparative claims between Natural Alpha Interferon and competing recombinant
interferon products.
For marketing outside the United States, the Company will also be subject
to foreign regulatory requirements governing human clinical trials,
manufacturing, and marketing approval for drugs and other medical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary widely from country to country. See "Risk
Factors -- Foreign Regulatory Approvals" and "Risk Factors -- Uncertainty of
Pharmaceutical Pricing and Related Matters; Need for Reimbursement."
40
<PAGE> 43
RESEARCH STAFF AND EMPLOYEES
As of April 15, 1995, the Company had approximately 55 full-time employees,
of whom approximately 10 hold Ph.D. degrees and 28 hold other degrees in
scientific or technical fields. Of such employees, approximately 18 were engaged
in research and product development, 20 were engaged in manufacturing and
quality control, and the remainder were general and administrative personnel.
Certain direct and indirect management services are provided to the Company by
employees of NPDC and its other subsidiaries pursuant to a Management Agreement
(the "Management Agreement") at a cost to the Company of $120,000 per annum. In
addition, the Management Agreement provides that certain other services which
are provided by approximately 15 NPDC employees, such as legal, maintenance,
shipping and receiving, purchasing, secretarial work, information retrieval, and
regulatory compliance, will be paid for by the Company on an "as used" basis at
NPDC's approximate cost. See "Certain Transactions -- Agreements with
NPDC -- Management Agreement."
PROPERTIES
The Company's executive offices and its research and production facilities
are located at 783 Jersey Avenue, New Brunswick, New Jersey 08901, and its
telephone number is (908) 249-3250. The Company also maintains offices at 9 West
57th Street, New York, New York 10019, the cost of which is included in the
Management Agreement.
The Company owns two free standing buildings comprising approximately
44,000 square feet located in New Brunswick, New Jersey. The Company occupies
approximately 24,000 square feet for staff offices, for the production and
purification of interferon, for quality control and research activities, and for
the storage of raw, in process, and finished materials. The Company completed
the expansion of its manufacturing facility in early 1991 and received FDA
approval to use this facility in June 1991. The Company also shares
approximately 9,000 square feet with NPDC and subleases approximately 11,000
feet to NPDC. See Note 1 of "Notes to Consolidated Financial Statements." The
Company believes that its current facilities are (i) suitable and adequate for
research and development and commercial production of purified interferon, (ii)
well maintained, and (iii) in good condition. Substantially all equipment owned
by the Company has been acquired over the past ten years and is in good working
condition.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, the outcome of which
is believed by management to have a reasonable likelihood of having any material
adverse effect upon the Company's business, results of operations, or financial
condition.
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<PAGE> 44
MANAGEMENT
As of April 15, 1995, the directors and officers of the Company and their
ages and positions are as set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ------------------------------------------------------
<S> <C> <C>
Martin M. Pollak(1)(2)(3)........... 67 Chairman of the Board
Jerome I. Feldman(1)(2)(3).......... 66 Chairman of the Board's Executive Committee, Treasurer
and a Director
Samuel H. Ronel, Ph.D............... 59 President, Chief Executive Officer, and a Director
Stanley G. Schutzbank, Ph.D......... 49 Executive Vice President and a Director
Leon Botstein, Ph.D................. 47 Director
Sheldon L. Glashow, Ph.D............ 63 Director
Roald Hoffmann, Ph.D.(4)............ 57 Director
Ogden R. Reid(1)(3)(4).............. 70 Director
E. Donald Shapiro(4)................ 62 Director
Donald W. Anderson.................. 46 Controller (Principal Accounting and Financial
Officer) and Secretary
Drew Stoudt......................... 48 Vice President, Regulatory Affairs and Quality
Mei-June Liao, Ph.D................. 44 Vice President, Research and Development
Lawrence M. Gordon.................. 41 Vice President and General Counsel
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of Stock Option Committee.
(4) Member of the Audit Committee.
All directors are serving a current term of office which continues until
the next annual meeting of stockholders, and all officers are serving a current
term of office which continues until the next annual meeting of directors.
Martin M. Pollak has been Chairman of the Board since 1981. He is a founder
of NPDC (a holding company) and has been Executive Vice President, Treasurer and
a director of NPDC since 1959. Mr. Pollak is Chief Executive Officer, President
and a director of American Drug Company ("ADC"), a subsidiary of NPDC which
markets American-made generic pharmaceutical products in Russia. He has been
Chairman of the Board and a director of General Physics Corporation ("GPC"), a
subsidiary of NPDC which provides personnel training and technical support
services to the domestic commercial nuclear power industry and to the United
States Department of Energy since 1988; and a director since 1987; Chairman of
the Executive Committee of GTS Duratek, Inc. ("Duratek"), a company which
provides environmental technology and consulting, and staff augmentation
services to various utility, industrial and commercial clients from 1985 to
January 1995 and a director since 1982; Chairman of the Board and a director of
SGLG, Inc. ("SGLG"), a subsidiary of NPDC, which is a holding company with a 35%
interest in GSE Systems, Inc., a software simulator company, since May 1991. Mr.
Pollak is Chairman of the Czech and Slovak United States Economic Council, a
member of the Board of Trustees of the Worcester Foundation for Experimental
Biology and a director of Brandon Systems Corporation, a personnel recruiting
company, since 1986.
Jerome I. Feldman has been Chairman of the Board's Executive Committee and
a director of the Company since 1981. He has also been the Treasurer of the
Company since 1984. Mr. Feldman is a founder of, and since 1959 has been
President, Chief Executive Officer and a director of, NPDC. Mr. Feldman is
Chairman of the Board of and a consultant to ADC. He has been Chairman of the
Executive Committee of GPC since 1988 and a director of GPC since 1987; Chairman
of the Board of Duratek from 1985 to January 1995 and a director since 1982 and
Chairman of the Executive Committee and a director of SGLG since May 1991. He
has been a director of Hamilton Financial Services, Inc., a financial service
company, since 1983. He is a trustee of the New England Colleges Fund and of
Bard College.
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<PAGE> 45
Samuel H. Ronel, Ph.D. has been President, Chief Executive Officer, and a
director of the Company since 1981 and was responsible for the interferon
research and development program since its inception in 1979. Dr. Ronel joined
NPDC in 1970 and has served as the Vice President of Research and Development of
NPDC since 1976 and as the President of Hydro Med Sciences, a division of NPDC,
since 1976. Dr. Ronel served as President of the Association of Biotechnology
Companies, an international organization representing United States and foreign
biotechnology firms, from 1986-88 and has served as a member of its Board of
Directors until 1993. Dr. Ronel was elected to the Board of Directors of The
Biotechnology Industry Organization in 1993.
Stanley G. Schutzbank, Ph.D. has been Executive Vice President and a
director of the Company since 1981 and has been associated with the interferon
research and development program since its inception in 1979. He is involved
with all facets of administration and planning of the Company and has
coordinated compliance with FDA regulations governing manufacturing and clinical
testing of interferon, leading to the approval of ALFERON N Injection in 1989.
Dr. Schutzbank joined NPDC in 1972 and has served as the Corporate Director of
Regulatory and Clinical Affairs of NPDC since 1976 and as Executive Vice
President of Hydro Med Sciences since 1982. Dr. Schutzbank is a member of the
Regulatory Affairs Professionals Society and has served as Chairman of the
Regulatory Affairs Certification Board from its inception until 1994. Dr.
Schutzbank received the 1991 Richard E. Greco Regulatory Affairs Professional of
the Year Award for his leadership in developing the United States Regulatory
Affairs Certification Program.
Leon Botstein, Ph.D. has been a director of the Company since 1981 and has
been the President of Bard College, Annandale-on Hudson, New York since 1975.
Dr. Botstein has been a director of Intelogic Trace, Inc., a computer
maintenance and support service company since 1985.
Sheldon L. Glashow, Ph.D. has been a director of the Company since October
1991. He has been a director of GPS since January 1987 and a director of Duratek
since 1985. Dr. Glashow is the Higgins Professor of Physics of Harvard
University and was a Distinguished Professor and Visiting Professor of Physics
at Boston University. In 1971, he received the Nobel Prize in Physics.
Roald Hoffmann, Ph.D. has been a director of the Company since 1991 and a
director of NPDC since 1988. Dr. Hoffmann has been the John A. Newman Professor
of Physical Science at Cornell University since 1974 and is a member of the
National Academy of Sciences and the American Academy of Arts and Sciences. In
1981 he shared the Nobel Prize in Chemistry with Dr. Kenichi Fukui.
Ogden R. Reid has been a director of the Company since 1982, a director of
NPDC since 1979, and a director of GPC since January 1988; Vice Chairman and a
director of Duratek since 1991 and Vice Chairman of the Board of GPS since 1992.
Mr. Reid was Editor and Publisher of the New York Herald Tribune and of its
International Edition, an United States Ambassador to Israel, a six-term member
of the United States Congress and a New York State Environmental Commissioner.
E. Donald Shapiro has been a director of the Company since 1991 and was a
consultant to the law firm of Shea & Gould from January 1991 to December 1993.
He has been the Joseph Solomon Distinguished Professor of Law at New York Law
School since 1982 and served as dean of that institution from 1973-1983. Mr.
Shapiro has been Supernumerary Fellow of St. Cross College at Oxford University,
England since 1985. Mr. Shapiro serves on the Board of Directors of: Loral
Corporation, Bank Leumi Trust Company of New York, Future Medical Products,
Inc., The Kranzco Group and MelaRx Pharmaceutical, Inc. He is a published author
of many books and articles on the subject of law and medicine and has taught at
various law and medical schools.
Donald W. Anderson has been the Controller of the Company since 1981 and
Corporate Secretary of the Company since 1988. He has been an officer of various
subsidiaries of NPDC since 1976.
Drew Stoudt has been Vice President, Regulatory Affairs and Quality of the
Company since March 1991. He was Vice President, Quality Assurance and Quality
Control from February 1990 to March 1991. Mr. Stoudt has served as Director of
Quality Assurance for the Company and other divisions of National Patent from
1985 to 1990.
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<PAGE> 46
Mei-June Liao, Ph.D., has been Vice President, Research and Development of
the Company since March 1995. She has served as a Director, Research &
Development since 1987, and held senior positions in the Company's Research &
Development Department since 1983. Dr. Liao received her Ph.D. from Yale
University and completed a three-year post doctoral appointment at the
Massachusetts Institute of Technology under the direction of Nobel Laureate in
Medicine, Professor H. Gobind Khorana. Dr. Liao has authored many scientific
publications and invention disclosures.
Lawrence M. Gordon has been the General Counsel of the Company since 1984,
the General Counsel of NPDC since November 1986, and Vice President and General
Counsel of both companies since June 1991. He was Associate General Counsel of
NPDC from 1983 through November 1986. Mr. Gordon has been a director of GPC
since October 1994.
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of the Common Stock
beneficially owned as of April 15, 1995 by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS(1)
- ------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
National Patent Development Corporation...................... 6,975,148(2)(3) 31.0%
Martin M. Pollak............................................. 7,457,648(2)(4) 32.5%
Jerome I. Feldman............................................ 7,471,598(2)(5) 32.5%
David Blech.................................................. 975,000(6)(7) 4.3%
Nicholas L. Madonia, Trustee................................. 2,150,000(3)(6)(8) 9.6%
Biotechnology Investment Group, L.L.C........................ 2,527,000(3)(6)(9) 11.2%
</TABLE>
- ---------------
(1) The percentage of class calculation assumes for each beneficial owner that
all of the warrants are exercised in full only by the named beneficial owner
and that no other options or warrants are deemed to be exercised by any
other stockholders.
(2) Includes (i) 4,800,148 shares of Common Stock owned by NPDC, (ii) 1,359,375
shares of Common Stock owned by Five Star Group, Inc. ("FSGI"), and (iii)
815,625 shares of Common Stock owned by MXL Industries, Inc. ("MXL"). FSGI
and MXL each is a wholly-owned subsidiary of NPDC. Based upon the common
stock and Class B Stock of NPDC outstanding at April 15, 1995, Martin M.
Pollak and Jerome I. Feldman, officers and directors of NPDC, and directors
of the Company, controlled in the aggregate approximately 11% of the voting
power of all voting securities of NPDC. This percentage for Mr. Pollak and
Mr. Feldman would increase to approximately 45% if they exercised all of the
presently outstanding and currently exercisable stock options to purchase
shares of the common stock and Class B Stock of NPDC held by them.
Accordingly, Messrs. Pollak and Feldman, through their ownership of NPDC
common stock, may be deemed to beneficially own the shares of Common Stock
beneficially owned by NPDC, FSGI, and MXL. However, Messrs. Pollak and
Feldman disclaim beneficial ownership of such 6,975,148 shares. All of the
shares of Common Stock owned by NPDC, FSGI, and MXL have been pledged to a
bank as collateral to secure indebtedness owed to such bank. The address of
NPDC and Messrs. Pollak and Feldman is 9 West 57th Street, Suite 4170, New
York, New York 10019.
(3) Does not include certain shares that may be issued in payment of the
principal amount of indebtedness of the Company to such stockholder. See
"Certain Transactions -- Other Transactions" and "Risk Factors -- Control by
Principal Stockholders; Conflicts of Interest."
(4) Includes (i) 6,975,148 shares of Common Stock beneficially owned by NPDC,
FSGI, and MXL, (ii) 1,000 shares of Common Stock held by Mr. Pollak's wife,
and (iii) 480,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options held by Mr. Pollak. Mr. Pollak disclaims
beneficial ownership of the shares of Common Stock owned by NPDC and his
wife.
44
<PAGE> 47
(5) Includes (i) 6,975,148 shares of Common Stock beneficially owned by NPDC,
FSGI, and MXL, (ii) 2,950 shares of Common Stock held by certain members of
Mr. Feldman's family, and (iii) 480,000 shares of Common Stock issuable upon
exercise of currently exercisable stock options held by Mr. Feldman. Mr.
Feldman disclaims beneficial ownership of the shares of Common Stock owned
by NPDC and his family.
(6) Based, in part, on a Schedule 13D filed by the beneficial owner with the
Securities and Exchange Commission.
(7) Includes 175,000 shares of Common Stock held by D. Blech & Company,
Incorporated ("DBC"). David Blech is the Chief Executive Officer, sole
shareholder and a director of DBC. Excludes (i) 1,240,000 shares of Common
Stock held by Freedom Charitable Remainder Trust ("Freedom") of which David
Blech is the income beneficiary but not the trustee, (ii) 480,000 shares of
Common Stock held by Frontier Charitable Remainder Trust ("Frontier") of
which David Blech is the income beneficiary but not the trustee, and (iii)
430,000 shares of Common Stock held by Sentinel Charitable Remainder Trust
("Sentinel") of which David Blech is the income beneficiary but not the
trustee. Mr. Blech disclaims beneficial ownership of the shares of Common
Stock held by Freedom, Frontier, and Sentinel. Mr. Blech's address is c/o D.
Blech & Company, Incorporated, 599 Lexington Avenue, New York, New York
10022.
(8) Includes 1,240,000 shares of Common Stock held by Freedom, 480,000 shares of
Common Stock held by Frontier, and 430,000 shares of Common Stock held by
Sentinel, of which trusts Mr. Blech is the income beneficiary but not the
trustee. As sole trustee of each of the trusts, Mr. Madonia has the right to
vote and dispose of the shares held by such trusts. Mr. Blech disclaims
beneficial ownership of such shares of Common Stock. Mr. Madonia's address
is c/o Madonia, Pilles & Co., P.A., 30 Outwater Lane, Garfield, New Jersey
07026.
(9) The members of Biotechnology Investment Group, L.L.C. ("BIG"), which is a
limited liability company, are: Schroder Venture Advisers, Inc. (Jeffrey J.
Collinson is its president and its sole director and owner); Mordechai
Jofen, 418 Avenue I, Brooklyn, New York 11231, as trustee of the Edward A.
Blech Charitable Remainder Trust; and Wilmington Trust Company, 1100 N.
Market Street, Wilmington, Delaware 19890, as voting trustee. Such persons
may have shared voting and dispositive power over these shares. The address
of BIG is 1055 Washington Blvd. Stamford, CT 06901.
45
<PAGE> 48
CERTAIN TRANSACTIONS
AGREEMENTS WITH NPDC
Transfer Agreement. As of January 1, 1981, NPDC entered into an agreement
(the "Transfer Agreement") with the Company pursuant to which NPDC (i) licensed
to the Company in perpetuity all of its right, title and interest in and to
certain intellectual property and technology rights (the "Intangible Assets")
relating to its programs in human leukocyte interferon and recombinant DNA and
hybridoma technology and (ii) transferred to the Company its rights under
certain consulting, supply, and research agreements (the "Agreements"). In
consideration of the license and transfer of the Intangible Assets and the
Agreements, the Transfer Agreement provides that the Company will pay to NPDC a
royalty of $1,000,000. Such amount is payable if and when the Company generates
income before income taxes, and is limited to 25% of such income before taxes
per year until the amount is paid in full. See "Risk Factors -- Royalty
Obligations."
Management Agreement. As of January 1, 1981, NPDC entered into the
Management Agreement with the Company pursuant to which certain legal,
financial, and administrative services have been provided by employees of NPDC.
The fee for such services is $120,000 per annum. In addition, the Management
Agreement provides that certain other services provided by NPDC's employees,
such as maintenance, shipping, and receiving, purchasing, secretarial work,
information retrieval, and regulatory compliance, will be paid for by the
Company on an "as used" basis at NPDC's approximate cost. During 1994, NPDC
charged $1,194,380 to the Company for such other services. The Company is also
covered under certain of NPDC's insurance policies and pays its proportionate
share of insurance costs.
Lease Agreement. The Company owns two free standing buildings aggregating
approximately 44,000 square feet located in New Brunswick, New Jersey. The
Company and NPDC have entered into an agreement for the sharing of the office,
warehouse, and laboratory facility. The Company occupies approximately 24,000
square feet, shares approximately 9,000 square feet with NPDC, and subleases
approximately 11,000 square feet of space to NPDC at such location. During 1994,
NPDC paid the Company as rent NPDC's proportionate share of such occupancy costs
(based on both square feet occupied and number of personnel), which amounted to
$150,000.
While the above-described agreements were negotiated with a principal
stockholder of the Company which was then its parent, the Company nevertheless
believes that such agreements are equivalent economically to arms-length
transactions with a third party.
AGREEMENTS WITH DAVID BLECH AND RELATED PARTIES
On May 28, 1993, David Blech, the Chief Executive Officer, sole
shareholder, and a director of DBC, and the Company entered into a Purchase
Agreement (the "Purchase Agreement"), pursuant to which Mr. Blech or his
designees purchased for $4.00 per unit, an aggregate of 2,500,000 units
("Units"), each Unit consisting of two shares of the Company's Common Stock, one
Class A Warrant to purchase one share of Common Stock at an exercise price of
$3.25 per share, and one Class B Warrant to purchase one share of Common Stock
at an exercise price of $5.00 per share. The Class A Warrants and the Class B
Warrants expire on August 31, 2000. The following acquisitions were made in
installments pursuant to the Purchase Agreement: (i) two charitable remainder
trusts, of which Mr. Blech is the income beneficiary but not the trustee,
purchased an aggregate of 1,050,000 Units, (ii) Mr. Blech purchased 1,187,500
Units, (iii) Mark S. Germain, a Managing Director of DBC, purchased 250,000
Units, and (iv) an unaffiliated purchaser purchased 12,500 Units. The purchasers
have certain demand and "piggyback" registration rights as to the securities
acquired by them under the Purchase Agreement. Under the Purchase Agreement, Mr.
Blech had the right (which was never exercised) to cause the Company to use its
best efforts to nominate two designees of Mr. Blech (the "Blech Nominees") to
the Board of Directors of the Company as long as Mr. Blech and the other
purchasers under the Purchase Agreement beneficially own, in the aggregate, at
least 2,000,000 shares of Common Stock. In 1993, the Company paid DBC a $500,000
fee for its services in connection with the Purchase Agreement.
Pursuant to the Purchase Agreement, a 10-year Voting Agreement (the "Voting
Agreement") among David Blech, NPDC, FSGI, and MXL became effective as of May
28, 1993 pursuant to which NPDC, FSGI, and MXL agreed to (a) vote all their
shares of Common Stock (an aggregate of 6,975,148 shares as of the date hereof)
for the election of the designees of Mr. Blech as directors of the Company
unless Mr. Blech and
46
<PAGE> 49
the other purchasers under the Purchase Agreement dispose of more than 1,000,000
shares of Common Stock and (b) restrict transfer of the Common Stock held by
them for one year, subject to certain exceptions. Pursuant to the Voting
Agreement, Mr. Blech and the other purchasers under the Purchase Agreement
agreed to vote for the election of two nominees of NPDC as directors of the
Company unless NPDC, MXL and FSGI dispose of more than 2,000,000 shares of
Common Stock. Concurrently with the execution of the Purchase Agreement, the
Company entered into a consulting agreement with DBC under which the Company
agreed to pay $100,000 per year, payable monthly, to DBC for advisory services
with respect to the Company's field of interest and business, strategic, and
commercial matters related to the biotechnology industry. The term of the
consulting agreement was for one year commencing on June 1, 1993, and was
renewed on the same terms for an additional one-year period which expired on
June 1, 1994. David Blech and the Company were unaffiliated prior to the
transactions described above, which were negotiated on an arm's-length basis.
On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of the Company's Common Stock to be managed
by DBC as underwriter. On September 22, 1994, DBC could not meet certain minimum
capital requirements and was forced to discontinue its operations. Consequently,
the Company had to cancel the proposed public offering of Common Stock.
On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with Mr. Blech and certain other parties pursuant to which Sentinel
Charitable Remainder Trust, a trust of which Mr. Blech is the income beneficiary
but not the trustee, purchased 430,000 shares of Common Stock for $1 per share
or an aggregate purchase price of $430,000. In addition, pursuant to such
agreement, David Blech and certain other parties agreed to exchange warrants to
purchase an aggregate of 4,500,000 shares of Common Stock for 900,000 shares of
Common Stock. The issuance and exchange of the shares of Common Stock pursuant
to the Purchase and Exchange Agreement were completed in April 1995. In
connection with and in consideration for the Purchase and Exchange Agreement
described above, Mr. Blech and certain other parties and the Company entered
into an agreement (i) terminating and cancelling the Voting Agreement discussed
above, (ii) deleting in its entirety a provision of the Purchase Agreement with
respect to conflicting "piggyback" registration rights, and (iii) deleting in
its entirety the provision of the Purchase Agreement with respect to Board
representation and nomination rights of the Blech Designees.
OTHER TRANSACTIONS
On May 3, 1995, NPDC, BIG, and Sentinel committed to loan the Company
$600,000, $220,000, and $250,000, respectively. Such loans bear interest at
prime plus 2% and mature on the earlier of (i) the first date that the Company
receives gross proceeds of at least $7,500,000 from a public offering (the
"Public Offering") of Common Stock and (ii) November 2, 1995. If the
indebtedness matures as a result of a Public Offering, repayment of principal of
the indebtedness may be made, at the option of the Company (which option the
Company intends to exercise), by delivery of shares of Common Stock valued at
the public offering price per share in the Public Offering.
As of March 15, 1995, Lawrence M. Gordon, the Vice President and General
Counsel of the Company, had a principal balance outstanding on a loan from the
Company due July 9, 1997 of $150,000. Interest on the loan is payable quarterly
at a rate of 6% per annum.
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<PAGE> 50
UNDERWRITING
The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with Sunrise Securities Corp. to serve as the Underwriter in
connection with the Offering. Pursuant to the Underwriting Agreement, the
Company has retained the Underwriter to conduct, as its exclusive agent, an
offering of shares of its Common Stock on a 5,000,000 share minimum, 8,000,000
share maximum "best efforts" basis, for a period terminating 30 days from the
date hereof, unless extended for up to 30 additional days by the Underwriter. An
additional five days may be added solely for purposes of allowing checks to
clear. The Company's officers, directors, employees, and principal stockholders
may purchase shares of Common Stock in the Offering. All such purchases may be
used to satisfy the 5,000,000 share minimum. All funds received by the
Underwriter will be deposited in an escrow account with , as escrow
agent (the "Escrow Agent"), pursuant to an escrow agreement entered into by the
Company, the Underwriter and the Escrow Agent. Payments shall be made by either
check or wire transfer. All checks for subscriptions of the shares of Common
Stock should be made payable to , as Escrow Agent. If at least
5,000,000 shares offered hereby are sold within the initial 30 day period (or
extended period), all funds received, less the Underwriter's discounts and
commissions and expense allowance, will be delivered to the Company and
certificates representing the shares purchased promptly will be delivered to or
for the account of subscribers. In the event that the minimum number of shares
is not sold within the designated period, all funds will be returned to
subscribers without any deduction therefrom or interest thereon. Until such time
as funds have been released from escrow and the securities delivered to the
purchasers thereof, such purchasers will be deemed subscribers and not security
holders.
The Company and the Underwriter shall have an initial closing once at least
5,000,000 shares (and up to the maximum number of shares) have been sold in
order to disburse the proceeds therefrom. Once such shares are sold, the
Offering shall continue either until the Company and the Underwriter agree to
terminate the Offering or until up to the maximum 8,000,000 shares are sold or
until the Offering period terminates. If any additional shares are sold after
the initial closing, there shall be subsequent closings to disburse the
additional funds received.
The Underwriter has advised the Company that it proposes to offer the
shares to the public at the public offering price set forth on the cover page of
this Prospectus and that it may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD"), concessions of
not in excess of $ per share, of which not more than $ per share may be
reallowed to other dealers who are members of the NASD. After the initial
closing, the offering price, concession, and reallowance may be changed by the
Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act.
The Company has agreed to pay the Underwriter (i) a 1.75% non-accountable
expense allowance, (ii) a non-accountable expense allowance for legal fees in an
amount not to exceed the lesser of (a) $100,000 and (b) 1% of the gross proceeds
of the Offering, and (iii) an accountable expense allowance for disbursements of
counsel to the Underwriter.
The Company also has agreed to sell to the Underwriter or its designees,
options to purchase a number of shares of Common Stock equal to 10% of the
number of shares of Common Stock sold in the Offering at a price of $.001 per
option. The Underwriter's Purchase Options will be exercisable for a period of
four years, commencing one year after the date hereof, at an initial exercise
price per share equal to 110% of the public offering price per share. The
Underwriter's Purchase Options cannot be sold, transferred, assigned, or
hypothecated for one year from the date of their issuance, except that they may
be assigned, in whole or in part, to any successor, officer or partner of the
Underwriter.
The exercise price of, and the number of shares of Common Stock underlying,
the Underwriter's Purchase Options are subject to adjustment in the event of
stock splits, stock dividends, or other similar events. In the event of any
reclassification, capital reorganization, or other similar change of outstanding
Common Stock, any consolidation or merger involving the Company (other than a
consolidation or merger
48
<PAGE> 51
which does not result in any reclassification, capital reorganization, or other
similar change in the outstanding Common Stock), or a sale, lease, or conveyance
to another corporation of the property of the Company as, or substantially as an
entirety, the Underwriter's Purchase Options will thereupon become exercisable
only for the kind and number of shares of stock or other securities, assets, or
cash to which a holder of the number of shares of Common Stock issuable (at the
time of such reclassification, reorganization, consolidation, merger, or sale)
upon exercise of the Underwriter's Purchase Options would have been entitled
upon such reclassification, reorganization, consolidation, merger, or sale.
The Company has agreed that it will, on any two occasions during the
five-year period commencing on the date hereof, register the sale of the
Underwriter's Purchase Options and the underlying shares of Common Stock at the
request of the holders of a majority of the shares of Common Stock issued or
issuable upon exercise of the Underwriter's Purchase Options. The Company also
has agreed, during the seven-year period commencing from the date hereof, to
register on a "piggyback" basis, on an unlimited number of occasions, such
securities whenever the Company files a registration statement. The Company will
bear the expenses of such registrations, except for any underwriting discounts
and commissions, and except that the holders will bear the expenses of the
second demand registration.
For the life of the Underwriter's Purchase Options, the holders are given,
at nominal cost, the opportunity to profit if the price of the Company's Common
Stock in the public market exceeds the exercise price of the Underwriter's
Purchase Options, without assuming the risks or benefits of ownership, with a
resulting dilution in the interest of other security holders. If the public
price of the Company's Common Stock does not rise above the exercise price of
the Underwriter's Purchase Options during the exercise period, then such Options
will expire worthless. As long as the Underwriter's Purchase Options remain
unexercised, the terms under which the Company could obtain additional capital
may be adversely affected. Moreover, the holders of the Underwriter's Purchase
Options might be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain capital by a new offering of its securities on
terms more favorable than those provided by the Underwriter's Purchase Options.
The Underwriter was registered as a broker-dealer and became a member of
the NASD in 1992 and has not participated in any public offerings as an
underwriter, though it has acted as syndicate member, sole placement agent,
co-placement agent, selected dealer, or sole participating broker in more than a
dozen public or private offerings.
The Company, subject to certain exceptions, for a period of 12 months; the
Company's directors and senior officers (who own in the aggregate shares
of Common Stock and options and warrants to purchase shares of Common
Stock), for a period of 12 months; the Company's other officers (who own in the
aggregate shares of Common Stock and options and warrants to purchase
shares of Common Stock), for a period of six months; and the Company's
principal stockholders (who after consummation of the Offering will own in the
aggregate shares of Common Stock and options and warrants to
purchase shares of Common Stock), for a period of 24 months (except
that each such principal stockholder will be permitted to sell not more than
12.9% of its shares of Common Stock during the second 12 month period), have
agreed not to sell, directly or indirectly, any of their shares of Common Stock,
without the consent of the Underwriter and the Company. However, certain of such
principal stockholders have pledged an aggregate of shares of Common
Stock beneficially owned by them to their respective banks as collateral to
secure indebtedness owed to such banks. Any shares acquired by lenders pursuant
to such pledge arrangements would not be subject to any agreements not to sell.
Moreover, the Company and the Underwriter may, in their sole discretion and any
time without notice, release all or any portion of the securities subject to
agreements not to sell.
49
<PAGE> 52
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 40,000,000 shares of Common Stock. As of
May 12, 1995, 20,876,274 shares of Common Stock were outstanding, excluding
682,494 shares of Common Stock subject to purchase by the Company. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue." In addition, 4,041,320 shares of Common Stock were reserved for
issuance upon exercise of outstanding warrants and options.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of stockholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of the
voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect any
directors. See "Principal Stockholders."
Subject to the rights of holders of any series of preference stock that may
be issued in the future, the holders of the Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Price Range of Common Stock and Dividend
Policy." In the event of a voluntary or involuntary liquidation of the Company,
all shareholders are entitled to a pro rata distribution of the assets of the
Company remaining after payment of claims of creditors and liquidation
preferences of any preferred stock.
The transfer agent for the Common Stock is Harris Trust Company of New
York, 77 Water Street, New York, New York 10005.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
none of which is outstanding, the terms of which may be fixed by the Board of
Directors. It is not possible to state the actual effect of any issuance of one
or more series of preferred stock upon the rights of holders of Common Stock
until the Board of Directors of the Company determines the respective rights of
the holders of one or more series of the preferred stock. Such effects might,
however, include: (a) reduction of the amount of funds otherwise available for
payment of cash dividends on Common Stock; (b) restrictions on the payment of
cash dividends on Common Stock; (c) dilution of the voting power of the Common
Stock, to the extent that any series of issued preferred stock has voting rights
or is convertible into Common Stock; and (d) the holders of Common Stock not
being entitled to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences, if any, in respect of any outstanding
series of preferred stock. Additionally, preferred stock may be issued through a
depositary mechanism thereby increasing the amount of preferred stock that could
be issued.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Lawrence M. Gordon, General Counsel of the Company. Mr. Gordon does
not own any shares of Common Stock but has options to purchase 212,500 shares of
Common Stock, 182,500 of which are currently exercisable. Certain other legal
matters will be passed on for the Company by Duane, Morris & Heckscher, New
York, New York. Certain legal matters relating to FDA regulations will be passed
on for the Company by Kleinfeld, Kaplan & Becker, Washington, D.C. Certain legal
matters in connection with the Offering have been passed upon for the
Underwriter by Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, LLP, New York,
New York.
50
<PAGE> 53
EXPERTS
The audited consolidated financial statements of the Company and its
subsidiary at December 31, 1994 and 1993, and for each of the years in the three
year period ended December 31, 1994 included herein have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
auditing and accounting. The report of KPMG Peat Marwick LLP contains an
explanatory paragraph that states that the Company's recurring losses from
operations and accumulated deficit raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Offering, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance where such contract or other document
is an exhibit to the Registration Statement, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.
51
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Consolidated Balance Sheets -- December 31, 1994 and 1993........................... F-3
Consolidated Statements of Operations -- Years ended December 31, 1994, 1993 and
1992............................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity -- Years ended December
31, 1994, 1993 and 1992.......................................................... F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 1994, 1993 and
1992............................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
Unaudited Financial Statements:
Consolidated Condensed Balance Sheets -- March 31, 1995 and December 31, 1994....... F-20
Consolidated Condensed Statements of Operations -- Three Months ended March 31, 1995
and 1994......................................................................... F-21
Consolidated Condensed Statement of Changes in Stockholders' Equity -- Three Months
ended March 31, 1995............................................................. F-22
Consolidated Condensed Statements of Cash Flows -- Three Months ended March 31, 1995
and 1994......................................................................... F-23
Notes to Consolidated Condensed Financial Statements.................................. F-24
</TABLE>
F-1
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Interferon Sciences, Inc.:
We have audited the consolidated financial statements of Interferon
Sciences, Inc. and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interferon
Sciences, Inc. and subsidiary at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has suffered recurring
losses from operations and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 7, the Company has adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", as of January 1, 1994.
KPMG Peat Marwick LLP
New York, New York
April 3, 1995
F-2
<PAGE> 56
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 330,617 $ 4,247,067
Marketable securities......................................... 4,294,391
Accounts and other receivables................................ 35,546 87,649
Inventories................................................... 1,029,158 2,159,005
Consignment inventory......................................... 220,410
Receivables from affiliated companies, net.................... 20,001 18,501
Prepaid expenses and other current assets..................... 55,221 210,179
------------ ------------
TOTAL CURRENT ASSETS............................................ 1,690,953 11,016,792
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land.......................................................... 140,650 140,650
Buildings and improvements.................................... 7,384,102 7,384,102
Equipment..................................................... 4,301,317 4,218,819
------------ ------------
11,826,069 11,743,571
Less accumulated depreciation and amortization................ (6,013,839) (5,247,568)
------------ ------------
5,812,230 6,496,003
------------ ------------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $1,300,000
AND $1,080,091
Patent and deferred financing costs........................... 355,019 313,842
PREPAID ROYALTIES............................................... 2,100,000
OTHER ASSETS.................................................... 323,900 373,900
------------ ------------
$ 8,182,102 $ 20,300,537
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.......................... $ 409,275 $ 1,999,313
Accounts payable.............................................. 882,090 610,451
Accrued expenses.............................................. 746,935 414,215
Amount due NPDC............................................... 134,347 8,050
Amount due Purdue for repurchase of common stock.............. 300,000
------------ ------------
TOTAL CURRENT LIABILITIES....................................... 2,472,647 3,032,029
------------ ------------
LONG-TERM DEBT LESS CURRENT MATURITIES.......................... 137,951
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE COMMITMENT (682,494
SHARES)....................................................... 2,729,976
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized -- 5,000,000 shares; none issued and
outstanding................................................
Common stock, par value $.01 per share;
authorized -- 40,000,000 and 30,000,000 shares; issued and
outstanding -- 19,509,291 and 19,464,285 shares............ 195,093 194,643
Capital in excess of par value.................................. 65,572,243 67,646,234
Accumulated deficit............................................. (62,787,857) (50,710,320)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY...................................... 2,979,479 17,130,557
------------ ------------
$ 8,182,102 $ 20,300,537
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 57
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Sales
Alferon N Injection.................................. $ 979,425 $ $ 3,267,351
Research products and other revenues................. 186,506 51,323 39,046
------------ ----------- -----------
Total revenues............................... 1,165,931 51,323 3,306,397
------------ ----------- -----------
COSTS AND EXPENSES
Cost of goods sold and excess/idle production
costs............................................. 2,778,109 1,880,563 3,162,670
Research and development (net of $150,000, $138,996
and $141,996 of rental income received from
NPDC)............................................. 5,195,699 4,151,158 3,983,195
General and administrative (includes $1,314,380,
$1,015,700 and $984,615 of charges from NPDC for
management fees and reimbursements of expenses)... 4,974,224 2,366,897 2,113,493
------------ ----------- -----------
Total costs and expenses..................... 12,948,032 8,398,618 9,259,358
------------ ----------- -----------
LOSS FROM OPERATIONS................................... (11,782,101) (8,347,295) (5,952,961)
Interest and other income............................ 157,929 255,344 544,322
Net (loss) gain on sales of marketable securities.... (300,430) 3,297 (24,922)
Interest expense..................................... (152,935) (371,208) (563,294)
------------ ----------- -----------
NET LOSS............................................... $(12,077,537) $(8,459,862) $(5,996,855)
=========== ========== ==========
NET LOSS PER SHARE..................................... $ (.62) $ (.55) $ (.42)
=========== ========== ==========
Weighted average number of shares outstanding.......... 19,594,285 15,432,287 14,356,718
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 58
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
--------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991.................................. 13,931,218 $139,312 $55,159,459 $(36,253,603) $19,045,168
Proceeds from exercise of common stock warrants............... 432,600 4,326 2,952,163 2,956,489
Proceeds from exercise of common stock options................ 47,300 473 151,933 152,406
Net loss...................................................... (5,996,855 ) (5,996,855 )
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1992.................................. 14,411,118 144,111 58,263,555 (42,250,458 ) 16,157,208
Net proceeds from issuance of common stock and warrants to D.
Blech....................................................... 5,000,000 50,000 9,200,501 9,250,501
Issuance of common stock as required by various agreements.... 40,967 410 142,975 143,385
Proceeds from exercise of common stock options................ 12,200 122 39,203 39,325
Net loss...................................................... (8,459,862 ) (8,459,862 )
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1993.................................. 19,464,285 194,643 67,646,234 (50,710,320 ) 17,130,557
Net proceeds from sale of common stock and warrants........... 610,000 6,100 1,470,335 1,476,435
Commitment to purchase common stock from Purdue Frederick,
Runham and Banela........................................... (994,994) (9,950) (3,970,026) (3,979,976 )
Net proceeds from the sale of common stock to Sentinel
Charitable Remainder Trust.................................. 430,000 4,300 425,700 430,000
Net loss...................................................... (12,077,537 ) (12,077,537 )
---------- -------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1994.................................. 19,509,291 $195,093 $65,572,243 $(62,787,857) $ 2,979,479
========= ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 59
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS USED FOR OPERATIONS:
Net loss......................................... $(12,077,537) $(8,459,862) $(5,996,855)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization................. 2,926,439 1,017,949 1,039,114
Reduction of other assets..................... 50,000
Net loss (gain) on sales of marketable 300,430 (3,297) 24,922
securities....................................
Retirements of property, plant and equipment..... 14,271
Change in operating assets and liabilities:
Receivables from affiliated companies......... (1,500) 1,500 (3,861)
Inventories................................... 1,129,847 (49,752) (831,091)
Consignment inventory......................... (220,410)
Accounts and other receivables................ (647,897) 12,023 1,209,682
Prepaid expenses and other current assets..... 154,958 (162,338) (38,025)
Accounts payable and accrued expenses......... 604,359 (148,859) 213,843
------------ ----------- -----------
Net cash used for operations............. (7,781,311) (7,792,636) (4,368,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities................... 6,490,406 4,153,719 5,455,958
Purchases of marketable securities............... (2,496,445) (3,891,422) (3,062,531)
Additions to property, plant and equipment....... (82,498) (87,412) (251,511)
Additions to intangible and other assets......... (101,345) (84,537) (208,216)
------------ ----------- -----------
Net cash provided by investing 3,810,118 90,348 1,933,700
activities.............................
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from purchase agreement with D. 430,000 9,355,500
Blech.........................................
Net proceeds from sale of common stock and 1,476,435
warrants......................................
Increase (decrease) in advances from NPDC........ 126,297 (38,627) (77,888)
Reduction of long-term debt...................... (1,727,989) (1,542,481) (1,187,895)
Purchase of common stock from Runham and (250,000)
Banela........................................
Proceeds from exercise of common stock options... 39,325 152,406
Proceeds from exercise of common stock 2,956,489
warrants......................................
------------ ----------- -----------
Net cash provided by financing 54,743 7,813,717 1,843,112
activities.............................
------------ ----------- -----------
Net (decrease) increase in cash and cash (3,916,450) 111,429 (591,188)
equivalents......................................
Cash and cash equivalents at beginning of year..... 4,247,067 4,135,638 4,726,826
------------ ----------- -----------
Cash and cash equivalents at end of year........... $ 330,617 $ 4,247,067 $ 4,135,638
------------ ----------- -----------
Cash paid for interest expense..................... $ 205,190 $ 329,643 $ 505,385
------------ ----------- -----------
NON CASH INVESTING AND FINANCING ACTIVITIES:
Issuances of common stock in payment of $ $ 143,385 $
liabilities...................................
Commitment to purchase common stock.............. $ 3,729,976 $ $
Offset of receivables in settlement of obligation $ 700,000 $ $
to repurchase stock...........................
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 60
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BUSINESS, TRANSACTIONS WITH NPDC AND OTHER BUSINESS
Since January 1981, Interferon Sciences, Inc. (the "Company") has been
primarily engaged in the research and development of pharmaceutical products
containing alpha interferon for the treatment of viral diseases, cancers and
diseases of the immune system. ALFERON N Injection is a preparation for the
treatment of genital warts by local injection. In October 1989, the Company
received from the Food and Drug Administration ("FDA") approval to market
ALFERON N Injection for the intralesional treatment of refractory or recurring
external genital warts in patients 18 years of age or older. Nationwide
distribution of ALFERON N Injection commenced during July 1991 (See Note 5).
Additional products under development by the Company include ALFERON LDO and
ALFERON N Gel. ALFERON LDO is a low dose oral liquid alpha interferon
preparation which the Company believes has potential for treating HIV-infected
individuals and possibly other viral diseases. ALFERON N Gel is a topical
interferon preparation which the Company believes has potential in the treatment
of cervical dysplasia, recurrent genital herpes, other viral diseases and
cancers (See Note 6).
The Company is a party to a management agreement with National Patent
Development Corporation ("NPDC") pursuant to which certain legal, financial and
administrative services have been provided by employees of NPDC. The fee for
such services in 1994, 1993 and 1992 was $120,000 annually. In addition, NPDC
provides to the Company, at its estimated cost, certain personnel and services
which the Company uses in its operations. For the years ended December 31, 1994,
1993 and 1992, such charges amounted to $1,194,380, $895,700 and $864,615,
respectively. The Company is also covered under NPDC's insurance policies except
for certain policies which the Company has in its own name beginning in 1994.
The Company's allocated portion of insurance costs was $114,000, $291,000 and
$210,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
The Company owns the buildings which contain its offices and laboratories
and presently leases out a portion of the buildings to NPDC. The Company and
NPDC have entered into an agreement for the sharing of the office, warehouse and
laboratory facilities. Total occupancy costs for the years ended December 31,
1994, 1993 and 1992 were approximately $760,000, $686,000 and $751,000,
respectively. NPDC paid to the Company as rent NPDC's proportionate share of
such occupancy costs (based on both square feet occupied and number of
personnel), which amounted to $150,000, $138,996 and $141,996, respectively.
On June 19, 1990, the Company and NPDC entered into an agreement pursuant
to which the Company agreed to issue warrants to purchase up to approximately
1.1 million shares of Common Stock in connection with NPDC's Exchange Offer (the
"Offer"). For each warrant issued by the Company, NPDC agreed to reduce by $.80
the debt owed it by the Company. On August 10, 1990, the Offer expired and the
Company issued warrants to purchase 465,900 shares of Common Stock exercisable
at a price of $6.88 per share until August 16, 1992 and the debt owed by the
Company to NPDC was reduced by $372,720. During February 1992 the warrants were
called by the Company resulting in net proceeds to the Company of $2,956,000
from the issuance of 432,600 shares of the Company's Common Stock upon exercise
of the warrants.
See Note 15 for information with respect to royalty obligations to NPDC.
TRANSACTIONS WITH DAVID BLECH
On May 28, 1993, David Blech, the Chief Executive Officer, sole shareholder
and a director of D. Blech & Company, Incorporated ("DBC"), and the Company
entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to which
David Blech or his designees purchased for $4.00 per unit, an aggregate of
2,500,000 units ("Units"), each Unit consisting of two shares of Common Stock,
one Class A Warrant to purchase one share of Common Stock at an exercise price
of $3.25 per share and one Class B Warrant to purchase one share of Common Stock
at an exercise price of $5.00 per share. The purchasers have certain
registration rights as to the securities acquired by them under the Purchase
Agreement. Under the Purchase
F-7
<PAGE> 61
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement, Mr. Blech has the right to cause the Company to use its best efforts
to nominate two designees of Mr. Blech to the Board of Directors of the Company
as long as Mr. Blech and the other purchasers under the Purchase Agreement
beneficially own, in the aggregate, at least 2,000,000 shares of Common Stock.
To date, Mr. Blech has not exercised such nomination rights. The Company paid
DBC a $500,000 fee for its services in connection with the Purchase Agreement,
and incurred $100,000 in legal and other fees. In addition, fees totalling
approximately $105,000 relating to this transaction were paid by issuance of
Common Stock to another party.
Concurrently with the execution of the Purchase Agreement, the Company
entered into a consulting agreement with DBC under which the Company agreed to
pay $100,000 per year, payable monthly, to DBC for advisory services with
respect to the Company's field of interest and business, strategic and
commercial matters related to the biotechnology industry. The term of the
consulting agreement was one year and commenced on June 1, 1993.
On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of Common Stock through DBC as underwriter.
On September 22, 1994, DBC could not meet certain minimum capital requirements
and was forced to discontinue its operations. Consequently, the Company had to
cancel the proposed public offering of Common Stock.
On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with David Blech and certain other individuals pursuant to which
Sentinel Charitable Remainder Trust purchased 430,000 shares of the Common Stock
for $430,000. In addition, pursuant to such agreement David Blech and another
individual agreed to exchange warrants to purchase an aggregate of 1,662,500
shares of Common Stock for 332,500 shares of Common Stock. The issuance and
exchange of the shares of Common Stock pursuant to the Purchase and Exchange
Agreement were completed during the first quarter of 1995.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The financial statements include the
operations of the Company and Interferon Sciences Development Corporation (ISD),
its wholly owned subsidiary.
Statements of cash flows -- For purposes of the statements of cash flows,
the Company considers all highly liquid instruments with maturities of three
months or less from purchase date to be cash equivalents.
Property, plant and equipment -- Property, plant and equipment are carried
at cost. Major additions and betterments are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently.
Depreciation -- The Company provides for depreciation and amortization of
plant and equipment following the straight-line method over the estimated useful
lives of such assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASS OF ASSETS USEFUL LIVES
-------------------------------------------------------------- --------------
<S> <C>
Buildings and Improvements.................................... 15 to 30 years
Equipment..................................................... 5 to 10 years
</TABLE>
Intangible assets -- The Company capitalizes costs to obtain and maintain
patents and licenses. Patent costs are amortized over 17 years and license costs
are amortized over 5 years, each on a straight-line basis. To the extent a
patent is determined to be worthless, the related capitalized cost is
immediately expensed. The Company also capitalizes costs incurred to obtain
long-term debt financing. Such costs are amortized on the straight-line basis
over the term of the related debt and are classified as interest expense.
F-8
<PAGE> 62
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue recognition -- Sales are recorded generally upon shipment of
product. However, when a sale is made subject to a right of return, revenues are
not recognized until notification by the customer that the product has been
resold, and the related product is recorded as consignment inventory until such
notification.
Collaborative agreement research and development revenues and costs -- The
costs of performing research and development are reported when incurred and are
included in research and development expenses and the purchase of equipment in
accordance with the nature of the costs incurred. Generally, the Company matches
its collaborative research and development revenues in the same accounting
periods in which the related research costs are incurred. However, when the
revenues are exhausted, the Company has the option to continue the research
activities at its own expense.
Inventories -- Inventories, consisting of raw materials, work in process
and finished goods, are stated at the lower of cost or market on a FIFO basis.
Inventories, if any, which are expected to become obsolete before sale or use in
research are written off.
Pension plan -- The Company's employees are included in NPDC's pension
plan. The Company provides for its allocable share of such costs as they accrue.
Effective December 31, 1991, the plan benefits were frozen (See Note 12).
Net loss per share -- Net loss per share is based on the weighted average
number of shares of Common Stock outstanding during the period.
NOTE 3. LIQUIDITY
The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1994, the Company had an accumulated
deficit of approximately $62.8 million. For the years ended December 31, 1994,
1993 and 1992, the Company had losses from operations of approximately $11.8
million, $8.3 million, and $6.0 million, respectively. Although the Company
received FDA approval to market ALFERON N Injection in October 1989, it has had
only limited revenue from the sale of ALFERON N Injection. In order for the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional uses, of which there can be no assurance. There can
be no assurance that sufficient quantities of ALFERON N Injection will be sold
to allow the Company to operate profitably.
The Company has limited financial resources as of December 31, 1994 with
which to support future operating activities and to satisfy its financial
obligations as they become payable, including the repurchase of 682,494 shares
of Common Stock from Purdue for $2,729,976. Consequently, management is
continuing to actively pursue raising additional capital by either (i) issuing
securities in a public or private equity offering, (ii) licensing rights to its
injectable, topical or oral formulations of alpha interferon, or (iii) entering
into collaborative or other arrangements with corporate partners. Insufficient
funds will require the Company to delay, scale back, or eliminate certain or all
of its activities or license third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself and may
cause the Company to be in default under its agreements with Purdue and other
parties.
NOTE 4. AGREEMENTS WITH HOFFMANN-LAROCHE
In June 1988, Hoffmann-LaRoche, Inc. ("Roche") and the Company entered into
an agreement (the "1988 License Agreement") pursuant to which the Company
received a license from Roche, under a U.S. Patent held by Roche, which enables
the Company to sell ALFERON N Injection in the United States for the treatment
of genital warts. As part of the 1988 License Agreement, Roche received 100,000
shares of Common Stock in June 1988, the value of which was recorded as a
license cost on the balance sheet in 1988. In addition, when the Company granted
marketing rights to an affiliate of The Purdue Frederick Company
F-9
<PAGE> 63
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Purdue Frederick, and together with its affiliates, "Purdue") for the
distribution of ALFERON N Injection (See Note 5), the Company became obligated
to pay Roche $250,000, payable in two equal installments of $125,000. The first
installment was paid in May 1989 and the second was paid in May 1990. Such
obligation was recorded by the Company as an additional license cost in 1988.
The 1988 License Agreement also requires the Company to pay Roche a royalty of
8% on Purdue's net sales of ALFERON N Injection.
In January 1991, the 1988 License Agreement was amended to require the
Company to pay Roche a royalty of 8% on the Company's net sales (as defined) of
ALFERON N Injection up to $20,000,000 and 9.5% of net sales in excess of
$20,000,000 in any calendar year and the license was expanded to allow the
Company to sell ALFERON N Injection for diseases which are refractory to
recombinant interferon therapy.
Finally, as a result of receiving FDA approval for ALFERON N Injection in
1989, the Company was obligated to issue 484,262 shares to Roche as a prepaid
royalty against future net sales by the Company. Such shares, valued at
$2,100,000, were issued in February 1990. The value of the Common Stock
previously issued for the license as well as the additional license cost of
$250,000 recorded in 1988 are also to be credited against future royalties
payable to Roche. Through December 31, 1994, the Company had incurred $614,794
of royalties due Roche resulting from sales of ALFERON N Injection. However, the
Company applied $575,617 of the prepayments previously made to Roche against the
amount due. The value of the Company's Common Stock which may be credited
against royalties payable is the lesser of its value on the date of issuance and
on the date the Company exercises its right to credit such stock against its
royalty obligations. As of December 31, 1994, based upon the market value of the
Common Stock, the Company had approximately $459,485 of credits available to
offset its future royalty obligations to Roche.
In January 1991, the Company and Roche signed an agreement (the "Roche Gel
Agreement") pursuant to which the Company can obtain supplies of Roche's bulk
purified recombinant interferon for use in the Company's topical products,
thereby eliminating the need for the Company to build a recombinant interferon
manufacturing facility. Alternatively, under the Roche Gel Agreement, the
Company can use its own natural alpha interferon in ALFERON Gel under a license
from Roche.
In March 1992, the Company obtained a non-exclusive license from Roche,
which allows the Company to make, have made, use and sell in the United States,
without a potential patent infringement claim from Roche, natural alpha
interferon for the oral treatment of human diseases.
On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Roche patent and rejected all of the 14
claims in the Roche patent. Claims in a patent under reexamination are valid and
enforceable until such time as a final disposition on the claims is reached. On
July 11, 1994, Roche filed a response objecting to the Patent Office's rejection
of such claims. The outcome of such reexamination of the Roche patent cannot be
determined at this time. Accordingly, the Company is unable to determine the
expected impact of such reexamination of the Roche patent on the Company's
liquidity and capital resources.
During the second quarter of 1994, the Company adopted a policy of
amortizing prepaid royalties at the greater of the straight line rate over a
five-year period or the amount of royalties incurred based upon sales. During
the third quarter of 1994, the Company, in its quarterly evaluation of whether
the unamortized balance of prepaid royalties is realizable, determined that it
was prudent to write off such prepaid royalties. The Company based this decision
on the reduced market price during the third quarter of the Company's Common
Stock, the uncertainty created by the decision of the United States Patent and
Trademark Office in May 1994 to reexamine the claims of the Hoffmann patent and
upon sales of ALFERON N Injection. During 1994, the amortization and writeoff of
prepaid royalties totalling $2,100,000 were included as general and
administrative expense in the statements of operations and reflected as
depreciation and amortization in the statements of cash flows.
F-10
<PAGE> 64
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. AGREEMENTS WITH THE PURDUE FREDERICK COMPANY
As of November 1, 1988, the Company and Purdue entered into a marketing
agreement pursuant to which ALFERON N Injection would be manufactured by the
Company and marketed by Purdue in the United States subsequent to FDA approval,
which was received in October 1989, and certain foreign countries upon receipt
of foreign regulatory approval. The Company manufactures and sells the product
to Purdue on an exclusive basis. Pursuant to the terms of the agreement, the
Company: (a) records the sale of the product upon transfer to Purdue and (b) may
receive a royalty from Purdue based upon the net sales price received by Purdue
for the resale of ALFERON N Injection. In November 1990, the Company and Purdue
entered into an amendment to the original marketing agreement.
In December 1991, Purdue agreed to purchase an aggregate of 45,000 vials of
ALFERON N Injection from the Company over approximately a six-month period which
commenced in March 1992 and was completed in September 1992. During the year
ended December 31, 1992, the Company completed this order and the balance of a
prior order for approximately 19,500 vials of ALFERON N Injection. Purdue did
not order any ALFERON N Injection from the Company during 1993.
On January 27, 1994, the Company reacquired marketing and distribution
rights for ALFERON N Injection from Mundipharma Pharmaceutical Company
("Mundipharma"), an affiliate of Purdue Frederick, for Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Greece, India, Ireland, Israel,
Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland
and the United Kingdom. Mundipharma and its affiliate, Purdue Pharma L.P.
("Purdue Pharma"), retained exclusive marketing and distribution rights for
Canada and the United States, respectively, subject to an 18-month option
granted to the Company to reacquire the United States and Canadian marketing and
distribution rights under certain terms and conditions. Purdue gave the Company
a new purchase order for 45,000 vials of ALFERON N Injection at an agreed upon
price. In addition, the Company will pay Mundipharma a 3% royalty on sales in
the reacquired territories. This rate will be reduced to 1% after certain
aggregate royalty payments have been made. The Company is also obligated to
provide Purdue with up to 15,000 vials of ALFERON N Injection, at an agreed upon
reduced price, to replace any inventory of Purdue existing on the date of the
amendment which goes out of date. The Company also granted Purdue an option,
exercisable until July, 1995, to purchase an additional 100,000 vials of ALFERON
N Injection at an agreed upon reduced price.
Under the amended agreements, the Company will take over responsibility for
the clinical development of all additional potential uses of ALFERON N
Injection. Upon the Company obtaining approval in the United States for
additional uses of ALFERON N Injection, Purdue Pharma and Mundipharma will be
obligated, in order to maintain their exclusive license, to repay certain of the
Company's research and development costs and make certain additional payments to
the Company for the rights for the first five of any such new uses.
The Company also agreed to buy back 994,994 shares of the Common Stock then
held by Purdue at an agreed upon price of $4.00 per share (the "Company Purchase
Obligation"). These shares were to be paid for over an 18-month period. In
January 1994, the Company purchased 62,500 shares for $250,000 and such shares
were cancelled by the Company. The Company was to pay an additional $1,000,000
to purchase 250,000 shares during 1994 and $2,729,976 to purchase 682,494 shares
during 1995, which shares would also be cancelled by the Company. In 1994, the
Company and Purdue agreed to offset $700,000 owed to the Company by Purdue, for
the purchase of ALFERON N Injection during 1994, against the Company's
obligation to purchase $1,000,000 of Common Stock from Purdue in 1994. The
Company has reflected the Common Stock subject to repurchase commitment as
temporary equity, and the $300,000 not paid when due in 1994 as a current
liability. The Company's right to market ALFERON N Injection in the Returned
Territories may be forfeited if the Company does not pay for the shares of
Common Stock which it is obligated to purchase in accordance with the terms of
the 1994 Purdue Amendment.
F-11
<PAGE> 65
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the amended agreements, the Company also was granted an option (the
"Repurchase Option"), exercisable at a price of $10 million until January 1995
and $12 million until July 1995, to reacquire the right to market and distribute
ALFERON N Injection in the United States and Canada. In the event that the
Company exercises the Repurchase Option, any amounts which have not become due
under the Company Purchase Obligation are cancelled.
In March 1995, the Company entered into an amendment of the 1994 Purdue
Amendments (the "1995 Purdue Amendment") pursuant to which the Company obtained
an option, exercisable until June 20, 1995, (the "Option") to reacquire the
marketing and distribution rights from Purdue Pharma and Mundipharma. The 1995
Amendment provides upon exercise of the Option for (i) the payment of
approximately $3 million in cash (less any amounts paid after March 29, 1995 for
the repurchase of Common Stock under the Company's Purchase Obligation) and (ii)
the issuance of 2.5 million shares of Common Stock. If 18 months from the date
of exercise of the Option by the Company (the "Valuation Date"), the 2.5 million
shares of Common Stock do not have a value of at least $9,037,807 (which value
will be calculated using the average of the closing bid and asked prices of the
Common Stock as quoted by the NASDAQ National Market System for the ten trading
days ending two days prior to the Valuation Date), the Company must issue a note
for the shortfall. Such note will bear interest at the prime rate and will
become due and payable 24 months from the Valuation Date. The Company agreed
that it will utilize its best efforts to ensure that the 2.5 million shares of
Common Stock will be registered and freely tradeable 18 months from the date of
exercise of the Company's option. The Option, if exercised, would replace in its
entirety the royalty obligations and the Repurchase Option described above
contained in the 1994 Amendments with Purdue Pharma and Mundipharma.
Purdue has informed the Company that during the 12-month period ended
December 31, 1994, it sold (including free samples) approximately 27,000 vials
of ALFERON N Injection from its inventory. At December 31, 1994, the Company had
available for sale approximately 14,000 vials of ALFERON N Injection which were
awaiting final release from quality control/assurance.
All of the Company's sales of ALFERON N Injection in 1994 and 1992 were
made to Purdue.
NOTE 6. RESEARCH AND DEVELOPMENT AGREEMENT WITH INTERFERON SCIENCES RESEARCH
PARTNERS, LTD.
During January 1984, the Company organized ISD to act as the sole general
partner of Interferon Sciences Research Partners, Ltd., a New Jersey limited
partnership (the "Partnership"). The Company and the Partnership entered into a
development contract whereby the Company received substantially all of the net
proceeds ($4,414,475) of the Partnership's public offering of limited
partnership interests. The Company used the proceeds to perform research,
development and clinical testing on behalf of the Partnership for the
development of ALFERON Gel containing recombinant interferon (See Note 1).
In connection with the formation of the Partnership, ISD agreed to make
additional cash contributions for purposes of continuing development of ALFERON
Gel if the Partnership exhausted its funds prior to development of such product.
ISD is wholly dependent upon the Company for capital to fund such commitment.
The Partnership exhausted its funds during 1986, and the Company contributed a
total of $1,997,000 during the period from 1986 to 1990, for the continued
development of ALFERON Gel. During May 1987, the Company filed a Product License
Application with the FDA for approval to market ALFERON Gel. At a meeting with
the FDA in February, 1990, the FDA indicated that additional process development
and clinical trials would be necessary prior to approval of ALFERON Gel. The
Company believed, at that time, that the costs to complete the required process
development and clinical trials would be substantial, and there could be no
assurance that the clinical trials would be successful.
As a result of the above events, in March 1992, the Company withdrew its
FDA Product License Application for ALFERON Gel containing recombinant
interferon. In place of single species recombinant interferon, previously
ALFERON Gel's active ingredient, the Company commenced, in 1992, further
F-12
<PAGE> 66
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of ALFERON Gel using the Company's natural source multi-species
alpha interferon ("ALFERON N Gel"). Assuming successful development and
commercial exploitation of ALFERON N Gel, the Company may be obligated to pay
the Partnership royalties equal to 4% of the Company's net sales of ALFERON N
Gel and 15% of revenues received from sublicensing ALFERON N Gel.
NOTE 7. MARKETABLE SECURITIES
As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). There was no material effect on the
consolidated financial statements as a result of the adoption of this principle.
The Company's marketable securities consist of United States Government
obligations. Under SFAS No. 115, the Company classifies these debt securities as
available-for-sale and records the securities at their fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized. The effect of the change in accounting was not material to the Company
and all of the Company's marketable equity securities were sold by December 31,
1994.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
are included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Proceeds from the sale of investment securities were $6,490,406 for the
year ended December 31, 1994. Net realized losses on such sales for the year
ended December 31, 1994 were $300,430.
The market value and face value of marketable securities at December 31,
1993 was $4,310,000 and $4,300,000, respectively. The Company did not own any
such securities at December 31, 1994.
NOTE 8. INVENTORIES
Inventories, consisting of material, labor and overhead, are classified as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Finished goods........................................................ $ 342,330 $1,221,630
Work in process....................................................... 303,111 431,119
Raw materials......................................................... 383,717 506,256
---------- ----------
$1,029,158 $2,159,005
========= =========
</TABLE>
Finished goods inventories at December 31, 1994 and 1993, are stated net of
a 1993 write-down of $300,000 to reflect the Company's continuing obligation to
Purdue to replace up to 15,000 vials of ALFERON N Injection at an agreed upon
reduced price.
Finished goods inventory consists of approximately 14,000 vials of ALFERON
N Injection and is scheduled to expire in October 1996.
Consignment inventory consists of ALFERON N Injection shipped to Purdue;
however such shipment is subject to a right of return until notification by
Purdue that the product has been resold. Such inventory is scheduled to expire
in September 1995.
Cost of goods sold and excess/idle production costs for 1994, 1993 and 1992
includes the write-down of December 31, 1994, 1993 and 1992 inventories to their
estimated net realizable value.
F-13
<PAGE> 67
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. LONG TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
--------- -----------
<S> <C> <C>
Note payable in connection with marketing agreement(a)....... $ -- $ 458,640
Note payable for manufacturing facility and equipment(b)..... 409,275 1,678,624
--------- -----------
409,275 2,137,264
Less current maturities...................................... 409,275 1,999,313
--------- -----------
$ -- $ 137,951
======== =========
</TABLE>
- ---------------
(a) Pursuant to the marketing agreement with Purdue, on December 31, 1991, the
Company issued a note to Purdue Pharma for $458,640 in advances received
from Purdue Pharma during 1991. The note accrued interest at 7.5% per annum.
The payment of both principal and accrued interest for $538,179 was made to
Purdue on April 25, 1994.
(b) On March 13, 1990, the Company borrowed $4.2 million from United States
Capital Corporation, an indirect subsidiary of The Hong Kong and Shanghai
Bank, at an effective interest rate of approximately 12.4%. The proceeds of
the loan were used to finance (i) the expansion of the Company's
manufacturing facility and (ii) the purchase of additional equipment for the
facility.
During December 1994, the Company renegotiated the terms of the loan such
that the loan was extended for an additional two months with interest, however,
not all the payments were made by the Company in 1995 and the loan is in
default.
The loan is secured by certain equipment of the Company and is guaranteed
by NPDC.
Aggregate annual maturities of long-term debt outstanding at December 31,
1994 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----- ---------
<S> <C>
1995.. $ 409,275
</TABLE>
NOTE 10. INCOME TAXES
On May 30, 1991, NPDC exchanged the Company's Class B Common Stock for an
equal number of shares of the Company's Common Stock. As a result, on that date
the Company ceased to be included in NPDC's consolidated Federal income tax
return. For periods subsequent to May 30, 1991, the Company will file its own
consolidated Federal income tax return, including its wholly-owned subsidiary.
The Company's tax net operating loss for the first five months of 1991 was
included in the consolidated Federal income tax return of NPDC.
As a result of the loss allocation rules contained in the Federal income
tax consolidated return regulations, approximately $5,500,000 of net operating
loss carryforwards are available to the Company upon ceasing to be a member of
NPDC's consolidated return group. In addition, the Company has net operating
loss carryforwards from tax years prior to joining the NPDC consolidated return
group of approximately $2,100,000 which expire in 1996-1998. For the seven
months ended December 31, 1991, the Company had a net operating loss of
approximately $3,600,000, which will expire December 31, 2006.
At present, the Company believes that the events culminating with the
closing of the public offering, on October 29, 1991, resulted in an "ownership
change" under Internal Revenue Code Section 382 with respect to its stock. The
Company believes that as a result of the ownership change, the future utility of
its pre-change net operating losses were limited to an annual amount of
approximately $3,700,000. To the extent not used in
F-14
<PAGE> 68
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any given year, such limitation carries forward and is cumulative. Due to the
limitation cumulatively being carried forward, the Company believes that
effective December 31, 1994, the annual pre-change net operating loss limitation
of $3,700,000 will no longer be in effect. Therefore, the full pre-change net
operating loss of $11,200,000 is no longer restricted to $3,700,000 annually,
and is fully available to offset future taxable income until the loss
carryforward expires through 2006. In addition, the Company has approximately
$116,000 of investment tax credit carryforwards and $973,000 of research and
development credit carryforwards which expire in 1997-2002. These credits are
also now available to offset any future tax liability, and their use is no
longer restricted by Code Section 382.
The following table summarizes the tax net operating loss carryforwards of
the Company as of December 31, 1994:
<TABLE>
<CAPTION>
YEARS
DESCRIPTION AMOUNT EXPIRE
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Subject to Section 382:
Pre-NPDC Group................................................. $ 2,100,000 1996 - 1998
NPDC Group Years............................................... 5,500,000 2004 - 2005
Post-NPDC Group................................................ 3,600,000 2006
Not Subject to Section 382:
Post-NPDC Group................................................ 25,700,000 2006 - 2009
-----------
$36,900,000
==========
</TABLE>
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
This statement requires that deferred income taxes be recorded following the
liability method of accounting and adjusted periodically when income tax rates
change. Adoption of the new Statement did not have any effect on the Company's
financial condition or results of operations since the Company does not carry
any deferred tax accounts on its balance sheet.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.
The Company has, as of December 31, 1994, deferred tax assets of
approximately $13,635,000, deferred tax liabilities of approximately $332,000
and a valuation allowance of approximately $13,303,000. At January 1, 1994, the
valuation allowance was $7,742,000. The increase to the valuation allowance is
due primarily to net operating losses. The tax effects that give rise to these
deferred tax assets and liabilities consist of the following as of December 31,
1994:
<TABLE>
<S> <C>
DEFERRED TAX ASSET
Net operating loss carryforwards....................................... $ 12,546,000
Tax credit carryforwards............................................... 1,089,000
------------
13,635,000
DEFERRED TAX LIABILITIES
Property and equipment, principally due to differences in
depreciation......................................................... (332,000)
------------
Net deferred tax asset................................................. 13,303,000
Valuation allowance.................................................... (13,303,000)
------------
Net deferred tax asset after valuation allowance....................... $ 0
===========
</TABLE>
F-15
<PAGE> 69
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED
In 1981, the Company adopted the 1981 Stock Option Plan (the "Plan"),
authorizing a committee of the Board of Directors to grant options, over a
10-year period, to purchase not more than 500,000 shares of Common Stock to
officers, directors, employees and consultants of the Company. Since 1981, the
Plan has been amended several times to increase the number of shares issuable
under the Plan to 3,500,000 and to extend the Plan until 2001. Pursuant to the
terms of the Plan, no option may be exercised after 10 years from the date of
grant. The exercise price for any option issued may not be less than 85 percent
of the market price of the Common Stock on the date of issuance.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1991, include warrants to purchase 465,900 shares of
Common Stock pursuant to NPDC's Exchange Offer (see Note 1). Warrants to
purchase 432,600 shares of Common Stock were exercised in February 1992 and the
remaining warrants to purchase 33,300 shares expired unexercised.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994, 1993 and 1992, include 20,000 shares under a
warrant agreement with U.S. Capital Corporation.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1993 and 1992, include 375,000 shares under warrant
agreements with Purdue. Such warrants were terminated in 1994 as a result of the
amended marketing and distribution agreements with Purdue (see Note 5).
Options and warrants outstanding and shares reserved for issuance at
December 31, 1994, 1993 and 1992, and options and warrants exercisable at
December 31, 1994 and 1993, include 200,000 shares under warrant agreements with
the underwriter of the October 1991 public offering of Common Stock.
Options and warrants outstanding and shares reserved for issuance at
December 31, 1994 and 1993, and options and warrants exercisable at December 31,
1994, include 125,000 shares under a warrant agreement with Strategic Growth
International, the Company's outside public relations advisor.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994 and 1993 include 5,000,000 shares under a warrant
agreement with David Blech and certain other individuals. During the first
quarter of 1995, these individuals exchanged warrants to purchase an aggregate
of 2,400,000 shares of common stock for an aggregate of 480,000 shares of Common
Stock.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994 include 61,000 shares under a warrant agreement
issued as a commission in connection with the sale of shares of Common Stock to
an institutional investor.
F-16
<PAGE> 70
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in options and warrants outstanding during the years ended December
31, 1994, 1993 and 1992, options and warrants exercisable and shares reserved
for issuance at December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
PRICE RANGE NUMBER OF
PER SHARE SHARES
------------ ----------
<S> <C> <C>
Options and Warrants
Outstanding at December 31, 1991................................ $2.25 -- $ 9.00 3,355,450
Granted......................................................... 3.50 -- 10.00 736,500
Exercised....................................................... 2.25 -- 6.88 (479,900)
Terminated...................................................... 2.25 -- 6.88 (109,500)
------------ ----------
Outstanding at December 31, 1992................................ 2.25 -- 10.00 3,502,550
Granted......................................................... 2.13 -- 5.00 5,138,250
Exercised....................................................... 2.25 -- 4.25 (12,200)
Terminated...................................................... 3.50 -- 9.00 (28,750)
------------ ----------
Outstanding at December 31, 1993................................ 2.13 -- 10.00 8,599,850
Granted......................................................... 2.00 -- 2.70 2,318,700
Exercised....................................................... --
Terminated...................................................... 3.13 -- 10.00 (2,638,200)
------------ ----------
Outstanding at December 31, 1994................................ 2.00 -- 6.50 8,280,350
=========
Exercisable
December 31, 1992............................................... 2.25 -- 10.00 2,131,350
=========
December 31, 1993............................................... 2.13 -- 10.00 7,738,950
=========
December 31, 1994............................................... 2.00 -- 6.50 7,841,200
=========
Shares reserved for issuance
December 31, 1992............................................... 3,772,520
=========
December 31, 1993............................................... 8,885,320
=========
December 31, 1994............................................... 8,571,320
=========
</TABLE>
NOTE 12. PENSION AND INVESTMENT PLANS
NPDC had a Defined Benefit Pension Plan (the "Plan") for employees of
certain divisions and subsidiaries including those of the Company. Benefits were
based primarily on years of service and a fixed rate of benefits per year of
service. Contributions were intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
Effective December 31, 1991, the Plan benefits were frozen. In the future,
accrued vested benefits will be paid to terminated participants in the form of a
lump sum distribution in cases where the accrued vested benefit is less than
$3,500. Terminated participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the $7,500 payable
limit as outlined in the Plan, payment will be deferred until a terminated
vested participant reaches age 65 or elects early retirement, at age 60 or
later. As of December 31, 1994, 1993 and 1992, the projected benefit obligation
of the NPDC Plan was $4,469,000, $4,917,000 and $3,976,000 and the fair value of
plan assets was $3,405,000, $3,528,000 and
F-17
<PAGE> 71
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,120,000. The discount rate used in determining the actuarial present value of
the projected benefit obligation was 8.25%. The expected long-term rate of
return on assets was 10 percent.
Effective March 1, 1992, NPDC adopted the 1992 401(k) Savings Plan (the
"Savings Plan"). Effective December 31, 1991, the Plan participants would no
longer accrue benefits under the Defined Benefit Pension Plan, but became
eligible to participate in NPDC's Savings Plan.
NPDC's Savings Plan is for employees who have completed one year of
service; however, past vesting service credit was recognized for employees who
participated in the Savings Plan at the date of initial enrollment, March 1,
1992.
The Savings Plan permits pre-tax contributions to the Savings Plan by
participants pursuant to Section 401(k) of the Internal Revenue Code of 2% to 6%
of base compensation. The Company matches 40% of the participants' eligible
contributions based on a formula set forth in the Savings Plan. For 1994 and
1993, the Company's contribution to the Savings Plan was $53,000 and $49,000,
respectively. Participants are fully vested in their contributions and may
withdraw such contributions at time of employment termination, or at age 59 1/2,
or earlier in the event of financial hardship. Amounts otherwise are paid at
retirement or in the event of death or disability. Employer contributions vest
at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the Board of
Directors of NPDC and all contributions are held by the trustee and invested at
the participants' direction in various mutual funds.
The Company does not provide any post-retirement benefits, other than
pensions, to its employees.
NOTE 13. PROFIT SHARING PLAN
Effective June 6, 1988, the Company adopted the 1988 Profit Sharing Plan
(the "Profit Sharing Plan") providing key employees and consultants with an
opportunity to share in the profits of the Company. The Profit Sharing Plan is
administered by the Company's Compensation Committee.
Pursuant to the terms of the Profit Sharing Plan, the Compensation
Committee, in its sole discretion, based upon the significance of the employee's
contributions to the operations of the Company, selects certain key employees
and consultants of the Company who are entitled to participate in the Profit
Sharing Plan and determines the extent of their participation. The amount of the
Company's profits available for distribution to the participants (the
"Distribution Pool") is the lesser of (a) 10% of the Company's income before
taxes and profit sharing expense and (b) an amount equal to 100% of the base
salary for such year of all the participants in the Profit Sharing Plan. A
number of key employees are eligible to participate in the Profit Sharing Plan.
The Compensation Committee may require as a condition to participation that
a participant remain in the employ of the Company until the end of the fiscal
year for which payment is to be made. Payments required to be made under the
Profit Sharing Plan must be made within 10 days of the filing of the Company's
tax return. To date, there have been no contributions by the Company under the
Profit Sharing Plan.
NOTE 14. NON-CASH FINANCING AND INVESTING ACTIVITIES
During the years ended December 31, 1994, 1993 and 1992 the following
noncash financing and investing activities occurred:
1994:
The Company committed to purchase 932,494 shares, valued at $3,729,976, of
the Common Stock from Purdue.
Offset of receivables of $700,000 in settlement of obligation to repurchase
Common Stock.
F-18
<PAGE> 72
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993:
The Company issued 40,967 shares, valued at $143,385, of Common Stock as
required by various agreements.
1992:
None occurred.
NOTE 15. COMMITMENTS AND CONTINGENCIES
As consideration for the transfer to the Company of certain licenses,
rights and assets upon the formation of the Company by NPDC, the Company agreed
to pay NPDC royalties of $1,000,000, but such payments will be made only with
respect to those years in which the Company has income before income taxes, and
will be limited to 25% of such income.
See Notes 4 and 6 for information relating to royalties payable to Roche
and the Partnership, respectively.
In October 1989, the Company entered into a license agreement with a
non-affiliated party for co-exclusive rights to certain low dose oral
formulations of interferon. The Company will be required to pay a royalty of 10%
of net sales, as defined, of products produced and marketed by the Company that
may be developed under the license agreement.
NOTE 16. SUBSEQUENT EVENT
On February 7, 1995, the Company concluded an agreement with Fujimoto
Diagnostics, Inc. (Fujimoto) of Osaka, Japan, for the commercialization of the
Company's alpha interferon in Japan. In connection with the agreement, Fujimoto
purchased 1,034,483 shares of the Company's Common Stock for $1,500,000 and
committed to purchase an additional $500,000 of Common Stock in February, 1996.
The agreement grants Fujimoto exclusive rights to develop, distribute and sell
the Company's injectable and topical formulations of Interferon Alfa-n3 in
Japan. Under the agreement, Fujimoto will fund and conduct all preclinical and
clinical studies required for regulatory approval in Japan. Fujimoto will
purchase quantities of the Company's natural alpha interferon at agreed-upon
prices during the preclinical and clinical phases and upon commercialization.
F-19
<PAGE> 73
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 105,248 $ 330,617
Accounts and other receivables................................ 140,064 35,546
Inventories................................................... 1,151,590 1,029,158
Consignment inventory......................................... 220,410
Receivables from affiliated companies, net.................... 20,001 20,001
Prepaid expenses and other current assets..................... 68,586 55,221
------------ ------------
TOTAL CURRENT ASSETS............................................ 1,485,489 1,690,953
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST.......................... 11,826,069 11,826,069
Less accumulated depreciation and amortization................ (6,199,111) (6,013,839)
------------ ------------
5,626,958 5,812,230
------------ ------------
INTANGIBLE ASSETS, NET OF AMORTIZATION.......................... 349,624 355,019
OTHER ASSETS.................................................... 323,900 323,900
------------ ------------
TOTAL ASSETS.................................................... $ 7,785,971 $ 8,182,102
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.......................... $ 274,370 $ 409,275
Accounts payable and accrued expenses......................... 1,641,469 1,629,025
Amount due NPDC............................................... 244,113 134,347
Amount due Purdue for repurchase of common stock.............. 232,217 300,000
------------ ------------
TOTAL CURRENT LIABILITIES....................................... 2,392,169 2,472,647
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE COMMITMENT (682,494
SHARES)....................................................... 2,729,976 2,729,976
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized -- 5,000,000 shares; none issued and
outstanding................................................
Common stock, par value $.01 per share;
authorized -- 40,000,000 shares; issued and
outstanding -- 20,876,274 and
19,509,291 shares.......................................... 208,763 195,093
Capital in excess of par value.................................. 67,041,073 65,572,243
Accumulated deficit............................................. (64,586,010) (62,787,857)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY...................................... 2,663,826 2,979,479
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 7,785,971 $ 8,182,102
=========== ===========
</TABLE>
- ---------------
* The condensed balance sheet as of December 31, 1994 has been summarized from
the Company's audited balance sheet as of that date.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-20
<PAGE> 74
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Sales
Alferon N Injection............................................. $ 174,710 $
Research products and other revenues............................ 4,909 1,316
----------- -----------
Total revenues.......................................... 179,619 1,316
----------- -----------
COSTS AND EXPENSES
Cost of goods sold and excess/idle production costs............. 568,095 462,786
Research and development (net of $45,498 and $37,500 of rental
income received from NPDC)................................... 960,152 1,169,300
General and administrative (includes $304,654 and $471,664 of
charges from NPDC for management fees and reimbursements of
expenses).................................................... 446,392 739,943
----------- -----------
Total costs and expenses................................ 1,974,639 2,372,029
----------- -----------
LOSS FROM OPERATIONS.............................................. (1,795,020) (2,370,713)
Interest and other income....................................... 6,776 90,224
Interest expense................................................ (9,909) (65,305)
----------- -----------
NET LOSS.......................................................... $(1,798,153) $(2,345,794)
========== ==========
NET LOSS PER SHARE................................................ $ (.09) $ (.12)
========== ==========
Weighted average number of shares outstanding..................... 21,125,277 19,417,410
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-21
<PAGE> 75
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
---------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994...... 19,509,291 $ 195,093 $65,572,243 $(62,787,857) $ 2,979,479
Net proceeds from the sale of
common stock to Fujimoto
Diagnostics, Inc................ 1,034,483 10,345 1,472,155 1,482,500
Issuance of common stock in
exchange for warrants to
purchase common stock........... 332,500 3,325 (3,325)
Net loss.......................... (1,798,153) (1,798,153)
----------- --------- ----------- ------------ ------------
BALANCE AT MARCH 31, 1995......... 20,876,274 $ 208,763 $67,041,073 $(64,586,010) $ 2,663,826
========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-22
<PAGE> 76
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS USED FOR OPERATIONS:
Net loss........................................................ $(1,798,153) $(2,345,794)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................ 194,015 201,023
Net gain on sales of marketable securities................... (9,102)
Change in operating assets and liabilities:
Inventories................................................ (122,432) 158,440
Consignment inventory...................................... 220,410
Receivables from affiliated companies...................... (93,913)
Accounts and other receivables............................. (172,301) 30,226
Prepaid expenses and other current assets.................. (13,365) (158,161)
Accounts payable and accrued expenses...................... 12,444 (3,855)
----------- -----------
Net cash used for operations............................ (1,679,382) (2,221,136)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.............................. (2,496,445)
Sales of marketable securities.................................. 2,006,797
Additions to property, plant and equipment...................... (54,805)
Additions to intangible and other assets........................ (3,348) (13,329)
----------- -----------
Net cash used for investing activities.................. (3,348) (557,782)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock.......................... 1,482,500
Increase (decrease) in advances from NPDC....................... 109,766 (8,050)
Reduction of long-term debt..................................... (134,905) (366,037)
Purchase of common stock from Runham and Banela................. (250,000)
----------- -----------
Net cash provided by (used for) financing activities.... 1,457,361 (624,087)
----------- -----------
Net decrease in cash and cash equivalents......................... (225,369) (3,403,005)
Cash and cash equivalents at beginning of period.................. 330,617 4,247,067
----------- -----------
Cash and cash equivalents at end of period........................ $ 105,248 $ 844,062
========== ==========
Cash paid for interest expense.................................... $ 8,564 $ 52,463
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Offset of receivables in settlement of obligation to repurchase
stock........................................................ $ 67,783 $
========== ==========
Reductions in marketable securities............................. $ $ 152,666
========== ==========
Commitment to purchase common stock............................. $ $ 3,729,976
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-23
<PAGE> 77
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. AMENDED AGREEMENTS WITH THE PURDUE FREDERICK COMPANY
On January 27, 1994, the Company reacquired marketing and distribution
rights for ALFERON N Injection from Mundipharma Pharmaceutical Company
("Mundipharma"), an affiliate of The Purdue Frederick Company (together with its
affiliates, "Purdue"), in Western Europe, Israel, India and Australia.
Mundipharma and its affiliate, Purdue Pharma L.P. ("Purdue Pharma"), retained
exclusive marketing and distribution rights for Canada and the United States,
respectively, subject to the Company's option to reacquire the United States and
Canadian marketing and distribution rights at a price of $12 million until July
26, 1995 (the "Repurchase Option"). Purdue gave the Company a new purchase order
for 45,000 vials of ALFERON N Injection at an agreed upon price. In addition,
the Company will pay Mundipharma a 3% royalty on net sales in the reacquired
territories. This rate will be reduced to 1% after certain aggregate royalty
payments have been made. The Company was also obligated to provide Purdue with
up to 15,000 vials of ALFERON N Injection, at an agreed upon price, to replace
any inventory of Purdue existing on the date of the amendment which goes out of
date. The Company also granted Purdue an option, exercisable until July, 1995,
to purchase an additional 100,000 vials of ALFERON N Injection at an agreed upon
price.
Under the amended agreements (the "1994 Purdue Amendments"), the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications of ALFERON N Injection. Upon the Company obtaining approval in
the United States for additional indications of ALFERON N Injection, Purdue
Pharma and Mundipharma were obligated, in order to maintain their exclusive
license, to repay certain of the Company's research and development costs and
make certain additional payments to the Company for the rights for the first
five of any such new uses.
The Company also agreed to buy back 994,994 shares of Common Stock then
held by Purdue at an agreed upon price of $4.00 per share (the "Company Purchase
Obligation") over an 18-month period. In January 1994, the Company purchased
62,500 of such shares for $250,000 and such shares were cancelled by the
Company. The Company was obligated to pay an additional $1,000,000 to purchase
250,000 shares during 1994. In 1994, the Company and Purdue agreed to offset
$700,000 owed to the Company by Purdue, for the purchase of ALFERON N Injection
during 1994, against the Company's obligation to purchase $1,000,000 of Common
Stock from Purdue in 1994. The Company has reflected the Common Stock subject to
repurchase commitment as temporary equity, and $300,000 of this obligation to
Purdue that was not paid in 1994 as a current liability on the balance sheet at
December 31, 1994. In addition, as of March 31, 1995 the Company had applied an
additional $67,783 of offsets based upon additional sales of ALFERON N Injection
by Purdue. In April 1995, the Company was required to purchase 62,500 shares of
Common Stock for $250,000 and in July 1995 is obligated to purchase 619,994
shares of Common Stock for $2,479,976. As of May 4, 1995, the Company had
generated sufficient additional offsets based upon additional sales of ALFERON N
Injection to and by Purdue to repay the $232,217 owed to Purdue as of March 31,
1995 and to pay $140,000 of the $250,000 owed to Purdue for the April 1995 stock
repurchase. The Company anticipates that the $110,000 unpaid balance of the
purchase price for the 62,500 shares required to be repurchased in April 1995
will be paid through additional offsets or working capital or both. The Company
currently anticipates repurchasing certain marketing rights from Purdue.
In March 1995, the Company entered into an amendment of the 1994 Purdue
Amendments (the "1995 Purdue Amendment") pursuant to which the Company obtained
an option, exercisable until June 30, 1995, (the "Option") to reacquire the
remaining marketing and distribution rights from Purdue Pharma and Mundipharma.
The exercise price of the Option is (i) $2,962,193 in cash (less any amounts
paid after March 29, 1995 for the repurchase of Common Stock described above)
and (ii) 2.5 million shares of Common Stock. As of May 4, 1995, an aggregate of
$372,217 had been so paid after March 29, 1995, and an additional $110,000 will
be so paid prior to any exercise of the Option, reducing the cash component of
the option exercise price to $2,479,976. If 18 months from the date of exercise
of the Option by the Company (the
F-24
<PAGE> 78
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
"Valuation Date"), the 2.5 million shares of Common Stock do not have a value of
at least $9,037,807 (which value will be calculated using the average of the
closing bid and asked prices of the Common Stock as quoted by the NASDAQ
National Market System for the ten trading days ending two days prior to the
Valuation Date), the Company must issue a note for the shortfall. Such note will
bear interest at the prime rate, and will become due and payable 24 months from
the Valuation Date. The Company agreed that it will utilize its best efforts to
ensure that the 2.5 million shares of Common Stock will be registered and freely
tradeable 18 months from the date of exercise of the Company's option. If the
Option is exercised, the Repurchase Option, the royalty obligations, and
Purdue's right to obtain marketing and distribution rights for new indications
contained in the 1994 Purdue Amendment will terminate and the cash component of
the Option exercise price will be deemed to constitute payment for the remainder
of the shares of Common Stock subject to the repurchase obligation, and the
Company will receive such shares for no additional consideration.
NOTE 2. AGREEMENT WITH FUJIMOTO DIAGNOSTICS, INC.
On February 7, 1995, the Company concluded an agreement with Fujimoto
Diagnostics, Inc. (Fujimoto) of Osaka, Japan, for the commercialization of the
Company's ALFERON N Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased 1,034,483 shares of the Company's Common Stock for
$1,500,000 ($1.45 per share, the then current market price) and committed to
purchase an additional $500,000 of Common Stock in February 1996 based on the
then current market price. The agreement grants Fujimoto exclusive rights to
develop, distribute and sell ALFERON N Injection and ALFERON N Gel in Japan.
Under the agreement, Fujimoto agreed to fund and conduct all preclinical and
clinical studies required for regulatory approval in Japan. Fujimoto will
purchase quantities of ALFERON N Injection and ALFERON N Gel at agreed-upon
prices during the preclinical and clinical phases.
NOTE 3. INVENTORIES
Inventories, consisting of material, labor and overhead, are classified as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ------------
<S> <C> <C>
Finished goods........................................... $ 387,330 $ 342,330
Work in process.......................................... 389,118 303,111
Raw materials............................................ 375,142 383,717
---------- ------------
$1,151,590 $1,029,158
========= ==========
</TABLE>
Finished goods inventories at March 31, 1995 and December 31, 1994, are
stated net of a 1993 write-down of $300,000 to reflect the Company's continuing
obligation to Purdue to replace up to 15,000 vials of ALFERON N Injection at an
agreed upon reduced price.
Finished goods inventory consists of approximately 15,000 vials of ALFERON
N Injection and is scheduled to expire in October 1996.
F-25
<PAGE> 79
INTERFERON SCIENCES, INC. AND SUBSIDIARY
QUALIFICATION RELATING TO FINANCIAL INFORMATION
MARCH 31, 1995
The financial information included herein is unaudited. Such information,
however, reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The results for interim
periods are not necessarily indicative of results to be expected for the year.
F-26
<PAGE> 80
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE 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 OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH
SUCH INFORMATION IS GIVEN.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
The Company......................... 8
Risk Factors........................ 8
Use of Proceeds..................... 16
Price Range of Common Stock and
Dividend Policy................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Financial Information...... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 20
Business............................ 25
Management.......................... 41
Principal Stockholders.............. 43
Certain Transactions................ 45
Underwriting........................ 47
Description of Securities........... 49
Legal Matters....................... 49
Experts............................. 50
Additional Information.............. 50
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
INTERFERON SCIENCES, INC.
8,000,000 SHARES
OF
COMMON STOCK
------------------
PROSPECTUS
------------------
SUNRISE LOGO
, 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered hereby other than the SEC and NASD fees.
<TABLE>
<S> <C>
SEC registration fee....................................................... $ 4,635
NASD fee................................................................... *
NASDAQ listing fee......................................................... *
Accounting fees and expenses............................................... *
Legal fees and expenses.................................................... *
Blue sky expenses and counsel fees......................................... *
Cost of printing and engraving............................................. *
Transfer agent's fees...................................................... *
Miscellaneous.............................................................. *
-------
Total............................................................ $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provide that the Company shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto. In addition, Article 4, Section 10 of the Company's
Restated Certificate of Incorporation eliminates personal liability of its
directors to the full extent permitted by Section 102(b)(7) of the General
Corporation Law of the State of Delaware, as amended from time to time.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
II-1
<PAGE> 82
Section of the Underwriting Agreement (filed as Exhibit 1.1) provides
that the Underwriter will indemnify and hold harmless the Company and each
director, officer, or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based upon information furnished in writing to the Company by the
Underwriter expressly for use therein.
The Company currently has a $1,000,000 directors' and officers' liability
insurance policy.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C> <C>
(a) -- Exhibits
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise Securities Corp.*
1.2 -- Form of Subscription Agreement*
1.3 -- Form of Escrow Agreement*
1.4 -- Form of Master Selected Dealer Agreement*
3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated herein by
reference to Exhibit 3B of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988.
3.2 -- Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant. Incorporated herein by reference to Exhibit 3.2 of Registration
Statement No. 33-78952.
3.3 -- By-Laws of the Registrant, as amended. Incorporated herein by reference to Exhibit
3.2 of Registration Statement No. 2-7117.
4.1 -- Form of Underwriter's Purchase Options.*
4.2 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2 of
Registration Statement No. 33-40902.
4.3 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob Agam.
Incorporated herein by reference to Exhibit 4.3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.
5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to the
legality of the securities being registered.**
10.1 -- Transfer and License Agreement among National Patent, Hydron Laboratories, Inc. and
the Registrant dated as of January 1, 1981. Incorporated herein by reference to
Exhibit 10.8 of the Registrant's Registration Statement No. 2-71117.
10.2 -- Management Services Agreement dated January 1, 1981 between the Registrant and
National Patent. Incorporated herein by reference to Exhibit 10.9 of the
Registration Statement No. 2-71117.
10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by reference
to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.
10.4 -- Cross License Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10V of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.
10.5 -- Development Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10T of the Registrant's
Annual Report on 10-K for the year ended December 31, 1984.
10.6 -- Interim License Option Agreement dated October 26, 1984 between the Registrant and
the Partnership. Incorporated herein by reference to Exhibit 10U of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1984.
10.7 -- Purchase Option Agreement dated October 26, 1984 between the Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10V of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.
10.8 -- Amended and Restated Agreement of Limited Partnership dated October 26, 1984 among
the Registrant, Interferon Sciences Development Corporation, National Patent and
the limited partners of the Partnership. Incorporated herein by reference to
Exhibit 10-X of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1984.
</TABLE>
II-2
<PAGE> 83
<TABLE>
<S> <C> <C>
10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and Celltech
Limited. Incorporated herein by reference to Exhibit 10.27 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.10 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc. dated June 30,
1988. Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1988.
10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference to Exhibit
10X of the Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
10.12 -- License Agreement dated October 20, 1989 between the Registrant and Amarillo Cell
Culture Company, Incorporated. Incorporated herein by reference to Exhibit 10Y of
the Registrant's Annual Report on Form 10K for the year ended December 31, 1989.(1)
10.13 -- Agreement dated January 3, 1991 between the Registrant and Hoffmann-La Roche, Inc.
Incorporated herein by reference to Exhibit 10.30 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1990.
10.14 -- Amendment dated January 16, 1991 to License Agreement dated as of June 30, 1988
between the Registrant and Hoffmann-La Roche, Inc. Incorporated herein by reference
to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1990.
10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P. and the
Registrant. Incorporated herein by reference to Exhibit 10.26 of Registration
Statement No. 33-40902.
10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between Mundipharma
Pharmaceutical Corporation and the Registrant. Incorporated herein by reference to
Exhibit 10.27 of Registration Statement No. 33-40902.
10.17 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc. dated as of
March 31, 1992. Incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1992.
10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992, effective March 1, 1992.
Incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1992.
10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1993.***
10.20 -- Amendment dated January 26, 1994 to the Amended and Restated Distribution Agreement
dated June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.19 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1993.
10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the Registrant,
Mundipharma Pharmaceutical Company and Purdue Pharma L.P. Incorporated herein by
reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.***
10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue Frederick
Company. Incorporated herein by reference to Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.
10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela Corporation and
Runham Corporation. Incorporated herein by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1993.
10.24 -- Release dated January 26, 1994 among the Registrant, National Patent Development
Corporation, Purdue Pharma L.P., Mundipharma Pharmaceutical Company, The Purdue
Frederick Company, Banela Corporation and Runham Corporation. Incorporated herein
by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for
the Year ended December 31, 1993.
10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and David Blech.
Incorporated herein by reference to Exhibit 10.26 of Registration Statement No.
33-78952.
10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement. Incorporated
herein by reference to Exhibit 10.28 of Registration Statement No. 33-78952.
</TABLE>
II-3
<PAGE> 84
<TABLE>
<S> <C> <C>
10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant and
Industria Farmaceutica Andromaco, S.A. Incorporated herein by reference to Exhibit
6(a) to the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994.***
10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between Registrant
and Sanofi Winthrop L.P. Incorporated herein by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
10.29 -- Amendment dated March 29, 1995 to Distribution Agreement dated as of February 3,
1995 between Registrant and Industria Farmaceutica Andromaco S.A. Incorporated
herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchases. Incorporated herein by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the Registrant
and Neoprobe Corp. Incorporated herein by reference to Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.33 -- Agreement dated as of February 6, 1995 between the Registrant and Fujimoto
Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.34 -- Form of Stock Purchase Agreement dated as of August 31, 1994 between the Registrant
and Dimensional Funds Advisors, Inc. Incorporated herein by reference to Exhibit
10.35 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the Registrant and
Capello Capital Corp. Incorporated herein by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant and Purdue Frederick Company. Incorporated herein by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant, Banela Corporation and Runham Corporation. Incorporated herein by
reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution Agreement dated
June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.40 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement dated January
26, 1994 among the Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.41 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.42 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.42 -- License Agreement, dated as of March 31, 1995, among the Registrant, Hoffmann - La
Roche, Inc., and F. Hoffmann - La Roche Ltd.**
10.43 -- Agreement, dated April 27, 1995, between Registrant and Amarillo Cell Culture
Company, Incorporated.**
10.44 -- Form of note, dated May 3, 1995, issued by the Registrant to National Patent
Development Corporation, Biotechnology Investment Group, L.L.C., and Sentinel
Charitable Remainder Trust.**
</TABLE>
II-4
<PAGE> 85
<TABLE>
<S> <C> <C>
23.1 -- Consent of Independent Auditors.*
23.2 -- Consent of Lawrence M. Gordon (to be included in Exhibit 5.1).**
</TABLE>
(b) Financial Statement Schedules:
None
- ---------------
* Filed herewith.
** To be filed by amendment.
*** Confidential treatment has been granted for portions of this exhibit.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant 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 registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
A. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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 Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bono fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remains unsold at the
termination of the offering.
II-5
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and the State of New York, on this day
of , 1995.
INTERFERON SCIENCES, INC.
By:
---------------------------------
Samuel H. Ronel, Ph.D.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities on , 1995.
<TABLE>
<S> <C>
- --------------------------------------------- Chairman of the Board
Martin M. Pollak
Chairman of the Board's Executive Committee,
- --------------------------------------------- Treasurer and Director
Jerome I. Feldman
President, Chief Executive Officer, and
- --------------------------------------------- Director
Samuel H. Ronel, Ph.D. (Principal Executive Officer)
Executive Vice President and Director
- ---------------------------------------------
Stanley G. Schutzbank, Ph.D.
Director
- ---------------------------------------------
Leon Botstein, Ph.D.
Director
- ---------------------------------------------
Sheldon L. Glashow, Ph.D
Director
- ---------------------------------------------
Roald Hoffmann, Ph.D
Director
- ---------------------------------------------
Ogden R. Reid
Director
- ---------------------------------------------
E. Donald Shapiro
Controller (Principal Accounting and Financial
- --------------------------------------------- Officer)
Donald W. Anderson
</TABLE>
The foregoing constitute a majority of the members of the Board of
Directors.
II-6
<PAGE> 87
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise
Securities Corp.*
1.2 -- Form of Subscription Agreement*
1.3 -- Form of Escrow Agreement*
1.4 -- Form of Master Selected Dealer Agreement*
3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 3B of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.
3.2 -- Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant. Incorporated herein by reference to Exhibit 3.2 of
Registration Statement No. 33-78952.
3.3 -- By-Laws of the Registrant, as amended. Incorporated herein by reference
to Exhibit 3.2 of Registration Statement No. 2-7117.
4.1 -- Form of Underwriter's Purchase Options.*
4.2 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2
of Registration Statement No. 33-40902.
4.3 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob
Agam. Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to
the legality of the securities being registered.**
10.1 -- Transfer and License Agreement among National Patent, Hydron
Laboratories, Inc. and the Registrant dated as of January 1, 1981.
Incorporated herein by reference to Exhibit 10.8 of the Registrant's
Registration Statement No. 2-71117.
10.2 -- Management Services Agreement dated January 1, 1981 between the
Registrant and National Patent. Incorporated herein by reference to
Exhibit 10.9 of the Registration Statement No. 2-71117.
10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.
10.4 -- Cross License Agreement dated October 26, 1984 between the Registrant
and the Partnership. Incorporated herein by reference to Exhibit 10V of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1984.
10.5 -- Development Agreement dated October 26, 1984 between the Registrant and
the Partnership. Incorporated herein by reference to Exhibit 10T of the
Registrant's Annual Report on 10-K for the year ended December 31, 1984.
10.6 -- Interim License Option Agreement dated October 26, 1984 between the
Registrant and the Partnership. Incorporated herein by reference to
Exhibit 10U of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1984.
10.7 -- Purchase Option Agreement dated October 26, 1984 between the Registrant
and the Partnership. Incorporated herein by reference to Exhibit 10V of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1984.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
10.8 -- Amended and Restated Agreement of Limited Partnership dated October 26,
1984 among the Registrant, Interferon Sciences Development Corporation,
National Patent and the limited partners of the Partnership.
Incorporated herein by reference to Exhibit 10-X of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.
10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and
Celltech Limited. Incorporated herein by reference to Exhibit 10.27 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1992.
10.10 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc.
dated June 30, 1988. Incorporated herein by reference to the
Registrant's Form 10-Q for the quarter ended June 30, 1988.
10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference
to Exhibit 10X of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.
10.12 -- License Agreement dated October 20, 1989 between the Registrant and
Amarillo Cell Culture Company, Incorporated. Incorporated herein by
reference to Exhibit 10Y of the Registrant's Annual Report on Form 10K
for the year ended December 31, 1989.(1)
10.13 -- Agreement dated January 3, 1991 between the Registrant and Hoffmann-La
Roche, Inc. Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31,
1990.
10.14 -- Amendment dated January 16, 1991 to License Agreement dated as of June
30, 1988 between the Registrant and Hoffmann-La Roche, Inc. Incorporated
herein by reference to Exhibit 10.31 to the Registrant's Annual Report
on Form 10-K for the Fiscal Year ended December 31, 1990.
10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P.
and the Registrant. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-40902.
10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between
Mundipharma Pharmaceutical Corporation and the Registrant. Incorporated
herein by reference to Exhibit 10.27 of Registration Statement No.
33-40902.
10.17 -- License Agreement between the Registrant and Hoffmann-La Roche, Inc.
dated as of March 31, 1992. Incorporated herein by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1992.
10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992, effective March 1, 1992.
Incorporated herein by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1992.
10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated
June 14, 1991 between the Registrant and Purdue Pharma L.P. Incorporated
herein by reference to Exhibit 10.18 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1993.***
10.20 -- Amendment dated January 26, 1994 to the Amended and Restated
Distribution Agreement dated June 14, 1991 between the Registrant and
Mundipharma Pharmaceutical Company. Incorporated herein by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.
10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the
Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.***
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue
Frederick Company. Incorporated herein by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the Year ended December
31, 1993.
10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela
Corporation and Runham Corporation. Incorporated herein by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.
10.24 -- Release dated January 26, 1994 among the Registrant, National Patent
Development Corporation, Purdue Pharma L.P., Mundipharma Pharmaceutical
Company, The Purdue Frederick Company, Banela Corporation and Runham
Corporation. Incorporated herein by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31,
1993.
10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and
David Blech. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-78952.
10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement.
Incorporated herein by reference to Exhibit 10.28 of Registration
Statement No. 33-78952.
10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant
and Industria Farmaceutica Andromaco, S.A. Incorporated herein by
reference to Exhibit 6(a) to the Registrant's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 1994.***
10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between
Registrant and Sanofi Winthrop L.P. Incorporated herein by reference to
Exhibit 6(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
10.29 -- Amendment dated March 29, 1995 to Distribution Agreement dated as of
February 3, 1995 between Registrant and Industria Farmaceutica Andromaco
S.A. Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchases. Incorporated
herein by reference to Exhibit 10.31 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the
Registrant and Neoprobe Corp. Incorporated herein by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the
Registrant and Fujimoto Diagnostics, Inc. Incorporated herein by
reference to Exhibit 10.33 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.33 -- Agreement dated as of February 6, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit
10.34 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.34 -- Form of Stock Purchase Agreement dated as of August 31, 1994 between the
Registrant and Dimensional Funds Advisors, Inc. Incorporated herein by
reference to Exhibit 10.35 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the
Registrant and Capello Capital Corp. Incorporated herein by reference to
Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant and Purdue Frederick Company. Incorporated herein
by reference to Exhibit 10.37 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant, Banela Corporation and Runham Corporation.
Incorporated herein by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14,
1991 between the Registrant and Purdue Pharma L.P. Incorporated herein
by reference to Exhibit 10.39 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution
Agreement dated June 14, 1991 between the Registrant and Mundipharma
Pharmaceutical Company. Incorporated herein by reference to Exhibit
10.40 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement
dated January 26, 1994 among the Registrant, Mundipharma Pharmaceutical
Company and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.42 -- License Agreement, dated as of March 31, 1995, among the Registrant,
Hoffmann - La Roche, Inc., and F. Hoffmann - La Roche Ltd.**
10.43 -- Agreement, dated April 27, 1995, between Registrant and Amarillo Cell
Culture Company, Incorporated**
10.44 -- Form of note, dated May 3, 1995, issued by the Registrant to National
Patent Development Corporation, Biotechnology Investment Group, L.L.C.,
and Sentinel Charitable Remainder Trust.**
23.1 -- Consent of Independent Auditors.*
23.2 -- Consent of Lawrence M. Gordon (to be included in Exhibit 5.1).**
</TABLE>
- ---------------
* Filed herewith.
** Confidential treatment has been granted for portions of this exhibit.
*** Confidential treatment has been requested for portions of this exhibit.
<PAGE> 1
EXHIBIT 1.1
INTERFERON SCIENCES, INC.
UNDERWRITING AGREEMENT
, 1995
-----
Sunrise Securities Corp.
919 Third Avenue
New York, New York 10022
Attention: Nathan Low, President
Gentlemen:
The undersigned, Interferon Sciences, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you (the "Underwriter") as
follows:
1. INTRODUCTION.
(a) The Company proposes to issue and sell a minimum of 5,000,000 and
a maximum of 8,000,000 shares (the "Shares") of common stock, par value $.01 per
share, of the Company (the "Common Stock") [at prices based on the prevailing
market price of the Common Stock as determined by the Company and the
Underwriter from time to time.] [at a price equal to $ per Share.].
-------
(b) The Company hereby agrees to pay to the Underwriter a commission
equal to 8.25% of the gross proceeds of the sale of the Shares.
(c) The Company hereby agrees to issue and sell to the Underwriter
options (the "Underwriter's Options") to purchase a number of shares of Common
Stock equal to 10% of the number of Shares sold to purchasers (the "Option
Stock") for an aggregate purchase price of $.001 per share of Option Stock. The
Underwriter's Options will be exercisable for the Option Stock for a period of
four years, commencing one year after the effective date of the Registration
<PAGE> 2
Statement at an initial exercise price per share equal to 110% of the public
offering price per Share. The Option Stock shall be identical to the Shares. The
Underwriter's Options shall be substantially in the form filed as an exhibit to
the Registration Statement. The Underwriter's Options and the Option Stock are
hereinafter referred to collectively as the "Underwriter's Securities." The
Shares and the Underwriter's Securities are hereinafter referred to collectively
as the "Securities."
(d) The Company is retaining you as its exclusive agent
(subject to your right to designate Selected Dealers (as hereinafter defined)
who may participate in the offering) in the offering contemplated hereby and
understands that you are acting on a "best efforts" basis in connection with
such offering.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, the Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed one or more amendments thereto, on Form S-2 (Registration No.
33-______), including in such registration statement and each such
amendment a related preliminary prospectus, for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act"). As
used in this Agreement, the term "Registration Statement" shall refer
to such Registration Statement, as amended, on file with the Commission
at the time such Registration Statement becomes effective under the Act
(including the prospectus, financial statements, exhibits, and all
other documents filed as a part thereof, or incorporated by reference
directly or indirectly therein (such incorporated documents being
herein referred to as the "Incorporated Documents")); provided,
however, that such Registration Statement, at the time it becomes
effective, may omit such
-2-
<PAGE> 3
information as is permitted to be omitted from such Registration
Statement when it becomes effective under the Act pursuant to Rule 430A
of the General Rules and Regulations of the Commission under the Act
(the "Regulations"), which information (the "Rule 430A Information")
shall be deemed to be included in such Registration Statement when a
final prospectus is filed with the Commission in accordance with Rules
430A and 424(b)(1) or (4) of the Regulations); the term "Preliminary
Prospectus" shall refer to each prospectus included in the Registration
Statement, or any amendments thereto, before the Registration Statement
becomes effective under the Act, the form of prospectus omitting Rule
430A Information included in the Registration Statement when the
Registration Statement becomes effective under the Act, if applicable
(the "Rule 430A Prospectus"), and any prospectus filed by the Company
with your consent pursuant to Rule 424(a) of the Regulations; and the
term "Prospectus" shall refer to the final prospectus in the form first
filed pursuant to Rule 424(b)(1) or (4) of the Regulations or, if no
such filing is required, the form of final prospectus included in the
Registration Statement.
(b) When the Registration Statement becomes effective under the
Act, and at all times subsequent thereto up to and including the First
Closing Date (as defined in Section 3) and each Additional Closing Date
(as defined in Section 3), and during such longer period as the
Prospectus may be required to be delivered in connection with sales by
you or a dealer, and during such longer period until any post-effective
amendment thereto shall become effective under the Act, the
Registration Statement (and any post-effective amendment thereto) and
the Prospectus (as amended or as supplemented if the Company shall have
filed with the
-3-
<PAGE> 4
Commission any amendment or supplement to the Registration Statement or
the Prospectus) will contain all statements which are required to be
stated therein in accordance with the Act and the Regulations, will
comply with the Act and the Regulations, and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not then been set forth in such
an amendment or supplement; if a Rule 430A Prospectus is included in
the Registration Statement at the time it becomes effective under the
Act, the Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4)
of the Regulations will contain all Rule 430A Information and all
statements which are required to be stated therein in accordance with
the Act or the Regulations, will comply with the Act and the
Regulations, and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; each
Preliminary Prospectus, as of the date filed with the Commission,
contained all statements required to be stated therein in accordance
with the Act and the Regulations, complied with the Act and the
Regulations, and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Each of the
Incorporated Documents complies in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations thereunder.
-4-
<PAGE> 5
(c) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of, or preventing or suspending the use
of, the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, refusing to permit
the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Securities, nor has any of such
authorities instituted or threatened to institute any proceedings with
respect to a Stop Order.
(d) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly and accurately described therein. Any
contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the
Commission as an exhibit to, or has been incorporated as an exhibit by
reference into, the Registration Statement.
(e) The only subsidiary (as defined in the Regulations) of the
Company is set forth on Schedule I hereto (the "Subsidiary"). Each of
the Company and the Subsidiary is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority, and all necessary
consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and declarations and filings with, all
federal, state, local, and other governmental authorities and all
courts and other tribunals, to own, lease, license, and use its
properties and assets and to conduct its business in the manner
described in the Prospectus. Each of the Company and the Subsidiary is
duly qualified to do business as a foreign
-5-
<PAGE> 6
corporation and is in good standing as such in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification necessary.
(f) The authorized capital stock of the Company consists of
40,000,000 shares of Common Stock, of which ________________ shares are
outstanding, and 5,000,000 shares of Preferred Stock (the "Preferred
Stock"), of which no shares are outstanding. Except as disclosed in the
Prospectus, each outstanding share of Common Stock, and each
outstanding share of capital stock of the Subsidiary is validly
authorized and issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive rights
of stockholders, and, in the case of the Subsidiary, is owned of record
and beneficially by the Company, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts, except as may be properly described in the
Prospectus. There is no commitment, plan, or arrangement to issue, and
no outstanding option, warrant, or other right calling for the issuance
of, any share of capital stock of the Company or of the Subsidiary or
any security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, capital stock of the Company
or of the Subsidiary, except as may be properly described in the
Prospectus. There is outstanding no security or other instrument which
by its terms is convertible into, or exercisable or exchangeable for,
capital stock of the Company or of the Subsidiary, except as may be
properly described in the Prospectus. The certificates evidencing the
Common Stock and the Preferred Stock are in due and proper form.
-6-
<PAGE> 7
(g) The consolidated financial statements of the Company and the
Subsidiary included in the Registration Statement and the Prospectus
fairly present, with respect to the Company and the Subsidiary, the
consolidated financial position, the consolidated balance sheets, the
consolidated statements of operations, the consolidated statements of
changes in stockholders' equity, the consolidated statements of cash
flows, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply.
Such financial statements have been prepared in accordance with
generally accepted accounting principles (except to the extent that
certain footnote disclosures regarding any stub period may have been
omitted in accordance with the applicable rules of the Commission under
the Exchange Act) consistently applied throughout the periods involved,
are correct and complete in all material respects, and are in
accordance with the books and records of the Company and the
Subsidiary. KPMG Peat Marwick, the accountants whose report on the
audited financial statements is filed with the Commission as a part of
the Registration Statement, are, and during the periods covered by
their report(s) included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect
to the Company and the Subsidiary within the meaning of the Act and the
Regulations. No other financial statements are required by Form S-2 or
otherwise to be included in the Registration Statement or the
Prospectus. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company or the
Subsidiary from the latest information
-7-
<PAGE> 8
set forth in the Registration Statement or the Prospectus, except as
may be properly described in the Prospectus.
(h) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending,
threatened, or, to the best knowledge of the Company, in prospect (or
any basis therefor) with respect to the Company, the Subsidiary, or any
of their respective operations, businesses, properties, or assets,
except as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, and will not in the
future have, a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiary taken as a
whole. Neither the Company nor the Subsidiary is in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or
decree, except as may be properly described in the Prospectus or such
as in the aggregate do not now have, and will not in the future have, a
material adverse effect upon the operations, business, properties,
assets or net worth of the Company and the Subsidiary taken as a whole;
nor is the Company or the Subsidiary currently required to take any
action in order to avoid any such violation or default.
(i) Each of the Company and the Subsidiary has good and
marketable title in fee simple absolute to all real properties and good
title to all other properties and assets which the Prospectus indicates
are owned by it, free and clear of all liens, security interests,
pledges, charges, encumbrances, and mortgages (except as may be
properly described in the Prospectus). No real property owned, leased,
licensed, or used by the Company or by the Subsidiary lies in an area
which is, or to the knowledge of the Company or the Subsidiary will be,
subject to
-8-
<PAGE> 9
zoning, use, or building code restrictions which would prohibit, and no
state of facts relating to the actions or inactions of another person
or entity or his or its ownership, leasing, licensing, or use of any
real or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real
property in the business of the Company or the Subsidiary as presently
conducted or as the Prospectus indicates it contemplates conducting
(except as may be properly described in the Prospectus).
(j) Neither the Company, the Subsidiary, nor, to the knowledge
of the Company or the Subsidiary, any other party, is now, or is
expected by the Company or the Subsidiary to be, in violation or breach
of, or in default with respect to, any material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company and the Subsidiary taken
as a whole, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and effect and
is the legal, valid, and binding obligation of the parties thereto and
is enforceable as to them in accordance with its terms. Each of the
Company and the Subsidiary enjoys peaceful and undisturbed possession
under all leases and licenses under which it is operating. Except as
described in the Prospectus, neither the Company nor the Subsidiary is
a party to, or bound by, any contract, agreement, instrument, lease,
license, arrangement, or understanding, or subject to any charter or
other restriction, which has had, or may in the future have, a
material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future
prospects of the Company and the Subsidiary taken as a whole. Neither
the Company nor the Subsidiary
-9-
<PAGE> 10
is in violation or breach of, or in default with respect to, any term
of its certificate of incorporation (or other charter document) or
by-laws.
(k) (i) All United States and foreign patents, patent
applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, and other intangible
properties and assets (all of the foregoing being herein
called "Intangibles") that the Company or the Subsidiary owns
or has pending, or under which it is licensed, are in good
standing and uncontested. ALFERON N(R), ALTEMOL(R) and ALFERON
LDO(TM) are trademarks used by the Company to identify its
products, and such trademarks are protected by registration in
the name of the Company on the principal register in the
United States Patent Office. There is no right under any
Intangible necessary to the business of the Company or of the
Subsidiary as presently conducted or as the Prospectus
indicates it contemplates conducting (except as may be so
designated in the Prospectus). Neither the Company nor the
Subsidiary has infringed, is infringing, has received notice
of or knows of any basis for a third party claim of
infringement with respect to asserted Intangibles of others.
To the knowledge of the Company or the Subsidiary, there is no
infringement by others of Intangibles of the Company or of the
Subsidiary. To the knowledge of the Company or the Subsidiary,
there is no Intangible of others which has had or may in the
future have a materially adverse effect on the financial
condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company and
the Subsidiary taken as a whole.
-10-
<PAGE> 11
(ii) On the date hereof, (A) the Company's Food and
Drug Adminstration ("FDA") approval with respect to the
manufacture and sale of ALFERON N Injection in the United
States for the intralesional treatment of adults with
refractory or recurring external genital warts is in full
force and effect and (B) regulatory approval to sell ALFERON N
Injection for the treatment of genital warts in Mexico is in
full force and effect. All clinical studies conducted or being
conducted by or on behalf of the Company have been and are
being conducted in accordance with accepted standards of good
clinical practice. All manufacturing operations of the Company
have been and are being conducted in substantial compliance
with good manufacturing practice regulations. The Company is
in substantial compliance with all FDA requirements and the
Company has not received any notice, report, other document or
correspondence from the FDA to indicate or suggest any lack of
compliance with any applicable regulatory requirement or any
withdrawal of the approval referred to in (A) above.
(l) Neither the Company nor the Subsidiary, nor any director,
officer, agent, employee, or other person associated with, or acting on
behalf of, the Company or the Subsidiary has, directly or indirectly:
used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence
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<PAGE> 12
payment, kickback, or other unlawful payment. The Company's internal
accounting controls and procedures are sufficient to cause the Company
to comply in all respects with the Foreign Corrupt Practices Act of
1977, as amended.
(m) The Company has all requisite power and authority to
execute, deliver, and perform this Agreement, the Escrow Agreement, the
Subscription Agreements and the Underwriter's Options. All necessary
corporate proceedings of the Company have been duly taken to authorize
the execution, delivery, and performance by the Company of this
Agreement, the Escrow Agreement, the Subscription Agreements and the
Underwriter's Options. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid and binding
obligation of the Company, and is enforceable against the Company in
accordance with its terms. The Underwriter's Options, the Escrow
Agreement and the Subscription Agreements have been duly authorized by
the Company and, when executed and delivered by the Company, will be
the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms. No consent,
authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is required
by the Company or the Subsidiary for the execution, delivery, or
performance by the Company of this Agreement, the Escrow Agreement, the
Subscription Agreements or the Underwriter's Options (except filings
under the Act which have been or will be made before the First Closing
Date or Additional Closing Date, as the case may be, and consents
consisting only of consents under "blue sky" or securities laws which
have been obtained
-12-
<PAGE> 13
at or prior to the date of this Agreement). No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company or the Subsidiary is a party, or to
which any of their respective properties or assets are subject, is
required for the execution, delivery, or performance of this Agreement,
the Escrow Agreement, the Subscription Agreements and the Underwriter's
Options. The execution, delivery, and performance of this Agreement,
the Escrow Agreement, the Subscription Agreements and the Underwriter's
Options will not violate, result in a breach of, conflict with, result
in the creation or imposition of any lien, charge, or encumbrance upon
any properties or assets of the Company or the Subsidiary pursuant to
the terms of, or (with or without the giving of notice or the passage
of time or both) entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate, result in a breach of, or
conflict with any term of the certificate of incorporation (or other
charter document) or by-laws of the Company or the Subsidiary, or
violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on the Company or the
Subsidiary or to which any of their respective operations, businesses,
properties, or assets are subject.
(n) Each Share to be delivered on the Closing Date or any
Additional Closing Date is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued,
fully paid, and nonassessable, without any personal liability attaching
to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of stockholders and each purchaser will
receive good title to the Shares purchased by it from the Company, free
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<PAGE> 14
and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts. The Option
Stock is validly authorized and reserved for issuance and, when issued
and delivered upon the exercise of the Underwriter's Options and
payment therefor in accordance with the respective terms thereof, will
be validly issued, fully-paid, and nonassessable, without any personal
liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders. When
issued, the Underwriter's Options will constitute legal, valid and
binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor in accordance with the respective terms
thereof, the number and type of securities of the Company called for
thereby and the Underwriter's Options will be enforceable against the
Company in accordance with their respective terms. The Underwriter, and
the holders of the Underwriter's Options, will receive good title to
the securities purchased by them, free and clear of all liens, security
interests, pledges, charges, encumbrances, restrictions, shareholders'
agreements, and voting trusts.
(o) The Securities conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(p) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
and except as may otherwise be properly described in the Prospectus,
neither the Company nor the Subsidiary has (i) issued any securities or
incurred any liability or obligation, primary or contingent, for
borrowed money, (ii) entered into any transaction not in the ordinary
course of business,
-14-
<PAGE> 15
(iii) declared or paid any dividend on its capital stock otherwise than
by the Subsidiary, or (iv) experienced any adverse changes or any
development which may materially adversely effect the condition
(financial or otherwise), net assets or stockholders' equity, results
of operations, business, key personnel, assets, or properties of the
Company and the Subsidiary taken as a whole.
(q) Neither the Company nor any of its officers, directors,
or affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, any action designed to stabilize or manipulate
the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of any of the
Shares.
(r) The Company has obtained from each of the Stockholders
listed in the Principal Stockholders table in the Prospectus and each
officer or director of the Company, his or its enforceable written
agreement, in form and substance satisfactory to counsel for the
Underwriter, that for a period of (i) 24 months from the date on which
the Registration Statement shall become effective under the Act with
respect to the principal stockholders; (ii) 12 months from the date on
which the Registration Statement shall become effective under the Act
with respect to all directors and officers, except vice presidents or
officers junior to vice presidents; and (iii) six months from such date
with respect to all vice presidents of the Company (each such period
being a "Lock-up Period"), he or it will not, without the prior written
consent of the Underwriter and the Company, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or
-15-
<PAGE> 16
indirectly, any shares of Common Stock or other securities of the
Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of Common
Stock or other securities of the Company, including, without
limitation, any shares of Common Stock issuable under any employee
stock options. Each such agreement is a legal, valid, and binding
obligation of the director, officer, or securityholder executing the
same, and is enforceable as to such director, officer, or
securityholder in accordance with the terms thereof.
(s) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company"
as defined in Section 3(a) of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(t) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement, except those
persons or entities who have waived such rights in writing or who have
been notified as provided in the agreements granting such rights and
have not elected to have the Company register the securities subject to
such rights.
(u) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(v) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person
or affiliate located in Cuba. If, at any time after the date on which
the
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<PAGE> 17
Registration Statement is declared effective under the Act or with the
Florida Department of Banking and Finance (the "Florida Department"),
whichever is later, and prior to the end of the period referred to in
the first clause of Section 2(b), the Company commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba, the Company will so inform the Florida Department
within 90 days after such commencement of business in Cuba, and, during
the period referred to in Section 2(b), will inform the Florida
Department within 90 days after any change occurs with respect to
previously reported information.
(w) Except as disclosed in the Prospectus, no stockholder
beneficially owning 5% or more of any class of outstanding securities
of the Company and no officer or director of the Company has any
affiliation or association with the National Association of Securities
Dealers, Inc. (the "NASD") or any member thereof.
(x) Except as disclosed in the Prospectus, each of the
Company and the Subsidiary has filed all necessary federal, state,
local, and foreign income and franchise tax returns and other reports
required to be filed and has paid all taxes shown as due thereon; and
there is no tax deficiency which has been, or, to the knowledge of the
Company, might be, asserted against the Company or the Subsidiary.
(y) The Common Stock has been properly registered under
Section 12(g) of the Exchange Act since 1981. Since such date, the
Company has timely and properly filed all reports and other filings
required under the Exchange Act and all information contained in such
reports and other filings is accurate and complete.
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(z) The Common Stock is currently listed on the NASD Automated
Quotations National Market (the "NASDAQ/NM") and all appropriate
actions have been taken to include the Shares and the Option Stock on
the NASDAQ/NM.
3. PURCHASE, SALE, AND DELIVERY OF THE SHARES AND THE UNDERWRITER'S
OPTIONS.
(a) On the basis of representation and warranties herein
contained, but subject to the terms and conditions herein set forth,
the Company hereby appoints you its sales agent and grants you the
exclusive right to offer and sell the Shares during the Offering Period
(as hereinafter defined) for the account and risk of the Company. You
accept such appointment and agree to use your best efforts as sales
agent, following written or telegraphic receipt of notice of the
effective date of the Registration Statement, to offer and sell such
number of Shares as contemplated by this Agreement at the price stated
in the Prospectus.
(b) Each prospective purchaser of Shares will be required to
complete, execute, and deliver to the Company a subscription agreement
in the form filed as an exhibit to the Registration Statement (the
"Subscription Agreement"). Prior to or concurrently with the delivery
to the Company of any Subscription Agreement by any purchaser, funds
sufficient to purchase the Shares subscribed for shall be deposited in
an escrow account to be maintained pursuant to an escrow agreement
between the Escrow Agent (as hereinafter defined), the Company and the
Underwriter in the form filed as an exhibit to the Registration
Statement (the "Escrow Agreement"). Except as provided in the first
sentence of subparagraph (c) below, the Company shall not be entitled
to reject, without the Underwriter's consent, any Subscription
Agreement tendered to
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it prior to the Termination Date unless (i) payment in full for the
Shares subscribed for is not made in accordance with such Subscription
Agreement or (ii) the subscriber submitting such Subscription Agreement
is a resident of a jurisdiction in which the offering is not
registered, qualified or exempt from such registration or
qualification. The Company will forward to you copies of all
subscriptions accepted by it within three business days of receipt by
the Company of such subscription.
(c) All subscriptions for Shares will be conditioned upon the
receipt by the Company of Subscription Agreements for at least
5,000,000 Shares (the "Minimum Subscriptions") by _____________, 1995,
which is the last date on which the offering of Shares may be made,
except that such last offering date (the "Offering Period") may be
extended by the Underwriter, in its sole discretion, to a date not
later than _________, 1995 (the "Termination Date"). If Minimum
Subscriptions are not tendered to and accepted by the Company by the
Termination Date, this Agreement shall, subject to the provisions of
Section 10 hereof, terminate. If at least the Minimum Subscriptions are
tendered to and accepted by the Company on or before the Termination
Date, a closing will be held at the offices of the Underwriter at a
mutually agreed date (not later than five business days after the
Termination Date) and time as soon as practicable after the delivery of
the last of such subscriptions (the "First Closing Date") and shall be
subject to each of the conditions precedent to closing provided for in
this Agreement. The parties hereto may mutually agree to continue the
offering after the First Closing Date and prior to the Termination Date
until up 8,000,000 Shares are subscribed for. Affiliates of the Company
shall have the right, with your agreement, to purchase Shares from time
to time to achieve the Minimum Subscriptions
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amount. If additional subscriptions are tendered and accepted after the
First Closing Date and prior to the Termination Date, one or more
additional closings with respect to such subscriptions shall be held in
accordance with the terms of the Prospectus (each an "Additional
Closing Date"). Each such additional closing will be held at the
offices of the Underwriter at a mutually agreed date (not later than
five business days after the Termination Date) and time and shall be
subject to each of the conditions precedent to closing provided for in
this Agreement. Each closing date provided for under this Agreement
(including the First Closing Date) shall constitute a "Closing Date".
(d) Prior to the applicable Closing Date, all cash payments
of purchasers received (unless and until returned to the purchasers
pursuant hereto) will be placed in a segregated escrow account with
[___________] (the "Escrow Agent") for the purchasers' benefit.
(e) The purchase price paid by any prospective purchaser
whose subscription is rejected or returned because the conditions to
closing were not satisfied shall be returned to such prospective
purchaser.
(f) If, prior to the end of the Offering Period,
subscriptions for more than 8,000,000 Shares are received, the
Underwriter, in its sole and absolute discretion, may allocate the
Shares among the subscribers as to whom a Closing has not already been
held in such manner as it shall see fit.
(g) As soon as practicable after each Closing Date, the
Company shall deliver or cause to be delivered by mail to each
purchaser of Shares on such Closing Date (i) a copy of an executed
Subscription Agreement which indicates thereon the number of Shares
such purchaser has
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purchased and (ii) a stock certificate representing such Shares,
registered in such purchaser's name.
4. OFFERING OF THE SHARES ON BEHALF OF THE COMPANY.
(a) In offering the Shares for sale, you shall offer Shares as
agent for the Company, and such offering shall be made upon the terms
and subject to the conditions set forth in the Registration Statement
and Prospectus. The Underwriter shall commence offering the Shares for
sale as agent for the Company as soon after the Effective Date as the
Underwriter may deem advisable.
(b) In accordance with the applicable provisions of the
Registration Statement and this Agreement, you may offer and sell the
Shares for the account of the Company through dealers selected by you
(the "Selected Dealers"), and may allow such concessions (out of the
underwriting commission) to the Selected Dealers as you may determine.
All sales by Selected Dealers shall be on behalf of the Company. You
shall have the authority to appoint Selected Dealers as agents for the
Company; provided, however, no Selected Dealer shall be appointed by
you unless such Selected Dealer has duly executed and delivered to you
a Selected Dealers Agreement in the form of Exhibit A hereto.
5. COVENANTS. The Company covenants that it will:
(a) Use its best efforts to cause the Registration Statement to
become effective under the Act as promptly as possible and notify you
immediately, and confirm such notice in writing, (i) when the
Registration Statement and any post-effective amendment thereto become
effective under the Act, (ii) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any
jurisdiction regarding the Registration Statement, any post-effective
amendment
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thereto, the Prospectus, or any amendment or supplement thereto, (iii)
of the filing with the Commission of any supplement to the Prospectus,
and (iv) of the receipt of any notification with respect to a Stop
Order or the initiation or threatening of any proceeding with respect
to a Stop Order. The Company will use its best efforts to prevent the
issuance of any Stop Order and, if any Stop Order is issued, to obtain
the lifting thereof as promptly as possible. If the Registration
Statement has become or becomes effective under the Act with a form of
prospectus omitting Rule 430A Information, or filing of the Prospectus
with the Commission is otherwise required under Rule 424(b), the
Company will file with the Commission the Prospectus, properly
completed, pursuant to Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to you of such timely filing.
(b) During the Offering Period and any subsequent time when a
prospectus relating to the Shares is required to be delivered hereunder
or under the Act or the Regulations, comply with all requirements
imposed upon it by the Act, as now existing and as hereafter amended,
and by the Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of, or dealings in, the
Shares and in accordance with the provisions hereof and of the
Prospectus. If, at any time during the Offering Period or any time
thereafter when a prospectus relating to the Shares is required to be
delivered hereunder or under the Act or the Regulations, any event
shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriter, the
Registration Statement or the Prospectus as then amended or
supplemented contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to
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<PAGE> 23
make the statements therein not misleading, or if, in the opinion of
either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with
the Act or the Regulations, the Company will immediately notify you and
promptly prepare and file with the Commission an appropriate amendment
or supplement (in form and substance satisfactory to you) which will
correct such statement or omission or which will effect such compliance
and will use its best efforts to have any such amendment declared
effective under the Act as soon as possible.
(c) Deliver without charge to you such number of copies of each
Preliminary Prospectus as you may reasonably request and, as soon as
the Registration Statement, or any amendment thereto, becomes effective
under the Act or a supplement is filed with the Commission, deliver
without charge to you two signed copies of the Registration Statement,
including exhibits and Incorporated Documents, or such amendment
thereto, as the case may be, and two copies of any supplement thereto,
and deliver without charge to you such number of copies of the
Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits or Incorporated Documents, as you may
request for the purposes contemplated by the Act.
(d) Endeavor in good faith, in cooperation with you and your
counsel, at or prior to the time the Registration Statement becomes
effective under the Act, to qualify the Shares for offering and sale
under the "blue sky" or securities laws of such jurisdictions as you
may designate; provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
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foreign corporation doing business in such jurisdiction to which it is
not then subject. In each jurisdiction where such qualification shall
be effected, the Company will, unless you agree in writing that such
action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may be required by the
laws of such jurisdiction.
(e) Make generally availab (within the meaning of Section 11(a)
of the Act and the Regulations) to its security holders as soon as
practicable, but not later than ________________, 199_ an earnings
statement (which need not be certified by independent certified public
accountants unless required by the Act or the Regulations, but which
shall satisfy the provisions of Section 11(a) of the Act and the
Regulations) covering a period of at least 12 months beginning after
the effective date of the Registration Statement.
(f) For a period of 12 months after the date of the Prospectus,
not, without the prior written consent of the Underwriter, offer,
issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common
Stock or other securities of the Company, or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock or other securities of the
Company, except for (i) the grant of stock options to employees,
officers and directors of the Company provided that any option granted
in favor of any officer or director of the Company shall not be
exercisable until the expiration of the applicable Lock-Up Period as
set forth in Section 2(r) hereof; (ii) shares issuable pursuant to
Section 3 hereof; (iii) shares issuable upon the exercise of stock
options outstanding on the date hereof which are
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properly described in the Prospectus; (iv) shares issuable pursuant to
other options, warrants or convertible or exchangeable debt instruments
which are properly described in the Prospectus; and (v) shares issuable
in connection with strategic alliances, including shares issuable to
Purdue in connection with the Company's repurchase of marketing rights.
(g) During the Offering Period, the Company shall not, without
the prior written consent of the Underwriter, consummate any stock
dividend, stock split, recapitalization, reorganization,
reclassification, combination or any other similar event affecting the
capital stock of the Company.
(h) For a period of five years after the effective date of the
Registration Statement, furnish you without charge the following:
(i) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified
public accountants, including a balance sheet, statement of
income, and statement of changes in cash flows of the Company and
its then existing subsidiary or subsidiaries, with supporting
schedules, prepared in accordance with generally accepted
accounting principles, as at the end of such fiscal year and for
the 12 months then ended, which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the
Commission or the NASD, three copies of each annual and interim
financial and other report or communication sent by the Company
to its stockholders or filed with, or furnished to, the
Commission or the NASD;
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(iii) as soon as practicable, two copies of every press
release and every material news item and article in respect of
the Company or its affairs which was released by the Company; and
(iv) such additional documents and information with respect
to the affairs of the Company and its then existing subsidiary or
subsidiaries as you may from time to time reasonably request;
provided, however, that such additional documents and information
shall be received by you on a confidential basis, unless
otherwise disclosed to the public, and shall not be used in
violation of the Federal securities laws and the regulations
promulgated thereunder.
(i) Apply the net proceeds received by the Company from the
offering contemplated by this Agreement in the manner set forth under
the heading "Use of Proceeds" in the Prospectus.
(j) Furnish to you as early as practicable prior to the First
Closing Date and any Additional Closing Date, as the case may be, but
no less than two full business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements of the
Company and the Subsidiary which have been read by the Company's
independent certified public accountants, as stated in their letters to
be furnished pursuant to Section 7(h).
(k) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date
on which the Registration Statement becomes effective under the Act,
unless such filing shall comply with the Act and the Regulations and
unless you shall previously have been advised of such filing and
furnished with a copy thereof, and you and counsel for the Underwriter
shall have approved such filing. Until the expiration of the Offering
Period, and any extension
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thereof, the Company will prepare and file with the Commission,
promptly upon the Underwriter's request, any amendments or supplements
to the Registration Statement or the Prospectus which, in the
Underwriter's sole opinion, may be necessary or advisable in connection
with the offering.
(l) File timely with the Commission and the NASD a report on
Form 10-C in accordance with the rules and regulations of the Commission
under the Exchange Act.
(m) Comply with all provisions of all undertakings contained in
the Registration Statement.
(n) Prior to the First Closing Date or any Additional Closing
Date, as the case may be, issue no press release or other
communication, directly or indirectly, and hold no press conference
with respect to the Company or the Subsidiary or the financial
condition, results of operations, business, properties, assets,
liabilities of either of them, or this offering, without the prior
written consent of the Underwriter.
(o) If the principal stockholders, officers, or directors of the
Company are required by the "blue sky" or securities authority of any
jurisdiction selected by you pursuant to Section 5(d) to escrow or
agree to restrict the sale of any security of the Company owned by them
for the Company to qualify or register the Shares for sale under the
"blue sky" or securities laws of any such jurisdiction, cause each such
person to escrow or restrict the sale of such security on the terms and
conditions and in the form specified by the securities administrator of
such jurisdiction.
(p) Make all filings required to maintain the inclusion of the
Common Stock on the NASDAQ/NM for at least five years from the date of
this Agreement.
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(q) On each Closing Date, sell to the Underwriter (or its
designee), the Underwriter's Options for an aggregate purchase price of
$.001 per share of Option Stock, entitling the holder thereof to
purchase a number of shares of Common Stock equal to 10% of the number
of Shares sold on such Closing Date for an exercise price equal to
$_______ [insert 110% of public offering price] per share.
(r) Until expiration of the Underwriter's Options, keep reserved
sufficient shares of Common Stock for issuance upon exercise of the
Underwriter's Options.
(s) Deliver to the Underwriter, without charge, within a
reasonable period after the last Closing Date, three sets of bound
volumes of the Registration Statement and all related materials to the
individuals designated by you or counsel for the Underwriter.
(t) For a period of three years after the effective date of the
Registration Statement, provide, at its sole expense, to the
Underwriter copies of the Company's daily transfer sheets, if so
requested.
(u) For a period of five years after the First Closing Date,
supply to the appropriate parties such information as may be necessary
or desirable, and otherwise use its best efforts, so that during such
five-year period the Company will be listed in one or more of the
securities manuals published by Standard & Poor's Corporation and
Moody's Investors Service, Inc. and that, at all times during such
period, such listing will, at a minimum, contain the names of the
Company's officers and directors, a balance sheet as of a date not more
than 18 months prior to such time and a statement of operations for
either the fiscal year preceding such date or the most recent fiscal
year of operations.
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(v) Comply with all registration, filing and reporting
requirements of the Exchange Act, which may from time to time be
applicable to the Company.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay, whether or not the
offering contemplated hereby is consummated, all expenses in connection with (i)
the preparation, printing, filing, distribution, and mailing of the Registration
Statement and the Prospectus and the printing, filing, distribution, and mailing
of this Agreement, any selected dealers agreement, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments or supplements thereto supplied to the
Underwriter in quantities as hereinabove stated, (ii) the issuance, sale,
transfer, and delivery of the Securities, including any transfer or other taxes
payable thereon, (iii) the qualification of the Securities under state or
foreign "blue sky" or securities laws, including the costs of printing and
mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
($20,000) for the Underwriter and the disbursements in connection therewith,
(iv) the filing fees payable to the Commission, the NASD, and the jurisdictions
in which such qualification is sought, (v) any fees relating to the listing of
the Common Stock and the Option Stock on the NASDAQ\NM, (vi) the cost of
printing certificates representing the Shares and (vii) the fees of the transfer
agent for the Shares.
(b) In addition, if the offering contemplated hereby is
consummated, the Company hereby agrees to pay to the Underwriter on each Closing
Date (i) a non-accountable expense allowance for legal fees in an amount equal
to 1% of the gross proceeds from the sale of the Shares on such Closing Date
(not to exceed $100,000 in the aggregate;); (ii) a non-accountable expense
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allowance equal to 1.75% of the gross proceeds from the sale of the Shares on
such Closing Date; (iii) a commission equal to 8.25% of the gross proceeds from
the sale of Shares on such Closing Date; and (iv) an accountable expense
allowance equal to the disbursements of your counsel.
(c) In the event that (i) this Agreement is terminated or
prevented from becoming effective by the Underwriter pursuant to Section 10
hereof, or (ii) Minimum Subscriptions are not received prior to the Termination
Date, the Company hereby confirms that it will pay within 10 days following the
date of termination of this Agreement in the case of (i) and within 10 days
following the Termination Date in the case of (ii), all of your out-of-pocket
expenses, including, without limitation, the reasonable legal fees, consulting
fees, marketing and due diligence expenses, and travel expenses incurred by you;
and the Company will be responsible for the payment of all other expenses
relating to this Agreement and the offering contemplated hereby, whether or not
set forth in clauses (i) through (vii) of Section 6(a) hereof.
(d) In the event that this Agreement is terminated by the
Underwriter at any time following the receipt of Minimum Subscriptions on
account of the Company's failure to satisfy any of its obligations contained
herein, the Company hereby confirms that it will pay all amounts payable to the
Underwriter under subsection (b)(i)-(iv) of this Section 6 with respect to all
Shares covered by all Subscription Agreements received by the Company prior to
the date of such termination. Amounts due under this subsection (d) shall be
paid in full on or before the 10th business day following such termination.
7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. Your obligations
hereunder and the right of the Company to obtain on any Closing Date the funds
representing Shares to be purchased on such Closing Date shall be subject to the
continued accuracy, throughout the Offering Period, of the representations,
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warranties and agreements of the Company and to the performance by the Company
of its obligations hereunder in all material respects and to the following terms
and conditions:
(a) The Registration Statement shall have become effective under
the Act not later than 6:00 p.m., New York City local time, on the date of this
Agreement or such later date and time as shall be consented to in writing by
you; on or prior to the First Closing Date, or any Additional Closing Date, as
the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order; and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of your counsel. If required, the
Prospectus shall have been filed with the Commission in the manner and within
the time period required by Rule 424(b) under the Act.
(b) On the First Closing Date and any Additional Closing Date,
as the case may be, the Underwriter shall have received the favorable opinion of
Messrs. Duane, Morris & Heckscher, counsel for the Company, dated the date of
delivery, addressed to the Underwriter, and in form and scope satisfactory to
counsel for the Underwriter to the effect that:
(i) To the best of such counsel's knowledge, the only
significant subsidiary (as defined in the Regulations) of the
Company is the Subsidiary. Each of the Company and the Subsidiary
is a validly existing corporation and in good standing under the
laws of the jurisdiction of its incorporation, with all requisite
corporate power and authority to own, lease, license, and use its
properties and assets and to conduct its business in the manner
described in the Prospectus. Each of the Company and the
Subsidiary is duly qualified to do business as a foreign
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corporation and is in good standing as such in those
jurisdictions set forth in an exhibit to such opinion; an officer
of the Company having furnished to such counsel a certificate
annexed as an exhibit to such opinion that such jurisdictions are
the only jurisdictions in which the real or personal property or
assets owned, leased, or licensed, or business conducted is
material to the operations of the Company and its Subsidiary
taken as a whole.
(ii) The authorized capital stock of the Company is as set
forth under the captions "Capitalization" and "Description of
Securities" in the Prospectus. Except as disclosed in the
Prospectus, each outstanding share of capital stock of the
Company and the Subsidiary is validly authorized and issued,
fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, has not been issued and is
not owned or held in violation of any preemptive or similar
rights of stockholders and each outstanding share of capital
stock of the Subsidiary is owned of record and, to the best of
such counsel's knowledge, beneficially by the Company, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts of
which such counsel has knowledge, except as properly described in
the Prospectus. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or of the Subsidiary or any
security or other instrument which by its terms is convertible
into, or exercisable or exchangeable for, capital stock of the
Company or of the Subsidiary, except as may be
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properly described in the Prospectus. The form of the
certificates evidencing the Common Stock complies in all material
respects with the requirements therefor of the Delaware General
Corporation Law.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation pending or threatened with
respect to the Company, the Subsidiary, or any of their
respective operations, businesses, properties, or assets, except
as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, or could not
reasonably be expected to have, a material adverse effect upon
the operations, business, properties, or assets of the Company
and the Subsidiary taken as a whole.
(iv) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement, the Escrow
Agreement, the Subscription Agreements, and the Underwriter's
Options. All necessary corporate proceedings of the Company have
been taken to authorize the execution, delivery, and performance
by the Company of this Agreement, the Escrow Agreement, the
Subscription Agreements and the Underwriter's Options. This
Agreement has been duly authorized, executed, and delivered by
the Company, is the legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, and
other laws affecting the enforceability of creditors' rights
generally and to the extent that the rights to indemnification
and contribution set forth in this Agreement may be limited by
federal and state securities laws
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and to the public policy underlying such laws. The Underwriter's
Options, the Escrow Agreement, and the Subscription Agreements
have been duly authorized by the Company and, when executed and
delivered by the Company, will be legal, valid, and binding
obligations of the Company, enforceable as to the Company in
accordance with their respective terms, subject to applicable
bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally and to the extent
that the rights to indemnification and contribution set forth
therein may be limited by federal and state securities to public
policy underlying such laws. No consent, authorization, approval,
order, license, certificate, or permit of or from, any federal,
state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution,
delivery, or performance by the Company of this Agreement, the
Subscription Agreements, the Escrow Agreement or the
Underwriter's Options, except filings under the Securities Act
which have been made prior to the First Closing Date or any
Additional Closing Date, as the case may be, and consents
consisting only of consents under "blue sky" or securities laws,
which have been obtained. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel to which the Company is a
party, or to which any of their respective properties or assets
are subject, is required for the execution, delivery, or
performance of this Agreement, the Subscription Agreements, the
Escrow Agreement and the Underwriter's Options; and the
execution, delivery, and performance of this Agreement, the
Subscription Agreements, the
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Escrow Agreement and the Underwriter's Options will not violate,
result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any
properties or assets of the Company pursuant to the terms of, or,
with or without the giving of notice or the passage of time or
both, entitle any party to terminate or call a default under, any
such contract, agreement, instrument, lease, license,
arrangement, or understanding known to such counsel, violate or
result in a breach of, or conflict with, any term of the
certificate of incorporation (or other charter document) or
by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its operations,
businesses, properties, or assets are subject, which violation,
breach, or conflict would have a material adverse effect on the
operations of the Company;
(v) each Share to be delivered on the First Closing Date or
any Additional Closing Date is validly authorized and, when
issued and delivered in accordance with the terms hereof, will be
validly issued, fully paid, and nonassessable, and will not be
issued in violation of any preemptive or similar rights of
stockholders, and the purchasers will receive good title to the
Shares purchased by them from the Company, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts;
(vi) the Option Stock is validly authorized and has been
duly and validly reserved for issuance pursuant to the terms of
the Underwriter's Options. The Underwriter's Options have been
duly
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and validly issued and delivered. The Option Stock, when issued
and delivered in accordance with the Underwriter's Options, will
be validly issued, fully paid, and nonassessable, and will not
have been issued in violation of any preemptive or similar rights
of stockholders. The holders of the Underwriter's Options will
receive good title to the securities purchased by them upon
exercise of the Underwriter's Options, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts;
(vii) to the knowledge of such counsel, (A) each contract,
agreement, instrument, lease, or license required to be described
in the Registration Statement or the Prospectus has been properly
described therein, and (B) each contract, agreement, instrument,
lease, or license required to be filed as an exhibit to the
Registration Statement has been filed with the Commission as an
exhibit to the Registration Statement;
(viii) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws,
rules, regulations, orders, judgments, decrees, contracts,
agreements, instruments, leases, or licenses, such statements
have been reviewed by such counsel and accurately reflect the
status of such litigation and provisions purported to be
summarized and are correct in all material respects;
(ix) The Company is not an "investment company" as defined
in Section 3(a) of the Investment Company Act;
(x) To the knowledge of such counsel, no person or entity
has the right to require registration of shares of Common Stock
or
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other securities of the Company because of the filing or
effectiveness of the Registration Statement, except those persons
or entities who have waived such rights in writing or who have
been notified as provided in the agreements granting such rights
and have failed to elect to have the Company register the
Securities subject to such rights;
(xi) To the best knowledge of such counsel, the conditions
for the use of Form S-2 have been satisfied with respect to the
Registration Statement;
(xii) the Registration Statement has become effective under
the Securities Act, the Prospectus has been filed in accordance
with Rule 424(b) of the Regulations, including the applicable
time periods set forth therein, or such filing is not required.
To the knowledge of such counsel, no Stop Order has been issued
and no proceeding for that purpose has been instituted or
threatened. On the basis of the participation of such counsel in
conferences at which the contents of the Registration Statement
and the Prospectus and related matters were discussed, but
without independent verification by such counsel of the accuracy,
completeness, or fairness of the statements contained in the
Registration Statement, the Prospectus, or any amendment or
supplement thereto, such counsel have no knowledge that (other
than financial statements and other financial data and schedules
which are or should be contained therein, as to which such
counsel need express no opinion): (A) the Registration Statement,
any Rule 430A Prospectus, and the Prospectus, and any amendment
or supplement thereto, does not appear on its face to comply as
to form in all material respects
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with the requirements of the Securities Act and the Regulations;
(B) any of the Registration Statement, any Rule 430A Prospectus,
or the Prospectus, or any amendment or supplement thereto,
contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading; or that, on the
date hereof, the Prospectus, as amended or supplemented
(including any document filed under the Exchange Act and deemed
to be incorporated by reference into the Prospectus) contains any
untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
or (C) since the date of effectiveness under the Securities Act
of the Registration Statement through the date of such opinion,
any event has occurred which should have been set forth in an
amendment or supplement to the Registration Statement or the
Prospectus which has not been set forth in such an amendment or
supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, to the extent such counsel deems
proper and to the extent specified in such opinion, upon an opinion or opinions
of other counsel, acceptable to counsel for you, familiar with the applicable
laws, in which case the opinion of counsel for the Company shall state that the
opinion or opinions of such other counsel are satisfactory in scope, form, and
substance to counsel for the Company and that reliance thereon by counsel for
the Company and you is reasonable; (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company; and (C) to
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the extent they deem proper, upon written statements or certificates of officers
of departments of various jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company; provided that copies of
any such opinions, certificates, or statements shall be annexed as exhibits to
the opinion of counsel for the Company.
(c) On the First Closing Date and any Additional Closing Date, as the
case may be, the Underwriter shall have received the favorable opinion of
Lawrence M. Gordon, Esq., General Counsel of the Company, dated the date of
delivery, addressed to the Underwriter, and in form and scope satisfactory to
counsel for the Underwriter.
(d) At the First Closing Date and any Additional Closing Date, as the
case may be, the Underwriter shall have received the favorable opinion of
Kleinfeld, Kaplan & Becker, FDA counsel for the Company, dated the date of
delivery, addressed to the Underwriter, and in form and scope satisfactory to
counsel for the Underwriter.
(e) On or prior to the First Closing Date and any Additional Closing
Date, as the case may be, the Underwriter shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
require in order to evidence the accuracy, completeness, or satisfaction of any
of the representations, warranties, covenants, agreements, or conditions herein
contained, or as the Underwriter may reasonably request.
(f) At the First Closing Date and any Additional Closing Date, as the
case may be, (i) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Regulations,
and in all material respects conform to the requirements thereof, and neither
the Registration Statement nor the Prospectus nor any amendment or supplement
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thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company and the Subsidiary from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the date on
which the Registration Statement becomes effective under the Act, and neither
the Company nor the Subsidiary shall have incurred any material liabilities or
entered into any agreements not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus, and (iii) except as
set forth in the Prospectus, no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation shall be pending,
threatened, or in prospect (or any basis therefor) with respect to the Company,
the Subsidiary, or either of their respective operations, businesses,
properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would materially adversely affect the business, property, condition (financial
or otherwise), results of operations, or general affairs, of the Company and the
Subsidiary taken as a whole.
(g) At the First Closing Date and any Additional Closing Date, as the
case may be, you shall have received a certificate of the chief executive
officer and the chief financial officer of the Company, dated the First Closing
Date or such Additional Closing Date, as the case may be, to the effect that,
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among other things, (i) the conditions set forth in Sections 7(a) and 7(f) have
been satisfied, (ii) as of the date of this Agreement and as of the Closing Date
or such Additional Closing Date, as the case may be, the representations and
warranties of the Company contained herein were and are accurate and correct in
all material respects, and (iii) as of the First Closing Date or such Additional
Closing Date, as the case may be, the obligations to be performed by the Company
hereunder on or prior thereto have been fully performed.
(h) At the First Closing Date and any Additional Closing Date, as the
case may be, you shall have received a letter, dated the date of delivery,
addressed to the Underwriter, from KPMG Peat Marwick, independent certified
public accountants for the Company:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the published Regulations and stating that the
answer to Item 10 of the Registration Statement is correct insofar as it relates
to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined by them
comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
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available minutes of the stockholders and Boards of Directors of the Company and
committees of such Board of Directors, inquiries to certain officers and other
employees of the Company responsible for financial and accounting matters, and
other specified procedures and inquiries, nothing has come to their attention
that caused them to believe that: (A) the unaudited financial statements and
schedules of the Company included in the Registration Statement and Prospectus
do not comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the Exchange Act and the related
published rules and regulations under the Securities Act or the Exchange Act or
are not fairly presented in conformity with generally accepted accounting
principles (except to the extent that certain footnote disclosures regarding any
stub period may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) there was any change in
the capital stock or long-term debt of the Company or any decrease in the net
current assets or stockholders' equity of the Company as of the date of the
latest available monthly financial statements of the Company as of a specified
date not more than five business days prior to the date of such letter, each as
compared with the amounts shown in the [March 31, 1995] balance sheet included
in the Registration Statement and Prospectus, other than as properly described
in the Registration Statement and Prospectus or any change or decrease (which
shall be set forth therein); or (C) there was any decrease in net sales, or
increase in loss during the period from [March 31, 1995] to the date of the
latest available monthly financial statements of the Company or to a specified
date not more than five business days prior to the date of such letter, each as
compared with the corresponding period in 1994, other than as properly described
in the Registration Statement and Prospectus; and
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(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by you, to the extent that such data and
information may be derived from the general accounting records of the Company,
with the results obtained from the application of specified readings, inquiries,
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards) set forth
in the letter, and found them to be in agreement.
(i) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Shares shall be satisfactory in form and substance
to you and to your counsel.
(j) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to the Underwriter's participation in such
offering.
(k) Prior to or on each Closing Date, the Company shall have issued the
Underwriter's Options to the Underwriter in the name or names and in such
authorized denominations as the Underwriter may request.
(l) Prior to or on the First Closing Date, the Company shall have
provided to the Underwriter copies of the agreements referred to in Section
2(r).
(m) At least the Minimum Subscriptions shall have been tendered to the
Company in accordance with the terms hereof.
(n) On the First Closing Date, the Company shall deliver shares of
Common Stock in repayment of the principal amount of the Company's indebtedness
to certain of its principal stockholders pursuant to the option described in the
Prospectus.
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Any certificate or other document signed by any officer of the Company
and delivered to the Underwriter or to counsel for the Underwriter shall be
deemed a representation and warranty by the Company hereunder to the Underwriter
as to the statements made therein. If any condition to the Underwriter's
obligations hereunder to be fulfilled prior to or at the First Closing Date or
any Additional Closing Date, as the case may be, is not so fulfilled, the
Underwriter may terminate this Agreement or, if the Underwriter so elects, in
writing waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
If any of the conditions specified in this Section 7 shall not have
been fulfilled or waived, this Agreement and all your obligations hereunder may
be cancelled, prospectively, by you at, or at any time prior to, any Closing
Date. Any such cancellation shall be without liability to you, and the
obligations of the Company pursuant to Sections 6 and 8 hereof shall
nevertheless survive and continue thereafter. Notice of such cancellation shall
be given to the Company at the addresses specified in Section 11 hereof, in
writing, or by telegraph or telephone confirmed in writing.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, against any and all loss, liability, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 8, but
not be limited to, attorneys' fees and any and all expense whatsoever incurred
in investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
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of any claim or litigation) as and when incurred arising out of, based upon, or
in connection with, (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto or (B) any application or other document
or communication (for purposes of this Section 8, collectively referred to as an
"application") executed by, or on behalf of, the Company or based upon written
information furnished by, or on behalf of, the Company filed in any jurisdiction
in order to qualify the Securities under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
the Underwriter, expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this Agreement. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including liabilities arising under
this Agreement.
If any action is brought against the Underwriter or any of its
officers, directors, partners, employees, agents, or counsel, or any person who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution
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of such action (but the failure so to notify shall not relieve the Company from
any liability it may have other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action or such indemnified
party or parties shall have reasonably concluded that there may be one or more
legal defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company, and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
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to notify the Underwriter of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Shares, the Registration Statement, any Preliminary Prospectus, any
Rule 430A Prospectus or the Prospectus, or any amendment or supplement thereto,
or any application.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
the Registration Statement, and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Section 8(a), but only with respect to statements or
omissions, if any, made in the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or on any application in reliance upon,
and in conformity with, written information furnished to the Company as stated
in this Section 8(b) with respect to the Underwriter by or on behalf of the
Underwriter expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, any Rule 430A Prospectus or any
amendment or supplement thereto, or on any application, as the case may be;
provided, however, that the obligation of the Underwriter to provide indemnity
under the provisions of this Section 8(b) shall be limited to the amount which
represents the product of the number of Shares underwritten by the Underwriter
hereunder and the initial public offering price per share set forth on the cover
page of the Prospectus. For all purposes of this Agreement, the information
relating to the Underwriter's participation in prior offerings and the amounts
of the selling concession and reallowance set forth in the Prospectus constitute
the only information furnished in writing by the Underwriter expressly for
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inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company, or any other person so indemnified based
on the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or on any application, and in respect of
which indemnity may be sought against the Underwriter pursuant to this Section
8(b), the Underwriter shall have the rights and duties given to the Company, and
the Company and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Sections 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), as one entity and the
Underwriter (including for this purpose any contribution by or on behalf of an
indemnified party) as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company and the Underwriter; provided, however, that if
applicable law does not permit such allocation, then other relevant equitable
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considerations such as the relative fault of the Company and the Underwriter in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative benefits received
by the Company and the Underwriter shall be deemed to be in the same proportion
as (x) the total proceeds from the offering of the Stock (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company, and (y) the underwriting discounts and commissions received by the
Underwriter, in each case as set forth in the table on the cover page of the
Prospectus and in the footnotes thereto. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission, or alleged omission, shall
be determined by, among other things, whether such statement, alleged statement,
omission, or alleged omission relates to information supplied by the Company or
by the Underwriter, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Underwriter agree
that it would be unjust and inequitable if the respective obligations of the
Company and the Underwriter for contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Underwriter and the other indemnified parties were treated
as one entity for such purpose) or by any other method of allocation that does
not reflect the equitable considerations referred to in this Section 8(c). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 8(c),
each person, if any, who controls the Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent, and counsel of the Underwriter shall have the same
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rights to contribution as the Underwriter and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8(c). Anything in this Section 8(c) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8(c) is
intended to supersede any right to contribution under the Act, the Exchange Act,
or otherwise.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the First Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Company, and the
Underwriter, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, the Underwriter or any indemnified
person, or by, or on behalf of, the Company, or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Shares to the purchasers and the
Underwriter's Option to the Underwriter. In addition, the provisions of Sections
5(a), 6, 8, 9 and 12 shall survive termination of this Agreement, whether such
termination occurs before or after the First Closing Date or any Additional
Closing Date.
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10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective upon its execution
except that you, at your option, may delay the effectiveness of this Agreement
until 11:00 A.M. New York time on the first full business days following the
date on which the Registration Statement becomes effective under the Act. In
addition to the right to terminate this Agreement pursuant to Section 7 hereof,
you shall have the right to terminate this Agreement at any time, by giving
notice to the Company, (i) if any domestic or international event, act, or
occurrence has materially disrupted, or, in your opinion, will in the immediate
future materially disrupt, the securities markets; or (ii) if there shall have
been a general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market; or (iii) if there shall have been an outbreak or
increase in the level of major hostilities or other national or international
calamity; or (iv) if a banking moratorium has been declared by a state or
federal authority; or (v) if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or (vi) if there shall have
been a material interruption in the mail service or other means of communication
within the United States; or (vii) if the Company or the Subsidiary shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act, whether or not
such loss shall have been insured, or from any labor dispute or court or
government action, order, or decree, which will, in your opinion, make it
inadvisable to proceed with the offering, sale, or delivery of the Shares; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
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States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive any orders, rules, or regulations, which you believe
likely to have a material adverse effect on the business, financial condition,
or financial statements of the Company and the Subsidiary or the market for any
of the Company's securities; or (x) if there shall have been a material adverse
change in the market for the Company's securities or securities in general or in
political, financial, or economic conditions as in your judgment makes it
inadvisable to proceed with the offering, sale, and delivery of the Shares on
the terms contemplated by the Prospectus.
(b) If you elect to prevent this Agreement from becoming
effective, as provided in this Section 10, or to subsequently terminate this
Agreement, you shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter.
(c) Notwithstanding any election hereunder or any termination of
this Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a), 6, 8, 9 and 12 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, shall be delivered
personally, transmitted by facsimile transmission with electronic confirmation,
or sent by prepaid overnight air courier, registered or certified mail, postage
prepaid and confirmed by letter, if sent to you at 919 Third Avenue, New York,
New York 10022, Attention: Mr. Preston Tsao, Facsimile: (212) 421-5944, with a
copy to Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, LLP, 551 Fifth Avenue,
New York, New York 10176, Attention: Deborah R. Wolfe, Esq., Facsimile: (212)
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697-6696; or if sent to the Company, at 9 West 57th Street, New York, New York
10019, Attention: Lawrence M. Gordon, Esq., General Counsel, Facsimile: (212)
230-9545, with a copy to Duane, Morris & Heckscher, suite 2125, 122 East 42nd
Street, New York, New York 10168, Attention: Robert J. Hasday, Esq., Facsimile:
(212) 499-0420. All notices hereunder shall be deemed to have been given (a)
when delivered, if delivered personally, or sent by facsimile transmission and,
in the case of facsimile transmission, confirmed in writing within three
business days thereafter, or sent by prepaid overnight air courier or (b) three
business days following the mailing thereof, if mailed by registered or
certified first class mail, postage prepaid, return receipt requested, in any
such case at the address set forth in this Section 11, or such other address
or addresses as a party may have advised the other party in the manner
provided in this Section 11.
12. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriter, the Company and the persons and entities
referred to in Section 8 who are entitled to indemnification or contribution,
and their respective successors, legal representatives, and assigns (which shall
not include any buyer, as such, of the Shares), and no other person shall have
or be construed to have any legal or equitable right, remedy, or claim under or
in respect of or by virtue of this Agreement or any provision herein
contained.
13. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the State of New York, without giving effect to conflict of
laws. Time is of the essence in this Agreement.
14. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
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<PAGE> 54
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 11. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
INTERFERON SCIENCES, INC.
BY:
--------------------------------
NAME:
TITLE:
ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN IN NEW YORK, NEW YORK
SUNRISE SECURITIES CORP.
BY:
------------------------------------
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<PAGE> 55
SCHEDULE I
NAME OF SUBSIDIARY
<PAGE> 1
EXHIBIT 1.2
SUBSCRIPTION AGREEMENT
Interferon Sciences, Inc. Fax Number (908) 249-6895
783 Jersey Avenue ATTN: Stanley G. Schutzbank
New Brunswick, New Jersey 08901
Gentlemen:
The undersigned (the "Subscriber") hereby subscribes for and agrees to
purchase shares of Common Stock, par value $.01 per share (the "Securities"), of
Interferon Sciences, Inc., a Delaware corporation (the "Company"), at a per
share purchase price of $____, in the amounts set forth on the Signature Page to
this Subscription Agreement and on the terms set forth in the Prospectus dated
___________, 1995 (the "Prospectus"), which is part of Securities and Exchange
Commission Registration Statement No. 33-______ (the "Registration Statement")
and in this Subscription Agreement.
The Subscriber represents and warrants to the Company and covenants and
agrees with it as follows:
1. Payment; Escrow. The Company has entered into an Escrow Agreement
with _______________________ (the "Bank") of [City, State] (the "Escrow
Agreement"), and the Bank has established an escrow account (the "Escrow
Account"). The Subscriber shall forthwith cause the full amount of the
subscription price to be wire transferred to the Escrow Account as follows:
[Name of Bank - City]
ABA:
FBO:
Attn:
Ref:
If by ____________, 1995, the Escrow Account has received the proceeds of the
sale of at least 5,000,000 shares of Common Stock and the Escrow Agent has been
notified by the Company that the Company has accepted subscription agreements
for at least 5,000,000 shares of Common Stock, the Escrow Agent will release the
price of the Securities to the Company and the Company will promptly mail a
certificate therefor to the Subscriber or deliver such securities as instructed
after the signature of the Subscriber. Otherwise, the Escrow Agent will return
such funds to the Subscriber by mailing a check. Certificates representing the
Securities shall not bear any legends restricting transfer.
2. Irrevocable; Rejection or Acceptance of the Subscription by the
Company. This Subscription Agreement is irrevocable by the Subscriber. The
Company may, in its sole discretion, accept or reject this Subscription
Agreement at any time. If the Company rejects the Subscription Agreement, the
Company will promptly cause the Escrow Agent to return the entire amount paid by
the Subscriber in connection with this Subscription Agreement. Unless and until
the Company accepts this Subscription Agreement and the Company receives payment
in full for the Securities upon release of the funds therefor from the Escrow
Agent, the Subscriber will not become a holder of the Securities subscribed for
hereunder and such Securities will not be considered issued or outstanding.
<PAGE> 2
3. Prospectus. The Subscriber has received and reviewed the
Prospectus.
4. Capacity; Enforceability. The Subscriber represents and warrants
that: (a) if he is executing this Subscription Agreement in a representative or
fiduciary capacity, he has full power and authority to execute and deliver this
Subscription Agreement in such capacity and on behalf of his principal; and (b)
this Subscription Agreement constitutes a legal, valid and binding obligation of
the Subscriber (or the person for whom he is executing this Subscription
Agreement) enforceable against the Subscriber (or such person) in accordance
with its terms.
5. Miscellaneous. This Subscription Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof and it
supersedes and discharges all prior agreements (written or oral) and
negotiations and all contemporaneous oral agreements concerning such subject
matter. This Subscription Agreement may not be amended or terminated except by a
writing signed by the party against whom any such amendment or terminations is
sought. If the Subscriber is more than one person, the obligation of the
Subscriber shall be joint and several. This Subscription Agreement is governed
by the laws of the State of _____________.
Number of shares subscribed for:_____________ Total Amount of Payment: $________
SIGN AND DATE HERE:
ADDRESS OF SUBSCRIBER: _____________________________________
(Print Name of Subscriber)
_____________________________________ By:__________________________________
(Street) (Signature)
_____________________________________ _____________________________________
(City) (Print Name of Signatory)
_____________________________________ _____________________________________
(State) (Zip Code) (Print Title of Signatory)
_____________________________________ _______________________________, 1995
(Taxpayer Identification Number) (Date)
ALTERNATIVE DELIVERY INSTRUCTIONS:
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<PAGE> 3
================================================================================
ACCEPTED: Date:___________________, 1995
INTERFERON SCIENCES, INC.
By:__________________________________
Authorized Officer
- 3 -
<PAGE> 1
Exhibit 1.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made as of the __ day of
___, 1995, between Interferon Sciences, Inc. a Delaware corporation (the
"Company"), Sunrise Securities Corp., a ________ corporation (the
"Underwriter"), and _______________ (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Company proposes to offer and sell a minimum of 5,000,000
and a maximum of 8,000,000 shares (the "Shares") of common stock, par value $.01
per share, of the Company in an offering (the "Offering") registered pursuant to
a Registration Statement (as amended, the "Registration Statement") filed by the
Company with the Securities and Exchange Commission; and
WHEREAS, the Underwriter has agreed to offer the Shares as the agent of
the Company on a "best efforts" basis; and
WHEREAS, the Company needs to provide for the safekeeping and
investment of the proceeds of the sale of the Shares until such time as the
Company accepts subscriptions for at least 5,000,000 Shares and the proceeds of
the sale of such Shares are deposited with the Escrow Agent (the "Minimum
Subscription") or until such time as the Offering terminates and the Escrow
Agent is required to return such proceeds to the subscribers as provided for
herein; and
WHEREAS, the form of subscription agreement (the "Subscription
Agreement") for the Offering provides that the purchase price of the Shares will
be directly transferred to the Escrow Agent; and
WHEREAS, the Escrow Agent has consented to act as escrow depository and
to receive and hold the Subscription Agreements and the funds deposited pursuant
thereto in escrow for the Company and the various subscribers;
NOW, THEREFORE, in consideration of the mutual promises of the parties,
it is hereby agreed as follows:
SECTION 1. Delivery of Registration Statement; Form of Subscription
Agreement. The Company shall deliver to the Escrow Agent a conformed copy of the
Registration Statement, and any amendments thereto.
SECTION 2. Escrow Deposit. The Company shall forward the Subscription
Agreements to the Escrow Agent. The Escrow Agent shall receive and hold funds in
payment for the
<PAGE> 2
Shares, together with any interest earned on such funds, in an escrow account
designated as "Interferon Sciences Escrow Account" (the "Escrow Account") upon
the terms and conditions stated herein.
SECTION 3. Investment of Escrow Funds. All funds deposited pursuant to
this Agreement shall be deposited by the Escrow Agent, at reasonable and
convenient times after receipt, in a money market account which invests all of
its assets in obligations backed by the full faith and credit of the United
States of America.
SECTION 4. Termination of Escrow.
(a) At such time as the Company and Underwriter jointly notify
the Escrow Agent in writing that the Company has accepted Subscription
Agreements for at least the Minimum Subscription and the Escrow Agent has
received available funds for at least the Minimum Subscription, the Escrow Agent
shall promptly release to the Company all funds deposited pursuant to this
Agreement, together with any interest earned thereon and copies of the
Subscription Agreements, and upon such release, this Agreement shall terminate
and any further funds received by the Escrow Agent shall be forwarded to the
Company promptly upon receipt thereof.
(b) If the Escrow Agent has not previously released all funds
to the Company pursuant to Section 4(a), as soon as practicable after the
earlier of (i) the receipt of joint written instructions from the Company and
the Underwriter to comply with the provisions of this Section 4(b) and (ii)
_______________, 1995, (iii) this Agreement shall terminate and the Escrow Agent
shall return the funds, without interest, to the subscribers, together with a
copy of their Subscription Agreements marked "cancelled" and (iv) the Escrow
Agent shall pay all interest to the Company.
SECTION 5. Books and Records. During the term of this Escrow Agreement,
the Escrow Agent shall keep accurate books and records of all transaction
hereunder. The Company and Underwriter shall have access to such books and
records at all reasonable times.
SECTION 6. Compensation. The Escrow Agent shall receive as compensation
for services hereunder the sum of $___ plus transaction fees equal to $__ per
check issued by the Escrow Agent.
SECTION 7. Indemnification. The Company hereby agrees to indemnify and
hold harmless the Escrow Agent against any and all losses, claims, damages,
liabilities, and reasonable expenses, including reasonable administrative and
counsel fees, which may be imposed upon the Escrow Agent or incurred by the
Escrow Agent in connection with the performance of its duties hereunder or by
reason of any litigation arising from this Escrow Agreement or involving the
subject matter hereof or the funds deposited hereunder; provided, however, that
such indemnity shall not extend to any such losses, claims, damages,
liabilities,
2
<PAGE> 3
or expenses which are so imposed upon or incurred by the Escrow Agent by reason
of its failure to perform or observe any of its obligations hereunder.
SECTION 8. Transfer. Any party may terminate this Agreement on 30 days'
prior written notice to the others provided that, prior to the effective date of
termination hereof, a bank, trust company, savings association, or other
independent corporate fiduciary acceptable to the Company and Underwriter has
agreed to act as escrow agent under terms substantially identical hereto and the
Escrow Agent has transferred to such entity all funds, interest, Subscription
Agreements, records, and other materials held by it as Escrow Agent.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers or representatives as of the day and
year first above written.
INTERFERON SCIENCES, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SUNRISE SECURITIES CORP.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
[ESCROW AGENT]
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
3
<PAGE> 1
EXHIBIT 1.4
MASTER SELECTED DEALERS AGREEMENT
May __, 1995
Sunrise Securities Corp.
919 Third Avenue
New York, New York 10022
Gentlemen:
We understand that you are entering into this Master Selected Dealers
Agreement in counterparts with us and other firms who may participate as dealers
in offerings of securities in which you are acting as the sole underwriter, the
sole representative or one of the representatives of the underwriters comprising
the underwriting syndicate. Whether or not we have executed this Agreement, this
Agreement shall apply to any offering of securities in which we act as a
selected dealer.
SECTION 1 GENERAL.
At or prior to the time of an offering, you will advise us, to the
extent applicable, as to the expected offering date, the expected closing date,
the initial public offering price, the interest or dividend rate (or the method
by which such rate is to be determined), the conversion price, if applicable,
the selling concession, the reallowance, the time of release of securities for
sale to the public, the time at which subscription books will be opened, the
amount, if any, of securities reserved for purchase by selected dealers, the
period of such reservation and the amount of securities to be allotted to us,
and stating that our participating as a selected dealer in the offering shall be
subject to the provisions of this Agreement. Such information shall be deemed to
be a part of this Agreement and this Agreement shall become binding with respect
to our participation as a selected dealer in an offering of securities following
our receipt of such information. If we have not previously executed this
Agreement, by our purchase of securities in an offering covered by this
Agreement we shall be deemed to be signatories hereof with respect to such
offering.
The securities to be purchased in any offering of securities in which
we agree to participate as a selected dealer pursuant to this Agreement,
including any guarantees relating to such securities or any other securities
into which such securities are convertible or for which such securities are
exercisable or exchangeable and any securities that may be purchased upon
exercise of any over-allotment option, are hereinafter referred to as the
"Securities". The issuer or issuers of the Securities are hereinafter referred
to as the "Issuer". The parties on whose behalf the Representatives (as
hereinafter defined) execute the underwriting or purchase agreement or any
associated terms or similar agreement with the Issuer or any selling
securityholders or any amendment or supplement thereto (collectively, the
"Underwriting Agreement") with respect to an offering
<PAGE> 2
of Securities in which we agree to participate as a selected dealer pursuant to
this Agreement are hereinafter referred to as the "Underwriters". All references
herein to "you" or the "Representatives" shall mean Sunrise Securities Corp. and
the other firms, if any, who are serving as the representatives of the
Underwriters in connection with an offering of Securities. The parties who agree
to participate in such offering as selected dealers are hereinafter referred to
as "Selected Dealers".
The following provisions of this Agreement shall apply separately to
each individual offering of Securities.
SECTION 2 ACCEPTANCE AND PURCHASE.
The offer to Selected Dealers will be made on the basis of a
reservation of Securities and an allotment against subscriptions. Any
application for additional Securities will be subject to rejection in whole or
in part. Subscription books may be closed by the Representatives at any time in
the Representatives' absolute discretion without notice and the right is
reserved to reject any subscription in whole or in part. We agree to purchase as
principal the amount of Securities allotted to us by the Representatives.
SECTION 3 PROSPECTUSES.
(a) The Representatives will, at our request, make available to us, as
soon as practicable after sufficient quantities thereof are made available to
them by the Issuer, copies of the Prospectus (excluding any documents
incorporated by reference therein) to be used in connection with the offering of
the Securities in such number as we may reasonably request. As used herein
"Prospectus" means the form of prospectus (including any supplements and any
documents incorporated by referenced therein) authorized for use in connection
with such offering.
(b) We agree that, in purchasing Securities, we will rely upon no
statement whatsoever, written or oral, other than the statements in the
Prospectus delivered to us by the Representatives and any documents incorporated
by referenced therein. We understand that we are not authorized to give any
information or make any representation not contained in the Prospectus or in any
document incorporated by reference therein, in connection with the offering of
the Securities. Our purchase of Securities shall constitute our agreement that,
if requested by the Representatives, we will furnish a copy of any amendment or
supplement to any preliminary or final Prospectus to each person to whom we have
furnished a previous preliminary or final Prospectus. Our purchase of Securities
shall constitute our confirmation that we have delivered, and our agreement that
we will deliver, all preliminary and final Prospectuses required for compliance
with Rule 15c2-8 (or any successor provision) under the Securities Exchange Act
of 1934, as amended from time to time (the "1934 Act").
SECTION 4 OFFERING OF THE SECURITIES.
(a) The offering of the Securities is made subject to the conditions
referred to in the Prospectus and to the terms and conditions set forth in this
Agreement. After the public offering of the Securities has commenced, you may
change the public offering price, the selling concession and the reallowance to
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<PAGE> 3
dealers. Any of the Securities purchased by us pursuant to this Agreement are to
be reoffered by us, subject to their receipt and acceptance by the
Representatives, to the public at the initial public offering price, subject to
the terms of this Agreement and the Prospectus. Except as otherwise provided
herein, the Securities shall not be offered or sold by us below the initial
public offering price before the termination of the effectiveness of this
Agreement with respect to the offering of such Securities, except that a
reallowance from the initial public offering price of not in excess of the
amount set forth in the Invitation may be allowed to any Selected Dealer that
(i) agrees that such amount is to be retained and not reallowed in whole or in
part, and (ii) makes the representations contained in Section 11.
(b) The Representatives, as such, and, with the Representatives'
consent, any Underwriter, may buy Securities from, or sell Securities to, any of
the Selected Dealers or any of the Underwriters, and any Selected Dealer may buy
Securities from, or sell Securities to, any other Selected Dealer or any
Underwriter, at the initial public offering price less all or any part of the
concession to Selected Dealers.
(c) If we have received or have been credited with the Selected
Dealers' concession as to any Securities purchased by us pursuant to this
Agreement, which, prior to the later of (i) the termination of the effectiveness
of this Agreement with respect to the offering of such Securities, and (ii) the
covering by the Representatives of any short position created by the
Representatives in connection with the offering of such Securities, the
Representatives may have purchased or contracted to purchase for the account of
any Underwriter (whether such Securities have been sold or loaned by us), then
we agree to pay the Representatives on demand for the accounts of the several
Underwriters an amount equal to the Selected Dealers' concession and, in
addition, the Representatives may charge us with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Securities delivered on such repurchases need not be the identical Securities
originally purchased. With respect to any such repurchased Securities as to
which we have not yet received or been credited with the Selected Dealers'
concession, we shall be responsible for any such broker's commission and
transfer tax and the Representatives shall not be obligated to pay any Selected
Dealers' concession as to such Securities.
(d) No expenses shall be charged to Selected Dealers. A single transfer
tax upon the sale of the Securities by the respective Underwriters to us will be
paid by such Underwriters when such Securities are delivered to us. However, we
shall pay any transfer tax on sales of Securities by us and shall pay our
proportionate share of any transfer tax or other tax (other than the single
transfer tax described above) in the event that any such tax shall from time to
time be assessed against us and other Selected Dealers as a group or otherwise.
SECTION 5 PAYMENT AND DELIVERY.
We agree that Securities purchased by us pursuant to this Agreement
shall be paid for in an amount equal to the initial public offering price
therefor or, if the Representatives shall so advise us, at such initial public
offering price less the Selected Dealers' concession with respect thereto, at
9:00 a.m. on the date on which the Underwriters are required to purchase the
Securities, by delivery to the Representatives at the offices of Sunrise
Securities Corp., of
- 3 -
<PAGE> 4
payment in the manner and type of funds specified in your payment instructions
wired to us, payable to the order of Sunrise Securities Corp., unless otherwise
specified by you. If payment is made for Securities purchased by us at the
initial public offering price, the Selected Dealers' concession to which we may
be entitled will be paid to us upon the later to occur of the events set forth
in the first sentence of Section 4(c).
Notwithstanding the foregoing provisions of this Section, if
transactions in the Securities can be settled through the facilities of The
Depository Trust Company or any other depository or similar facility, if we are
a member, you are authorized, in your discretion, to make appropriate
arrangements for payment and/or delivery through its facilities of the
Securities to be purchased by us, or, if we are not a member, settlement may be
made through a correspondent that is a member pursuant to our timely
instructions.
SECTION 6 STABILIZATION AND OVER-ALLOTMENT.
The Representatives may, with respect to any offering of Securities, be
authorized to over-allot, to purchase and sell Securities for long or short
account and to stabilize or maintain the market price of the Securities. We
agree that, upon the Representatives' request at any time and from time to time
prior to the termination of the effectiveness of this Agreement with respect to
an offering of Securities, we will report the amount of Securities purchased by
us pursuant to such offering which then remain unsold by us and will, upon the
Representatives' request at any such time, sell to the Representatives for the
account of one or more Underwriters such amount of such unsold Securities as the
Representatives may designate at the initial public offering price less an
amount to be determined by the Representatives not in excess of the Selected
Dealers' concession.
SECTION 7 OPEN MARKET TRANSACTIONS.
We agree not to bid for, purchase, attempt to induce others to
purchase, or sell, directly or indirectly, any Securities, any other securities
of the Issuer of the same class and series as the Securities and any other
securities of the Issuer which the Representatives may designate, except as
brokers pursuant to unsolicited orders and as otherwise provided in this
Agreement. If the Securities are or include common stock or securities
convertible into common stock, we also agree not to effect or attempt to induce
others to effect, directly or indirectly, any transactions in or relating to put
or call options on any stock of the Issuer, except to the extent permitted by
Rule 10b-6 (or any successor provision) under the 1934 Act as interpreted by the
Commission.
SECTION 8 TERMINATION; AMENDMENT.
(a) The terms and conditions set forth in (i) Section 4, (ii) the
second sentence of Section 6, or (iii) Section 7 of this Agreement
(collectively, the "offering provisions") will terminate with respect to each
offering of Securities pursuant to this Agreement at the close of business on
the 45th day after the date of the initial public offering of such Securities,
unless the effectiveness of such offering provisions is extended or sooner
terminated as hereinafter provided. You may extend the effectiveness of such
offering provisions up to an additional 15 days by notice to us to the effect
that the
- 4 -
<PAGE> 5
offering provisions of this Agreement are extended to the date or by the number
of days indicated in the notice. You may terminate such offering provisions
other than Section 4(c) at any time by notice to us to the effect that the
offering provisions of this Agreement are terminated, and you may terminate the
provisions of Section 4(c) at any time at or subsequent to the termination of
the other offering provisions by notice to us to the effect that the penalty bid
provisions of this Agreement are terminated. All other provisions of the
Agreement shall remain operative and in full force and effect with respect to
such offering.
(b) This Agreement may be terminated by either party hereto upon five
business days' written notice to the other party; provided, however, that with
respect to any particular offering of Securities, if you received any such
notice from us after you have advised us of the amount of Securities allotted to
us, this Agreement shall remain in full force and effect as to such offering and
shall terminate with respect to such offering and all previous offerings only in
accordance with and to the extent provided in subsection (a) of this Section 8.
(c) This Agreement may be supplemented or amended by you by notice to
us by written communication and, except for supplements or amendments included
with the information relating to a particular offering of Securities, any such
supplement or amendment to this Agreement shall be effective with respect to any
offering to which this Agreement applies after the date of such supplement or
amendment. Each reference to "this Agreement" herein shall, as appropriate, be
to this Agreement as so supplemented and amended.
SECTION 9 BLUE SKY AND OTHER QUALIFICATIONS.
It is understood and agreed that the Representatives assume no
responsibility or obligation with respect to the right of any Selected Dealer or
other person to sell the Securities in any jurisdiction, notwithstanding any
information the Representatives may furnish in that connection.
SECTION 10 ROLE OF THE REPRESENTATIVES; ROLE OF THE SELECTED
DEALERS; LEGAL RESPONSIBILITY.
(a) The Representatives are acting as representatives of each of the
Underwriters in all matters connected with the offering of the Securities and
with the Underwriters' purchases of the Securities. Any action to be taken,
authority that may be exercised or determination to be made by the
Representatives hereunder may be taken, exercised or made by Sunrise Securities
Corp., on behalf of all Representatives. The rights and liabilities of each
Underwriter of Securities and each Selected Dealer shall be several and not
joint.
(b) The Representatives, as such, shall have full authority to take
such action as they may deem advisable in all matters pertaining to the offering
of the Securities or arising under this Agreement. The Representatives will have
no liability to any Selected Dealer for any act or omission except for
obligations expressly assumed by the Representatives herein, and no obligations
on the part of the Representatives will be implied hereby or inferred herefrom.
- 5 -
<PAGE> 6
(c) We understand and agree that we are to act as principal in
purchasing Securities and we are not authorized to act as agent for the Issuer,
any selling securityholder or any of the Underwriters in offering the Securities
to the public or otherwise.
(d) Nothing herein contained shall constitute us an association, or
partners, with the other Selected Dealers, the Underwriters or Representatives,
or, except as otherwise provided herein, render us liable for the obligation of
any other Selected Dealers, the Underwriters or the Representatives. If the
Selected Dealers among themselves or with the Underwriters or the
Representatives are deemed to constitute a partnership for Federal income tax
purposes, then each Selected Dealer elects to be excluded from the application
of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as
amended, and agrees not to take any position inconsistent with such election.
The Representatives are authorized, in their discretion, to execute on behalf of
the Selected Dealers such evidence of such election as may be required by the
Internal Revenue Service.
SECTION 11 NASD MATTERS.
We represent that we are (a) a member in good standing of the NASD, or
(b) a foreign bank, broker, dealer or other institution not eligible for
membership in the NASD. If we are such a member, we agree that in making sales
of Securities we will comply with all applicable rules of the NASD, including,
without limitation, Section 24 of Article III of the Rules of Fair Practice. If
we are not an NASD member, we agree to comply as though we were a member with
Sections 8, 24 and 36 of Article III of the Rules of Fair Practice and to comply
with the requirements of the NASD's Interpretation with Respect to Free-Riding
and Withholding. If we are such a foreign bank, broker, dealer or other
institution, we agree not to offer or sell any Securities in the United States
of America except through the Representatives and in making sales of Securities
we agree to comply with Section 25 of such Article III of the NASD's Rules of
Fair Practice as it applies to a nonmember broker or dealer in a foreign
country. We agree that in selling Securities pursuant to any offering (which
agreement shall also be for the benefit of the Issuer or other seller of such
Securities) we will comply with all applicable laws, rules and regulations,
including the applicable provisions of the Securities Act of 1933, as amended,
and the 1934 Act, the applicable rules and regulations of the Commission
thereunder, the applicable rules and regulations of any securities exchange, and
the applicable laws, rules and regulations of any applicable regulatory body
having jurisdiction over the offering.
SECTION 12 NOTICES.
Any notices from the Representatives to us shall be deemed to have been
duly given if mailed, hand-delivered, telephoned (and confirmed in writing),
telegraphed, telexed or transmitted by facsimile transmission to us at the
address appearing below, or at such other address, telephone, telex or facsimile
transmission number as we have advised you in writing. Any notice from us to the
Representatives shall be deemed to have been duly given if mailed,
hand-delivered, telegraphed, telexed or transmitted by facsimilie transmission
to Sunrise Securities Corp., 919 Third Avenue, New York, New York 10022,
Attention: Nathan Low, President; Telephone: (212) ___-____; Facsimile: (212)
___-____; or to such other address, telephone, telex or facsimile transmission
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<PAGE> 7
number as we shall be notified by the Representatives. Communications by
telegram, telex, facsimile transmission or other written form shall be deemed to
be "written" communications.
SECTION 13 GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York
applicable to agreements made and to be performed wholly in said State, without
giving effect to rules governing conflicts of law.
Very truly yours,
NAME OF FIRM:
BY:_______________________________
AUTHORIZED OFFICER OF PARTNER
ADDRESS:
__________________________________
__________________________________
TELEPHONE : ( ) _______________
TELEX: ( ) _______________
FACSIMILE: ( ) _______________
CONFIRMED AS OF THE DATE
FIRST ABOVE WRITTEN.
SUNRISE SECURITIES CORP.
BY:____________________________
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<PAGE> 1
EXHIBIT 4.1
COMMON STOCK PURCHASE OPTION AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER,
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT
UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS OPTION IS
RESTRICTED AS DESCRIBED HEREIN.
VOID AFTER 5:00 P.M., NEW YORK TIME, ___________, 2000
INTERFERON SCIENCES, INC.
Option for the Purchase of Common Stock
800,000 Shares
THIS CERTIFIES that, subject to the terms hereof, including without
limitation Section 4 hereof, for receipt in hand of $800.00 and other value
received, Sunrise Securities Corp., 919 Third Avenue, New York, New York 10022
(the "Holder"), is entitled to subscribe for and purchase from Interferon
Sciences, Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time after ________,
1996 [one year following the effective date], and before 5:00 P.M. on
____________, 2000, New York time (the "Exercise Period"), 800,000 shares of the
Company's Common Stock, par value $.01 per share, subject to adjustment as
provided herein (the "Option Shares"), at a price of [110% of the public
offering price] per share, subject to adjustment as provided herein (the
"Exercise Price"). This Purchase Option shall not be redeemable by the Holder.
This Purchase Option is the Purchase Option or one of the Purchase Options
(collectively, including any Purchase Option issued upon the exercise or
transfer of any such Purchase Options, in whole or in part, the "Options")
issued pursuant to the Underwriting Agreement, dated May__, 1995, between the
Company and Sunrise Securities Corp. (the "Underwriting Agreement"). As used
herein, the term "this Option" shall mean and include this Option and any Option
or Options hereafter issued as a consequence of the exercise or transfer of this
Option in whole or in part. This Option may not be sold, transferred, assigned
or hypothecated until _______________, 1996, except that it may be transferred,
in whole or in part, to (i) one or more officers or partners of the Holder (or
the officers or partners of any such partner); (ii) any other underwriting firm
or member of the selling group which participated in the public offering of
Common Stock which commenced on [effective date] (or the officers or partners of
any such firm); (iii) a successor to the Holder, or the officers or partners of
such successor; (iv) a purchaser of substantially all of the assets of the
<PAGE> 2
Holder; or (v) by operation of law; and the term the "Holder" as used herein
shall include any transferee to whom this Option has been transferred in
accordance with the above. No such sale, transfer, assignment or hypothecation
will be permitted unless (a) a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect thereto has become
effective and appropriate qualification or other action has been taken under
state securities laws or (b) there is presented to the Company notice of the
proposed transfer and a legal opinion reasonably satisfactory to the Company
that such registration and qualification or other action is not required.
1. This Option may be exercised during the Exercise Period, as to the
whole or any lesser number of the Option Shares, by the surrender of this Option
(with the election at the end hereof duly executed) to the Company at its office
at 783 Jersey Avenue, New Brunswick, New Jersey 08901, or at such other place as
may be designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
Exercise Price multiplied by the number of Option Shares for which this Option
is being exercised. In lieu of the payment of the Exercise Price, the Holder
shall have the right (but not the obligation), to require the Company to convert
this Option, in whole or in part, into the Option Shares (the "Conversion
Right") as provided for in this Section. Upon exercise of the Conversion Right,
the Company shall deliver to the Holder (without payment by the Holder of the
Exercise Price) that number of shares of Common Stock equal to (i) the
percentage portion of the Option being converted multiplied by (ii) the quotient
obtained by dividing (x) the value of the Option at the time the Conversion
Right is exercised (determined by subtracting the Exercise Price in effect
immediately prior to the exercise of the Conversion Right from the Current
Market Price (as determined pursuant to Section 5(f) below), for the shares of
Common Stock issuable upon exercise of the Option immediately prior to the
exercise of the Conversion Right) by (y) the Current Market Price of one share
of Common Stock immediately prior to the exercise of the Conversion Right. The
Conversion Rights provided under this Section may be exercised in whole or in
part and at any time and from time to time while any Options remain outstanding.
In order to exercise the Conversion Right, the Holder shall surrender to the
Company, at its offices, this Option accompanied by the form of Subscription
Agreement duly filled in and signed and a duly completed Conversion Notice in
the form attached hereto. The presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the aggregate
purchase price payable for the Option Shares being issued upon such exercise of
this Option. This Option (or so much thereof as shall have been surrendered for
conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of this Option for conversion in
accordance with the foregoing provisions. As promptly as practicable on or after
the conversion date, the Company shall issue and shall deliver to the Holder (i)
a certificate or certificates representing the largest number of whole Option
Shares which the Holder shall be entitled as a result of the conversion, and
(ii) if such Option is being converted in part only, a new Option exercisable
for the number of Option Shares equal to the unconverted portion of the Option.
If this Option is executed in whole, in lieu of any fractional Option Shares to
which the Holder shall be entitled, the Company shall pay to the Holder cash in
accordance with the provisions of Section 5(c) hereof.
- 2 -
<PAGE> 3
2. Upon each exercise of the Holder's rights to purchase Option Shares,
the Holder shall be deemed to be the holder of record of the Option Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Option Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Option, the Company shall issue and
deliver to the Holder a certificate or certificates for the Option Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Option should be exercised in part only, the Company shall,
upon surrender of this Option for cancellation, execute and deliver a new Option
evidencing the right of the Holder to purchase the balance of the Option Shares
(or portions thereof) subject to purchase hereunder.
3. Any Options issued upon the transfer or exercise in part of this
Option shall be numbered and shall be registered in an Option Register as they
are issued. The Company shall be entitled to treat the registered holder of any
Option on the Option Register as the owner in fact thereof for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Option on the part of any other person, and shall not be liable for any
registration or transfer of Options which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Option shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his or its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Option or Options to the person
entitled thereto. This Option may be exchanged, at the option of the Holder
thereof, for another Option, or other Options of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Option Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause this Option to be transferred on its books to any person if,
in the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Options, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company covenants that all shares
of Common Stock issuable upon exercise of this Option, upon receipt by the
Company of the full payment therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
- 3 -
<PAGE> 4
5. Subject to the provisions of this Section 5, the Exercise Price
in effect from time to time shall be subject to adjustment, as follows:
(a) In case the Company shall at any time after the date hereof
(i) declare a dividend on the outstanding Common Stock payable in shares of its
capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price in effect, and the number of shares of Common Stock issuable upon exercise
of the Options outstanding, at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification,
shall be proportionately adjusted so that the holders of the Options after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Options had been exercised immediately prior to such time, such holders
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash or assets (other
than distributions and dividends payable in shares of Common Stock), or rights,
options or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock, then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Current Market Price (as determined pursuant to Section 5(f)
hereof) per share of Common Stock on such record date, less the fair market
value (as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of the portion of
the evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Current Market Price per share of Common Stock. Such adjustment shall become
effective at the close of business on such record date.
(c) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-thousandth of a share, as the case may be;
provided, however that, no adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; and provided, further, that any adjustments
which by reason of this Section 5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. The Company shall
not be required to issue fractions of shares of Common Stock or other capital
stock of the Company upon the exercise of this Option. If any fraction of a
share would be issuable on the exercise of this Option (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the Current Market Price (as hereinafter defined) of
such share of Common Stock on the date of exercise of this Option.
- 4 -
<PAGE> 5
(d) In any case in which this Section 5 shall require that an
adjustment in the number of Option Shares be made effective as of a record date
for a specified event (an "Event"), the Company may elect to defer, until the
occurrence of such Event, issuing to the Holder, if the Holder exercised this
Option after such record date, the shares of Common Stock, if any, issuable upon
such exercise over and above the number of Option Shares, if any, issuable upon
such exercise on the basis of the number of Option Shares in effect prior to
such adjustment; provided, however, that the Company shall deliver to the Holder
a due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares upon the occurrence of the Event requiring such
adjustment.
(e) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall within 15 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at its
address as it shall appear in the Option Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Option
Shares issuable hereunder and the exercise price thereof after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(f) The Current Market Price per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange
(including, for purposes hereof, the NASDAQ National Market System (the
"NASDAQ/NM")) on which the Common Stock is listed or admitted to trading or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange, the highest reported bid price for the Common Stock as furnished by
the National Association of Securities Dealers, Inc. through NASDAQ/NM or a
similar organization if NASDAQ/NM is no longer reporting such information. If on
any such date the Common Stock is not listed or admitted to trading on any
national securities exchange and is not quoted by NASDAQ/NM or any similar
organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(g) Upon each adjustment of the Exercise Price as a result of
the calculations made in Section 5(b) hereof, the Options shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest hundredth) obtained by dividing (A) the
product obtained by multiplying the number of shares purchasable upon exercise
of the Options prior to adjustment of the number of shares by the Exercise Price
in effect prior to adjustment of the Exercise Price by (B) the Exercise Price in
effect after such adjustment of the Exercise Price.
6. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation and which does not
result in [Aany reclassification of the outstanding shares of Common Stock or
the conversion
- 5 -
<PAGE> 6
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in case of any sale, lease or conveyance to another
corporation of the property and assets of any nature of the Company as an
entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Option (in lieu of the number of shares of
Common Stock theretofore deliverable) the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock, which would otherwise have been deliverable upon the exercise of this
Option upon such Reorganization if this Option had been exercised in full
immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors of
the Company, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of the Holder so that the provisions
set forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon exercise of
this Option. Any such adjustment shall be made by and set forth in a
supplemental agreement between the Company, or any successor thereto, and the
Holder and shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment. The Company shall not effect any such Reorganization
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Holder such shares of stock, securities, cash or
other property as the Holder shall be entitled to purchase in accordance with
the foregoing provisions.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Option (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Option solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Option might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
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<PAGE> 7
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants or other securities; or
(c) to effect any reclassification or change of outstanding shares
of Common Stock or any consolidation, merger, sale, lease or conveyance of
property described in Section 6; or
(d) to effect any liquidation, dissolution or winding-up of the
Company;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Option Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined or (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up.
8. The issuance of any shares or other securities upon the exercise of
this Option and the delivery of certificates or other instruments representing
such shares or other securities shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the seven-year period commencing on
[effective date] the Company shall file a registration statement (other than on
Form S-4, Form S-8, or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Options are outstanding, the Company
shall give all the then holders of any Options (the "Eligible Holders") at least
45 days prior written notice of the filing of such registration statement. If
requested by any Eligible Holder in writing within 30 days after receipt of any
such notice, the Company shall, at the Company's sole expense (other than the
fees and disbursements of counsel for the Eligible Holders and the underwriting
- 7 -
<PAGE> 8
discounts, if any, payable in respect of the Option Shares sold by any Eligible
Holder), register or qualify all or, at each Eligible Holder's option, any
portion of the Option Shares of any Eligible Holders who shall have made such
request, concurrently with the registration of such other securities, all to the
extent requisite to permit the public offering and sale of the Option Shares
through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Option Shares
requested to be included in the registration concurrently with the securities
being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his or its Option
Shares shall delay the offering and sale of such Option Shares (or the portions
thereof so designated by such managing underwriter) for such period, not to
exceed 90 days, as the managing underwriter shall request (the "Delay Period");
provided that if any securities of the Company are included in such registration
statement and are eligible for sale during the Delay Period for the account of
any person other than the Company, a pro rata portion of the Option Shares which
were requested to be included and eligible for sale during the Delay Period
shall also be included in such registration statement and shall be eligible for
sale during the Delay Period.
(b) If, on any two occasions during the five-year period
commencing on [effective date], the Company shall receive a written request from
Eligible Holders who in the aggregate own (or upon exercise of all Options then
outstanding would own) a majority of the total number of shares of Common Stock
then included (or upon such exercises would be included) in the Option Shares
(the "Majority Holders"), to register the sale of all or part of such Option
Shares, the Company shall, as promptly as practicable, prepare and file with the
Commission a registration statement sufficient to permit the public offering and
sale of the Option Shares through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable; provided, that the
Company shall only be obligated to file one such registration statement for
which all expenses incurred in connection with such registration (other than the
fees and disbursements of counsel for the Eligible Holders and underwriting
discounts, if any, payable in respect of the Option Shares sold by the Eligible
Holders) shall be borne by the Company. Within three business days after
receiving any request contemplated by this Section 9(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Option Shares, provided that
the Company receives a written request to do so from such Eligible Holder within
30 days after receipt by him or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall use its best efforts to cause the Option
Shares so registered to be registered or qualified for sale under the securities
or blue sky laws of such jurisdictions as the Holder or such holders may rea-
-8-
<PAGE> 9
sonably request; provided, however, that the Company shall not be required to
qualify to do business in any state by reason of this Section 9(c) in which it
is not otherwise required to qualify to do business or otherwise subject itself
to general service of process.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Option Shares covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders are first
free to sell such Option Shares; provided, however, that, if the Company is
required to keep any such registration or qualification in effect with respect
to securities other than the Option Shares beyond such period, the Company shall
keep such registration or qualification in effect as it relates to the Option
Shares for so long as such registration or qualification remains or is required
to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish to each Eligible Holder such number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Option Shares included in such registration.
(f) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish each Eligible Holder of any Option
Shares so registered with an opinion of its counsel (reasonably acceptable to
the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus or any amendment or
supplement thereto has been issued, nor has the Commission or any securities or
blue sky authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each prospectus forming a part thereof (including each preliminary prospectus),
and any amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented.
(g) In the event of a registration pursuant to the provision of
this Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Option Shares.
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<PAGE> 10
(h) The Company agrees that until all the Option Shares have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall, so long as it is so required by applicable law, keep current in filing
all reports, statements and other materials required to be filed with the
Commission to permit holders of the Option Shares to sell such securities under
Rule 144.
(i) The Company will not, without the written consent of the
Majority Holders, grant to any persons the right to request the Company to
register any securities of the Company, provided that the Company may grant such
registration rights to other persons so long as such rights do not conflict with
the rights of the Eligible Holders.
10. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 10, without
limitation, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), as and when incurred, arising out of, based upon,
or in connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any registration statement, preliminary
prospectus or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, relating to the sale of any of the
Option Shares, or (B) in any application or other document or communication (in
this Section 10 collectively called an "application") executed by or on behalf
of the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to register or qualify any of the
Option Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to such Eligible Holder by or on behalf of such person
expressly for inclusion in any registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Option. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Option.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including the
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<PAGE> 11
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company, and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
10 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent. The
Company shall not, without the prior written consent of each indemnified party
that is not released as described in this sentence, settle or compromise any
action, or permit a default or consent to the entry of judgment in or otherwise
seek to terminate any pending or threatened action, in respect of which
indemnity may be sought hereunder (whether or not any indemnified party is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the Eligible
Holders of the commencement of any litigation or proceedings against the Company
or any of its officers or directors in connection with the sale of any Option
Shares or any preliminary prospectus, prospectus, registration statement or
amendment or supplement thereto, or any application relating to any sale of any
Option Shares.
(b) Each of the Holder and any Eligible Holder agrees to
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed any registration statement covering
Option Shares held by the Holder and any Eligible Holder, each other person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and its or their respective counsel, to the
same extent as the foregoing indemnity from the Company to the Holder in Section
10(a), but only with respect to statements or omissions, if any, made in any
registration statement or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information furnished to the
Company with respect to the Holder by or on behalf of the Holder or with respect
to any Eligible Holder or by or on behalf of such Eligible Holder expressly for
inclusion in any such registration statement or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be;
provided, however, that the Holder and each Eligible Holder shall be liable only
for written information furnished to the Company by it or on its own behalf for
inclusion in a registration statement. If any action shall be brought against
the Company or any other person so indemnified based on any such registration
statement or final prospectus, or any amendment or supplement thereto, or in any
application, and in respect of which indemnity may be sought against the Holder
pursuant to this Section 10(b), the Holder and each Eligible Holder, as the case
may be, shall have the rights and duties given to the Company and the Company
- 11 -
<PAGE> 12
and each other person so indemnified shall have the rights and duties given to
the indemnified parties, by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Option
Shares included in such registration in the aggregate (including for this
purpose any contribution by or on behalf of an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 10(c). In no case shall any Eligible Holder be responsible
for a portion of the contribution obligation imposed on all Eligible Holders in
excess of its pro rata share based on the number of shares of Common Stock owned
(or which would be owned upon exercise of all Option Shares) by it and included
in such registration as compared to the number of shares of Common Stock owned
(or which would be owned upon exercise of all Option Shares) by all Eligible
Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 10(c), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent and counsel of each such Eligible Holder or control person shall have the
same rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 10(c).
Anything in this Section 10(c) to the contrary notwithstanding, no party shall
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<PAGE> 13
be liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 10(c) is intended to
supersede any right to contribution under the Act, the Exchange Act or
otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof,
the Option Shares issued upon exercise of the Option shall be subject to a stop
transfer order and the certificate or certificates evidencing such Option
Shares, shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Option (and upon surrender of any Option
if mutilated), and upon reimbursement of the Company's reasonable incidental
expenses, the Company shall execute and deliver to the Holder thereof a new
Option of like date, tenor and denomination.
13. The Holder of any Option shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Option.
14. This Option shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Option, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Option, or a breach of this Option or any such document
or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 11 of the Underwriting Agreement.
Dated: ________________, 1995 INTERFERON SCIENCES, INC.
By: ____________________________
Name:
[Seal] Title:
_____________________________
Secretary
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<PAGE> 14
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Option.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ an Option to purchase __________ shares of
Common Stock, $.01 par value per share, of Interferon Sciences, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________ attorney to transfer such
Option on the books of the Company, with full power of substitution.
Dated: _________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Option in every particular, without alteration
or enlargement or any change whatsoever.
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<PAGE> 15
ELECTION TO EXERCISE
To: Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901
The undersigned hereby exercises his or its rights to purchase
_______ Option Shares covered by the within Option and tenders payment herewith
in the amount of $_________ in accordance with the terms thereof, and requests
that certificates for such securities be issued in the name of, and delivered
to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Option Shares shall not be all the Option Shares covered
by the within Option, that a new Option for the balance of the Option Shares
covered by the within Option be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated: __________________ Name________________________
(Print)
Address:
(Signature)
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<PAGE> 16
CONVERSION RIGHT EXERCISE FORM
(To be executed upon exercise of Option pursuant to Section 1)
The undersigned hereby irrevocably elects to surrender ___
percent of its Option for such Option Shares pursuant to the Conversion Right
provisions of the within Option, as provided for in Section 1 of such Option.
Please issue a certificate or certificates for such Option
Shares in the name of, pay cash for fractional shares pursuant to Section 5(c)
of the Option (if applicable) and issue a new Option for the unexercised portion
thereof (if applicable).
Name _________________________________
(Please Print Name, Address and Social
Security No.)
Address_______________________________
______________________________________
______________________________________
Social _______________________________
Security No.
Signature ____________________________
NOTE: The above signature should
correspond exactly with
the name on the first page
of this Option or with
the name of the assignee
appearing in the
assignment form below
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<PAGE> 1
23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Interferon Sciences, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated April 3, 1995 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has an
accumulated deficit, which raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New York, New York
May 18, 1995
