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As filed with the Securities and Exchange Commission on September 30, 1997
Registration No. 333-34209
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TECHNICLONE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3698422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14282 FRANKLIN AVENUE, TUSTIN CALIFORNIA 92780-7017 (714) 838-0500
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
LON H. STONE
TECHNICLONE CORPORATION
14282 FRANKLIN AVENUE, TUSTIN CALIFORNIA 92780-7017
(714) 838-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
R.C. SHEPARD, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH, A PROFESSIONAL CORPORATION
660 NEWPORT CENTER DRIVE, SUITE 1600
NEWPORT BEACH, CALIFORNIA 92660
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock ($.001 par value) ... 9,000,000 shares $3.9375 $35,437,500 $10,738.64*
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(1) The number of shares of Common Stock registered hereunder represents
the Company's good faith estimate of the number of shares which may be
issued upon conversion of the Company's 5% Adjustable Convertible Class
C Preferred Stock (the "Class C Preferred Stock") or upon exercise of
the Warrants, as the case may be. Pursuant to Rule 416, this
Registration Statement also covers an indeterminate number of
additional shares of Common Stock which may become issuable upon
conversion of the Preferred Stock by reason of reductions of the
conversion price, in accordance with the terms of the Certificate of
Designation of 5% Adjustable Convertible Class C Preferred Stock (the
"Certificate of Designation").
(2) In accordance with Rule 457(c), the aggregate offering price of
9,000,000 shares of Common Stock registered hereby which would be
issued upon the conversion of the shares of the Class C Preferred Stock
and exercise of Warrants as provided in the Certificate of Designation,
the aggregate offering price is estimated solely for purposes of
calculating the registration fee, as determined in accordance with Rule
457(c), using the closing price reported by the Nasdaq SmallCap Market
for the Common Stock on August 20, 1997 which was $3.9375 per share.
* Previously Paid.
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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PROSPECTUS
TECHNICLONE CORPORATION
This Prospectus relates to the offer and sale of 9,000,000 shares of
Common Stock, par value $.001 per share ("Common Stock"), of Techniclone
Corporation (the "Company" or "Techniclone"), which may be offered hereby from
time to time by the selling stockholders named herein (the "Selling
Stockholders") for their own benefit. The Selling Stockholders hold 12,000
shares of 5% Adjustable Convertible Class C Preferred Stock ("Class C Preferred
Stock") issued on April 25, 1997, by the Company for an aggregate purchase price
of $12,000,000. The shares of Class C Preferred Stock are convertible into
shares of the Company's Common Stock. In connection with the sale of shares of
Class C Preferred Stock to the Selling Stockholders, the placement agent was
issued warrants to purchase 1,200 shares of Class C Preferred Stock for
$1,200,000 ("Placement Agent Warrants"). The Certificate of Designation of 5%
Adjustable Convertible Class C Preferred Stock ("Certificate of Designation")
provides that a 5% dividend will be paid on the original purchase price. The
dividend is payable quarterly in shares of Class C Preferred Stock or, at the
option of the Company, in cash. The shares of Class C Preferred Stock paid as a
dividend may be converted into shares of the Company's Common Stock on the same
terms as the other shares of the Class C Preferred Stock. When the placement
agent exercises the Warrants to purchase shares of Class C Preferred Stock, such
shares will be convertible into Common Stock and Conversion Warrants (as defined
below) on the same terms as all other shares of Class C Preferred Stock.
Pursuant to the terms and subject to the limitations and conditions set forth in
the Certificate of Designation, a share of the Class C Preferred Stock is
convertible into shares of the Company's Common Stock (the "Conversion Shares")
and stock warrants ("Conversion Warrants") to purchase an amount of the
Company's Common Stock equal to 25% of the number of Conversion Shares issued
(the "Warrant Shares"), at 110% of the Conversion Price (as defined below). The
Warrant Shares and the Conversion Shares are sometimes referred to herein as
"Registrable Shares." From time to time, each Selling Stockholder may convert
all or a portion of such Selling Stockholder's shares of Class C Preferred Stock
into shares of the Company's Common Stock and Conversion Warrants.
The shares of Class C Preferred Stock will be converted into shares of
Common Stock at a discount from the average of the lowest market trading price
for the five days preceding conversion ("Conversion Price"). The Selling
Stockholders may begin converting the shares of Class C Preferred Stock on
September 25, 1997. If any shares of Class C Preferred Stock are converted on or
after September 25, 1997 but prior to November 25, 1997, the discount from
Market Price is 0.0%, if any shares of Class C Preferred Stock are converted on
or after November 25, 1997 but prior to January 25, 1998, the discount from
Market Price is 13%, if any shares of Class C Preferred Stock are converted on
or after January 25, 1998, but prior to March 25, 1998, the discount from Market
Price is 20%, if any shares of Class C Preferred Stock are converted on or after
March 25, 1998, but prior to May 25, 1998, the discount from Market Price is
22.5%, if any shares of Class C Preferred Stock are converted on or after May
25, 1998, but prior to July 25, 1998, the discount from Market Price is 25%, and
if any shares of Class C Preferred Stock are converted on or after July 25,
1998, the discount from Market Price is 27%.
At any date prior to March 24, 1998, the Conversion Price for the Class
C Preferred Stock will be the discount, as set forth in the preceding paragraph,
from lowest market trading price for the five days preceding conversion. At any
date after March 24, 1998, the Conversion Price shall be the lower of (i) the
Conversion Price calculated in accordance with the paragraph set forth above, or
(ii) the average of the closing price of the Common Stock for the thirty (30)
trading days including and immediately preceding March 24, 1998 (such average
being the "Conversion Cap").
All of the Conversion Shares and Warrant Shares issued or which are
issuable by the Company are Registrable Shares.
Information regarding the Selling Stockholders is set forth in "Selling
Stockholders" and "Plan of Distribution".
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The distribution of the shares of Common Stock offered hereby may be
effected from time to time in one or more transactions. All or a portion of the
Common Stock offered by this Prospectus may be offered for sale, from time to
time, by the Selling Stockholders, or by permitted transferees or successors of
the Selling Stockholders, in private or negotiated transactions, in open market
transactions on the National Association of Securities Dealers Automated
Quotation SmallCap Market ("Nasdaq"), or on one or more exchanges or otherwise,
or a combination of these methods, at prices and terms then obtainable, at fixed
prices, at prices then prevailing at the time of sale, at prices related to such
prevailing prices, or at negotiated prices, or otherwise. The shares of Common
stock offered hereby may be sold by one or more of the following: (i) through
underwriters; (ii) through dealers or agents (which may include underwriters)
including: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares of Common Stock as agent, but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer and resale by such broker or dealer as a principal for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and (d)
transactions in which the broker solicits purchasers; or (iii) directly to one
or more purchasers. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Stockholders. Concurrently with
sales under this Prospectus, the Selling Stockholders may effect other sales of
Common Stock or Shares under Rule 144 or other exempt resale transactions.
Selling Stockholders and any underwriters, dealers, brokers, or agents executing
selling orders on behalf of the Selling Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in which event commissions received by such persons may be
deemed to be underwriting commission under the Securities Act.
SEE "RISK FACTORS," COMMENCING ON PAGE 6, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
The Company will not receive any part of the proceeds from the sale of
Common Stock. See "Use of Proceeds." The Selling Stockholders and intermediaries
through whom such securities are sold may be deemed "underwriters" within the
meaning of the Securities Act, in which event commissions received by such
broker may be deemed to be underwriting commissions under the Securities Act.
All expenses of the registration of securities covered by this
Prospectus are to be borne by the Company, except that the Selling Stockholders
will pay any applicable underwriters' commissions and expenses, brokerage fees
or transfer taxes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Common Stock of the Company is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is listed
on the Nasdaq SmallCap Market under the symbol "TCLN." On September 25, 1997,
the last reported sale price of the Company's Common Stock on the Nasdaq
SmallCap Market was $3.21875.
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The date of this Prospectus is September 30 1997.
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TABLE OF CONTENTS
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PAGE
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Available Information ......................................................4
Incorporation of Certain Documents by Reference ............................5
The Company ................................................................5
Risk Factors.................................................................6
Use of Proceeds ...........................................................16
Description of Securities .................................................16
Selling Stockholders ......................................................19
Plan of Distribution ......................................................20
Legal Matters .............................................................20
Experts ...................................................................20
Indemnification of Directors and Officers .................................20
</TABLE>
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering described herein, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Selling Stockholders or any underwriters,
brokers or agents. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, nor shall there be any sale of these securities
by any person in any jurisdiction in which it is unlawful for such person to
make such offer, solicitation or sale. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create an implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 500 West Madison Street, Chicago,
Illinois 60606 and 7 World Trade Center, New York, New York 10048. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may be obtained
electronically by visiting the Commission's web site on the Internet at
http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq
SmallCap Market. Reports, proxy statements and other information concerning the
Company may be inspected at the National Association of Securities Dealers,
Inc., at 1735 K Street, N.W., Washington D.C. 20006.
This Prospectus does not contain all of the information set forth in
the Registration Statement of which this Prospectus is a part and which the
Company has filed with the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits filed as a part thereof, copies
of which can be inspected at, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above. Additional
updating information with respect to the Company may be provided in the future
by means of appendices or supplements to this Prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are incorporated by reference herein:
a. The Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997, filed with the Commission on July 29,
1997, as amended by Form 10-K/A Amendment No. 1 to the Annual
Report filed with the Commission on September 30, 1997.
b. The Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1997, filed with the Commission on September
15, 1997, as amended by Form 10-Q/A Amendment No. 1 to the
Quarterly Report filed with the Commission on September 30,
1997.
c. A Current Report on Form 8-K filed with the Commission on May
12, 1997, as amended by Form 8-K/A Amendment No. 1 to the 8-K
as filed with the Commission on September 30, 1997.
d. The description of the Company's Common Stock contained in the
Company's Registration Statement on From 8-A and Form 8-B
Registration of Successor Issuers filed under the Exchange
Act, including any amendment or report filed for the purpose
of updating such description.
e. All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since the end of the
Company's fiscal year ended April 30, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which reregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
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,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes 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.
The Company will provide, without charge, to each person to whom a copy
of this Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the information that has been or may be incorporated by
reference herein (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Techniclone Corporation, Attention: William V. Moding,
Chief Financial Officer and Secretary, 14282 Franklin Avenue, Tustin California
92780-7017, telephone number (714) 838-0500.
THE COMPANY
Techniclone Corporation was incorporated in the State of Delaware on
September 25, 1996. On March 24, 1997, Techniclone International Corporation, a
California corporation, was merged with and into Techniclone Corporation. The
merger was effected for the purpose of effecting a change in the Company's state
of incorporation from California to Delaware. Unless the context otherwise
requires, references to the "Company" herein includes Techniclone Corporation,
its predecessor Techniclone International Corporation, its former subsidiary
Cancer Biologics, Inc. (which was merged into the company on June 26, 1994) and
its wholly owned subsidiary Peregrine Pharmaceuticals, Inc. The principal
executive offices of the Company are located at
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14282 Franklin Avenue, Tustin, California 92780-7017. The Company's telephone
number is (714) 838-0500, and the Company's address on the World Wide Web is
http://www.techniclone.com.
The Company is engaged in the research and development of new
technologies which can be utilized in the production of monoclonal antibodies
and the production of specific monoclonal antibodies with prospective diagnostic
and therapeutic applications. To date, the Company has been primarily engaged in
the research, development and production of mouse and chimeric hybridoma cell
lines and in the manufacture of monoclonal antibodies derived from these cell
lines for in vivo therapeutic purposes. Products that appear to have commercial
viability include (i) anti-lymphoma antibodies, LYM-1 and LYM-2 (collectively
the "LYM Antibodies") and (ii) three advanced monoclonal antibody technologies
for collateral targeting of solid tumors, Tumor Necrosis Therapy (TNT), Vascular
Targeting Agents (VTA), and Vasopermeation Enhancement Agents (VEA).
The Company holds an exclusive world-wide license to manufacture and
market products using the LYM Antibodies. In clinical studies conducted at the
University of California at Davis, over fifty patients with B-cell lymphoma were
treated with LYM-1 linked to Iodine-131 (I131). A significant number of these
patients had significant clinical responses including patients showing complete
and durable responses. The side effects experienced by these patients were
minimal and the toxicities, including bone marrow suppression, that normally
accompany cancer treatment with conventional therapeutic radioisotopes were all
clinically manageable.
The Company has begun Phase II/III testing in multi-center clinical
trials of the LYM-1 Antibody (Oncolym(TM)) in late stage Non-Hodgkins lymphoma
patients. The clinical trials are being sponsored by the Company's marketing
partner, Alpha Therapeutic Corporation ("Alpha"), a wholly-owned subsidiary of
Green Cross Corporation. The clinical trials are currently being held at
participating medical centers including M.D. Anderson, The Cleveland Clinic,
Cornell University (N.Y.C.), George Washington University and the University of
Cincinnati. Following the completion of the clinical trials, the Company expects
Alpha to file an application with the FDA to market LYM-1 (Oncolym(TM)) in the
United States.
RISK FACTORS
The following factors should be considered carefully in evaluating the
Company and its business before making an investment in the Common Stock offered
hereby, together with all of the other information set forth or incorporated by
reference in this Prospectus.
FLUCTUATION OF FUTURE OPERATING RESULTS. Future operating results may
be impacted by a number of factors that could cause actual results to differ
materially from those stated herein. These factors include worldwide economic
and political conditions and industry specific factors. If the Company is to
remain competitive and to timely develop and produce commercially viable
products at competitive prices in a timely manner, it must maintain access to
external financing sources until it can generate revenue from licensing
transactions or sales of products. The Company's ability to obtain financing and
to manage its expenses and cash depletion rate (the "burn rate") is the key to
the Company's continued development of product candidates and the completion of
ongoing clinical trials. The Company expects that its burn rate will vary
substantially on a quarter to quarter basis as it funds non-recurring items
associated with clinical trials, product development, executive search firm fees
and various consulting fees. The Company has limited experience with clinical
trials and if the Company encounters unexpected difficulties with its operation
or clinical trials, it may have to expend additional funds which would increase
its burn rate.
EARLY STAGE OF DEVELOPMENT. Since its inception, the Company has been
engaged in the development of drugs and related therapies for the treatment of
people with cancer. The Company's product candidates are generally in early
stages of development, with only one product candidate in a clinical trial.
Revenues from product sales have been insignificant and throughout the Company's
history there have been minimal revenues from product royalties. Additionally,
product candidates resulting from the Company's research and development
efforts, if any, are not expected to be available commercially for at least the
next year. No assurance can be given that the Company's product development
efforts, including clinical trials, will be successful, that required
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regulatory approvals for the indications being studied can be obtained, that its
product candidates can be manufactured at acceptable cost and with appropriate
quality or that any approved products can be successfully marketed.
NEED FOR ADDITIONAL CAPITAL. At July 31, 1997, the Company had
approximately $10,461,000 in cash and cash equivalents and short-term
investments. The Company currently has commitments to expend approximately
$500,000 for building improvements, equipment, furniture and fixtures. The
Company expects these expenditures to increase in the future as the Company's
scale up for pilot production continues. The Company has experienced negative
cash flows from operations since its inception and expects the negative cash
flow from operations to continue for the foreseeable future. Whether or not the
Company becomes more active in managing the LYM-1 (Oncolym(TM)) clinical trial,
the Company expects that the monthly negative cash flow will increase as a
result of increased activities in connection with the Phase II/III clinical
trials for LYM-1 (Oncolym(TM)) and as a result of significantly increased
research, development and clinical trial costs associated with the Company's
other products, including Tumor Necrosis Therapy ("TNT") and Vascular Targeting
Agents ("VTA"). As a result of the increased expenditure of funds, the Company
believes that it will be necessary for the Company to raise additional capital
to sustain research and development and provide for future clinical trials. The
Company must raise additional equity funds in order to continue its operations
until it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. There can be no assurance that the Company will be
successful in raising such funds on terms acceptable to it, or at all, or that
sufficient additional capital will be raised to complete the research and
development of the Company's additional product candidates. The Company is
discussing the possibility of raising additional funds with various investment
banking firms and private investors, but as of September 30, 1997, the Company
had not entered into any firm commitments for additional funds. If the initial
results from the Phase II/III clinical trials of LYM-1 (Oncolym(TM)) are poor,
then management believes that such results will have a material adverse effect
upon the Company's ability to raise additional capital, which will affect the
Company's ability to continue a full-scale research and development effort for
its antibody technologies. The Company's future success is highly dependent upon
its continued access to sources of financing which it believes are necessary for
the continued growth of the Company. If the Company is unable to maintain access
to its existing financing sources, or obtain other sources of financing there
would be a material adverse effect on the Company's business, financial position
and results of operations.
To conduct clinical trials on a timely basis, obtain regulatory
approval and be commercially successful, the Company must be able to scale up
its manufacture processes and facilities and ensure compliance with regulatory
requirements of its product candidates, either directly or through third
parties, so that such product candidates can be manufactured in a pilot product
run and ultimately in commercial quantities. Although the Company has produced
its product candidates in the laboratory and in limited clinical runs, the
Company has not scaled up its production process to manufacture pilot production
runs. As the Company's first product, LYM-1 (Oncolym(TM)) moves closer to
finishing the clinical trial process for FDA approval, the Company must scale
its production process to pilot production levels so that it or a contract
manufacturer can produce the product in commercial quantities. To meet FDA
requirements, the Company's manufacturing process must be scaleable. The Company
anticipates that the scale up of its LYM-1 (Oncolym(TM)) product to pilot
production will cost at least two million dollars and that, if the Company were
to commercially manufacture the product, it will have to expend an additional
six to ten million dollars to build and validate a production facility which
complies with "current good manufacturing practices" ("CGMP"). Accordingly, once
the Company's scale up to pilot production is complete, the Company believes it
can successfully negotiate an agreement with a contract manufacturer to have
LYM-1 (Oncolym(TM)) produced on a "per run basis" thereby deferring or
eliminating the significant expenditure (six to ten million dollars) which it
estimates is required to build and validate a CGMP production facility. The
Company anticipates that production of its products in commercial quantities
will create technical and financial challenges for the Company. The Company has
limited manufacturing experience, and no assurance can be given as to the
ultimate performance of the Company's ability to scale its manufacturing, the
suitability of the Company's present facility for pilot production or commercial
production, the Company's ability to make a successful transition to commercial
production or the Company's ability to reach an acceptable agreement with a
contract manufacturer to produce LYM-1 (Oncolym(TM)) or the Company's other
product candidates in clinical or commercial quantities. The failure of the
Company to scale its manufacturing for pilot or
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commercial production or to obtain a contract manufacturer could have a material
adverse effect on the Company's business, financial position and results of
operations.
ANTICIPATED FUTURE LOSSES. The Company has experienced significant
losses since inception. As of July 31, 1997, the Company's accumulated deficit
was approximately $60,784,000. The Company expects to incur significant
additional operating losses in the future and expects cumulative losses to
increase substantially due to expanded research and development efforts,
preclinical studies and clinical trials and development of manufacturing,
marketing and sales capabilities. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial. All of
the Company's products are in development, preclinical studies or clinical
trials, and significant revenues have not been generated from product sales. To
achieve and sustain profitable operations, the Company, alone or with others,
must successfully develop, obtain regulatory approval for, manufacture,
introduce, market and sell its products. The time frame necessary to achieve
market success is long and uncertain. The Company does not expect to generate
significant product revenues for at least the next few years. There can be no
assurance that the Company will ever generate significant product revenues which
are sufficient to become profitable or to sustain profitability.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION; CONTROL. A precipitous
decline in the market price of the Company's Common Stock may lead to very
substantial dilution to current holders of Common Stock. Both the Class B
Convertible Preferred Stock ("Class B Preferred Stock") and the Class C
Preferred Stock provide that the conversion of such shares of preferred stock
into shares of the Company's Common Stock issued or issuable shall be at the
lower of a conversion cap or a conversion price indexed to the market price of
the Common Stock at the time of conversion. On conversion of the Class B
Preferred Stock and the Class C Preferred Stock, all of such shares of Common
Stock which are issued may be freely tradable. Sales of substantial amounts of
Common Stock in the public market could adversely affect the prevailing market
price of the Common Stock and, depending upon the then current market price of
the Common Stock, increase the risks associated with the possible conversion of
the Preferred Stock.
If all of the outstanding shares of Class B Preferred Stock and the
Class C Preferred Stock are converted on the last day that they may be
converted, and all outstanding warrants are exercised and converted prior to
their expiration then, assuming the Company's Common Stock has a stock price of
$3.9375 on the date of such conversion, approximately 8,411,000 additional
shares of Common Stock could become freely tradable without restriction under
the Securities Act. Of the 8,411,000 shares, 7,212,000 will be issued on the
conversion of the Class C Preferred Stock and Warrants and 1,199,000 shares of
the 8,411,000 shares of Common Stock which are issuable, will be issued on the
conversion of the Class B Preferred Stock and Warrants.
Of the 7,212,000 shares of the Company's Common Stock that would be
issuable to the holders of the Class C Preferred Stock, approximately 5,353,000
are issuable as a result of the conversion of the shares of Class C Preferred
Stock including all shares of Class C Preferred Stock paid as a dividend,
417,000 are issuable as a result of the placement agent exercising its warrants
and 1,442,000 are issuable as a result of the exercise of the Conversion
Warrants. All of the 7,212,000 additional shares of Common Stock could become
freely tradable without restriction under the Securities Act if all of the
shares of Class C Preferred Stock are converted and the conversion Warrants
related thereto are exercised on the last conversion date.
The shares of Class C Preferred Stock will be converted into shares of
Common Stock at a discount from the average of the lowest market trading price
for the five days preceding conversion ("Conversion Price"). The Selling
Stockholders may begin converting the shares of Class C Preferred Stock on
September 25, 1997. If any shares of Class C Preferred Stock are converted on or
after September 25, 1997, but prior to November 25, 1997, the discount from
Market Price is 0.0%, if any shares of Class C Preferred Stock are converted on
or after November 25, 1997 but prior to January 25, 1998, the discount from
Market Price is 13%, if any shares of Class C Preferred Stock are converted on
or after January 25, 1998, but prior to March 25, 1998, the discount from Market
Price is 20%, if any shares of Class C Preferred Stock are converted on or after
March 25, 1998, but prior to May 25, 1998, the discount from Market Price is
22.5%, if any shares of Class C Preferred Stock are converted on or after May
25, 1998 but prior to July 25, 1998, the discount from Market Price is 25%, if
any shares of Class C Preferred Stock are converted on or after July 25, 1998,
the discount from Market Price is 27%.
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At any date prior to March 24, 1998 the Conversion Price for any share
of Class C Preferred Stock shall be the discount from Market Price set forth in
the preceding paragraph. At any date after March 24, 1998, the Conversion Price
shall be the lower of (i) the Conversion Price calculated in accordance with the
paragraph set forth above or (ii) the average of the closing prices of the
Common Stock for the thirty (30) trading days including and immediately
preceding March 24, 1998 (such average being the "Conversion Cap").
If after July 25, 1998, the market price of the Common Stock is below
$3.9375 per share at the time(s) of conversion, the effective conversion
price(s) of the Class C Preferred Stock issued will be lower than $2.88 per
share (the market price less the applicable discount) resulting in the issuance
of more Common Stock upon conversion of the Class C Preferred Stock.
Of the 1,199,000 shares reserved for issuance pursuant to the Class B
Preferred Stock, approximately 932,000 shares of Common Stock are issuable upon
conversion of currently outstanding Class B Convertible Preferred Stock ("Class
B Preferred Stock") and approximately 267,000 shares of Common Stock are
issuable upon the exercise of the warrants related thereto.
In the event of a dissolution or liquidation of the Company, the
holders of the Class C Preferred Stock are entitled to a liquidation or
preference of $1,000 plus accrued dividends. (See "Description of Securities).
Upon the occurrence of certain specified events the holders of the Class C
Preferred Stock may force a redemption of the Class C Preferred Stock. The
Company may elect in its redemption notice to redeem the Preferred Stock either
in cash or in Common Stock. For purposes of redemption, the value of the Common
Stock shall be 73% of the average of the lowest market trading price for five
consecutive days during the period beginning on the date of the redemption
notice and ending on the redemption date. See DESCRIPTION OF SECURITIES.
The Class B Preferred Stock has a mandatory conversion date of December
29, 1998 and the warrants related thereto have an expiration date as of December
28, 2000. If the market price of the Common Stock is below $3.61 per share at
the time of conversion of the Class B Preferred Stock, the effective conversion
price of the Class B Preferred Stock issued will be lower than the conversion
cap of $3.06875, resulting in the issuance of more shares of Common Stock upon
the conversion of the Class B Preferred Stock. The conversion price for the
Class B Preferred Stock is the lower of (i) $3.06875, which was the average
closing bid price for the Company's Common Stock for the five (5) trading days
ending on December 8, 1995 and the closing price on December 5, 1995, the date
the Company agreed to proceed with the offering of the Class B Preferred Stock,
or (ii) 85% of the closing bid price for the Company's Common Stock for the five
trading days immediately preceding the date of the conversion. The number of
shares of Common Stock issued upon conversion of each share of Class B Preferred
Stock is determined by (i) taking ten percent (10%) of One Thousand Dollars
($1,000) pro-rated on the basis of a 365 day year, by the number of days between
December 29, 1995 and the date of conversion plus (ii) One Thousand Dollars
($1,000), (iii) divided by the conversion price.
The Class B Preferred Stock has a liquidation preference over the
Company's Common Stock. This liquidation preference is $1,000 per share of Class
B Preferred Stock plus 10% per annum pro-rated through any liquidation date.
During the years ended April 30, 1996 and 1997, 1,400 and 4,600 shares,
respectively, of Class B Preferred Stock were converted at the election of the
holder to common stock. In connection with these conversions, the Company issued
469,144 and 1,587,138, respectively, shares of common stock. As of September 25,
1997, 2,200 shares of Class B Convertible Preferred Stock with a liquidation
preference of approximately $2,583,000 remain outstanding. If converted on
September 30, 1997, these 2,200 shares would have been convertible into
approximately 960,000 shares of Common Stock. If the warrants associated with
the Class B Preferred Stock were also exercised on September 30, 1997,
approximately 267,000 additional shares of Common Stock would have been issued.
If all of the shares of Class B Preferred Stock were converted and the
warrants associated therewith were exercised and if all of the shares of Class C
Preferred Stock were converted and the Conversion Warrants exercised on
September 30, 1997, the Company would have issued approximately 6,522,000 shares
of Common
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Stock, of which amount approximately 1,227,000 shares of Common Stock would be
attributable to the conversion of the Class B Preferred Stock and the exercise
of the warrants applicable thereto and approximately 5,295,000 shares of Common
Stock would be attributable to the conversion of the Class C Preferred Stock,
the exercise of the placement agent warrants and the Conversion Warrants.
During the past year, the Company's Common Stock has traded as low as
$2.88 per share and as high as $7.19 per share. If all of the shares of the
Class C Preferred Stock were converted and the warrants applicable thereto were
exercised when the Company Stock was at its low and the maximum discount was in
effect, then approximately 7,997,000 additional shares of Common Stock would be
issued. If all of the shares of the Class C Preferred Stock were converted and
the placement agent warrants applicable thereto and the Conversion Warrants were
exercised when the Common Stock was at its high and the maximum discount was in
effect, then approximately 3,203,000 additional shares would be issued. If all
of the shares of the Class B Preferred Stock were converted and the warrants
applicable thereto were exercised when the Company Stock was at its low then
approximately 1,055,000 additional shares of Common Stock would be issued. It is
assumed that the Warrants would not be exercised at the low since the exercise
price exceeds the market price. If all of the shares of the Class B Preferred
Stock were converted and the warrants applicable thereto exercised when the
Common Stock was at its high then approximately 1,110,000 additional shares
would be issued.
In addition to the warrants set forth above, the Company has
outstanding warrants to issue 130,100 shares of stock at prices ranging from
$3.00 to $5.30. The warrants expire as follows: 30,000 warrants expire on or
before April 30, 1998, 10,000 on December 31, 1999 and 90,100 on December 18,
2000. In connection with its search for a chief executive officer, the Company
has committed to grant warrants for a maximum of 60,000 shares. Such grant is
dependent on the success and the conclusion date of the search. The Company has
granted options to purchase 4,544,750 shares of Common Stock pursuant to its
stock option plans.
STOCK PRICE FLUCTUATIONS AND LIMITED TRADING VOLUME. The Company's
participation in the highly competitive biotechnology industry often results in
significant volatility in the market price of the Company's Common Stock. Also,
at times there is a limited trading volume in the Company's Common Stock.
Announcements of technological innovations or new commercial products by the
Company or its competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by the Company or its competitors,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of biotechnology products and economic and other
external factors, as well as period-to-period fluctuations in financial results
may have a significant impact on the market price of the Company's Common Stock.
The volatility in the stock price and limited trading volume are significant
risks investors should consider. As noted in the Section entitled SHARES
ELIGIBLE FOR FUTURE SALE; DILUTION; CONTROL, the Company could issue in excess
of 8,000,000 additional shares of Common Stock if the market price of the Common
Stock is approximately $3.9375 per share and the Preferred Stock and the
Warrants related thereto are converted and exercised on the last day they may be
converted and exercised. If the price of the Common Stock declines and the
holders of the Preferred Stock convert when the price is low, the Company will
be required to issue a substantial amount of additional shares as both the Class
B Convertible Preferred Stock ("Class B Preferred Stock") and the Class C
Preferred Stock provide that the conversion of such shares of preferred stock
into shares of the Company's Common Stock issued or issuable shall be at the
lower of a conversion cap or a conversion price indexed to the market price of
the Common Stock at the time of conversion. If the holders of the Preferred
Stock converted and attempted to sell all or a significant portion of the shares
of Common Stock in the open market this could cause a severe depression of the
market price for a share of the Company's Common Stock.
MAINTENANCE CRITERIA FOR NASDAQ SECURITIES. The National Association of
Securities Dealers, Inc. ("the NASD"), which administers Nasdaq, recently made
changes in the criteria for continued Nasdaq eligibility on the Nasdaq SmallCap
Market. In order to continue to be included in Nasdaq, the Company must maintain
$2 million in tangible net assets, public float of 500,000 shares with a
$1,000,000 market value of its public float and $1 million in total capital and
surplus. In addition, continued inclusion requires two market-makers, at least
300 holders of the Common Stock and a minimum bid price of $1 per share;
provided, however, that if the Company falls below such minimum bid price, it
will remain eligible for continued inclusion in Nasdaq if the market value
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of the public float is at least $1 million and the Company has $2 million in
capital and surplus. The Company's failure to meet these maintenance criteria in
the future may result in the discontinuance of the inclusion of its securities
in Nasdaq. In such event, the Company would become subject to the "penny stock"
rules and trading, if any, in the Company's Common Stock would then continue to
be conducted in the non-Nasdaq over-the-counter market in what are commonly
referred to as the electronic bulletin board and the "pink sheets." As a result,
an investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the securities.
INTENSE COMPETITION. The biotechnology industry is intensely
competitive and changing rapidly. Substantially all of the Company's existing
competitors have greater financial resources, larger technical staff, and larger
research budgets than the Company and greater experience in developing products
and running clinical trials. Two of the Company's competitors, Idec
Pharmaceuticals Corporation ("Idec") and Coutler Pharmaceuticals, Inc.
("Coulter"), each have a lymphoma antibody which, while indicated for a
different stage of the disease, may compete with the Company's LYM-1
(Oncolym(TM)) product. The Company believes that both Idec and Coulter will be
marketing their respective lymphoma products prior to the time the LYM-1
(Oncolym(TM)) product receives marketing approval. There can be no assurance
that the Company will be able to compete successfully or that competition will
not have a material adverse effect on the Company's business, financial position
and results of operations. There can be no assurance that these competitors will
not be able to raise substantial funds and to employ these funds and their other
resources to develop products which compete with the Company's other product
candidates.
TECHNOLOGICAL UNCERTAINTY. The Company's future success will depend
significantly upon its ability to develop and test workable products for which
the Company will seek FDA approval to market to certain defined groups. A
significant risk remains as to the technological performance and commercial
success of the Company's technology and products. The products currently under
development by the Company will require significant additional laboratory and
clinical testing and investment over the foreseeable future. The significant
research, development, and testing activities, together with the resulting
increases in associated expenses, are expected to result in operating losses for
the foreseeable future. Although the Company is optimistic that it will be able
to successfully complete development of one or more of its products, there can
be no assurance that (i) the Company's research and development activities will
be successful; (ii) any proposed products will prove to be effective in clinical
trials; (iii) the Company's product candidates will not cause harmful side
effects during clinical trials; (iv) the Company's product candidates may take
longer to progress through clinical trials than has been anticipated; (v) the
Company's product candidates may prove impracticable to manufacture in
commercial quantities at a reasonable cost and/or with acceptable quality; (vi)
the Company will be able to obtain all necessary governmental clearances and
approvals to market its products; (vii) the Company's product candidates will
prove to be commercially viable or successfully marketed; or (viii) that the
Company will ever achieve significant revenues or profitable operations. In
addition, the Company may encounter unanticipated problems, including
development, manufacturing, distribution and marketing difficulties. The failure
to adequately address such difficulties could have a material adverse effect on
the Company's business, financial position and results of operations.
The results of initial preclinical and clinical testing of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical testing. The Company's clinical data gathered to date with respect to
its LYM-1 (Oncolym(TM)) antibody are primarily from a Phase II dose escalation
trial which was designed to develop and refine the therapeutic protocol, to
determine the maximum tolerated dose of total body radiation and to assess the
safety and efficacy profile of treatment with a radiolabeled antibody. Further,
the data from this Phase II dose escalation trial were compiled from testing
conducted at a single site and with a relatively small number of patients.
Substantial additional development and clinical testing and investment will be
required prior to seeking any regulatory approval for commercialization of this
potential product. There can be no assurance that clinical trials of the LYM-1
(Oncolym(TM)) or other product candidates under development will demonstrate the
safety and efficacy of such products to the extent necessary to obtain
regulatory approvals for the indications being studied, or at all. Companies in
the pharmaceutical and biotechnology industries have suffered significant
setbacks in
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advanced clinical trials, even after obtaining promising results in earlier
trials. The failure to demonstrate adequately the safety and efficacy of LYM-1
(Oncolym(TM)) or any other therapeutic product under development could delay or
prevent regulatory approval of the product and would have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITED CONTROL OF CLINICAL TRIALS. A Phase II/III clinical trial for
the Company's LYM-1 (Oncolym(TM)) antibody is being conducted by Alpha. As a
result of Alpha being in charge of the clinical trial, the Company has limited
control over the LYM-1 (Oncolym(TM)) clinical trial. In August 1997, the Company
commenced negotiations with Alpha to increase its participation in the LYM-1
(Oncolym(TM)) clinical trial. Discussions and negotiations between the Company
and Alpha are continuing. While the Company is attempting to reach an agreement
with Alpha which would allow the Company to increase its participation in the
LYM-1 (Oncolym(TM)) clinical trial, no assurance can be given that the Company
will be able to negotiate any modification to the existing agreement with Alpha
on acceptable terms, or at all, or that the Company will have any increased
participation or input in the progress of the clinical trial.
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS. The Company has limited
experience in conducting clinical trials, but it believes that the clinical
trials will be costly. The rate of completion of the Company's clinical trials
will be dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the nature of the
Company's clinical trial protocols, existence of competing protocols, size of
the patient population, proximity of patients to clinical sites and eligibility
criteria for the study. Delays in patient enrollment will result in increased
costs and delays, which could have a material adverse effect on the Company. The
Company cannot assure that patients enrolled in the Company's clinical trials
will respond to the Company's product candidates. Setbacks are to be expected in
conducting human clinical trials. Failure to comply with the United States Food
and Drug Administration ("FDA") regulations applicable to such testing can
result in delay, suspension or cancellation of such testing, and/or refusal by
the FDA to accept the results of such testing. In addition, the FDA may suspend
clinical trials at any time if it concludes that the subjects or patients
participating in such trials are being exposed to unacceptable health risks.
Further, there can be no assurance that human clinical testing will show any
current or future product candidate to be safe and effective or that data
derived therefrom will be suitable for submission to the FDA. Any suspension or
delay of any of the clinical trials could have a material adverse effect on the
Company's business, financial condition and results of operations.
LENGTHY REGULATORY PROCESS; NO ASSURANCE OF REGULATORY APPROVALS. The
testing, manufacturing, labeling, advertising, promotion, export and marketing,
among other things, of the Company's proposed products are subject to extensive
regulation by governmental authorities in the United States and other countries.
In the United States, pharmaceutical products are regulated by the FDA under the
Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. At the present time, the Company
believes that its products will be regulated by the FDA as biologics.
Manufacturers of biologics may also be subject to state regulation.
The steps required before a biologic may be approved for marketing in
the United States generally include (i) preclinical laboratory tests and animal
tests, (ii) the submission to the FDA of an Investigational New Drug application
("IND") for human clinical testing, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the product, (iv) the submission
to the FDA of a Product License Application ("PLA") or a Biologics License
Application ("BLA"), (v) the submission to the FDA of an Establishment License
Application ("ELA"), (vi) FDA review of the ELA and the PLA or BLA, and (vii)
satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the product is made to assess compliance with CGMP. The
testing and approval process requires substantial time, effort, and financial
resources and there can be no assurance that any approval will be granted on a
timely basis, if at all. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
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The results of preclinical studies and clinical studies, together with
detailed information on the manufacture and composition of a product candidate,
are submitted to the FDA in the form of a PLA or BLA requesting approval to
market the product candidate. Before approving a PLA or BLA, the FDA will
inspect the facilities at which the product is manufactured, and will not
approve the marketing of the product candidate unless CGMP compliance is
satisfactory. The FDA may deny a PLA or BLA if applicable regulatory criteria
are not satisfied, require additional testing or information, and/or require
postmarketing testing and surveillance to monitor the safety or efficacy of a
product. There can be no assurance that FDA approval of any PLA or BLA submitted
by the Company will be granted on a timely basis or at all. Also, if regulatory
approval of a product is granted, such approval may entail limitations on the
indicated uses for which it may be marketed.
Both before and after approval is obtained, violations of regulatory
requirements, including the preclinical and clinical testing process, the PLA or
BLA review process, or thereafter (including after approval) may result in
various adverse consequences, including the FDA's delay in approving or refusing
to approve a product, withdrawal of an approved product from the market, and/or
the imposition of criminal penalties against the manufacturer and/or license
holder. For example, license holders are required to report certain adverse
reactions to the FDA, and to comply with certain requirements concerning
advertising and promotional labeling for their products. Also, quality control
and manufacturing procedures must continue to conform to CGMP regulations after
approval, and the FDA periodically inspects manufacturing facilities to assess
compliance with CGMP. Accordingly, manufacturers must continue to expend time,
monies and effort in the area of production and quality control to maintain CGMP
compliance. In addition, discovery of problems may result in restrictions on a
product, manufacturer, including withdrawal of the product from the market.
Also, new government requirements may be established that could delay or prevent
regulatory approval of the Company's product candidates.
The Company will also be subject to a variety of foreign regulations
governing clinical trials and sales of its products. Whether or not FDA approval
has been obtained, approval of a product candidate by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. At least initially, the Company intends, to the extent possible,
to rely on foreign licensees to obtain regulatory approval for marketing its
products in foreign countries.
SINGLE SOURCE OF RADIOLABELING SERVICES. The Company procures its
radiolabeling services from Mills Biopharmaceuticals, Inc. The Company has
negotiated contracts with two other radiolabeling companies and continues to
negotiate with other companies to provide radiolabeling services for its
antibodies and expects to have additional sources for radiolabeling its
antibodies in late-1997. There can be no assurance that these additional
suppliers will be able to qualify their facilities, label and supply antibody in
a timely manner, if at all, or that governmental clearances will be provided in
a timely manner, if at all, and that clinical trials will not be delayed or
disrupted as a result. While the Company is developing additional suppliers of
these services, it expects to rely on its current supplier for all or a
significant portion of its requirements for the LYM-1 (Oncolym(TM)) antibody for
the foreseeable future. Radiolabeled antibody cannot be stockpiled against
future shortages due to the eight-day half-life of the I131 radioisotope.
Accordingly, any change in the Company's existing or planned contractual
relationships with, or interruption in supply from, its third-party suppliers
could adversely affect the Company's ability to complete its ongoing clinical
trials and to market the LYM-1 (Oncolym(TM)) antibody, if approved. Any such
change or interruption would have a material adverse effect on the Company's
business, financial condition and results of operations.
HAZARDOUS AND RADIOACTIVE MATERIALS. The manufacturing and use of the
Company's LYM-1 (Oncolym(TM)) requires the handling and disposal of I(131). The
Company is relying on its current contract manufacturer, Mills
Biopharmaceuticals, Inc ("MBI"), to radiolabel its LYM-1 Antibody with I(131)
and to comply with various state and federal regulations regarding the handling
and use of radioactive materials. Violation of these state and federal
regulations by MBI or a clinical trial site could delay significantly completion
of such trials. Violations of safety regulations could occur with this
manufacturer, and, therefore, there is a risk of accidental contamination or
injury. The Company could be held liable for any damages that result from such
an
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accident, contamination or injury from the handling and disposal of these
materials, as well as for unexpected remedial costs and penalties that may
result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations. In the event of any such noncompliance or
accident, the supply of LYM-1 (Oncolym(TM)) for use in clinical trials or
commercially could be interrupted, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTIES FOR COMMERCIALIZATION. The Company intends
to sell its products in the United States and internationally in collaboration
with marketing partners. The Company has a development and marketing agreement
with Alpha for LYM-1 (Oncolym(TM)). At the present time, Alpha does not have a
sales force to market LYM-1 (Oncolym(TM)). If and when the FDA approves LYM-1
(Oncolym(TM)), the marketing of LYM-1 (Oncolym(TM)) will be contingent upon
Alpha recruiting, training and deploying a sales force. As noted in the
paragraph entitled LIMITED CONTROL OF CLINICAL TRIALS, the Company has been
negotiating with Alpha to increase its participation in the clinical trials. To
date no agreement has been reached but the parties continue to discuss the
situation. The Company does not possess the resources and experience necessary
to market either LYM-1 (Oncolym(TM)) or its other product candidates. The
Company has no arrangements for the distribution of its other product
candidates, and there can be no assurance that the Company will be able to enter
into any such arrangements in a timely manner or on commercially favorable
terms, if at all. If the Company is successful in obtaining FDA approval for one
of its other product candidates the Company's ability to market the product will
be contingent upon it either licensing or entering into a marketing agreement
with a large company or upon it recruiting, developing, training and deploying
its own sales force. Development of an effective sales force requires
significant financial resources and time. There can be no assurance that the
Company or Alpha will be able to establish such a sales force in a timely or
cost effective manner, if at all, or that such a sales force will be capable of
generating demand for the Company's product candidates.
UNCERTAINTY OF MARKET ACCEPTANCE. Even if the Company's products are
approved for marketing by the FDA and other regulatory authorities, there can be
no assurance that the Company's products will be commercially successful. If the
Company's most advanced product, LYM-1 (Oncolym(TM) ) is approved, it would
represent a significant departure from currently approved methods of treatment
for Non-Hodgkin's lymphoma. Accordingly, LYM-1 (Oncolym(TM) ) may experience
under-utilization by oncologists and hematologists who are unfamiliar with the
application of LYM-1 (Oncolym(TM) ) in the treatment of Non-Hodgkin's lymphoma.
As with any new drug, doctors may be inclined to continue to treat patients with
conventional therapies, in this case chemotherapy, rather than new alternative
therapies. Market acceptance also could be affected by the availability of third
party reimbursement. Failure of LYM-1 (Oncolym(TM) ) to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend, in
large part, on its ability to maintain a proprietary position in its products
through patents, trade secret and orphan drug designation. The Company several
United States patent(s), United States patent applications and numerous
corresponding foreign patent applications, and has licenses to patents or patent
applications owned by other entities. No assurance can be given, however, that
the patent applications of the Company or the Company's licensors will be issued
or that any issued patents will provide competitive advantages for the Company's
products or will not be successfully challenged or circumvented by its
competitors. The patent position worldwide of biotechnology companies in
relation to proprietary products is highly uncertain and involves complex legal
and factual questions. Moreover, there can be no assurance that any patents
issued to the Company or the Company's licensors will not be infringed by others
or will be enforceable against others. In addition, there can be no assurance
that the patents, if issued, would not be held invalid or unenforceable by a
court of competent jurisdiction. Enforcement of the Company's patents may
require substantial financial and human resources. Moreover, the Company may
have to participate in interference proceedings if declared by the United States
Patent and Trademark Office to determine priority of inventions, which typically
take several years to resolve and could result in substantial costs to the
Company.
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A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody field, competitors may have filed applications for or have been issued
patents and may obtain additional patents and proprietary rights relating to
products or processes competitive with or similar to those of the Company. To
date, no consistent policy has emerged regarding the breadth of claims allowed
in biopharmaceutical patents. There can be no assurance that patents do not
exist in the United States or in foreign countries or that patents will not be
issued that would have an adverse effect on the Company's ability to market any
product which it develops. Accordingly, the Company expects that commercializing
monoclonal antibody-based products may require licensing and/or cross-licensing
of patents with other companies in this field. There can be no assurance that
the licenses, which might be required for the Company's processes or products,
would be available, if at all, on commercially acceptable terms. The ability to
license any such patents and the likelihood of successfully contesting the scope
or validity of such patents are uncertain and the costs associated therewith may
be significant. If the Company is required to acquire rights to valid and
enforceable patents but cannot do so at a reasonable cost, the Company's ability
to manufacture its products would be materially adversely affected.
The Company also relies on trade secrets and proprietary know-how which
it seeks to protect, in part, by confidentiality agreements with its employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed by competitors.
PRODUCT LIABILITY. The manufacture and sale of human therapeutic
products involve an inherent risk of product liability claims. The Company has
only limited product liability insurance. There can be no assurance that the
Company will be able to maintain existing insurance or obtain additional product
liability insurance on acceptable terms or with adequate coverage against
potential liabilities. Such insurance is expensive, difficult to obtain and may
not be available in the future on acceptable terms, if at all. An inability to
obtain sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims brought against the Company in excess
of its insurance coverage, if any, or a product recall could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
HEALTH CARE REFORM AND THIRD-PARTY REIMBURSEMENT. Political, economic
and regulatory influences are subjecting the health care industry in the United
States to fundamental change. Recent initiatives to reduce the federal deficit
and to reform health care delivery are increasing cost-containment efforts. The
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative benefits, controls on health care
spending through limitations on the growth of private health insurance premiums
and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, price controls on pharmaceuticals and other fundamental changes to the
health care delivery system. Any such proposed or actual changes could affect
the Company's ultimate profitability. Legislative debate is expected to continue
in the future, and market forces are expected to drive reductions of health care
costs. The Company cannot predict what impact the adoption of any federal or
state health care reform measures or future private sector reforms may have on
its business.
The Company's ability to successfully commercialize its product
candidates will depend in part on the extent to which appropriate reimbursement
codes and authorized cost reimbursement levels of such products and related
treatment are obtained from governmental authorities, private health insurers
and other organizations, such as health maintenance organizations ("HMOs"). The
Health Care Financing Administration ("HCFA"), the agency responsible for
administering the Medicare program, sets requirements for coverage and
reimbursement under the program, pursuant to the Medicare law. In addition, each
state Medicaid program has individual requirements that affect coverage and
reimbursement decisions under state Medicaid programs for certain health care
providers and recipients. Private insurance companies and state Medicaid
programs are influenced, however, by the HCFA requirements.
There can be no assurance that any of the Company's product candidates,
once available, will be included within the then current Medicare coverage
determination. In the absence of national Medicare coverage determination, local
contractors that administer the Medicare program, within certain guidelines, can
make their
15
<PAGE> 16
own coverage decisions. Favorable coverage determinations are made in those
situations where a procedure falls within allowable Medicare benefits and a
review concludes that the service is safe, effective and not experimental. Under
HCFA coverage requirements, FDA approval for marketing will not necessarily lead
to a favorable coverage decision. A determination will still need to be made as
to whether the product is reasonable and necessary for the purpose used. In
addition, HCFA has proposed adopting regulations that would add
cost-effectiveness as a criterion in determining Medicare coverage. Changes in
HCFA's coverage policy, including adoption of a cost-effective criterion could
have a material adverse effect on the Company.
Third-party payers are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or reduce
government insurance programs may all result in lower prices for the Company's
product candidates than it expects. The cost containment measures that health
care payers and providers are instituting and the effect of any health care
reform could materially adversely affect the Company's ability to operate
profitably.
EARTHQUAKE RISKS. The Company's corporate and research facilities,
where the majority of its research and development activities are conducted, are
located near major earthquake faults which have experienced earthquakes in the
past. The Company does not carry earthquake insurance on its facility due to its
prohibitive cost and limited available coverages. In the event of a major
earthquake or other disaster affecting the Company's facilities, the operations
and operating results of the Company could be adversely affected.
FORWARD LOOKING STATEMENTS. Based on current expectations, this
prospectus and the Company's Annual Report on Form 10-K or Form 10-K/A Amendment
No. 1 and its quarterly and periodic reports contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. In light of the important factors that can materially
affect results, including those set forth above, the inclusion of
forward-looking information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved. The Company may encounter competitive, technological, financial and
business challenges making it more difficult than expected to continue to
develop, market and manufacture its products; competitive conditions within the
industry may change adversely; upon development of the Company's products,
demand for the Company's products may weaken; the market may not accept the
Company's products; the Company may be unable to retain existing key management
personnel; the Company's forecasts may not accurately anticipate market demand;
and there may be other material adverse changes in the Company's operations or
business. Certain important factors affecting the forward looking statements
made herein include, but are not limited to (i) accurately forecasting capital
expenditures, and (ii) obtaining new sources of external financing prior to the
expiration of existing support arrangements or capital. Assumptions relating to
budgeting, marketing, product development and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its capital expenditure or other budgets,
which may in turn affect the Company's business, financial position and results
of operations.
USE OF PROCEEDS
The only proceeds the Company will receive will be from the exercise of
the Placement Agent Warrant. Any proceeds received by the Company from the
exercise of Warrants will be used for general working capital purposes. The
proceeds from the sale of each Selling Stockholders' Common Stock will belong to
the Selling Stockholders. The Company will not receive any proceeds from such
sales of the Common Stock.
DESCRIPTION OF SECURITIES
This Prospectus relates to the offer and sale of 9,000,000 shares of
Common Stock, par value $.001 per share ("Common Stock"), of Techniclone
Corporation (the "Company" or "Techniclone"), which may be offered hereby from
time to time by the selling stockholders named herein (the "Selling
Stockholders") for their own
16
<PAGE> 17
benefit. The Selling Stockholders hold 12,000 shares of 5% Adjustable
Convertible Class C Preferred Stock ("Preferred Stock") issued by the Company
for an aggregate purchase price of $12,000,000 on April 25, 1997. The shares of
Preferred Stock are convertible into shares of the Company's Common Stock. In
connection with the sale of shares of Preferred Stock to the Selling
Stockholders, the placement agent was issued warrants to purchase 1,200 shares
of Preferred Stock for $1,200,000 ("Placement Agent Warrant"). If the placement
agent exercises the warrants to purchase shares of Preferred Stock, such shares
will be convertible into Common Stock and Warrants on the same terms as all
other shares of Preferred Stock. The Certificate of Designation of the 5%
Adjustable Convertible Class C Preferred Stock ("Certificate of Designation")
provides that a 5% dividend will be paid on the original purchase price. The
dividend is payable quarterly in shares of the Preferred Stock or at the option
of the Company in cash. The shares of Preferred Stock paid as a dividend may be
converted into shares of the Company's Common Stock on the same terms as the
shares of the Preferred Stock.
Pursuant to the terms and subject to the limitations and conditions set
forth in the Certificate of Designation, a share of the Preferred Stock is
convertible into shares of the Company's Common Stock (the "Conversion Shares")
and stock warrants ("Conversion Warrants") to purchase, at 110% of the
Conversion Price (as defined below) of the Conversion Shares, an amount of
Common Stock equal to 25% of the number of Conversion Shares issued (the
"Warrant Shares"). From time to time, each Selling Stockholder may convert all
or a portion of such Selling Stockholder's shares of Preferred Stock into
Conversion Warrants and shares of Common Stock of the Company.
The shares of Preferred Stock will be converted into shares of Common
Stock at a discount from the average of the lowest market trading price for the
five days preceding conversion. The Selling Stockholders may begin converting
the shares of Preferred Stock on September 25, 1997. If any shares of Preferred
Stock are converted on or after September 25, 1997 but prior to November 25,
1997, the discount from Market Price is 0.0%, if any shares of Preferred Stock
are converted on or after November 25, 1997 but prior to January 25, 1998, the
discount from market price is 13%, if any shares of Preferred Stock are
converted on or after January 25, 1998 but prior to March 25, 1998, the discount
from market price is 20%, if any shares of Preferred Stock are converted on or
after March 25, 1998 but prior to May 25, 1998, the discount from Market Price
is 22.5%, if any shares of Preferred Stock are converted on or after May 25,
1998 but prior to July 25, 1998, the discount from market price is 25%, if any
shares of Preferred Stock are converted on or after July 25, 1998, the discount
from market price is 27%.
At any date prior to March 24, 1998, the Conversion Price for any share
of Preferred Stock shall be the discount from market price set forth in the
preceding paragraph. At any date after March 24, 1998, the Conversion Price
shall be the lower of (i) the Conversion Price calculated in accordance with the
paragraph set forth above or (ii) the average of the closing prices of the
Common Stock for the thirty (30) trading days including and immediately
preceding March 24, 1998 (such average being the "Conversion Cap").
All of the Conversion Shares and Warrant Shares issued or which
issuable by the Company are Registrable Shares.
The holders of the Class C Preferred Stock do not have voting rights
except as provided by Delaware law.
Pursuant to a Registration Rights Agreement among the Selling
Stockholders and the Company, the Company agreed to file a registration
statement with the Commission to register the Conversion Shares and the Warrant
Shares for resale by the Selling Stockholders, and to keep the registration
statement effective until such date as is the earlier of (i) the date on which
all of the Registrable Securities have been sold (and no further Registrable
Securities may be issued in the future) and (ii) the date on which all the
Registrable Securities (including any Registrable Securities issuable in the
future) may be immediately sold to the public without registration pursuant to
Rule 144(k) under the Securities Act. The Registration Statement of which this
Prospectus is a part was filed with the Commission pursuant to the Registration
Rights Agreement.
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<PAGE> 18
Subject to the limitation that any holder of Class C Preferred Stock
shall not own more than 4.9% of the outstanding shares of the Company's Common
Stock, the Class C Preferred Stock must be converted on or before April 24,
2002, or if at any time after April 25, 1998, the Company irrevocably gives
notice to the holders of the Class C Preferred Stock by first class mail at
least twenty (20) but not more than thirty (30) days in advance of the
conversion date and the Company meets the following conditions: the Company has
reserved for issuance to the holders of shares of Class C Preferred Stock 150%
of the number of shares of Common Stock issuable upon conversion of the Class C
Preferred Stock and the exercise of the Warrants whether outstanding or issuable
upon conversion thereof; such issuable shares of Common Stock are registered for
resale by the holders under the Act and there is a prospectus meeting the
requirements; the shares of Common Stock are eligible to be traded on the Nasdaq
SmallCap Market or the Nasdaq National Market, the New York Stock Exchange or
the American Stock Exchange; and the Common Stock is registered under the
Section 12(g) of the Securities Exchange Act of 1934.
The Conversion Price upon the required conversion shall be the lower of
the Conversion Cap (if applicable) or 73% of the average of the low trading
price for the five trading (5) days immediately preceding the required
conversion date.
In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 5% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of the Common Stock or any other class
or series of shares except any class or series which is entitled to priority as
to liquidation payments over the 5% Preferred, the amount of $1,000 per share
plus any accrued but unpaid dividends, whether or not declared (the "Liquidation
Preference").
The holders of the Class C Preferred Stock may force a redemption of
the shares of the Class C Preferred Stock if (i) the Common Stock is suspended
from trading on any of, or is not listed or designated for quotation (and
authorized) for trading on at least one of, the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, or the Nasdaq SmallCap
Market for an aggregate of ten (10) trading days in any nine (9) month period,
(ii) the registration statement required to be filed by the Corporation pursuant
to the Registration Rights Agreement (the "Registration Rights Agreement"), has
not been declared effective by October 23, 1997, any such registration
statement, after being declared effective, cannot be utilized by the holders of
the Class C Preferred Stock for the resale of all of their Registrable
Securities (as defined in the Registration Rights Agreement) for an aggregate of
more than thirty (30) days in any twelve (12) month period, (iii) the Company
fails, and any such failure continues uncured for five (5) business days after
the Company has been notified thereof in writing by the holder, to remove any
restrictive legend on any certificate or any shares of Common Stock issued to
the holders of Class C Preferred Stock upon conversion of the Class C Preferred
Stock or any certificate or any shares of Common Stock issued to the holders of
the Conversion Warrants upon exercise of the Conversion Warrants as and when
required by the terms of the Conversion Warrants, (iv) the Company fails to
issue shares of Common Stock to any holder of Class C Preferred Stock upon
conversion in accordance with the terms of the Class C Preferred Stock or to any
holders of Conversion Warrants, including by way of public announcement, at any
time, of its intention not to issue shares of Common Stock to any holder of
Class C Preferred Stock upon conversion in accordance with the terms of the
Class C Preferred Stock or to any holder of Conversion Warrants upon exercise of
such Conversion Warrants, (v) on or before September 25, 1998, Mr. Lon H. Stone
shall cease to be an officer of director of the Company, or (vi) 50% or more of
the Common Stock is directly or indirectly owned or controlled by a single
individual or entity of their affiliates.
Upon the occurrence of any of the above redemption events ("Redemption
Event"), the Company shall promptly provide each holder of shares of Class C
Preferred Stock with written notice ("Redemption Notice") of the occurrence of
such Redemption Event, which notice shall contain the Company's irrevocable
election as to whether it will exercise its right to issue Common Stock in lieu
of any cash redemption.
If a Redemption Event occurs and the Company elects to redeem the
shares of Class C Preferred Stock by issuing shares of the Company's Common
Stock, then the Conversion Price for the calculation of the issuance of shares
of the redemption shall be the lower of the Conversion Cap, if then in effect,
or 73% of the average of the
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<PAGE> 19
lowest market trading price for five consecutive days during the period
beginning on the date of the Redemption Notice and ending on the date of
redemption.
SELLING STOCKHOLDERS
The following table sets forth (i) the name of each person or entity
who holds shares of the Company's Class C Preferred Stock acquired pursuant to
the 5% Preferred Stock Investment Agreement and (ii) the number shares of Common
Stock each Holder's Class C Preferred Stock is convertible into and being
registered hereby. Because the Selling Stockholders may offer all, some or none
of the Shares, no definitive estimate as to the number of Shares that will be
held by the Selling Stockholders after the offering can be provided and the
table below has been prepared on the assumption that all of the shares held by
such Selling Stockholders being registered hereby will be sold, that such Class
C Preferred Stockholders will acquire no additional shares of Common Stock prior
to the completion of this offering, and therefore upon completion of this
offering the Class C Preferred Stockholders will beneficially own no shares of
Common Stock of the Company. None of the Selling Stockholders has any material
relationship with the Company or any of its affiliates within the last three
years other than as a result of such Selling Stockholder's ownership of the
Company's securities.
No Selling Stockholder may convert the Class C Preferred Stock to the
extent that, if converted into Common Stock, the Class C holder would
beneficially own in excess of 4.9% of the outstanding shares of the Company's
Common Stock.
<TABLE>
<CAPTION>
SHARES OFFERED
OWNED BEFORE OFFERING PURSUANT TO THIS OWNED AFTER OFFERING
SELLING STOCKHOLDER SHARES PERCENT PROSPECTUS(1) SHARES(2) PERCENT
- ------------------- ------ ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Laredo Capital Partners 136,364 * 136,364 0 0
Pelain Partners 68,182 * 68,182 0 0
Capital Ventures International 1,022,727 3.6 1,022,727 0 0
CC Investments, LDC 3,409,090 11.1 3,409,090 0 0
Arbco Associates, L.P. 340,909 1.2 340,909 0 0
Kayne Anderson Non-Traditional
Investments, L.P. 681,818 2.4 681,818 0 0
Offense Group, L.P. 681,818 2.4 681,818 0 0
Fortune Fund LTD Section III 1,363,636 4.8 1,363,636 0 0
Linda Cappello 436,364 1.6 436,364 0 0
Gerard Cappello 313,637 1.1 313,637 0 0
Proprietary Convertible
Investment Group, Inc. 340,909 1.2 340,909 0 0
Lawrence K. Fleischman 204,546 * 204,546 0 0
--------- ---------
Total 9,000,000 9,000,000
========= =========
</TABLE>
- ----------
(1) Approximately 150% of the estimated number of shares of Common Stock issued
upon the conversion of the Preferred Stock which would be held by such Selling
Stockholder as of July 26, 1998, if all Warrants were exercised. The Preferred
Stock is convertible into Common Stock at conversion prices that will vary. The
Conversion Warrants issued on conversion give rise to a right to purchase
additional shares of Common Stock at 110% of the effective conversion price. See
"Description of Securities". As a result, in order to provide for adjustments in
the conversion price the number of shares offered pursuant to the Prospectus in
the table above have been adjusted upward by approximately 50% from the number
of shares that would apply if all of the shares of Preferred Stock were
converted into shares of Common Stock, and the Warrant Shares and the additional
purchase rights associated with such conversion were fully exercised as of July
26, 1998, with the price of the stock at $3.9375. The amounts listed above
therefore include shares issuable upon (i) conversion of Class C Preferred
Stock,
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<PAGE> 20
(ii) exercise of the Placement Agent Warrant, and (iii) purchase of the Warrant
Shares. For the purposes of computing the beneficial ownership of, and number of
shares registered for sale by the holders of, the Class C Preferred Stock, each
share of Class C Preferred Stock is assumed to have earned dividends for five
(5) quarters and to be convertible at $2.88 per Share (73% of the Market Price).
Pursuant to the Registration Rights Agreement between the Company and the
Selling Stockholders the Company is required to register and keep registered at
all times 135% of the number of shares of Common Stock into which the Class C
Preferred Stock may be converted. Since the Company could incur severe penalties
for failing to keep 135% of the Conversion Shares, the Company has elected to
register 150% of the number of shares of Common Stock into which the Class C
Preferred Stock would be convertible on July 26, 1998, if the price of the
Common Stock is at $3.9375 per share.
(2) Assumes that the Selling Stockholder disposes of all of the Common Stock
covered by this Prospectus and does not acquire any additional Common Stock.
* Less than 1%.
PLAN OF DISTRIBUTION
All or a portion of the Common Stock offered by this Prospectus may be
offered for sale from time to time on the Nasdaq SmallCap Market or on one or
more exchanges, or otherwise at prices and terms then obtainable, or in
negotiated transactions. The distribution of these securities may be effected in
one or more transactions that may take place on the over-the-counter market,
including, among others, ordinary brokerage transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Stockholders.
The Company will not receive any part of the proceeds from the sale of
Common Stock. The Selling Stockholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act, in which event commissions received by such intermediary may be
deemed to be underwriting commissions under the Securities Act.
All expenses of the registration of securities covered by this
Prospectus are to be borne by the Company. The Selling Stockholders will pay any
applicable underwriters' commissions and expenses, brokerage fees or transfer
taxes.
Any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California.
EXPERTS
The consolidated financial statements and related consolidated
financial statement schedule, incorporated in this prospectus by reference from
Techniclone Corporation's Annual Report on Form 10-K, as amended, for the year
ended April 30, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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<PAGE> 21
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its
directors and officers and may indemnify its employees and other agents to the
fullest extent permitted by law. The Company believes that indemnification under
its Bylaws covers at least negligence and gross negligence by indemnified
parties, and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. The Company has liability
insurance for its officers and directors.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Provisions of the Company's Bylaws require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from actions not taken in good faith or in a manner the indemnitee
believed to be opposed to the best interests of the Company) to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified and to obtain directors' insurance if available on
reasonable terms. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. The Company believes that its Certificate of
Incorporation and Bylaw provisions are necessary to attract and retain qualified
persons as directors and officers.
The Company has in place a directors' and officers' liability insurance
policy that, subject to the terms and conditions of the policy, insures the
directors and officers of the Company against loses arising from any wrongful
act (as defined by the policy) in his or her capacity as a director of officer.
The policy reimburses the Company for amounts which the Company lawfully
indemnifies or is required or permitted by law to indemnify its directors and
officers.
21
<PAGE> 22
================================================================================
9,000,000 Shares
TECHNICLONE CORPORATION
COMMON STOCK
PROSPECTUS
September 30, 1997
================================================================================
22
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
broker-dealer discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and the Nasdaq Additional Listing
Fee. All of the expenses below will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission fee ................................ $10,739
Accounting fees and expenses ........................................... $25,000
Legal fees and expenses ................................................ $20,000
Printing and Engraving Expenses......................................... $ 4,000
Transfer Agent and Registrar Fees....................................... $ 2,000
Miscellaneous........................................................... $ 5,000
-------
Total ...................................... $ 66,739*
========
</TABLE>
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) As permitted by the Delaware General Corporation Law, the
Certificate of Incorporation of the Company eliminates the liability of
directors to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a directors, except to the extent otherwise required by the
Delaware General Corporation Law.
(b) The Certificate of Incorporation provides that the Company
will indemnify each person who was or is made a party to any proceeding by
reason of the fact that such person is or was a director or officer of the
Company against all expense, liability and loss reasonably incurred or suffered
by such person in connection therewith to the fullest extent authorized by the
Delaware General Corporation Law. The Company's Bylaws provide for a similar
indemnity to directors and officers of the Company to the fullest extent
authorized by the Delaware General Corporation Law.
(c) The Company's Bylaws also gives the Company the ability to
enter into indemnification agreements with each of its directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
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.
ITEM 16. EXHIBITS.
5 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation
(included in Exhibit 5).
23.2 Consent of Deloitte & Touche LLP.
24 Power of Attorney (included on the signature page to the Registration
Statement).
23
<PAGE> 24
ITEM 17. UNDERTAKINGS.
(a) 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.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total value of securities offered would not exceed
that which was registered) and any deviation from the
low or high end of the estimated maximum offering
range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price
present no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this registration statement or any material change to
such information in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, that is incorporated by
reference in the registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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 Act
and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to deliver, or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
24
<PAGE> 25
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-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the Anaheim, State of California, on the 24th day of September,
1997.
TECHNICLONE CORPORATION
By: /s/ LON H. STONE
------------------------------------------
Lon H. Stone, Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
Each of the undersigned directors and officers of Techniclone
Corporation does hereby constitute and appoint Lon H. Stone and William V.
Moding, and each of them separately, the true and lawful attorney-in-fact and
agent, each with full power of substitution and delegation, for and in the
undersigned's name, place and state, in any and all capacities, to do any and
all acts and things in the undersigned's name and behalf in his capacity as a
director and/or officer and to execute any and all instruments for us and in our
names in the capacity indicated below, which said attorney and agent, or either
of them, may deem necessary or advisable to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in connection with the
Registration Statement to which the power of attorney is attached, including
specifically, but without limitation, power and authority to sign for the
undersigned and in the capacity indicated below, any and all amendments
(including post-effective amendments) hereto or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended; and the undersigned does hereby ratify and
confirm all that the said attorney and agent, or either of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LON H. STONE Chairman of the Board, Chief Executive Officer, September 24, 1997
----------------------------------- President and Director (Principal Executive Officer)
Lon H. Stone
/s/ WILLIAM V. MODING Chief Financial Officer, Secretary and Director September 24, 1997
----------------------------------- (Principal Financial and Principal Accounting Officer)
William V. Moding
/s/ R.C. SHEPARD Assistant Secretary and Director September 24, 1997
-----------------------------------
R.C. Shepard
/s/ CLIVE R. TAYLOR Director September 24, 1997
-----------------------------------
Clive R. Taylor, M.D. Ph.D.
Director September __, 1997
Edward Joseph Legere, II
Director September __, 1997
Carmelo J. Santoro
</TABLE>
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<S> <C> <C>
5 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional 27
Corporation.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional --
Corporation (included in Exhibit 5).
23.2 Consent of Deloitte & Touche LLP. 28
24 Power of Attorney (included on the signature page to the --
Registration Statement -- see pages II-4 and II-5).
</TABLE>
26
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF STRADLING, YOCCA, CARLSON & RAUTH]
September 30, 1997
Techniclone Corporation
14280 Franklin Avenue
Tustin, California 92780-7017
RE: Registration Statement on Form S-3: Techniclone
Corporation Common Stock, par value $.001 per share
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-3 (Reg No. 333-34209), Registration (the "Registration Statement") being filed
by Techniclone Corporation, a Delaware corporation (the "Company") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
to register up to 9,000,000 shares of the Company's Common Stock, par value of
$.001 per share (the "Common Stock"). The Common Stock, under the Registration
Statement is issuable to the Selling Stockholders upon conversion of the 5%
Adjustable Convertible Class C Preferred Stock and the exercise of the Warrants
issued in connection with the conversion and would be issued and sold for the
account of the Selling Stockholders. Unless specifically defined herein or the
context requires otherwise, capitalized terms used herein shall have the
meanings ascribed to them in the Registration Statement.
In our capacity as your counsel in connection with this transaction, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the authorization, issuance and
sale of the Common Stock.
In such examination, we have assumed the authenticity of all documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies and the genuineness of all signatures. We have also
assumed the legal capacity of all natural persons and that, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
such parties had the requisite power and authority to execute, deliver and
perform such agreements or instruments, that such agreements or instruments have
been duly authorized by all requisite action and have been executed and
delivered by such parties and that such agreements or instruments are the valid,
binding and enforceable obligations of such parties.
Based upon the foregoing and the compliance with applicable state
securities laws and the additional proceedings to be taken by the Company as
referred to above, we are of the opinion that the Common Stock has been duly
authorized, and when issued, the Common Stock will be validly issued, fully paid
and nonassessable.
Our opinions herein are limited to the effect on the subject
transaction of United States Federal law and the General Corporation Law of the
State of Delaware. We assume no responsibility regarding the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
caption "Legal Matters" in the prospectus which is a part of the Registration
Statement.
Very truly yours,
STRADLING, YOCCA, CARLSON & RAUTH
/s/ STRADLING, YOCCA, CARLSON & RAUTH
27
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Techniclone Corporation on Form S-3 of our report dated May 23,
1997, except for Note 12, as to which the date is September 26, 1997 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the restatement described in Note 12), appearing in the Annual Report on Form
10-K/A, as amended, of Techniclone Corporation for the year ended April 30, 1997
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE
Costa Mesa, California
October 1, 1997
28
