<PAGE> 1
As filed with the Securities and Exchange Commission on September 18, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
ON FORM S-3
UNDER THE SECURITIES ACT OF 1933
TECHNICLONE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3698422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14282 FRANKLIN AVENUE,
TUSTIN, CALIFORNIA 92780-7017
(714) 508-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
LARRY O. BYMASTER
14282 FRANKLIN AVENUE,
TUSTIN, CALIFORNIA 92780-7017
(714) 508-6000611 ANTON BLVD.
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
WITH COPIES TO:
THOMAS J. CRANE, ESQ.
KENT M. CLAYTON, ESQ.
RUTAN & TUCKER, LLP
SUITE 1400
COSTA MESA, CA 92626
(714) 641-5100
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE (2) PRICE (2) REGISTRATION FEE
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Common Stock, $.001 par 2,545,454 $1.11 $2,825,454 $834
value (3)
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Shares of Common Stock, 254,545 $1.375 $350,000 $104
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (4)
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Common Stock, $.001 par 203,636 $1.11 $226,036 $67
value (4)
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Shares of Common Stock, 20,363 $1.375 $28,000 $9
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (6)
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</TABLE>
(1) In the event of a stock split, stock dividend or similar transaction
involving the Company's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act of
1933, as amended (the "Securities Act").
(2) In accordance with Rule 457(c), the aggregate offering price of shares of
Common Stock of the Registrant (sometimes referred to herein as the
"Company") is estimated solely for purposes of calculating the registration
fees payable pursuant hereto, as determined in accordance with Rule 457(c),
using the average of the high and low sales price reported by the Nasdaq
SmallCap Market for the Common Stock on September 14, 1998, which was $1.11
per share. In accordance with Rule 457(g), the aggregate offering price of
shares of Common Stock of the Company issuable upon exercise of outstanding
warrants is calculated solely for purposes of calculating the registration
fees payable pursuant hereto, as determined in accordance with Rule 457(g),
using the exercise price of such warrants.
(3) Represents shares of Common Stock issued on or about June 16, 1998 to
Resonance Limited and The Tail Wind Fund, Ltd. (the "Institutional
Investors") pursuant to the Regulation D Common Stock Equity Line
Subscription Agreement dated as of June 16,1998, by and between the Company
and the Institutional Investors (as amended, the "Equity Line Agreement").
(4) Represents shares of Common Stock issuable to the Institutional Investors
upon exercise of warrants issued on or about June 16, 1998 to the
Institutional Investors pursuant to the Equity Line Agreement.
(5) Represents shares of Common Stock issued on or about June 16, 1998 to Swartz
Investments LLC, a Georgia limited liability company d/b/a Swartz
Institutional Finance (the "Placement Agent") pursuant to the Placement
Agent Agreement dated as of June 16, 1998 (the "Placement Agent Agreement").
(6) Represents shares of Common Stock issuable to the Placement Agent upon
exercise of warrants issued on or about June 16, 1998 to the Placement Agent
pursuant to the Placement Agent Agreement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 3
SUBJECT TO COMPLETION DATED SEPTEMBER 18, 1998
PROSPECTUS
3,023,998 SHARES
[LOGO] TECHNICLONE
Corporation
COMMON STOCK
This Prospectus may be used only in connection with the resale, from time
to time, of up to 3,023,998 shares (the "Shares") of common stock, par value
$.001 per share ("Common Stock"), of Techniclone Corporation, a Delaware
corporation ("Techniclone" or the "Company"), by the holders thereof named
herein (the "Registered Stockholders") for their own benefit in transactions in
the over-the-counter market, at prevailing market prices, at negotiated prices
or otherwise. This Prospectus has been prepared for the purposes of registering
the Shares under the Securities Act of 1933, as amended (the "Securities Act")
to allow for future sales by the Registered Stockholders to the public without
restriction. To the knowledge of the Company, the Registered Stockholders have
made no arrangement with any brokerage firm for the sale of the Shares. Many of
the Shares offered by the Registered Stockholders may be acquired by such
Registered Stockholders upon exercise of warrants to purchase Common Stock
issued by the Company to the Registered Stockholders (collectively, the
"Warrants"). Of the 3,023,998 Shares offered hereby, (i) 2,545,454 Shares (the
"Institutional Investor Shares") were issued on or about June 16, 1998 to
Resonance Limited and The Tail Wind Fund, Ltd. (the "Institutional Investors")
pursuant to the terms of a Regulation D Common Stock Equity Line Subscription
Agreement dated as of June 16, 1998 (as amended, the "Equity Line Agreement")
between the Company and the Institutional Investors, (ii) 203,636 Shares (the
"Placement Agent Shares") were issued on or about June 16, 1998 to Swartz
Investments LLC, a Georgia limited liability company d/b/a Swartz Institutional
Finance (the "Placement Agent") pursuant to the terms of a Placement Agent
Agreement dated as of June 16, 1998 (the "Placement Agent Agreement") between
the Company and the Placement Agent, (iii) up to an additional 254,545 Shares
may be issued to the Institutional Investors upon exercise of outstanding
warrants issued on or about June 16, 1998 to the Institutional Investors
pursuant to the Equity Line Agreement, at an exercise price of $1.375 per share
(the "Institutional Investor Warrants"), and (iv) up to an additional 20,363
Shares may be issued to the Placement Agent upon exercise of outstanding
warrants issued on or about June 16, 1998 to the Placement Agent pursuant to the
Placement Agent Agreement, at an exercise price of $1.375 per share (the
"Placement Agent Warrants").
All or a portion of the Shares offered by this Prospectus may be offered for
sale, from time to time, by the Registered Stockholders, pursuant to this
Prospectus, in one or more private or negotiated transactions, in open market
transactions on The Nasdaq SmallCap Market ("Nasdaq SmallCap Market"), in
settlement of short sale transactions, in settlement of options transactions, or
otherwise, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of the sale, at prices related
to such market prices, at negotiated prices, or otherwise. The Registered
Stockholders may effect these transactions by selling the Shares (i) to or
through underwriters; (ii) through broker-dealers or agents (which may include
underwriters) including: (a) in 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) in purchases by a broker or dealer and resale by such broker or
dealer as a principal for its account pursuant to this Prospectus; (c) in
ordinary brokerage transactions and (d) in transactions in which the broker
solicits purchasers; or (iii) directly to one or more purchasers. The Registered
Stockholders and any underwriters, dealers, brokers, or agents executing selling
orders on behalf of the Registered Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act and any profits on the
sale of the Shares by them and any discounts, commissions or concessions
received by such underwriters, dealers, brokers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act. The
compensation to a particular underwriter, broker-dealer or agent may be in
excess of customary commissions. The Registered Stockholders will pay all
commissions, transfer taxes and other expenses associated with the sales of the
Shares by them. The Company will pay the expenses of the preparation of this
prospectus. The Company has agreed to indemnify the Registered Stockholders
against certain liabilities, including liabilities arising under the Securities
Act. The Company will not receive any of the proceeds from the sale of the
Shares by the Registered Stockholders. The Company will not receive any proceeds
from the exercise of the Warrants, which may only be exercised pursuant to a
cashless exercise by the Registered Stockholders. Concurrently with sales under
this Prospectus, the Registered Stockholders may effect other sales of Common
Stock or Shares under Rule 144 or other exempt resale transactions. There can be
no assurance that the Registered Stockholders, or any of them, will sell any or
all of the Shares offered hereby. See "Plan of Distribution."
The Company's Common Stock 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 14, 1998,
the last reported sale price of the Company's Common Stock on the Nasdaq
SmallCap Market was $1.06 per share.
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7, FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information ......................................................... 2
Incorporation of Certain Documents By Reference ............................... 3
Cautionary Statement Regarding Forward-Looking Statement ...................... 4
The Company ................................................................... 5
Risk Factors .................................................................. 7
The Equity Line Agreement ..................................................... 19
Use of Proceeds ............................................................... 21
Recent Developments ........................................................... 21
Registered Stockholders ....................................................... 23
Plan of Distribution .......................................................... 25
Description of Securities ..................................................... 27
Legal Matters ................................................................. 28
Experts ....................................................................... 28
Indemnification of Directors and Officers ..................................... 28
</TABLE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
offering described herein other than those contained or incorporated by
reference in this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any of the Registered Stockholders. 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 such an offer,
solicitation or sale would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act relating to the Shares being offered pursuant to this Prospectus.
For further information pertaining to the Common Stock and the Shares to which
this Prospectus relates, reference is made to such Registration Statement. This
Prospectus constitutes the prospectus of the Company filed as a part of the
Registration Statement and it does not contain all information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. In addition, the
Company is subject to the informational requirements of the Exchange Act and, in
accordance therewith, files reports, proxy statements and other information with
the Commission relating to its business, financial statements and other matters.
Reports and proxy and information statements filed pursuant to Section 14(a) and
14(c) of the Exchange Act and other information filed with the Commission as
well as copies of the Registration Statement can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Midwest Regional Offices at 500 West Madison Street, Chicago, Illinois 60606 and
Northeast Regional Office at 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 also 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 under the symbol "TCLN".
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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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by this reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1998, as filed with the Commission on July 29, 1998 pursuant to
Section 13(a) of the Exchange Act.
(2) The Company's Definitive Proxy Statement with respect to the Annual
Meeting of Stockholders to be held on October 13, 1998, as filed with the
Commission on August 27, 1998.
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1998, as filed with the Commission on September 14, 1998.
(4) The Company's Current Report on Form 8-K, as filed with the
Commission on June 29, 1998.
(5) The Company's Current Report on Form 8-K, as filed with the
Commission on March 9, 1998.
(6) The Company's Current Report on Form 8-K, as filed with the
Commission on November 24, 1997.
(7) The Company's Current Report on Form 8-K, as filed with the
Commission on May 12, 1997, as amended by Form 8-K/A Amendment No. 1 to such
Form 8-K as filed with the Commission on October 2, 1997, and as further amended
by Form 8-K/A Amendment No. 2 to such Form 8-K as filed with the Commission on
October 14, 1997.
(8) The Company's Definitive Proxy Statement with respect to the Annual
Meeting of Stockholders held on April 23, 1998, as filed with the Commission on
March 17, 1998.
(9) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 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
(10) 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, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 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 re-registers all securities
then remaining unsold, shall be deemed to be incorporated herein by this
reference and to be made a part hereof from the date of filing of 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.
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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 or all of the foregoing documents and information that has been or
may be incorporated by reference herein (other than exhibits to such documents).
Requests for such documents and information should be directed to Techniclone
Corporation, Attention: Elizabeth A. Gorbett-Frost, Chief Financial Officer,
14282 Franklin Avenue, Tustin, California 92780-7017, telephone number (714)
508-6000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference from documents filed with the
Commission by the Company are or may constitute forward-looking statements. Such
statements include those contained herein or therein regarding the development
or possible assumed future results of operations of the Company's business, the
markets for the Company's products, anticipated capital expenditures, regulatory
developments, any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," or similar expression, and other
statements contained or incorporated by reference herein regarding matters that
are not historical facts. Because such statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. The risks and uncertainties that may
cause actual results to differ materially include, among others, risks and
uncertainties associated with completing pre-clinical and clinical trials of the
Company's technologies; obtaining additional financing to support the Company's
operations; obtaining regulatory approval for such technologies; complying with
other governmental regulations applicable to the Company's business; obtaining
the raw materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity to manufacture, market and sell the Company's products,
either directly or indirectly with collaborative partners; developing market
demand for and acceptance of such products; competing effectively with other
pharmaceutical and biotechnological products; attracting and retaining key
personnel; protecting proprietary rights; accurately forecasting operating and
capital expenditures, other commitments, or clinical trial costs, general
economic conditions, pricing pressures and uncertainties of litigation.
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. As a result of these factors, the
Company's revenue and income could vary significantly from quarter to quarter,
and past financial performance should not be considered a reliable indicator of
future performance. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements set forth or referred
to above in this paragraph. Investors are cautioned not to place undue reliance
on such statements which speak only as of the date hereof. The Company
undertakes no obligation to release publicly any revision to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events, except as may be
required by the federal securities laws.
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THE COMPANY
GENERAL
Techniclone Corporation was incorporated in the State of Delaware on
September 25, 1996. On March 24, 1997, Techniclone International Corporation, a
California corporation (a predecessor company incorporated in June 1981), was
merged with and into Techniclone Corporation, a Delaware corporation
(collectively "Techniclone"). This merger was effected for the purpose of
effecting a change in the Company's state of incorporation from California to
Delaware and making certain changes in the Company's charter documents. The
"Company" refers to Techniclone Corporation, Techniclone International
Corporation, its former subsidiary, Cancer Biologics Incorporated ("CBI"), which
was merged into the Company on July 26, 1994 and its wholly-owned subsidiary
Peregrine Pharmaceuticals, Inc., a Delaware corporation ("Peregrine").
The Company is engaged in the research, development and commercialization of
novel cancer therapeutics in two principal areas: 1) direct tumor targeting
agents for the treatment of refractory malignant lymphoma and 2) collateral
targeting agents for the treatment of solid tumors.
Oncolym(R), the Company's most advanced direct tumor targeting agent
candidate, is an investigational murine monoclonal antibody radiolabeled with
I131 which is being studied in a Phase II/III trial for the treatment of
intermediate and high-grade relapsed or refractory B-cell non-Hodgkins lymphoma
("NHL"). The clinical trials are currently being held at participating medical
centers, including, M.D. Anderson Cancer Center, George Washington University
Medical Center, Iowa City VA Medical Center, Queen's Medical Center-Hawaii,
University of Illinois at Chicago Medical Center and University of Miami
Hospital. The Company currently anticipates adding up to four additional
clinical trial sites for Oncolym(R). Following the completion of the clinical
trials, the Company expects to file an application with the United States Food
and Drug Administration ("FDA") to market Oncolym(R) in the United States.
Collateral tumor targeting is broadly described as the therapeutic strategy
of targeting peripheral structures and cell types, other than the viable cancer
cells directly, as a means to treat solid tumors. The Company's three leading
advanced collateral targeting agents for solid tumors are Tumor Necrosis Therapy
("TNT"), Vascular Targeting Agents ("VTAs"), and Vasopermeation Enhancement
Agents ("VEAs").
TNT is a universal tumor targeting therapy potentially capable of treating a
wide range of solid tumors. Radiolabeled TNT agents are believed to act by
binding to dead or dying cells at the core of the tumor and irradiating the
tumor from the inside out. TNT is potentially capable of carrying a wide variety
of therapeutic agents to the interior of solid tumors. The Company's first TNT
based product is an investigational, chimeric monoclonal antibody radiolabeled
with the I131 isotope. During March 1998, the Company began enrolling patients
into a Phase I study of TNT for the treatment of malignant glioma (brain
cancer). The Company has since filed a protocol with the FDA to begin a Phase II
study of TNT for the treatment of malignant glioma, which is currently expected
to commence in December 1998. The clinical trials are currently being conducted
at The Medical University of South Carolina with additional clinical sites to be
added in the future. The Company has also recently received an unrestricted
grant to conduct Phase I systemic trials of TNT for prostate, pancreatic and
liver cancers at a clinical site in Mexico City.
VTAs are believed to act by destroying the vasculature of solid tumors. VTAs
are multi-functional molecules that target the capillaries and blood vessels of
solid tumors. Once there, these agents block the flow of oxygen and nutrients to
the underlying tissue by creating a blood clot in the tumor. In preclinical
trials, VTAs have caused clots in animals and within hours of the clot's
formation, the tumor begins to die and necrotic regions are formed. Since every
tumor in excess of 2mm in size forms an expanding vascular network during tumor
growth, VTAs could be effective against all types of solid tumors. Techniclone's
scientists are
5
<PAGE> 8
doing preliminary studies on VTAs. The VTA technology was acquired in April of
1997 through the Company's acquisition of Peregrine Pharmaceuticals, Inc.
VEAs use vasoactive compounds (molecules that cause tissues to become more
permeable) linked to monoclonal antibodies, such as the TNT antibody, to
increase the vasoactive permeability at the tumor site and are believed to act
by increasing the concentration of killing agents at the core of the tumor. In
pre-clinical studies, the Company's scientists were able to increase the uptake
of drugs or isotopes within a tumor by 200% to 400% if a vasoactive agent was
given several hours prior to the therapeutic treatment. The therapeutic drug can
be a chemotherapy drug, a radioactive isotope or other cancer fighting agent.
This enhancement of toxic drug dosing is achieved by altering the physiology
and, in particular, the permeability of the blood vessels and capillaries that
serve the tumor. As the tumor vessels become more permeable, the amount of
therapeutic treatment reaching the tumor cells increases.
The principal executive offices of the Company are located at 14282 Franklin
Avenue, Tustin, California 92780-7017. The Company's telephone number is (714)
508-6000.
6
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. 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 herein or incorporated herein by reference in this Prospectus.
FLUCTUATION OF FUTURE OPERATING RESULTS. A number of factors could cause
actual results to differ materially from anticipated future operating results.
These factors include worldwide economic and political conditions and industry
specific factors. If the Company is to remain competitive and is 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 ("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 from quarter to quarter as it
funds non-recurring items associated with clinical trials, product development,
antibody manufacturing and radiolabeling expansion and scale-up, patent legal
fees and various consulting fees. The Company has limited experience with
clinical trials and if the Company encounters unexpected difficulties with its
operations 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 the early
stages of development, with two product candidates currently in clinical trials.
Revenues from product sales have been insignificant and throughout the Company's
history there have been minimal revenues from product royalties. If the initial
results from any of the clinical trials are poor, then management believes that
those results will adversely effect the Company's ability to raise additional
capital, which will affect the Company's ability to continue full-scale research
and development for its antibody technologies. 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 regulatory approvals for the
indications being studied can be obtained, that its product candidates can be
manufactured and radiolabeled at an acceptable cost and with appropriate quality
or that any approved products can be successfully marketed.
NEED FOR ADDITIONAL CAPITAL. 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. The Company currently has
commitments to expend additional funds for facilities construction, clinical
trials, radiolabeling contracts, consulting, and for the repurchase of LYM-1
(hereinafter referred to as "Oncolym(R)") marketing rights from Alpha
Therapeutic Corporation ("Alpha"). The Company expects operating expenditures
related to clinical trials to increase in the future as the Company's clinical
trial activity increases and scale-up for clinical trial production continues.
As a result of increased activities in connection with the Phase II/III clinical
trials for Oncolym(R) and Phase I clinical trials for TNT and the development
costs associated with VEAs and VTAs, the Company expects that the monthly
negative cash flow will continue.
The Company has entered into an agreement for the sale and subsequent
leaseback of its facilities, which consists of two buildings located in Tustin,
California. The sale/leaseback transaction is with an unrelated entity and
provides for the leaseback of the Company's facilities for a ten-year period
with two five-year options to renew. While the sale/leaseback agreement is in
escrow, it is subject to completion of normal due diligence procedures by the
buyer and there is no assurance that the transaction will be completed on a
timely basis or at all.
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Without obtaining additional financing or completing the aforementioned
sale/leaseback transaction, the Company believes that it has sufficient cash on
hand and available pursuant to the Equity Line Agreement to meet its obligations
on a timely basis through November 30, 1998. Should the Company complete the
sale and subsequent leaseback of its facilities by November 30, 1998, the
Company believes it would have sufficient cash on hand and available pursuant to
the Equity Line Agreement to meet its obligations on a timely basis through
February 1999. The Company's ability to access funds under the Equity Line
Agreement is subject to the satisfaction of certain conditions and the failure
to satisfy these conditions may limit or preclude the Company's ability to
access such funds, which could adversely affect the Company's business,
financial position and results of operations unless additional financing sources
were available. See "The Equity Line Agreement."
The Company must raise additional funds to sustain its research and
development efforts, provide for future clinical trials, expand its
manufacturing and radiolabeling capabilities, and continue its operations until
it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company will be required to obtain financing
through one or more methods, including the aforementioned sale and subsequent
leaseback of its facilities, obtaining additional equity or debt financing
and/or negotiating a licensing or collaboration agreement with another company.
There can be no assurance that the Company will be successful in raising these
funds on terms acceptable to it, or at all, or that sufficient additional
capital will be raised to complete the research, development, and clinical
testing of the Company's product candidates. The Company's future success is
dependent upon raising additional money to provide for the necessary operations
of the Company. If the Company is unable to obtain additional financing, the
Company's business, financial position and results of operations would be
adversely affected.
ANTICIPATED FUTURE LOSSES. The Company has experienced significant losses
since inception. As of July 31, 1998, the Company's accumulated deficit was
approximately $76,487,000. 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 scale-up of manufacturing and radiolabeling
capabilities. The Company expects losses to fluctuate substantially from quarter
to quarter. All of the Company's products are in development, preclinical
studies or clinical trials, and no significant revenues have 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 two years. There can be no
assurance that the Company will ever generate product revenues sufficient to
become profitable or to sustain profitability.
TECHNOLOGICAL UNCERTAINTY. The Company's future success depends
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 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
complete development of one or more of its products, (i) the Company's research
and development activities may not be successful; (ii) proposed products may not
prove to be effective in clinical trials; (iii) the Company's product candidates
may 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 may not be able to obtain all necessary
governmental clearances and approvals to market its products; (vii) the
Company's product candidates may not prove to be commercially viable or
successfully marketed; or (viii) the Company may not ever achieve
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significant revenues or profitable operations. In addition, the Company may
encounter unanticipated problems, including development, manufacturing,
distribution, financing and marketing difficulties. The failure to adequately
address these difficulties could adversely affect 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 Oncolym(R) 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 Oncolym(R), TNT 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 advanced
clinical trials, even after obtaining promising results in earlier trials. The
failure to adequately demonstrate the safety and efficacy of Oncolym(R), TNT or
any other therapeutic product under development could delay or prevent
regulatory approval of the product and would adversely affect the Company's
business, financial condition and results of operations.
LENGTHY REGULATORY PROCESS; NO ASSURANCE OF REGULATORY APPROVALS. Testing,
manufacturing, radiolabeling, 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 ("IND")
application 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 Current Good
Manufacturing Practices ("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.
The results of preclinical and clinical studies, together with detailed
information on the manufacture and composition of a product candidate, are
submitted to the FDA as 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 post-marketing testing and surveillance
to monitor the
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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, or the PLA
or BLA review process 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 licensees to obtain regulatory approval for marketing its products in
foreign countries.
COMMERCIAL PRODUCTION. To conduct clinical trials on a timely basis, obtain
regulatory approval and be commercially successful, the Company must scale-up
its manufacturing and radiolabeling processes and ensure compliance with
regulatory requirements of its product candidates so that those product
candidates can be manufactured and radiolabeled in increased quantities. As the
Company's products currently in clinical trials, Oncolym(R) and TNT, move
towards FDA approval, the Company or contract manufacturers must scale-up the
production processes to enable production and radiolabeling in commercial
quantities. The Company has expended significant funds for the scale-up of its
antibody manufacturing capabilities for clinical trial requirements for its
Oncolym(R) and TNT products and for refinement of its radiolabeling processes.
If the Company were to commercially self-manufacture either of these products,
it will have to expend an estimated additional six to ten million dollars for
production facility expansion and an estimated additional five to eight million
dollars for radiolabeling facilities. However, the Company believes it can
successfully negotiate an agreement with contract antibody manufacturers to have
these products produced on a "per run basis", thereby deferring or reducing the
significant expenditure (six to ten million dollars) estimated to scale-up
manufacturing. The Company believes that it can successfully negotiate an
agreement with contract radiolabeling companies to provide radiolabeling
services to meet commercial demands. Such a contract would, however, require a
substantial investment by the Company (estimated at five to eight million
dollars over the next two years) for equipment and related production area
enhancements required by these vendors, and for vendor services associated with
technology transfer assistance, scale-up and production start-up, and for
regulatory assistance. 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 Company's ability to scale-up its manufacturing operations,
the suitability of the Company's present facility for clinical trial production
or commercial production, the Company's ability to make a successful transition
to commercial production and radiolabeling or the Company's ability to reach an
acceptable agreement with contract manufacturers to produce and radiolabel
Oncolym(R), TNT, or the Company's other product candidates, in clinical or
commercial quantities. The failure
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of the Company to scale-up its manufacturing and radiolabeling for clinical
trial or commercial production or to obtain contract manufacturers, could
adversely affect the Company's business, financial position and results of
operations.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION. The decline in the market price
of the Company's Common Stock has lead to substantial dilution to holders of
Common Stock. Under the terms of the Company's agreement with the holders of the
Company's 5% Adjustable Convertible Class C Preferred Stock (the "Class C
Stock"), the shares of the Class C Stock are convertible into shares of the
Company's Common Stock at the lower of a conversion cap of $0.5958 (the
"Conversion Cap") or a conversion price equal to the average of the lowest
trading price of the Company's Common Stock for the five consecutive trading
days ending with the trading date prior to the date of conversion reduced by 27
percent. The Company's agreement with the holders of the Class C Stock also
provides that upon conversion, the holders of the Class C Stock will also
receive warrants to purchase one-fourth of the number of shares of Common Stock
issued upon conversion of the Class C Stock at an exercise price of $0.6554 per
share (or 110% of the Conversion Cap), which warrants will expire in April 2002
(the "Class C Warrants"). Dividends on the Class C Stock are payable quarterly
in shares of Class C Stock or cash at the rate of $50.00 per share per annum, at
the option of the Company.
From September 26, 1997 (the date the Class C Stock became convertible into
Common Stock) through August 31, 1998, 13,619 shares of Class C Stock, including
Class C dividend shares and additional shares of Class C Stock issued during
fiscal year 1998 (as described below), were converted into 24,578,437 shares of
Common Stock, resulting in substantial dilution to the common stockholders. In
addition, in conjunction with the conversion of the Class C Stock, the holders
were granted warrants to purchase shares of Common Stock of the Company.
Warrants to purchase 6,144,537 shares of common stock have been exercised
through August 31, 1998, at an exercise price of $.6554 per share, in exchange
for 5,831,980 shares of Common Stock and proceeds to the Company of $3,599,901.
During fiscal year 1998, the registration statement required to be filed by the
Company pursuant to the Company's agreement with the holders of the Class C
Stock was not declared effective by the 180th day following the closing date of
such offering, and therefore, the Company was required to issue an additional
325 shares of Class C Stock, calculated in accordance with the terms of such
agreement. At August 31, 1998, 354 shares of Class C Stock remained outstanding
and may be converted into shares of Common Stock at the lower of a 27% discount
from the average of the lowest market trading price for the five consecutive
trading days preceding the date of conversion or the Conversion Cap. Assuming
the conversion of all of such remaining shares of Class C Stock at the
Conversion Cap, the Company is required to issue to the holders of the Class C
Stock upon conversion thereof an aggregate of approximately 594,000 shares of
Common Stock and Class C Warrants to purchase an aggregate of up to
approximately 149,000 shares of Common Stock at a purchase price of $.6554 per
share.
Sales, particularly short selling, of substantial amounts of shares of
Common Stock in the public market have adversely affected and may continue to
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 Class C Stock and the Class C
Warrants. From September 26, 1997, the date on which the Class C Stock was first
convertible, through March 1998, the price of the Company's Common Stock
steadily declined while the average trading volume increased significantly.
Pursuant to the terms of the Equity Line Agreement (and assuming, solely for
purposes of this Prospectus, a 10-day low closing bid price per share of not
less than $1.00, which allows the Company to sell the maximum number of shares
of Common Stock to the Institutional Investors for maximum proceeds of
$16,500,000), the Company may, at its option, sell to the Institutional
Investors, in addition to the Institutional Investor Shares and Institutional
Investor Warrants, up to 20,625,000 shares of Common Stock (the "Equity Line
Investor Shares") and warrants to purchase up to an additional 2,062,500 shares
of Common Stock (the "Equity Line Investor Warrants"). The price at which the
Equity Line Investor Shares will be issued and sold by the
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Company to the Institutional Investors will be equal to (i) 82.5% of the lowest
closing bid price during the ten trading days (the "10 day low closing bid
price") immediately preceding the date on which such shares are sold to the
Institutional Investors or (ii) if 82.5% of such 10 day low closing bid price
results in a discount of less than twenty cents ($0.20) per share from such 10
day low closing bid price, such 10 day low closing bid price minus twenty cents
($0.20). In addition, the Company may be obligated to issue to the Institutional
Investors an additional 954,545 shares of Common Stock upon adjustment of the
purchase price of the Shares already issued to the Institutional Investors on
the three-month and six-month anniversary of the date of this Prospectus (the
"Adjustment Shares"). Pursuant to the terms of the Placement Agent Agreement,
the Company may also be obligated to issue to the Placement Agent, in addition
to the Placement Agent Shares and Placement Agent Warrants, up to 1,726,364
shares of Common Stock (the "Equity Line Placement Agent Shares") and warrants
to purchase up to an additional 165,000 shares of Common Stock (the "Equity Line
Placement Agent Warrants"). The Company will not receive any proceeds from the
exercise of the Equity Line Investor Warrants, the Equity Line Placement Agent
Warrants or the Warrants, which may only be exercised pursuant to a cashless
exercise by the Registered Stockholders. See "The Equity Line Agreement," "Use
of Proceeds" and "Plan of Distribution."
In addition to the Class C Warrants and the Warrants, at August 31, 1998,
the Company had outstanding warrants and options to employees, directors,
consultants and other parties to issue approximately 8,572,000 shares of Common
Stock at an average price of $1.08 per share.
The sale and issuance of the Equity Line Investor Shares may result in
substantial dilution to the existing holders of Common Stock. The issuance of
the Equity Line Investor Shares, the Adjustment Shares and the Equity Line
Placement Agent Shares to the Registered Stockholders and the issuance of shares
of Common Stock issuable upon conversion of the remaining Class C Stock and upon
exercise of the remaining Class C Warrants, the Equity Line Investor Warrants,
the Equity Line Placement Agent Warrants and such other outstanding warrants and
options, as well as subsequent sales of the Shares, the Equity Line Investor
Shares, the Adjustment Shares, the Equity Line Placement Agent Shares and such
shares of Common Stock in the open market, could adversely affect the market
price of the Company's Common Stock and impair the Company's ability to raise
additional capital.
STOCK PRICE FLUCTUATIONS AND LIMITED TRADING VOLUME. The market price of the
Company's Common Stock, and the market prices of securities of companies in the
biotechnology industry generally, have been highly volatile. 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 the potential additional new shares of common stock that may be issued
on the exercise of warrants and options and the historical limited trading
volume are significant risks investors should consider.
MAINTENANCE CRITERIA FOR NASDAQ SMALLCAP MARKET, RISKS OF LOW-PRICED
SECURITIES. The Company's Common Stock is presently traded on the Nasdaq
SmallCap Market. To maintain inclusion on the Nasdaq SmallCap Market, the
Company's Common Stock must continue to be registered under Section 12(g) of the
Exchange Act, and the Company must continue to have either net tangible assets
of at least $2,000,000, market capitalization of at least $35,000,000, or net
income (in either its latest fiscal year or in two of its last three fiscal
years) of at least $500,000. In addition, the Company must meet other
requirements, including, but not limited to, having a public float of at least
500,000 shares and $1,000,000, a minimum bid price of $1.00 per share of Common
Stock (without falling below this minimum bid price for a period of 30
consecutive business days), at least two market makers and at least 300
stockholders, each holding at least 100 shares of Common Stock. For the period
of January 29, 1998 through May 4, 1998, the Company failed to maintain a $1.00
minimum bid price. From May 5, 1998, through September 2, 1998, the Company met
this requirement. On
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September 3, 1998 and September 4, 1998, the Company again failed to maintain a
$1.00 minimum bid price. However, since then, the Company has met this
requirement. If the Company were to fail to meet the minimum bid price of $1.00
for a period of 30 consecutive business days, it would be notified by the Nasdaq
and would then have a period of 90 calendar days from such notification to
achieve compliance with the applicable standard by meeting the minimum
requirement for at least 10 consecutive business days during such 90 day period.
There can be no assurance that the Company will be able to maintain these
requirements in the future. If the Company fails to meet the Nasdaq SmallCap
Market listing requirements, the market value of the Common Stock could decline
and holders of the Company's Common Stock would likely find it more difficult to
dispose of and to obtain accurate quotations as to the market value of the
Common Stock. In addition, if the Company's Common Stock ceases to be included
on the Nasdaq SmallCap Market, the Company would not be able to access funds
under the Equity Line Agreement.
If the Company's Common Stock ceases to be included on the Nasdaq SmallCap
Market, the Company's Common Stock could become subject to rules adopted by the
Commission regulating broker-dealer practices in connection with transactions in
"penny stocks." Penny stocks generally are equity securities with a price per
share of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on Nasdaq, provided that current price and volume
information with respect to transactions in these securities is provided). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the Commission which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its sales person in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to these penny stock rules. If the
Company's Common Stock becomes subject to the penny stock rules, investors may
be unable to readily sell their shares of Common Stock.
INTENSE COMPETITION. The biotechnology industry is intensely competitive and
changing rapidly. Virtually all of the Company's existing competitors have
greater financial resources, larger technical staffs, 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 Coulter Pharmaceuticals, Inc. ("Coulter"), each has a
lymphoma antibody that may compete with the Company's Oncolym(R) product. Idec
is currently marketing its lymphoma product for low grade non-Hodgkins Lymphoma
and the Company believes that Coulter will be marketing its respective lymphoma
product prior to the time the Oncolym(R) product will be submitted to the FDA
for marketing approval. Coulter has also announced that it intends to seek to
conduct clinical trials of its antibody treatment for intermediate and/or high
grade non-Hodgkins lymphomas. In addition, there are several companies in
preclinical studies with angiogenesis technologies which may compete with the
Company's VTA technology. There can be no assurance that the Company will be
able to compete successfully or that competition will not adversely affect the
Company's business, financial position and results of operations. There can be
no assurance that the Company's 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.
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS. The Company has limited
experience in conducting clinical trials. The rate of completion of the
Company's clinical trials will depend on, among other factors, the rate of
patient enrollment. Patient enrollment is a function of many factors, including
the nature of the Company's
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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 adversely effect the Company. There is no assurance 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 FDA regulations applicable to this testing can
result in delay, suspension or cancellation of the testing, or refusal by the
FDA to accept the results of the 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 from the testing will be suitable for submission to the FDA. Any
suspension or delay of any of the clinical trials could adversely effect the
Company's business, financial condition and results of operations.
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 two products in clinical trials, Oncolym(R) and TNT, are approved,
they would represent a departure from more commonly used methods for cancer
treatment. Accordingly, Oncolym(R) and TNT may experience under-utilization by
oncologists and hematologists who are unfamiliar with the application of
Oncolym(R) and TNT in the treatment of cancer. As with any new drug, doctors may
be inclined to continue to treat patients with conventional therapies, in most
cases chemotherapy, rather than new alternative therapies. The Company or its
marketing partner will be required to implement an aggressive education and
promotion plan with doctors in order to gain market recognition, understanding
and acceptance of the Company's products. Market acceptance also could be
affected by the availability of third party reimbursement. Failure of Oncolym(R)
and TNT to achieve market acceptance would adversely affect the Company's
business, financial condition and results of operations.
SOURCE OF RADIOLABELING SERVICES. The Company currently procures its
radiolabeling services pursuant to negotiated contracts with one domestic entity
and one European entity. There can be no assurance that these 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. Prior to
commercial distribution, the Company will be required to identify and contract
with a commercial radiolabeling company for commercial services. The Company is
presently in discussions with several companies to provide commercial
radiolabeling services. A commercial radiolabeling service agreement will
require the investment of substantial funds by the Company. See "Risk
Factors-Commercial Production." The Company expects to rely on its current
suppliers for all or a significant portion of its requirements for the
Oncolym(R) and TNT antibody products to be used in clinical trials for the
immediate 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 future contractual relationships with,
or an 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 Oncolym(R) and TNT antibodies, if approved. Any such change or
interruption would adversely affect the Company's business, financial condition
and results of operations.
HAZARDOUS AND RADIOACTIVE MATERIALS. The manufacturing and use of the
Company's Oncolym(R) and TNT require the handling and disposal of the
radioactive isotope I131. The Company is relying on its current contract
manufacturers to radiolabel its antibodies with I131 and to comply with various
local, state and or national and international regulations regarding the
handling and use of radioactive materials. Violation of these local, state,
national or international regulations by these radiolabeling companies or a
clinical trial site could significantly delay completion of the trials.
Violations of safety regulations could occur with these manufacturers, so there
is a risk of accidental contamination or injury. The Company could be held
liable for any damages that result from an accident, contamination or injury
caused by 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 adversely effect the Company's business,
financial condition and results of operations. In addition, the Company may
incur substantial costs to comply with environmental regulations.
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In the event of any noncompliance or accident, the supply of Oncolym(R) and TNT
for use in clinical trials or commercially could be interrupted, which could
adversely affect 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. At the present time, the Company does not have a sales force
to market Oncolym(R) or TNT. If and when the FDA approves Oncolym(R) or TNT, the
marketing of Oncolym(R) and TNT will be contingent upon the Company either
licensing or entering into a marketing agreement with a large company or rely
upon it recruiting, developing, training and deploying its own sales force. The
Company does not presently possess the resources or experience necessary to
market Oncolym(R), TNT or its other product candidates. Other than an agreement
with Biotechnology Development, Ltd., the Company presently has no agreements
for the licensing or marketing of its product candidates, and there can be no
assurance that the Company will be able to enter into any such agreements in a
timely manner or on commercially favorable terms, if at all. Development of an
effective sales force requires significant financial resources, time and
expertise. There can be no assurance that the Company will be able to obtain the
financing necessary or 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.
PATENTS AND PROPRIETARY RIGHTS. The Company's success depends, in large
part, on its ability to maintain a proprietary position in its products through
patents, trade secrets and orphan drug designations. The Company has several
United States patents, 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, any patents issued to the Company or the
Company's licensors may be infringed by others or may not be enforceable against
others. In addition, there can be no assurance that the patents, if issued,
would be held valid or enforceable by a court of competent jurisdiction.
Enforcement of the Company's patents may require substantial financial and human
resources. 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.
A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody and angiogenesis fields, 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 is 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 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.
15
<PAGE> 18
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. Product liability 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
adversely affect 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 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 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
adversely affect the Company's business, financial condition and results of
operations.
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 adversely affect the Company's ability to operate profitably.
16
<PAGE> 19
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL. The Company is dependent
upon a limited number of key management and technical personnel. The loss of the
services of one or more of these key employees could adversely affect the
Company's business, financial condition and results of operations. In addition,
the Company's success is dependent upon its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition in its recruiting activities, and there can be no
assurance that the Company will be able to attract and/or retain qualified
personnel.
IMPACT OF THE YEAR 2000. The Company has identified substantially all of its
major hardware and software platforms in use and is continually modifying and
upgrading its software and information technology ("IT") and non-IT systems. The
Company has modified its current financial software to be Year 2000 ("Y2K")
compliant. The Company does not believe that, with upgrades of existing software
and/or conversion to new software, the Y2K issue will pose significant
operational problems for its internal computer systems. The Company expects all
systems to be Y2K compliant by April 30, 1999 through the use of internal and
external resources. The Company has incurred insignificant costs to date
associated with Y2K compliance and the Company presently believes estimated
future costs will not be material. However, the systems of other companies on
which the Company may rely also may not be timely converted, and failure to
convert by another company could have an adverse effect on the Company's
systems. The Company presently believes the Y2K problem will not pose
significant operational problems and is not anticipated to have a material
effect on its financial position or results of operations in any given year.
However, actual results could differ materially from the Company's expectations
due to unanticipated technological difficulties or project delays by the Company
or its suppliers. If the Company and third parties upon which it relies are
unable to address the issue in a timely manner, it could result in a material
financial risk to the Company. In order to assure that this does not occur, the
Company is in the process of developing a "worst case" contingency plan and
plans to devote all resources required to attempt to resolve any significant Y2K
issues in a timely manner.
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 coverage. 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,
the Company's Annual Report on Form 10-K 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 accurately forecasting capital expenditures and 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
17
<PAGE> 20
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.
18
<PAGE> 21
THE EQUITY LINE AGREEMENT
On June 16, 1998, the Company entered into the Equity Line Agreement with
the Institutional Investors, pursuant to which the Company may issue and sell,
from time to time, shares of its Common Stock for cash consideration up to an
aggregate of $20 million. In connection with Equity Line Agreement, the Company
also entered into the Placement Agent Agreement with the Placement Agent. The
Equity Line Agreement expires on June 16, 2001.
Pursuant to the Equity Line Agreement, on June 16, 1998, the Company received
immediate funding of $3,500,000 in exchange for the Institutional Investor
Shares and issued the Institutional Investor Warrants to the Institutional
Investors. Pursuant to the terms of the Equity Line Agreement, one-half of the
number of Institutional Investor Shares is subject to adjustment on the date
that is three months after the date of this Prospectus with the other half
subject to adjustment six months after the date of this Prospectus (each such
date, an "Adjustment Date"). At each Adjustment Date, if the 10 day low closing
bid price immediately preceding such Adjustment Date (the "Adjustment Price") is
less than the initial price per share paid for the shares of Common Stock
purchased by the Institutional Investors on June 16, 1998 ($1.375 per Share),
the Company will be obligated to issue a number of Adjustment Shares equal to
the difference between the amount of shares which would have been issued if the
price had been the Adjustment Price for $1,750,000 and one-half of the amount of
shares actually issued (1,272,727 shares).
In connection with the issuance and sale of the Institutional Investor
Shares and the Institutional Investor Warrants, the Company issued the Placement
Agent Shares and the Placement Agent Warrants to the Placement Agent and the
Placement Agent Warrants.
Pursuant to the requirements of a Registration Rights Agreement dated as of
June 16, 1998, between the Company and the Institutional Investors (the
"Registration Rights Agreement") and the Placement Agent Agreement, the Company
has filed a registration statement, of which this Prospectus forms a part, in
order to permit the Registered Stockholders to resell to the public the
Institutional Investor Shares and the Placement Agent Shares and any shares that
they may acquire upon exercise of the Institutional Investor Warrants and the
Placement Agent Warrants. The Company has also filed a registration statement in
order to permit the Registered Stockholders to resell any other shares of Common
Stock that they may acquire pursuant to the Equity Line Agreement and the
Placement Agent Agreement. Commencing ten days after the date of this Prospectus
and continuing until June 16, 2001, the Company may from time to time, in its
sole discretion, and subject to certain restrictions and limitations set forth
in the Equity Line Agreement, sell ("put") to the Institutional Investors, no
more than one time during any monthly period upon written notice given by the
Company to the Institutional Investors (the "Notice Date"), a number of shares
of Common Stock equal to up to $2,250,000 (which amount may be increased up to
$5,000,000 by mutual agreement of the parties) less the aggregate dollar amount
of any shares sold to the Institutional Investors during the three month period
immediately preceding such Notice Date, divided by (i) 82.5% of the 10 day low
closing bid price immediately preceding such Notice Date, or (ii) if 82.5% of
such 10 day low closing bid price results in a discount of less than twenty
cents ($0.20) per share from such 10 day low closing bid price, such 10 day low
closing bid price minus twenty cents ($0.20), at a purchase price equal to the
Purchase Price immediately preceding the date on which such shares are sold;
provided, that the number of such shares shall be limited to the same number of
shares of restricted securities that such Registered Stockholders would
otherwise be able to sell pursuant to Rule 144(e) promulgated under the
Securities Act, and subject to a maximum dollar amount of $16,500,000
(representing the $20,000,000 total commitment amount less $3,500,000 of shares
of Common Stock already issued and sold by the Company to the Institutional
Investors on or about June 16, 1998). At the time of each sale of Equity Line
Investor Shares, the Institutional Investors will be issued Equity Line Investor
Warrants, expiring on December 31, 2004, to purchase a number of shares of
Common Stock equal to 10% of the number of Equity Line Investor Shares sold in
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<PAGE> 22
such sale at an exercise price equal to the price per share at which the Equity
Line Investor Shares were sold to the Institutional Investors. To the extent
that the Company has not fully utilized the relevant commitment amount under the
Equity Line Agreement, the Company may also be obligated to issue to the
Institutional Investors on June 16 of each of the next three years warrants to
purchase a number of shares of Common Stock equal to 10% of an amount equal to
the difference of the relevant minimum commitment amount ($6,666,666.66 for
1999, $13,333,333.32 for 2000 and $20,000,000 for 2001) minus the aggregate
amount of Common Stock sold to the Institutional Investors during all years
preceding such date, divided by the 10 day low closing bid price of the Common
Stock immediately preceding such date, at an exercise price equal to the 10 day
low closing bid price of the Common Stock immediately preceding such date (the
"Equity Line Anniversary Warrants").
Pursuant to the Placement Agent Agreement, the Company is obligated to issue
to the Placement Agent a number of Equity Line Placement Agent Shares equal to
8% of the number of Equity Line Investor Shares sold to the Institutional
Investors from time to time and 8% of the Adjustment Shares issued to the
Institutional Investors and Equity Line Placement Agent Warrants to purchase
shares of Common Stock equal to 8% of the number of shares of Common Stock
issuable upon exercise of the Equity Line Investor Warrants and the Equity Line
Anniversary Warrants, upon the same terms and conditions thereof.
The Company's ability to put shares of its Common Stock, and the
Institutional Investors' obligations to purchase the Shares, is conditioned upon
the satisfaction of certain conditions and subject to certain limitations. These
conditions and limitations include: (i) the registration statement of which this
Prospectus forms a part shall have been declared effective by the Commission,
(ii) the representations and warranties of the Company set forth in the Equity
Line Agreement must be true and correct in all material respects as of the date
of each put, (iii) the Company shall have performed and complied with all
obligations under the Equity Line Agreement, the Registration Rights Agreement
and the Warrants required to be performed as of the date of each put, (iv) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
be in effect which prohibits or directly and adversely affects any of the
transactions contemplated by the Equity Line Agreement, (v) at the time of a
put, there shall have been no material adverse change in the Company's business
prospects or financial condition, except as disclosed in the Company's most
recent periodic reports filed since June 16, 1998, with the Commission pursuant
to the Exchange Act, (vi) the Company's Common Stock shall not have been
delisted from the Nasdaq SmallCap Market nor suspended from trading, (vii) the
Company shall have obtained the approval of the stockholders of the Company for
the issuance of shares of Common Stock which could be acquired by the Registered
Stockholders pursuant to the Equity Line Agreement in excess of 20% of the
issued and outstanding shares of Common Stock (as required pursuant to the Rules
of the National Association of Securities Dealers, Inc.), (viii) the closing bid
price of the Common Stock on any trading during the ten days preceding the date
of the put cannot be less than or equal to $0.50, and (ix) if the closing bid
price of the Common Stock on any trading day during the ten trading days
preceding the date of the put is less than $1.00 but greater than $0.50, the
Company may only exercise the put for an amount of shares not greater than 15%
of the amount that would otherwise be available to the Company pursuant to the
terms of the Equity Line Agreement.
The Registered Stockholders have agreed that they will not create or
increase a net short position with respect to the Common Stock during the ten
trading days prior to any put date or during the thirty calendar days prior to
the date that is three months after the date of this Prospectus and the thirty
calendar days prior to the date that is six months after the date of this
Prospectus. The Registered Stockholders have further agreed that they will not
engage in any trading practice or activity for the purpose of manipulating the
price of the Common Stock or otherwise engage in any trading practice or
activity that violates the rules and regulations of the Commission.
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<PAGE> 23
USE OF PROCEEDS
The proceeds from the sale of the Shares will be received directly by the
Registered Stockholders. The Company will not receive any proceeds from the sale
of the Shares offered hereby. The Company will not receive any proceeds from the
exercise of the Warrants, which may only be exercised pursuant to a cashless
exercise by the Registered Stockholders.
RECENT DEVELOPMENTS
On July 17, 1998, the Company notified the holders of the Class C Stock of
its intent to redeem the Class C Warrants issued in conjunction with the Class C
Stock offering in April 1997, if such Class C Warrants were not exercised on or
before August 6, 1998. As a result, the holders of the Class C Warrants elected
to exercise 4,076,157 of the Class C Warrants and the Company issued to such
holders an aggregate of 3,763,600 shares of its Common Stock for which it
received an aggregate of $2,244,264. At August 21, 1998, 354 shares of Class C
Stock remained outstanding and, assuming the conversion of all of such remaining
shares of Class C Stock at the Conversion Cap, the Company is required to issue
to the holders of the Class C Stock upon conversion thereof an aggregate of
approximately 594,000 shares of Common Stock and Class C Warrants to purchase an
aggregate of up to approximately 149,000 shares of Common Stock at a purchase
price of $.6554 per share.
In July 1998, the Company renegotiated its short-term note payable for
$2,385,000 with a construction contractor to provide for an extension of time
until July 29, 1998, to repay such note, and issued to the contractor a warrant,
expiring on March 31, 2001, to purchase up to 240,000 shares of Common Stock at
an exercise price of $.5625 per share. On July 29, 1998, the Company repaid
$500,000 of the note to the contractor and renegotiated the payment terms of the
note to provide for an extension of time until August 17, 1998 to repay the
remaining balance of the note. In connection with this subsequent extension
agreement, the Company issued to the contractor a warrant, expiring in July
2001, to purchase up to 95,000 shares of the Company's common stock at an
exercise price of $1.37 per share and also issued an aggregate of 147,235 shares
of Common Stock in lieu of repayment of accrued and unpaid interest on such
note. On August 17, 1998, the Company utilized funds received from the exercise
of Class C Warrants during July 1998 and August 1998 to repay the remaining
balance of $1,885,000 of such note in full, plus related legal fees in the
amount of $5,000.
The Company has entered into an agreement for the sale and subsequent
leaseback of its facilities, which consists of two buildings located in Tustin,
California. The sale/leaseback transaction is with an unrelated entity and
provides for the leaseback of the Company's facilities for a ten-year period
with two five-year options to renew. While the sale/leaseback agreement is in
escrow, it is subject to completion of normal due diligence procedures by the
buyer and there is no assurance that the transaction will be completed on a
timely basis or at all.
On February 29, 1996, the Company entered into a Distribution Agreement with
Biotechnology Development, Ltd. ("BTD"), a limited partnership controlled by a
former director and stockholder of the Company. Under the terms of the
agreement, BTD was granted the right to market and distribute LYM products in
Europe and other designated foreign countries in exchange for a nonrefundable
fee of $3,000,000 and the performance of certain duties by BTD as outlined in
the agreement. The agreement also provides that the Company will retain all
manufacturing rights to the LYM antibodies and will supply the LYM antibodies to
BTD at preset prices. In conjunction with the agreement, the Company was granted
an option to repurchase the marketing rights to the LYM antibodies through
August 29, 1998 at its sole discretion. The repurchase price under the option,
if exercised by the Company, would include a cash payment of $4,500,000, the
issuance of stock options for the purchase of 1,000,000 shares of the Company's
Common Stock at a price of $5.00 per
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<PAGE> 24
share with a five-year term, and royalties equal to 5% of gross sales on LYM
products in designated geographic areas. Although the Company has not exercised
its rights under the repurchase option, it continues to negotiate with BTD for
the repurchase of the LYM rights with terms that are acceptable to the Company
and BTD. There can be no assurance, however, that the Company will be able to
reacquire such marketing rights.
On September 8, 1998, Edward J. Legere II resigned from the Board of
Directors and the remaining directors appointed Mr. William C. Shepherd to fill
the vacancy on the Board of Directors caused by Mr. Legere's resignation. Mr.
Legere's resignation was not due to any disagreement with the Company on any
matter relating to the Company's operations, policies or practices.
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<PAGE> 25
REGISTERED STOCKHOLDERS
The following table sets forth certain information as of August 31, 1998,
with respect to each Registered Stockholder for whom the Company is registering
securities for resale to the public. The Company will not receive any of the
proceeds from the sale of the Shares by the Registered Stockholders. Except for
any additional shares of Common Stock that may be acquired by the Registered
Stockholders, or any of them, pursuant to the Equity Line Agreement or the
Placement Agent Agreement, none of the Registered Stockholders will beneficially
own in excess of 1% of the outstanding shares of the Company after the sale of
the securities offered hereby.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) MAXIMUM NUMBER OWNED AFTER OFFERING(2)
NAME OF -------------------------- OF SHARES TO BE SOLD -----------------------
REGISTERED STOCKHOLDER NUMBER PERCENT PURSUANT TO THIS PROSPECTUS NUMBER PERCENT
- ---------------------- ---------- ------- --------------------------- -------- --------
<S> <C> <C> <C> <C> <C>
Resonance Limited(3).... 560,000 0.8% 560,000 - 0 - 0.0%
c/o Isac Securities
310 Madison Avenue
Suite 503
New York, NY 10017
The Tail Wind Fund,
Ltd. (4) ............. 2,239,999 3.4% 2,239,999 - 0 - 0.0%
Windermere House
404 East Bay Street
P.O. Box SS-5539
Nassau, Bahamas
Swartz Institutional
Finance (5)............ 223,999 0.3% 223,999 - 0 - 0.0%
1080 Holcomb Ridge Rd.
200 Roswell Summit
Suite 285
Roswell, GA 30076
</TABLE>
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by them. Does not include any additional shares of Common Stock that may
be acquired by the Registered Stockholders, or any of them, pursuant to
the Equity Line Agreement or the Placement Agent Agreement. Based on an
aggregate of 66,386,493 shares of Common Stock issued and outstanding as
of August 31, 1998.
(2) Assumes that all of the Shares are sold pursuant to this Prospectus.
Does not include any additional shares of Common Stock that may be
acquired by the Registered Stockholders, or any of them, pursuant to the
Equity Line Agreement or the Placement Agent Agreement.
(3) Includes 50,909 Shares issuable upon exercise of outstanding Warrants
which are exercisable during the 60 day period ending October 31, 1998.
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<PAGE> 26
(4) Includes 203,636 Shares issuable upon exercise of outstanding Warrants
which are exercisable during the 60 day period ending October 31, 1998.
(5) Includes 20,363 Shares issuable upon exercise of outstanding Warrants
which are exercisable during the 60 day period ending October 31, 1998.
The Shares offered hereby by the Registered Stockholders were acquired
pursuant to the Equity Line Agreement between the Company and the Institutional
Investors and pursuant to the Placement Agent Agreement between the Company and
the Placement Agent or upon exercise of the Warrants. Under the Equity Line
Agreement, the Company agreed to register the Shares for resale by the
Registered Stockholders to permit their resale by the Registered Stockholders
from time to time to the public without restriction. The Company will prepare
and file such amendments and supplements to the registration statement as may be
necessary in accordance with the rules and regulations of the Securities Act to
keep it effective until the earlier to occur of (i) the date as of which all
Shares may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Securities Act, including
without limitation, pursuant to Rule 144 under the Securities Act or (ii) the
date as of which all Shares offered hereby have been resold.
The Company has agreed to pay the expenses (other than broker discounts
and commissions, if any) in connection with this Prospectus.
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<PAGE> 27
PLAN OF DISTRIBUTION
The Company has been advised by the Registered Stockholders that all or a
portion of the Shares offered by this Prospectus may be offered for sale, from
time to time, by the Registered Stockholders in one or more private or
negotiated transactions, in open market transactions on the Nasdaq SmallCap
Market, in settlement of short sale transactions, in settlement of option
transactions, 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 Registered Stockholders may effect these transactions by selling
the Shares (i) to or through underwriters; (ii) through broker-dealers or agents
(which may include underwriters) including: (a) in 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) in purchases by a broker or dealer and resale by
such broker or dealer as a principal for its account pursuant to this
Prospectus; (c) in ordinary brokerage transactions and (d) in transactions in
which the broker solicits purchasers; or (iii) directly to one or more
purchasers. The Registered Stockholders and any underwriters, dealers, brokers
or agents executing selling orders on behalf of the Registered Stockholders may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profits on the sale of the Shares by them and any discounts, commissions or
concessions received by such underwriters, dealers, brokers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
The compensation to a particular underwriter, broker-dealer or agent may be in
excess of customary commissions. To the knowledge of the Company, the Registered
Stockholders have made no arrangement with any brokerage firm for the sale of
the Shares.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Registered Stockholders (and, if they act as agent for the
purchaser of such Shares, from such purchaser). Broker-dealers may agree with
the Registered Stockholders to sell a specified number of Shares at a stipulated
price per share and, to the extent such a broker-dealer is unable to do so
acting as agent for the Registered Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Registered Stockholder. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above. To the extent required under the
Securities Act, a supplemental prospectus will be filed, disclosing (a) the name
of any such broker-dealers; (b) the number of Shares involved; (c) the price at
which such Shares are to be sold; (d) the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable; (e) that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus, as supplemented; and (f)
other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may not simultaneously engage in market
making activities with respect to the Shares for a period beginning when such
person becomes a distribution participant and ending upon such person's
completion of participation in the distribution, including stabilization
activities in the Common Stock to effect covering transactions, to impose
penalty bids or to effect passive marketing making bids. In addition to and
without limiting the foregoing, in connection with transactions in the Shares,
the Registered Stockholders and any underwriters, dealers, brokers or agents
executing selling orders on behalf of the Registered Stockholders may be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rule 10b-5 thereof and, insofar as
the Company and the Registered Stockholders are distribution participants,
Regulation M and Rules 100, 101, 102, 103, 104 and 105 thereof. All of the
foregoing may affect the marketability of the Shares.
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<PAGE> 28
The Registered Stockholders have agreed that they will not create or
increase a net short position with respect to the Common Stock during the ten
trading days prior to any put date or during the thirty calendar days prior to
the date that is three months after the date of this Prospectus and the thirty
calendar days prior to the date that is six months after the date of this
Prospectus. The Registered Stockholders have further agreed that they will not
engage in any trading practice or activity for the purpose of manipulating the
price of the Common Stock or otherwise engage in any trading practice or
activity that violates the rules and regulations of the Commission.
The Registered Stockholders will pay all commissions, transfer taxes and
other expenses associated with the sales of the Shares by them. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to pay the expenses of the preparation of
this prospectus. The Company has also agreed to indemnify the Registered
Stockholders against certain liabilities, including, without limitation,
liabilities arising under the Securities Act.
The Company will not receive any proceeds from the exercise of the Warrants,
which may only be exercised pursuant to a cashless exercise by the Registered
Stockholders. The Company will not receive any of the proceeds from the sale of
the Shares by the Registered Shareholders.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in these states or an exemption from registration or qualification is
available and complied with.
The Common Stock of the Company is currently traded on the Nasdaq SmallCap
Market under the symbol "TCLN". Concurrently with sales under this prospectus,
the Registered Stockholders may effect other sales of Shares under Rule 144 or
other exempt resale transactions. There can be no assurance that the Registered
Stockholders, or any of them, will sell any or all of the Shares offered
hereunder.
26
<PAGE> 29
DESCRIPTION OF SECURITIES
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 120,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share, of
which 10,000 shares are designated as Series B Convertible Preferred Stock
("Series B Stock") and 17,200 shares are designated as 5% Adjustable Convertible
Class C Preferred Stock ("Class C Stock"). As of August 31, 1998, there were
66,386,493 shares of Common Stock outstanding held by 5,805 stockholders of
record, 354 shares of Class C Stock outstanding held by 8 holders of record and
no shares of Series B Stock outstanding.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to preferences that may be applicable
to the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive such lawful dividends as may be declared by
the Board of Directors. In the event of liquidation, dissolution or winding up
of the Company, and subject to the rights of the holders of outstanding shares
of Preferred Stock, if any, the holders of shares of Common Stock shall be
entitled to receive pro rata all of the remaining assets of the Company
available for distribution to its stockholders. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable, and shares of Common Stock to
be issued pursuant to this offering shall be fully paid and nonassessable.
The Warrants are exercisable at any time beginning on the date of issuance
thereof and ending on December 31, 2004. The shares of Common Stock underlying
the Warrants, when issued upon exercise in whole or in part, will be fully paid
and nonassessable, and the Company will pay any transfer tax incurred as a
result of the issuance of the Common Stock to the holder upon its exercise.
Each of the Warrants contain provisions that protect the holder against
dilution by adjustment of the exercise price. Such adjustments will occur in the
event, among others, of a merger, stock split or reverse stock split, stock
dividend or recapitalization. The Company is not required to issue fractional
shares upon the exercise of any Warrant. The holder of the Warrant will not
possess any rights as a stockholder of the Company until such holder exercises
the Warrant. The Warrant may be exercised upon surrender on or before the
expiration date of the Warrant at the offices of the Company, with an exercise
form completed and executed as indicated, accompanied by payment of the exercise
price for the number of shares with respect to which the Warrant is being
exercised. The exercise price is payable only pursuant to a "cashless exercise,"
in which that number of shares of Common Stock underlying the Warrant having a
fair market value equal to the aggregate exercise price are canceled as payment
of the exercise price.
For the life of each of the Warrants, the holder thereof has the opportunity
to profit from a rise in the market price of the Common Stock without assuming
the risk of ownership of the shares of Common Stock issuable upon the exercise
of the Warrant. The Warrant holder may be expected to exercise the Warrant at a
time when the Company would, in all likelihood, be able to obtain any needed
capital by an offering of Common Stock on terms more favorable than those
provided for by the Warrant. Furthermore, the terms on which the Company could
obtain additional capital during the life of the Warrant may be adversely
affected.
The Shares to which this Prospectus relates to be offered and sold from time
to time by the Registered Stockholders are the Institutional Investor Shares and
the Placement Agent Shares and Shares of Common Stock issuable upon exercise of
the Institutional Investor Warrants and the Placement Agent Warrants
(collectively referred to in this Prospectus as the "Warrants"). This Prospectus
does not cover the Equity Line Investor Shares, the Adjustment Shares or the
Equity Line Placement Agent Shares or shares of Common Stock issuable upon
exercise of the Equity Line Investor Warrants, the Equity Line Anniversary
Warrants or the Equity Line Placement Agent Warrants, which shares have been
separately registered for resale under the Securities Act and are the subject of
a separate Prospectus.
27
<PAGE> 30
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Rutan & Tucker, LLP, Costa Mesa, 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 for the year ended April
30, 1998, 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.
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 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.
28
<PAGE> 31
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE REGISTERED STOCKHOLDERS. 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 SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information.............. 2
Incorporation of Certain Documents
By Reference.................... 3
Cautionary Statement Regarding
Forward-Looking Statements...... 4
The Company........................ 5
Risk Factors....................... 7
The Equity Line Agreement.......... 19
Use of Proceeds.................... 21
Recent Developments................ 21
Registered Stockholders............ 23
Plan of Distribution............... 25
Description of Securities.......... 27
Legal Matters...................... 28
Experts............................ 28
Indemnification of Directors
and Officers.................... 28
-------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,023,998 Shares
[LOGO] TECHNICLONE
Corporation
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1998
- --------------------------------------------------------------------------------
<PAGE> 32
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
Offering described in this Registration Statement:
SEC registration fee.................................. $ 1,014
Printing and engraving expenses....................... 5,000
Legal fees and expenses............................... 25,000
Blue Sky fees and expenses............................ 2,500
Accounting fees and expenses.......................... 25,000
Miscellaneous......................................... 10,000
-------
Total......................................... $68,514
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions that eliminate the directors' personal liability for monetary
damages to the fullest extend possible under Delaware Law or other applicable
law (the "Director Liability Provision"). The Director Liability Provision
eliminates the liability of Directors to the Company and its stockholders for
monetary damages arising out of any violation by a director of his fiduciary
duty of due care. However, the Director Liability Provision does not eliminate
the personal liability of a director for (i) breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or
repurchases or redemption of stock other than from lawfully available funds, or
(iv) any transactions from which the director derived an improper benefit. The
Director Liability Provision also does not affect a director's liability under
the federal securities laws or the recovery of damages by third parties.
Furthermore, pursuant to Delaware Law, the limitation liability afforded by the
Director Liability Provision does not eliminate a director's personal liability
for breach of the director's duty of due care. Although the directors would not
be liable for monetary damages to the corporation or its stockholders for
negligent acts or commissions in exercising their duty of due care, the
directors remain subject to equitable remedies, such as actions for injunction
or rescission, although these remedies, whether as a result of timeliness or
otherwise, may not be effective in all situations. With regard to directors who
also are officers of the Company, these persons would be insulated from
liability only with respect to their conduct as directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
These provisions may cover actions undertaken by the Board of Directors, which
may serve as the basis for a claim against the Company under the federal and
state securities laws. The Company has been advised that it is the position of
the Commission that insofar as the foregoing provisions may be involved to
disclaim liability for damages arising under the Securities Act, such provisions
are against public policy as expressed in the Act and are therefore
unenforceable.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Company
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
be indemnified for expenses actually and reasonably incurred, judgments, fines
and
II-1
<PAGE> 33
amounts paid in settlement of such litigation, even if he is not successful on
the merits, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation (and in a criminal
proceeding, if he did not have reasonable cause to believe his conduct was
unlawful), and (iii) may be indemnified by the corporation for expenses actually
and reasonably incurred (but not judgments or settlements) of any action by the
Corporation or of a derivative action (such as a suit by a stockholder alleging
a breach by the director or officer of a duty owed to the corporation), even if
he is not successful, provided that he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no indemnification is permitted without court
approval if the director has been adjudged liable to the corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Company is required to indemnify its officers,
directors, employees and agents to the fullest extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that the person acted in good faith
and in a manner he or she believed to be in the best interests of the Company
and, in the case of any criminal action or proceeding, the person had no reason
to believe his or her conduct was unlawful.
In furtherance of the objectives of the Indemnification Provision, the
Company has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Certificate and Bylaws (the "Indemnification Agreements"). The Company
believes that the Indemnification Agreements are necessary to attract and retain
qualified directors and executive officers. Pursuant to the Indemnification
Agreements, an indemnitee will be entitled to indemnification to the extent
permitted by Section 145 or other applicable law. In addition, to the maximum
extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Company, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and had no reasonable cause to
believe his or her conduct was unlawful. If the Proceeding is brought by or in
the right of the Company and applicable law so provides, the Indemnification
Agreement provides that no indemnification against expenses shall be made in
respect of any claim, issue or matter in the Proceeding as to which the
indemnitee shall have been adjudged liable to the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
II-2
<PAGE> 34
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1....................... Certificate of Incorporation of Techniclone Corporation,
a Delaware corporation (Incorporated by reference to
Exhibit B to the Company's 1996 Proxy Statement as
filed with the Commission on or about August 20, 1996)
3.2....................... Bylaws of Techniclone Corporation, a Delaware
corporation (Incorporated by reference to Exhibit C to
the Company's 1996 Proxy Statement as filed with the
Commission on or about August 20, 1996)
3.3....................... Certificate of Designation of 5% Adjustable Convertible
Class C Preferred Stock as filed with the Delaware
Secretary of State on April 23, 1997. (Incorporated by
reference to Exhibit 3.1 contained in Registrant's Current
Report on Form 8-K as filed with the Commission on or
about May 12, 1997)
4.1....................... Form of Certificate for Common Stock (Incorporated by
reference to the exhibit of the same number contained in
the Registrants' Annual Report on Form 10-K for the
fiscal year ended April 30, 1988)
4.4....................... Form of Subscription Agreement entered into with Series
B Convertible Preferred Stock Subscribers (Incorporated
by reference to Exhibit 4.1 contained in Registrant's
Report on Form 8-K dated December 27, 1995, as filed
with the Commission on or about January 24, 1996)
4.5....................... Registration Rights Agreement dated December 27, 1995,
by and among Swartz Investments, Inc. and the holders
of the Registrant's Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 4.2 contained in
Registrant's Current Report on Form 8-K dated
December 27, 1995 as filed with the Commission on or
about January 24, 1996)
4.6....................... Warrant to Purchase Common Stock of Registrant issued
to Swartz Investments, Inc. (Incorporated by reference to
Exhibit 4.3 contained in Registrant's Current Report on
Form 8-K dated December 27, 1995 as filed with the
Commission on or about January 24, 1996)
</TABLE>
II-3
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.7....................... 5% Preferred Stock Investment Agreement between
Registrant and the Investors named therein (Incorporated
by reference to Exhibit 4.1 contained in Registrant's
Current Report on Form 8-K as filed with the
Commission on or about May 12, 1997)
4.8....................... Registration Rights Agreement between the Registrant
and the holders of the Class C Preferred Stock
(Incorporated by reference to Exhibit 4.2 contained in
Registrant's Current Report on Form 8-K as filed with
the Commission on or about May 12, 1997)
4.9....................... Form of Stock Purchase Warrant to be issued to the
holders of the Class C Preferred Stock upon conversion
of the Class C Preferred Stock (Incorporated by reference
to Exhibit 4.3 contained in Registrant's Current Report
on Form 8-K as filed with the Commission on or about
May 12, 1997)
4.10...................... Regulation D Common Equity Line Subscription
Agreement dated as of June 16, 1998 between the
Registrant and the Subscribers named therein (the
"Equity Line Subscribers") (Incorporated by reference
to Exhibit 4.4 contained in Registrant's Report on Form
8-K dated as filed with the Commission on or about June
29, 1998)
4.11...................... Form of Amendment to Regulation D Common Stock
Equity Line Subscription Agreement (incorporated by
reference to Exhibit 4.5 contained in Registrant's Current
Report on Form 8-K filed with the Commission on or
about June 29, 1998)
4.12...................... Registration Rights Agreement dated as of June 16, 1998
between the Registrant and the Equity Line Subscribers
(Incorporated by reference to Exhibit 4.6 contained in
Registrant's Current Report on Form 8-K as filed with
the Commission on or about June 29, 1998)
4.13...................... Form of Stock Purchase Warrant to be issued to the
Equity Line Subscribers pursuant to the Regulation D
Common Stock Equity Subscription Agreement
(Incorporated by reference to Exhibit 4.7 contained in
Registrant's Current Report on Form 8-K as filed with
the Commission on or about June 29, 1998)
</TABLE>
II-4
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.14...................... Placement Agent Agreement dated as of June 16, 1998, by
and between the Registrant and Swartz Investments LLC,
a Georgia limited liability company d/b/a Swartz
Institutional Finance*
4.15...................... Second Amendment to Regulation D Common Stock Equity Line
Subscription Agreement dated as of September 16, 1998,
by and among the Registrant, The Tail Wind Fund, Ltd. and
Resonance Limited*
5......................... Opinion of Rutan & Tucker, LLP*
10.22...................... 1982 Stock Option Plan (Incorporated by reference to the
exhibit contained in Registrant's Registration Statement
on Form S-8 (File No. 2-85628))
10.23...................... Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan - 1986 (Incorporated by
reference to the exhibit contained in Registrant's
Registration Statement on Form S-8 (File No. 33-15102))
10.24...................... Cancer Biologics Incorporated Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan -
1987 (Incorporated by reference to the exhibit contained in
Registrant's Registration Statement on Form
S-8 (File No. 33-8664))
10.25...................... Amendment to 1982 Stock Option Plan dated March 1,
1988 (Incorporated by reference to the exhibit of the
same number contained in Registrants' Annual Report on
Form 10-K for the year ended April 30, 1988)
10.26...................... Amendment to 1986 Stock Option Plan dated March 1,
1988 (Incorporated by reference to the exhibit of the
same number contained in Registrant's Annual Report on
Form 10-K for the year ended April 30, 1988)
10.31...................... Agreement dated February 5, 1996, between Cambridge
Antibody Technology, Ltd. and Registrant (Incorporated
by reference to Exhibit 10.1 contained in Registrant's
Current Report on Form 8-K dated February 5, 1996, as
filed with the Commission on or about February 8, 1996)
10.32...................... Distribution Agreement dated February 29, 1996,
between Biotechnology Development, Ltd. and Registrant
(Incorporated by reference to Exhibit 10.1 contained in
Registrant's Current Report on Form 8-K dated February 29, 1996,
as filed with the Commission on or about March 7, 1996)
10.33...................... Option Agreement dated February 29, 1996, by and
between Biotechnology Development, Ltd. And
Registrant (Incorporated by reference to Exhibit 10.2
contained in Registrant's Current Report on Form 8-K
dated February 29, 1996, as filed with the Commission
on or about March 7, 1996)
</TABLE>
II-5
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.34..................... Purchase Agreement for Real Property and Escrow
Instructions dated as of March 22, 1996, by and between
TR Koll Tustin Tech Corp. and Registrant (Incorporated
by reference to Exhibit 10.1 contained in Registrant's
Current Report on Form 8-K dated March 25, 1996, as
filed with the Commission on or about April 5, 1996)
10.35..................... Incentive Stock Option and Nonqualified Stock Option
Plan-1993 (Incorporated by reference to the exhibit
contained in Registrants' Registration Statement on Form
S-8 (File No. 33-87662))
10.36..................... Promissory Note dated October 24, 1996 in the original
principal amount of $1,020,000 payable to Imperial Thrift
and Loan Association by Registrant (Incorporated by
reference to Exhibit 10.1 to Registrants' Current
Report on Form 8-K dated October 25, 1996)
10.37..................... Deed of Trust dated October 24, 1996 among Registrant
and Imperial Thrift and Loan Association (Incorporated
by reference to Exhibit 10.2 to Registrants' Current
Report on Form 8-K dated October 25, 1996)
10.38..................... Assignment of Lease and Rents dated October 24, 1996
between Registrant and Imperial Thrift and Loan
Association (Incorporated by reference to Exhibit 10.3 on
Registrants' Current Report on Form 8-K dated October
25, 1996)
10.39..................... Commercial Security Agreement dated October 24, 1996
between Imperial Thrift and Loan Association and
Registrant (Incorporated by reference to Exhibit 10.4 on
Registrants' Current Report on Form 8-K dated October
25, 1996)
10.40..................... 1996 Stock Incentive Plan (Incorporated by reference to
the exhibit contained in Registrants' Registration
Statement on Form S-8 (File No. 333-17513))
10.41..................... Stock Exchange Agreement dated as of January 15, 1997
among the stockholders of Peregrine Pharmaceuticals,
Inc. and Registrant (Incorporated by reference to Exhibit
2.1 to Registrants' Quarterly Report on Form 10-Q for
the quarter ended January 31, 1997)
</TABLE>
II-6
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.42..................... First Amendment to Stock Exchange Agreement among
the Stockholders of Peregrine Pharmaceuticals, Inc. and
Registrant (Incorporated by reference to Exhibit 2.1
contained in Registrant's Current Report on Form 8-K as
filed with the Commission on or about May 12, 1997)
10.43..................... Termination and Transfer Agreement dated as of
November 14, 1997 by and between Registrant and
Alpha Therapeutic Corporation (Incorporated by
reference to Exhibit 10.1 contained in Registrant's
Current Report on Form 8-K as filed with the
Commission on or about November 24, 1997)
23.1...................... Consent of Rutan & Tucker, LLP (contained in Exhibit 5)*
23.2...................... Consent of Deloitte & Touche LLP*
</TABLE>
- -------------------------
* filed herewith
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% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
II-7
<PAGE> 39
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to 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 the time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-8
<PAGE> 40
SIGNATURES
In accordance with 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, thereunto duly
authorized, in the City of Tustin, State of California, on September 3, 1998.
TECHNICLONE CORPORATION
By: /s/ LARRY O. BYMASTER
--------------------------------
Larry O. Bymaster, President
In accordance with the requirements of the Securities Act of 1933, 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/ Larry O. Bymaster President, Chief Executive September 3, 1998
- ------------------------------- Officer and Director (Principal
Larry O. Bymaster Executive Officer)
/s/ Elizabeth A. Gorbett-Frost Chief Financial Officer and September 8, 1998
- ------------------------------- Secretary (Principal Financial and
Elizabeth A. Gorbett-Frost Principal Accounting Officer)
/s/ Thomas R. Testman Chairman of the Board September 8, 1998
- -------------------------------
Thomas R. Testman
/s/ Rock Hankin Director September 8, 1998
- -------------------------------
Rock Hankin
Director September , 1998
- -------------------------------
William C. Shepherd
/s/ Carmelo J. Santoro, Ph.D. Director September 8, 1998
- -------------------------------
Carmelo J. Santoro, Ph.D.
/s/ Clive R. Taylor Director September 5, 1998
- -------------------------------
Clive R. Taylor, M.D., Ph.D.
</TABLE>
II-9
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
3.1 Certificate of Incorporation of Techniclone Corporation, a
Delaware corporation (Incorporated by reference to Exhibit B to
the Company's 1996 Proxy Statement as filed with the Commission
on or about August 20, 1996)
3.2 Bylaws of Techniclone Corporation, a Delaware corporation
(Incorporated by reference to Exhibit C to the Company's 1996
Proxy Statement as filed with the Commission on or about August
20, 1996)
3.3 Certificate of Designation of 5% Adjustable Convertible Class C
Preferred Stock as filed with the Delaware Secretary of State on
April 23, 1997. (Incorporated by reference to Exhibit 3.1
contained in Registrant's Current Report on Form 8-K as filed
with the Commission on or about May 12, 1997)
4.1 Form of Certificate for Common Stock (Incorporated by reference
to the exhibit of the same number contained in the Registrants'
Annual Report on Form 10-K for the fiscal year ended April 30,
1988)
4.4 Form of Subscription Agreement entered into with Series B
Convertible Preferred Stock Subscribers (Incorporated by
reference to Exhibit 4.1 contained in Registrant's Report on Form
8-K dated December 27, 1995, as filed with the Commission on or
about January 24, 1996)
4.5 Registration Rights Agreement dated December 27, 1995, by and
among Swartz Investments, Inc. and the holders of the
Registrant's Series B Convertible Preferred Stock (incorporated
by reference to Exhibit 4.2 contained in Registrant's Current
Report on Form 8-K dated December 27, 1995 as filed with the
Commission on or about January 24, 1996)
4.6 Warrant to Purchase Common Stock of Registrant issued to Swartz
Investments, Inc. (Incorporated by reference to Exhibit 4.3
contained in Registrant's Current Report on Form 8-K dated
December 27, 1995 as filed with the Commission on or about
January 24, 1996)
4.7 5% Preferred Stock Investment Agreement between Registrant and
the Investors named therein (Incorporated by reference to Exhibit
4.1 contained in Registrant's Current Report on Form 8-K as filed
with the Commission on or about May 12, 1997)
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
4.8 Registration Rights Agreement between the Registrant and the
holders of the Class C Preferred Stock (Incorporated by reference
to Exhibit 4.2 contained in Registrant's Current Report on Form
8-K as filed with the Commission on or about May 12, 1997)
4.9 Form of Stock Purchase Warrant to be issued to the holders of the
Class C Preferred Stock upon conversion of the Class C Preferred
Stock (Incorporated by reference to Exhibit 4.3 contained in
Registrant's Current Report on Form 8-K as filed with the
Commission on or about May 12, 1997)
4.10 Regulation D Common Equity Line Subscription Agreement dated as
of June 16, 1998 between the Registrant and the Subscribers named
therein (the "Equity Line Subscribers") (Incorporated by
reference to Exhibit 4.4 contained in Registrant's Report on Form
8-K dated as filed with the Commission on or about June 29, 1998)
4.11 Form of Amendment to Regulation D Common Stock Equity Line
Subscription Agreement (incorporated by reference to Exhibit 4.5
contained in Registrant's Current Report on Form 8-K filed with
the Commission on or about June 29, 1998)
4.12 Registration Rights Agreement dated as of June 16, 1998 between
the Registrant and the Equity Line Subscribers (Incorporated by
reference to Exhibit 4.6 contained in Registrant's Current Report
on Form 8-K as filed with the Commission on or about June 29,
1998)
4.13 Form of Stock Purchase Warrant to be issued to the Equity Line
Subscribers pursuant to the Regulation D Common Stock Equity
Subscription Agreement (Incorporated by reference to Exhibit 4.7
contained in Registrant's Current Report on Form 8-K as filed
with the Commission on or about June 29, 1998)
4.14 Placement Agent Agreement dated as of June 16, 1998, by and ____
between the Registrant and Swartz Investments LLC, a Georgia
limited liability company d/b/a Swartz Institutional Finance
4.15 Second Amendment to Regulation D Common Stock Equity Line ____
Subscription Agreement dated as of September 16, 1998, by and
among the Registrant, The Tail Wind Fund, Ltd. and Resonance
Limited
5 Opinion of Rutan & Tucker, LLP ____
10.22 1982 Stock Option Plan (Incorporated by reference to the exhibit
contained in Registrant's Registration Statement on Form S-8
(File No. 2-85628))
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
10.23 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan - 1986 (Incorporated by reference to the
exhibit contained in Registrant's Registration Statement on Form
S-8 (File No. 33-15102))
10.24 Cancer Biologics Incorporated Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan -
1987 (Incorporated by reference to the exhibit contained in
Registrant's Registration Statement on Form S-8 (File No.
33-8664))
10.25 Amendment to 1982 Stock Option Plan dated March 1, 1988
(Incorporated by reference to the exhibit of the same number
contained in Registrants' Annual Report on Form 10-K for the year
ended April 30, 1988)
10.26 Amendment to 1986 Stock Option Plan dated March 1, 1988
(Incorporated by reference to the exhibit of the same number
contained in Registrant's Annual Report on Form 10-K for the year
ended April 30, 1988)
10.31 Agreement dated February 5, 1996, between Cambridge Antibody
Technology, Ltd. and Registrant (Incorporated by reference to
Exhibit 10.1 contained in Registrant's Current Report on Form 8-K
dated February 5, 1996, as filed with the Commission on or about
February 8, 1996)
10.32 Distribution Agreement dated February 29, 1996, between
Biotechnology Development, Ltd. and Registrant (Incorporated by
reference to Exhibit 10.1 contained in Registrant's Current
Report on Form 8-K dated February 29, 1996, as filed with the
Commission on or about March 7, 1996)
10.33 Option Agreement dated February 29, 1996, by and between
Biotechnology Development, Ltd. And Registrant (Incorporated by
reference to Exhibit 10.2 contained in Registrant's Current
Report on Form 8-K dated February 29, 1996, as filed with the
Commission on or about March 7, 1996)
10.34 Purchase Agreement for Real Property and Escrow Instructions
dated as of March 22, 1996, by and between TR Koll Tustin Tech
Corp. and Registrant (Incorporated by reference to Exhibit 10.1
contained in Registrant's Current Report on Form 8-K dated March
25, 1996, as filed with the Commission on or about April 5, 1996)
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
10.35 Incentive Stock Option and Nonqualified Stock Option Plan - 1993
(Incorporated by reference to the exhibit contained in
Registrants' Registration Statement on Form S-8 (File
No. 33-87662))
10.36 Promissory Note dated October 24, 1996 in the original principal
amount of $1,020,000 payable to Imperial Thrift and Loan
Association by Registrant (Incorporated by reference to Exhibit
10.1 to Registrants' Current Report on Form 8-K dated October 25,
1996)
10.37 Deed of Trust dated October 24, 1996 among Registrant and
Imperial Thrift and Loan Association (Incorporated by reference
to Exhibit 10.2 to Registrants' Current Report on Form 8-K dated
October 25, 1996)
10.38 Assignment of Lease and Rents dated October 24, 1996 between
Registrant and Imperial Thrift and Loan Association (Incorporated
by reference to Exhibit 10.3 on Registrants' Current Report on
Form 8-K dated October 25, 1996)
10.39 Commercial Security Agreement dated October 24, 1996 between
Imperial Thrift and Loan Association and Registrant (Incorporated
by reference to Exhibit 10.4 on Registrants' Current Report on
Form 8-K dated October 25, 1996)
10.40 1996 Stock Incentive Plan (Incorporated by reference to the
exhibit contained in Registrants' Registration Statement on
Form S-8 (File No. 333-17513))
10.41 Stock Exchange Agreement dated as of January 15, 1997 among the
stockholders of Peregrine Pharmaceuticals, Inc. and Registrant
(Incorporated by reference to Exhibit 2.1 to Registrants'
Quarterly Report on Form 10-Q for the quarter ended January 31,
1997)
10.42 First Amendment to Stock Exchange Agreement among the
Stockholders of Peregrine Pharmaceuticals, Inc. and Registrant
(Incorporated by reference to Exhibit 2.1 contained in
Registrant's Current Report on Form 8-K as filed with the
Commission on or about May 12, 1997)
10.43 Termination and Transfer Agreement dated as of November 14, 1997
by and between Registrant and Alpha Therapeutic Corporation
(Incorporated by reference to Exhibit 10.1 contained in
Registrant's Current Report on Form 8-K as filed with the
Commission on or about November 24, 1997)
23.1 Consent of Rutan & Tucker, LLP (contained in Exhibit 5)
23.2 Consent of Deloitte & Touche LLP ____
</TABLE>
<PAGE> 1
EXHIBIT 4.14
PLACEMENT AGENT AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 16th day of June, 1998,
by and between Techniclone Corporation, a corporation organized under the laws
of the state of Delaware ("Company"), and Swartz Investments LLC, a Georgia
limited liability company, d/b/a Swartz Institutional Finance (the "Agent").
RECITALS:
WHEREAS, the Company proposes to issue and sell shares of its Common
Stock, which are accompanied by a warrant or warrants to purchase a number of
shares of Common Stock of the Company (together the "Securities") resulting in
gross proceeds to the Company of a minimum of Three Million Five Hundred
Thousand Dollars ($3,500,000) and a maximum of Twenty Million Dollars
($20,000,000), excluding Warrants, in an offering (the "Offering") not involving
a public offering under the Securities Act of 1933, as amended (the "Act"),
pursuant to an exemption from the registration requirements of the Act under
Regulation D promulgated under the Act ("Regulation D"), as described below; and
WHEREAS, the Agent has offered to assist the Company in placing the
Securities on a "best efforts" basis with respect to sales of Securities
thereafter up to the Maximum Proceeds (as defined below), and the Company
desires to secure the services of the Agent on the terms and conditions
hereinafter set forth.
TERMS:
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto do
hereby agree as follows:
1. ENGAGEMENT OF AGENT. The Company on the basis of the representations and
warranties contained herein, but subject to the terms and conditions herein set
forth, hereby appoints the Agent as its exclusive placement agent for this
Offering, to sell, on a "best efforts basis," a minimum dollar amount of
Securities resulting in gross proceeds to the Company of Three Million Five
Hundred Thousand Dollars ($3,500,000) (the "Minimum Proceeds") and a maximum
dollar amount of Securities, excluding Warrants, resulting in gross proceeds to
the Company of Twenty Million Dollars ($20,000,000) (the "Maximum Proceeds").
The Agent, on the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, accepts such
appointment and agrees to use its best efforts to find purchasers for the
Securities. This appointment shall be irrevocable for the period commencing on
the date of the executed Letter of Agreement, and ending on the earlier of (i)
the Call Closing Date on which the sum of the Aggregate Initial Tranche Dollar
Amount plus the aggregate of the Call Dollar Amounts for all Call Closings equal
the Maximum Offering Amount pursuant to that certain Regulation D Equity Line
Subscription Agreement (the "Subscription Agreement"), (ii) on June 22, 1998, if
the Initial Tranche Closing has not occurred by such date, which period may be
extended by the consent of the Company and the Agent (the "Offering Period"), or
(iii) June 16, 2001.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce the Agent to enter into this Agreement, the Company
hereby represents and warrants to and agrees with the Agent as follows:
2.1 Offering Documents. The Company (with the assistance of the Agent
and Subscriber) has prepared the Subscription Agreement, certain exhibits
thereto, investor Warrants and a Registration Rights Agreement, which documents
have been or will be sent to proposed investors. In addition, proposed investors
have received or will receive prior to closing, copies of the Company's Annual
Report on Form 10-K/A for the
<PAGE> 2
year ended April 30, 1997, and the Company's quarterly report on Form 10-Q/A for
the quarter ended January 31, 1998 ("SEC Documents"). The SEC Documents were
prepared in conformity with the requirements (to the extent applicable) of the
Securities Exchange Act of 1934, as amended, (the "'34 Act") and the rules and
regulations ("Rules and Regulations") of the Commission promulgated thereunder.
As used in this Agreement, the term "Offering Documents" refer to and mean the
SEC Documents, the Subscription Agreement and all amendments, exhibits and
supplements thereto, together with any other documents which are provided to the
Agent by, or approved for Agent's use by, the Company for the purpose of this
Offering (including, but not limited to, the Registration Rights Agreement).
2.2 Provision of Offering Documents. The Company shall deliver to the
Agent, without charge, as many copies of the Offering Documents as the Agent may
reasonably require for the purposes contemplated by this Agreement. The Company
authorizes the Agent, in connection with the Offering of the Securities, to use
the Offering Documents as from time to time amended or supplemented in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the Act and Regulation D.
2.3 Accuracy of Offering Documents. The Offering Documents, at the time
of delivery to Subscribers for the Securities, conformed in all material
respects with the requirements, to the extent applicable, of the '34 Act and the
applicable Rules and Regulations and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. On the Closing Date (as hereinafter
defined), the Offering Documents will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
for the purposes of the proposed Offering, and all statements of material fact
contained in the Offering Documents will be true and correct, and the Offering
Documents will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.4 Duty to Amend. If during such period of time as in the reasonable
opinion of the Agent or its counsel an Offering Document relating to this
financing is required to be delivered under the Act, any event occurs or any
event known to the Company relating to or affecting the Company shall occur as a
result of which the Offering Documents as then amended or supplemented would
include an untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
after the date hereof to amend or supplement the Offering Documents to comply
with the Act or the applicable Rules and Regulations, the Company shall
forthwith notify the Agent thereof and shall prepare such further amendment or
supplement to the Offering Documents as may be required and shall furnish and
deliver to the Agent and to others, whose names and addresses are designated by
the Agent, all at the cost of the Company, a reasonable number of copies of the
amendment or supplement (or of the amended or supplemented Offering Documents)
which, as so amended or supplemented, will not contain an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
Offering Documents, not misleading in the light of the circumstances when
delivered to a purchaser or prospective purchaser, and which will comply in all
respects with the requirements (to the extent applicable) of the '34 Act and the
applicable Rules Regulations.
2.5 Corporation Condition. The Company's condition is as described in
its Offering Documents, except for continuing losses and changes in the ordinary
course of business and normal year-end adjustments that are not in the aggregate
materially adverse to the Company. The Offering Documents, taken as a whole,
present fairly the business and financial position of the Company as of the
Closing Date.
-2-
<PAGE> 3
2.6 No Material Adverse Change. Except as may be reflected in or
contemplated by the Offering Documents, subsequent to the dates as of which
information is given in the Offering Documents, and prior to the Closing Date,
taken as a whole, there has not been any material adverse change in the
condition, financial or otherwise, or in the results of operations of the
Company or in its business.
2.7 No Defaults. Except as disclosed in the Offering Documents or in
writing to the Agent, the Company is not in default in any material respect in
the performance of any obligation, agreement or condition contained in any
material debenture, note or other evidence of indebtedness or any material
indenture or loan agreement of the Company. The execution and delivery of this
Agreement, and the consummation of the transactions herein contemplated, and
compliance with the terms of this Agreement will not conflict with or result in
a breach of any of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or Bylaws of the Company (in any
respect that is material to the Company), any material note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company
is a party or by which the Company or any property of the Company is bound, or
to the Company's knowledge, any existing law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality, agency or
body, arbitration tribunal or court, domestic or foreign, having jurisdiction
over the Company or any property of the Company. The consent, approval,
authorization or order of any court or governmental instrumentality, agency or
body is not required for the consummation of the transactions herein
contemplated except such as may be required under the Act or under the Blue Sky
or securities laws of any state or jurisdiction.
2.8 Incorporation and Standing. The Company is, and at the Closing Date
will be, duly formed and validly existing in good standing as a corporation
under the laws of the State of Delaware and with full power and authority
(corporate and other) to own its properties and conduct its business, present
and proposed, as described in the Offering Documents; the Company, has full
power and authority to enter into this Agreement, and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
2.9 Legality of Outstanding Securities. Prior to the Closing Date, the
outstanding securities of the Company have been duly and validly authorized and
issued, and are fully paid and non-assessable, and conform in all material
respects to the statements with regard thereto contained in the Offering
Documents.
2.10 Legality of Securities. The Securities when sold and delivered in
accordance with the Offering Documents, and the Agent Securities (as defined in
Section 3.4 below) when issued and delivered, will constitute legal, valid and
binding obligations of the Company, enforceable in accordance with the terms
thereof, and the Securities and Agent Securities shall be duly and validly
issued and outstanding, fully paid and nonassessable. The Common Stock into
which any Securities are exercisable and the Common Stock into which any of
Agent's Securities are exercisable, when issued upon exercise of any Securities
or upon exercise of any of Agent's Securities, as applicable, shall be duly and
validly issued and outstanding, fully paid and non-assessable.
2.11 Litigation. Except as set forth in the Offering Documents, there is
now, and at the Closing Date there will be, no action, suit or proceeding before
any court or governmental agency, authority or body pending or, to the knowledge
of the Company, threatened, which might result in judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise) or business of
the Company or which would materially adversely affect the properties or assets
of the Company.
-3-
<PAGE> 4
2.12 Finders. The Company does not know of any outstanding claims for
services in the nature of a finder's fee or origination fees with respect to the
sale of the Securities hereunder for which the Agent may be responsible, and the
Company will indemnify the Agent from any liability for such fees (including the
payment of attorney's fees incurred by Agent due to any claim by any such finder
or originator) by any party who, in the reasonable opinion of Agent's counsel,
has a legitimate claim for such compensation from the Company and for which
person the Agent is not legally responsible. In the event of such claim, Agent
shall properly notify Company thereof and the Company may, at its option and at
its sole cost and expense, take over the defense of such a claim with counsel of
its choice, reasonably satisfactory to Agent. Agent shall not settle any such
claims or litigation arising hereunder without the prior written consent of the
Company, which shall not be unreasonably withheld.
2.13 Tax Returns. The Company has filed all federal and state and local
tax returns which are required to be filed, and has paid all material taxes
shown on such returns and on all assessments received by it to the extent such
taxes have become due (except for taxes the amount of which the Company is
contesting in good faith). All taxes with respect to which the Company is
obligated have been paid, or adequate accruals have been set up to cover any
such unpaid taxes.
2.14 Authority. The execution and delivery by the Company of this
Agreement have been duly authorized by all necessary action, and this Agreement
is the valid, binding and legally enforceable obligation of the Company except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws, by principles governing
enforcement of equitable remedies and, with respect to indemnification against
liabilities under the Act, matters of public policy.
2.15 Actions by the Company. The Company will not take any action which
will impair the effectiveness of the transactions contemplated by this
Agreement.
3. ISSUE, SALE AND DELIVERY OF THE SECURITIES.
3.1 Deliveries of Securities. Certificates in such form that, subject to
applicable transfer restrictions as described in the Subscription Agreement,
they can be negotiated by the purchasers thereof (issued in such denominations
and in such names as the Agent may direct the Company to issue) for the
Securities, and the Agent Securities (described in Section 3.4 below), shall be
delivered by the Company to the Escrow Agent, with copies made available to the
Agent for checking at least one (1) full business day prior to the Closing Date,
it being understood that the directions from the Agent to the Company shall be
given at least two (2) full business days prior to the Closing Date. The
certificates for the Securities and the Agent Securities shall be delivered at
the at the Initial Tranche Closing and at each subsequent Call Closing (as
defined hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy of which
is attached hereto as Exhibit "A" (the "Escrow Agreement"), executed by the
Company, each Subscriber and the escrow agent (the "Escrow Agent"), the
Subscribers shall place all funds for purchase of Securities in an escrow
account set up by the Company. The Company shall have the right in its sole and
absolute discretion, for any reason or no reason, to approve or reject the
subscriptions of each Subscriber, as described the Subscription Agreement. With
respect to the Initial Tranche Closing, at such time as Subscribers subscribing
for at least the Minimum Proceeds have delivered to the Escrow Agent their
signed subscription documents, those Subscribers have been approved by the
Company and all other Closing conditions have been met, Escrow Agent shall
release the subscription funds and signed documents to the Company and release
the certificates representing the Securities to the Subscribers. In no event,
however, shall the Initial Tranche Closing occur after June 22, 1998, unless a
later date is agreed upon by the Company and the Agent (the "Termination Date").
Pursuant to the Escrow Agreement, the Subscribers shall place all funds for
purchase of Securities with respect to any Call for
-4-
<PAGE> 5
Proceeds into such escrow account set up by the Company. With respect to any
Call Closing, at such time as Subscribers have delivered to the Escrow Agent any
necessary Closing documents, those Subscribers have been approved by the Company
and all other Closing conditions have been met, Escrow Agent shall release the
subscription funds and signed documents to the Company and release the
certificates representing the Securities to the Subscribers.
3.3 Closing Date. The Initial Tranche Closing shall take place at the
offices of Escrow Agent on the Initial Tranche Closing Date as specified in the
Subscription Agreement. Any subsequent Call Closing shall take place at the
offices of the Escrow Agent on each Call Closing Date as specified in the
Subscription Agreement. The Initial Tranche Closing Date and any Call Closing
Date shall be referred to herein as the "Closing Date."
3.4 Agent's Compensation. The Company shall pay the Agent the amounts
pursuant to Section 3.4.1 and 3.4.2 herein, which shall be the full amount
payable to the Agent for its services, as fees and expenses, in connection with
this Offering.
3.4.1 First Ten Million Dollars Placed. For the first Ten
Million Dollars ($10,000,000) placed in this Offering, the Agent shall be paid:
(a) a cash placement fee ("First Cash Placement Fee") equal to
seven percent (7%) of the purchase price of any and all Securities placed up to
the aggregate purchase price of the first ten million dollars ($10,000,000) of
Securities placed, which shall equal a total of seven hundred thousand dollars
($700,000) for the first ten million dollars ($10,000,000) of Securities placed;
(b) a non-accountable expense allowance equal to one percent
(1%) of the purchase price of any and all Securities placed up to the aggregate
purchase price of the first ten million dollars ($10,000,0000) of Securities
placed, which covers legal and brokerage expenses of this portion of the
placement (the "First Non-Accountable Expense Allowance," together with the
First Cash Placement Fee, referred to as the ("First Cash Fee")); and
(c) an amount of securities (the "First Agent Securities")
equal to (i) eight percent (8%) of all Common Stock issued to Subscribers (the
"First Agent Common Stock") and (ii) eight percent (8%) of all warrants issued
to Subscribers, subject to adjustment as specified in Section 3.5 below.
3.4.2 Securities Placed in Excess of Ten Million Dollars. For
the placement of Securities in excess of Ten Million Dollars ($10,000,000) in
this Offering, the Agent shall be paid:
(a) a cash placement fee (the "Second Cash Placement Fee,"
together with the First Cash Placement Fee, referred to as the Cash Placement
Fee) equal to seven percent (7%), of the purchase price of any and all
Securities placed in excess of the aggregate purchase price of ten million
dollars ($10,000,000), which shall equal a total of seven hundred thousand
dollars ($700,000) for the next ten million dollars ($10,000,000) of Securities
placed;
(b) a one time non-accountable expense allowance (the "Second
Non- Accountable Expense Allowance," together with the Second Cash Placement Fee
and the First Cash Fee, referred to as the "Cash Fee") equal to one hundred
thousand dollars ($100,000) for any and all Securities placed in excess of the
aggregate purchase price of ten million dollars ($10,000,000), such
non-accountable expense allowance to be paid upon placement of any Securities
resulting in an aggregate purchase price in excess of ten million one Hundred
thousand dollars ($10,100,000); and
-5-
<PAGE> 6
(c) an amount of securities (the "Second Agent Securities"
together with the First Agent Securities, referred to as the "Agent Securities")
equal to (i) eight percent (8%) of all Common Stock issued to Subscribers (the
"Second Agent Common Stock," together with the First Agent Common Stock referred
to as the Agent Common Stock) and (ii) eight percent (8%) of all warrants issued
to Subscribers, subject to adjustment as specified in Section 3.5 below.
3.5 Reset of Agent Securities. If the Agent is not able to close, on or
before August 25, 1998, the Company's private placement of at least four million
dollars ($4,000,000) to fund the buyout of certain distribution rights from
Biotechnology Development Ltd. pursuant to that certain Letter of Agreement by
and between Company and Agent, dated on or about June 15, 1998, then the amount
of First Agent Securities payable to Agent pursuant to Section 3.4.1(c) shall be
increased from eight percent (8%) to ten percent (10%) and the amount of Second
Agent Securities payable to Agent pursuant to Section 3.4.2(c) shall be
increased from eight percent (8%) to ten percent (10%), in each case such
increase to be applied retroactively to all securities issued to Agent since the
date of execution of this Agreement. In order to give effect to such retroactive
increase, the Company shall issue, within five (5) business days of such
increase, such additional First Agent Securities and/or Second Agent Securities
as is necessary to fully compensate Agent for all amounts placed prior to August
25, 1998.
3.6 Payment of Fees. The Escrow Agent shall be instructed to pay all
Cash Fees and to deliver all Agent Securities pursuant to Section 3.4 of this
Agreement, directly to the Agent from the proceeds of the Initial Tranche
Closing and all subsequent Call Closings, simultaneous with the transfer of
proceeds to the Company.
3.7 Press Release. The Agent shall have the right to review and comment
upon any press release issued by the Company in connection with the Offering.
4. OFFERING OF THE SECURITIES ON BEHALF OF THE COMPANY.
4.1 In offering the Securities for sale, the Agent shall offer them
solely as an agent for the Company, and such offer shall be made upon the terms
and subject to the conditions set forth in the Offering Documents. The Agent
shall commence making such offer as an agent for the Company as soon as possible
following delivery of the final Company approved Offering Documents to Agent (or
notification by Company or its Counsel the latest version of any Offering
Documents on Agent's computer system is acceptable for faxing to Subscribers).
4.2 The Agent will only make offers to sell the Securities to, or
solicit offers to subscribe for any Securities from, persons or entities that
Agent reasonably believes are "accredited investors" as defined Regulation D.
5. RIGHT OF FIRST REFUSAL.
The Company hereby grants Agent rights of first refusal as follows:
5.1 The Agent has the night of first refusal to act as placement agent
for any future private financings of the Company under which the Company issues
or sells, or agrees to issue or sell, for cash (a) any debt or equity securities
which are convertible into, exercisable or exchangeable for, or carry the right
to receive additional shares of Common Stock either (i) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, or (ii) with a fixed
conversion, exercise or exchange price
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<PAGE> 7
that is subject to being reset at some future date at any time after the initial
issuance of such debt or equity security or upon the occurrence of specified
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock, or (b) any securities of the Company
pursuant to an equity line structure or format similar in nature to this
Offering or otherwise, excluding joint ventures, mergers, acquisitions, or
similar transactions; provided, however, that the Agent has the right of first
refusal to act as placement agent for any future private financings between the
Company and each Subscriber pursuant to the Subscription Agreement, whether
equity securities, convertible debt securities, or securities or instruments
convertible into or exchangeable for debt or equity securities of the Company,
excluding joint ventures, mergers, acquisitions, or similar transactions. The
duration of the Agent's right of first refusal under this Section 5.1 shall be
for a period of two (2) years following the Initial Tranche Closing Date.
5.2 In the event that the Company wishes to undertake a transaction
described in this Section 5, the Company must send Agent a written notice of the
proposed transaction (whether the transaction is initiated by the Company or is
offered to the Company by a third party), in sufficient specificity to allow the
Agent to understand the proposed transaction clearly. This notice must be
delivered to Agent at least twenty (20) days prior to the proposed closing of
the transaction. The Agent shall have fifteen (15) days from receipt of that
notice to determine whether or not it wishes to exercise its right of first
refusal with respect to that transaction. The Agent shall notify the Company in
writing of its decision to exercise or waive its right of first refusal with
respect to the transaction described in the notice. If the Agent waives its
right of first refusal with respect to a particular transaction, the Company may
proceed with that transaction; provided, however, that if prior to any Closing
in the proposed transaction the terms of the transaction are changed in any
material way from the terms set forth in the notice to the Agent, the Agent's
night of first refusal shall commence again. Agent's waiver of its rights of its
rights of first refusal with respect to any specific transaction shall not act
as a waiver of its rights with respect to future transactions within the
applicable time period.
5.3 In the event that Company breaches Section 5.1 of this Agreement,
Agent shall be entitled to receive compensation based upon the aggregate
purchase price of securities placed in such transaction in an amount calculated
pursuant to Section 3.4 hereof, excluding, however, all amounts designated as
Non-Accountable Expense Allowances.
6. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Agent that:
6.1 After the date hereof, the Company will not at any time, prepare and
distribute any amendment or supplement to the Offering Documents, of which
amendment or supplement the Agent shall not previously have been advised and the
Agent and its counsel furnished with a copy within a reasonable time period
prior to the proposed adoption thereof, or to which the Agent shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the Rules and Regulations (if applicable).
6.2 The Company will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all costs and expenses incident to the performance of its
obligations under this Agreement, including all expenses incident to the
authorization of the Securities and their issue and delivery to the Agent, any
original issue taxes in connection therewith, all transfer taxes, if any,
incident to the initial sale of the Securities, the fees and expenses of the
Company's counsel (except as provided below) and accountants, the cost of
reproduction and furnishing to the Agent copies of the Offering Documents as
herein provided; provided, however, that the Company shall not be responsible
for the direct payment of fees and costs incurred by Agent, including attorney's
fees of or any costs incurred by the Agent's counsel.
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<PAGE> 8
6.3 As a condition precedent to the Initial Tranche Closing, the Company
will deliver to the Agent a true and correct copy of all documents requested by
Agent included in Agent's due diligence request, including but not limited to
the Certificate of Incorporation of the Company, and all amendments and
certificates of designation of preferences of preferred stock, certified by the
Secretary of State of the State of Delaware.
6.4 Prior to the Closing Date, the Company will cooperate with the Agent
in such investigation as it may make or cause to be made of all of the
properties, business and operations of the Company in connection with the
Offering of the Securities. The Company will make available to it in correction
therewith such information in its possession as the Agent may reasonably request
and will make available to the Agent such persons as the Agent shall deem
reasonably necessary and appropriate in order to verify or substantiate any such
information so supplied.
6.5 The Company shall be responsible for making any and all filings
required by the Blue Sky authorities of the State of Delaware and filings
required by the laws of the jurisdictions in which the Subscribers who are
accepted for purchase of Securities are located, if any.
6.6 The Company shall, at its next annual shareholder meeting, to be
held no later than October 31, 1998, use its best efforts to obtain approval of
its shareholders to authorize (i) the issuance of the full number of shares of
Common Stock which would be issuable pursuant to the Subscription Agreement but
for the Cap Amount, as defined in the Subscripton Agreement, and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Shareholder 20% Approval").
7. NON-CIRCUMVENTION & CONFIDENTIALITY OF PROPRIETARY AGENT INFORMATION.
7.1 Non-Circumvention. The investors who participate in the Offering and
the other investors who are listed on the schedule attached hereto as Exhibit B
shall be considered, for purposes of this Agreement, the property of Agent. The
Company on behalf of itself, its parent or its subsidiaries (collectively
hereinafter referred to as "Company") agree not to circumvent, directly or
indirectly, Agent's relationship with these investors, their parents or any of
the investors' subsidiaries or affiliates (collectively hereinafter referred to
as "Investors") and Company will not directly or indirectly contact or negotiate
with any of these Investors regarding an investment in the Company, or any other
company, and will not enter into any agreement or transaction with Investors, or
disclose the names of Investors, except as such disclosure may be required by
any law, rule, regulation, regulatory body, court or administrative agency, for
a period of time beginning on the date hereof and ending on the date that is two
(2) years after the Initial Tranche Closing Date without the prior written
approval of Agent; provided, however, that notwithstanding the above, nothing
contained in this Agreement shall prevent Company from directly or indirectly,
selling securities to the Investors through a public offering or from, directly
or indirectly, contacting or negotiating with the Investors in satisfaction of
Company's obligations under the Subscription Agreements entered into in
connection herewith. In the event that the Company, with Swartz's advance
written permission accepts an investment (a "Subsequent Investment") from an
Investor or Investors (other than in a public offering) in a placement being
arranged without an agent or through an agent other than the Agent during the
period beginning on the date hereof and terminating on the second (2nd)
anniversary of the Initial Tranche Closing Date as described in the Subscription
Agreement, the Company agrees to pay to the Agent a fee equal to six percent
(6%) of all amounts invested by such Investor(s). In the event that the Company
accepts a Subsequent Investment without Swartz's
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<PAGE> 9
advance written permission, the Company agrees to pay to the Agent a fee equal
to eight percent (8%) of all amounts invested by such Investor(s).
Any Class B investor, from the previous Swartz placement are subject to
the Original Non-circumvent Agreement between Company and Swartz, dated December
27, 1995. Class B investors are listed on the schedule attached hereto as
Exhibit C.
7.2 Specific Performance and Attorney's Fees. The Company acknowledges
and agrees that, if it breaches its obligations under Sections 7.1, damages at
law will be an insufficient remedy to Agent and that Agent would suffer
irreparable damage as a result of such violation. Accordingly, it is agreed that
Agent shall be entitled, upon application to a court of competent jurisdiction,
to obtain injunctive relief against the breaching party to enforce the
provisions of such sections, which injunctive relief shall be in addition to any
other rights or remedies available to Agent. The Company agrees to pay to Agent
(severally and not jointly) all costs and expenses incurred by Agent relating to
the enforcement of the terms of Sections 7.1 hereof due to its own actions,
whether by injunction, a suit for damages or both, including reasonable fees and
disbursements of counsel (both at trial and in appellate proceedings).
8. INDEMNIFICATION.
8.1 The Company agrees to indemnify and hold harmless the Agent, each
person who controls the Agent within the meaning of Section 15 of the Act and
the Agent's employees, accountants, attorneys and agents (the "Agent's
Indemnitees") against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act or the
'34 Act or any other statute or at common law and for any reasonable legal or
other expenses (including the costs of any investigation and preparation)
incurred by them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities and
litigation arise out of or are based upon (i) the Company's breach of its
obligations under the Subscription Agreement to deliver shares of Common Stock
to a Subscriber upon submission by Subscriber of the required documentation, or
(ii) any untrue statement of material fact contained in the Offering Documents
or any amendment or supplement thereto or any application or other document
filed in any state or jurisdiction in order to qualify the Securities under the
Blue Sky or securities laws thereof, or the omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
under the circumstances under which they were made, not misleading, all as of
the date of the Offering Documents or of such amendment as the case may be, or
(iii) any breach of any representation, warranty or covenant made by the Company
in this Agreement, provided, however, that the indemnity agreement contained in
this Section 8.1 shall not apply to amounts paid in settlement of any such
litigation, if such settlements are made without the consent of the Company (but
no such settlement may be made without the Company's prior written consent,
which consent shall not be unreasonably withheld), nor shall it apply to the
Agent's Indemnitees in respect to any such losses, claims, damages or
liabilities arising out of or based upon any such untrue statement or alleged
untrue statement or any such omission or alleged omission, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Agent specifically for use in connection with the preparation of
the Offering Documents or any such amendment or supplement thereto or any
application or other document filed in any state or jurisdiction in order to
qualify the Securities under the Blue Sky or securities law thereof. This
indemnify agreement is in addition to any other liability which the Company may
otherwise have to the Agent's Indemnitees. The Agent's Indemnitees agree, within
ten (10) days after the receipt by them of written notice of the commencement of
any action against them in respect to which indemnify may be sought from the
Company under this Section 8.1, to notify the Company in writing of the
commencement of such action; provided, however, that the failure of the Agent's
Indemnitees to notify the Company of any such action shall not relieve the
Company from any liability which it may have to the Agent's Indemnitees on
account of the
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<PAGE> 10
indemnity agreement contained in this Section 8.1, except with respect to any
failure which irreparably prejudices the Company or causes an event of
adjudication materially adverse to the Company. The Company shall not be
relieved from any other liability which it may have to the Agent's Indemnitees,
and if the Agent's Indemnitees shall notify the Company of the commencement
thereof, the Company shall be entitled to participate in (and, to the extent
that the Company shall wish, to direct) the defense thereof at its own expense,
but such defense shall be conducted by counsel of recognized standing and
reasonably satisfactory to the Agent's Indemnitees, defendant or defendants, in
such litigation. The Company agrees to notify the Agent's Indemnitees promptly
of the commencement of any litigation or proceedings against the Company or any
of the Company's officers or directors of which the Company may be advised in
connection with the issue and sale of any of the Securities and to furnish to
the Agent's Indemnitees, at their request, copies of all pleadings therein and
to permit the Agent's Indemnitees to be observers therein and apprise the
Agent's Indemnitees of all developments therein, all at the Company's expense.
8.2 With the exception provided below as to limitations of indemnity,
the Agent agrees, in the same manner and to the same extent as set forth in
Section 8.1 above, to indemnify and hold harmless the Company, and the Company's
and Company's directors, officers, employees, accountants, attorneys and agents
(the "Company's Indemnitees") with respect to (i) any statement in or omission
from the Offering Documents or any amendment or supplement thereto or any
application or other document filed by the Company in any state or jurisdiction
in order for the Company to qualify, the Securities under the Blue Sky or
securities laws thereof, or any information furnished pursuant to Section 2.4
hereof, if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Agent in a document executed by Agent
on its behalf specifically for use in connection with the preparation thereof or
supplement thereto, or (ii) any untrue statement of a material fact made by the
Agent or its agents not based on statements in the Offering Documents or
authorized in writing by the Company, or with respect to any misleading
statement made by the Agent or its agents resulting from the omission of
material facts which misleading statement is not based upon the Offering
Documents, and any documents filed with public or governmental authorities or
agencies, and any public press releases or information furnished in writing by
the Company or, (iii) any breach of any representation, warranty or covenant
made by the Agent in this Agreement. The Agent shall not be liable for amounts
paid in settlement of any such litigation if such settlement was effected
without its consent. In case of the commencement of any action in respect of
which indemnity may be sought from the Agent, the Company's Indemnitees shall
have the same obligation to have notice as set forth in Section 8.1 above,
subject to the same loss of indemnity in the event such notice is not given, and
the Agent shall have the same night to participate in (and, to the extent that
it shall wish, to direct) the defense of such action at its own expense, but
such defense shall be conducted by counsel of recognized standing reasonably
satisfactory to the Company. The Agent agrees to notify the Company's
Indemnitees, at their request, and to provide copies of all pleadings therein
and to permit the Company's Indemnitees to be observers therein and appraise
them of all the developments therein, all at the Agent's expense. As to Damages,
Company recognizes that since it is receiving the net proceeds of the monies
generated by this placement, that indemnity, if any, to be paid by the Placement
Agent to the Company shall be strictly limited to the Placement Agent's Cash
Fee, inclusive of attorney fees and costs of arbitration and/or court
proceedings.
9. LIQUIDATION DAMAGES.
Company and Agent both acknowledge that it would be extremely
impractical and difficult to ascertain the actual damages to be suffered by
Company if Agent is found by an arbitrator or a court of competent jurisdiction
to have breached any of the representations, warranties and covenants contained
in Section 13 of this instrument. Accordingly, should a breach of the
representations of Section 13 be proven and Agent found liable for said breach,
Company and Agent hereby agree that the damages shall be limited to an amount
equal to the Cash Placement Fee received by Agent pursuant to Section 3.4 of
this Agreement plus the return to the
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<PAGE> 11
Company of the Agent Securities received by Agent pursuant to Section 3.4 of
this Agreement (or, to the extent that the Agent Securities have already been
sold by Agent, the value, as defined below, of the Agent Securities), inclusive
of all attorney's fees and cost of court. For purposes hereof, the value of the
Agent Common Stock shall be deemed to equal the lesser of (i) the aggregate
Share Price of any Agent Common Stock issued to Agent or (ii) the market value
of such Agent Common Stock on the date that such shares were sold by Agent, and
in either case, the Agent may return such Agent Common Stock to the Company in
lieu of any payment, as to the value of such Agent Securities, for damages
pursuant to this Section. For purposes hereof, the value of each Warrant issued
to Agent which has been exercised by Agent shall be the difference of (i) the
market value of the Common Stock received upon such exercise on the date that
such shares were sold by Agent, minus (ii) the Exercise Price of such Warrant.
This provision is not to be construed as a penalty, but as full liquidated
damages under Georgia law.
10. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective (i) at 9:00 A.M., Atlanta, Georgia
time, on the date hereof or (ii) upon release by the Agent of the Securities for
offering after the date hereof, whichever occurs first. The Agent agrees to
notify the Company immediately after the Agent shall have taken any action by
such release or otherwise wherein this Agreement shall have become effective.
11. CONDITIONS OF THE AGENT'S OBLIGATIONS.
The Agent's obligations to act as agent of the Company hereunder and to
find purchasers for the Securities shall be subject to the accuracy, as of the
Closing Date, of the representations and warranties on the part of the Company
herein contained, to the fulfillment of or compliance by the Company with all
covenants and conditions hereof, and to the following additional conditions:
11.1 Counsel to the Agent shall not have objected in writing or shall
not have failed to give his consent to the Offering Documents (which objection
or failure to give consent shall not have been done unreasonably).
11.2 The Agent shall not have disclosed to the Company that the Offering
Documents, or any amendment thereof or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel to the Agent, is material,
or omits to state a fact which, in the opinion of such counsel, is material and
is required to be stated therein, or is necessary to make the statements
therein, under the circumstances in which they were made, not misleading.
11.3 Between the date hereof and the Closing Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or any other cause of such character as would materially adversely affect its
business or property considered as an entire entity, whether or not such loss is
covered by insurance.
11.4 Except as set forth in the Disclosure Documents to the Subscripton
Agreement, during the time period between the date hereof and the Initial
Tranche Closing Date, there shall be no litigation instituted or threatened
against the Company, and there shall be no proceeding instituted or threatened
against the Company before or by any federal or state commission, regulatory
body or administrative agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding would materially adversely
affect the business, franchises, license, permits, operations or financial
condition or income of the Company considered as an entity.
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<PAGE> 12
11.5 Except as contemplated herein or as set forth in the Offering
Documents, during the period subsequent to the most recent financial statements
contained in the Offering Documents, if any, and prior to the Initial Tranche
Closing Date, the Company (i) shall have conducted its business in all material
respects in the usual and ordinary manner as the same is being conducted as of
the date hereof and (ii) except in the ordinary course of business, the Company
shall not have incurred any liabilities or obligations (direct or contingent) or
disposed of any assets, or entered into any material transaction or suffered or
experienced any substantially adverse change in its condition, financial or
otherwise. At the Closing Date, the equity account of the Company shall be
substantially the same as reflected in the most recent balance sheet contained
in the Offering Documents except for reductions for matters discussed in the
Subscription Agreements and without considering the proceeds from the sale of
the Securities other than as may be set forth in the Offering Documents.
11.6 The authorization of the Securities by the Company and all
proceedings and other legal matters hereto and to this Agreement shall be
reasonably satisfactory in all material respects matters to counsel to the
Agent, who shall have furnished the Agent on the Closing Date with such
favorable opinion with respect to the sufficiency of all corporate proceedings
and other legal matters relating to this Agreement as the Agent may reasonably
require, and the Company shall have furnished such counsel such documents as he
may have requested to enable him to pass upon the matters referred to in this
subparagraph.
11.7 The Company shall have furnished to the Agent the opinion, dated
the Closing Date, addressed to the Agent, from counsel to the Company, as
required by the Subscription Agreement in substantially the form attached to the
Subscription Agreement as Exhibit D.
11.8 The Company shall have furnished to the Agent a due diligence back
up certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company (a copy of which is attached hereto as Exhibit C), dated
as of the Closing Date, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects at and as of the Closing
Date (other than representations and warranties which by their terms are
specifically limited to a date other than the Closing Date), and the Company has
complied with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date;
(ii) the Company has carefully examined the Offering Documents, and
any amendments and supplements thereto, and, to the best of its knowledge, all
statements contained in the Offering Documents, and any amendments and
supplements thereto, are true and correct, and neither the Offering Documents,
nor any amendment or supplement thereto, includes any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein under the circumstances in which they
were made not misleading, and since the date hereof, there has occurred no event
required to be set forth in an amended or supplemented Offering Documents, which
has not been set forth; except as set forth in the Offering Documents, since the
respective dates as of which the periods for which the information is given in
the Offering Documents and prior to the date of such certificate, (a) there has
not been any material adverse change, financial and otherwise, in the affairs of
condition of the Company, and (b) except as disclosed in the Offering Documents,
the Company has not incurred any material liabilities, direct or contingent or
entered into any material transactions, otherwise than in the ordinary course of
business; and
(iii) the Company has provided true and correct copies of all
documents in its possession or which it could obtain that were requested by
Agent pursuant to any due diligence inquiry.
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<PAGE> 13
12. TERMINATION.
12.1 This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to comply
with any of the material terms, conditions or provisions of this Agreement on
the part of the Company to be performed, complied with fulfilled within the
respective times, if any, herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Agent in writing. However, if any material breach by Company can be cured within
ten (10) business days, Agent shall provide Company such reasonable period to
cure.
12.2 This Agreement may be terminated by the Company by notice to the
Agent in the event that the Agent shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Agent to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Company in
writing. However, if any material breach by Agent can be cured within ten (10)
business days, Company shall provide Agent such ten (10) business days to cure.
12.3 This Agreement may be terminated by the Agent by notice to the
Company at any time, if, in the reasonable, good faith judgment of the Agent,
payment for and delivery of the Securities is rendered impracticable or
inadvisable because: (i) additional material governmental restrictions not in
force and effect on the date hereof shall have been imposed upon trading in
securities generally, (ii) a war or other national calamity shall have occurred,
or (iii) the condition of the market (either generally or with reference to the
sale of the Securities to be offered hereby) or the condition of any matter
affecting the Company or any other circumstance is such that it would be
undesirable, impracticable or inadvisable, in the judgment of the Agent, to
proceed with this Agreement or with the Offering.
12.4 Any termination of this Agreement pursuant to this Section 12 shall
be without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that the Company shall remain obligated to pay the costs and expenses
provided to be paid by it specified in Sections 3 and 5; and the Company and the
Agent shall be obligated to pay, respectively, all losses, claims, damages or
liabilities, joint or several, under Section 8.1 in the case of the Company and
Section 8.2 in the case of the Agent.
13. AGENT'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agent represents
and warrants to and agrees with the Company that:
13.1 The Placement Agent is a limited liability company duly organized
and existing under the laws of the state of Georgia. The Placement Agent is an
OSJ branch office of Dunwoody 91 Brokerage Services, Inc., a licensed NASD
broker-dealer, and a member of SIPC.
13.2 There is not now pending or threatened or to the Agent's knowledge,
contemplated against the Agent any action or proceeding of which the Agent has
been advised, either in any court of competent jurisdiction, before the
Commission or before any state securities commission or the NASD, concerning the
Agent's activities which would impair the ability of the Agent to conduct the
Offering as contemplated by this Agreement.
13.3 In the event any action or proceeding of the type referred to
Section 13.2 above shall in be instituted or threatened against the Agent at any
time prior to the Closing Date or, in the event there shall be filed by or
against the Agent in any court, pursuant to any federal, state, local or
municipal statute, a petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of its assets
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<PAGE> 14
or if the Agent makes an assignment for the benefit of creditors, the Company
shall have the right, on three (3) days' written notice to the Agent, to
terminate this Agreement without any liability to the Agent of any kind, except
for the payment of all expenses provided herein.
13.4 Agent understands and acknowledges that prior to issuance, the
Securities are not being registered under the Act, and that the Offering is to
be conducted pursuant to Regulation D under the Securities Act of 1933, as
amended, (the "Act"). Accordingly, in conducting its activities under this
Agreement.
(a) Agent has not offered or sold and will not offer or sell any
Securities to any investor which Agent does have reasonable grounds to believe,
or does not believe, is an "Accredited Investor," within the meaning of
Regulation D under the Act.
(b) Agent has not offered or sold and will not offer or sell any
Securities by means of any form of general solicitation or general advertising,
including, but not limited to, the following:
(1) any advertisement article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio; and
(2) any seminar or meeting whose attendees have been invited by
any general solicitation or general advertising.
(c) Agent will not solicit or accept the subscription of any person
unless immediately before accepting such subscription Agent has reasonable
grounds to believe and does believe that (i) such person is an Accredited
Investor and (ii) all representations made and information furnished by such
person in the Subscription Agreement and related documents are true and correct
in all material respects.
(d) Agent will not solicit any purchasers of any Securities unless
the Offering Documents are furnished to such prospective purchaser.
(e) Upon notice from the Company that the Offering Documents are
required to be amended or supplemented, Agent will immediately cease use of the
Offering Documents until Agent has received such amendment or supplement and
thereafter will make use of the Offering Documents only as so amended or
supplemented, and Agent will deliver a copy of such amendment or supplement to
each prospective investor to whom a copy of the Offering Documents had
previously been delivered (and who has not returned such copy).
(f) Agent will use its best efforts to conduct the offering of the
Securities in a manner that will allow the availability of the private offering
exemption from federal securities regulation provided by Regulation D
promulgated under the Securities Act of 1933, as amended.
(g) Agent will notify the Company in writing promptly when any
event shall have occurred during the Offering Period as a result of which any
representation or warranty of the Agent herein would not be true.
13.5 Neither the Agent nor any of its Affiliates will take any action
which will impair the effectiveness of the transactions contemplated by this
Agreement.
13.6 All corporate actions by Agent required for the execution, delivery
and performance of this Agreement have been taken. The execution and delivery of
this Agreement by the Agent, the observance and
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<PAGE> 15
performance thereof, and the consummation of the transactions contemplated
herein or in the Offering Documents do not and will not constitute a material
breach of, or a material default under, any instrument or agreement by which the
Agent is bound, and does not and will not, to the best of the Agent's knowledge,
contravene any existing law, decree or order applicable to it. This Agreement
constitutes a valid and binding agreement of Agent, enforceable in accordance
with its terms.
13.7 Agent understands that the Company is relying upon Agent's
representations and warranties in connection with the Offering and the sale of
the Securities contemplated by this Agreement.
13.8 Agent's representations and warranties under this Section 13 shall
be true and correct as of the Closing, and shall survive the Closing
indefinitely.
13.9 Upon closing of the Offering and with the Company's prior written
approval for each such service to be provided, Placement Agent agrees to provide
the following services (the "PLUS Package Aftermarket Services") for a period of
one (1) year following the Initial Tranche Closing Date of the Offering (service
may be provided for periods following one (1) year subject to subsequent
agreement between Company and Placement Agent).
(1) Analyst Coverage and Reporting
Placement Agent's analyst will prepare a full-scale
research report ("Analyst Report") on the Company
which is expected to include the following:
- Company's Technology
- Company's Target Market
- Industry overview
- Business plan & strategy
- Competitors
- Current contracts
- 3rd Party Partners
- Company Management and Board
The Analyst Report will be prepared following the
Offering and will be updated at least quarterly
thereafter.
(2) Identification of Target Institutions to Distribute
Analyst Coverage.
Placement Agent will identify a minimum of twenty
five (25) institutional buy-side equity investors
(together with the private equity investors in the
Offering, referred to as the "Target Affinity
Group") which have orientation toward the Company's
specific industry and/or small capitalization equity
securities. Placement Agent will contact the
institutional investment manager of each member of
the Target Affinity Group and use its best efforts
to get each to agree to participate in the "PLUS"
program. Placement Agent will thereafter distribute
its Analyst Report to the participating Target
Affinity Group, including all Analyst Report
updates.
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<PAGE> 16
(3) Quarterly Institutional Conference Calls.
Placement Agent will arrange and conduct Quarterly
(post earnings) conference calls between the Target
Affinity Group and the Company regarding the
Company's progress and future prospects. Placement
Agent will bear the telephone expense of such
conference calls.
(4) Annual Investor Conference.
Placement Agent will arrange and conduct a New York
based investor conference to highlight the Company
to the Target Affinity Group and other institutional
equity investors who have interest in attending the
Company presentation. The investor conference will
be arranged by Placement Agent approximately twelve
(12) months after the Offering. Placement Agent will
make all arrangements, organize the event, contact
and make invitations to targeted participants and
provide support personnel at the event. The Company
will be responsible for the expenses of all
accommodations and conference facilities as well as
travel and lodging expenses for Company and
Placement Agent personnel during conference.
(5) Competitive/Industry Tracking and Alert Service.
Placement Agent will identify Company's top three
publicly traded competitors and will use reasonable
efforts to provide timely "Fax Alerts" to a person
designated by Company highlighting significant
announcements by competition and of significant
industry related news.
(6) "PLUS -ONLINE" Services.
(i) Internet Site. Placement Agent will, within
three (3) months of the closing of the
Offering, provide an Internet based on-line
system which will provide access to the Target
Affinity Group and others designated by the
Company (as agreed between Placement Agent and
Company) of the following Company related
information:
- Company overview/slideshow presentation
- A full motion video of the Company's overview
- Placement Agent Analyst Report coverage
including quarterly updates
- A chronological archive of the Company's
press releases
- Video/voice Archive of Company's quarterly
earnings conference call presentations
- A full motion video "Virtual Roadshow" or
"Factory Tour"
- 10Q and 10K documents
Placement Agent will bear expense of the
on-line internet system and
uploading/maintenance of all textual and static
graphics materials. Company will bear the
expense and determine the extent of the
full-motion video based presentation material
to be included in the on-line presentations.
(ii) E-mail Connectivity. The on-line internet
system will include electronic functions
between Company management, Placement Agent
personnel and the participating "PLUS" Program
members.
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<PAGE> 17
14. COMPANY ACKNOWLEDGMENT.
14.1 Company understands and acknowledges that each of the Investors, in
their sole discretion, may elect to hold the Securities for various periods of
time, as provided in the Offering Documents, and the Company further
acknowledges that Agent makes no representations or warranties as to how long
the Securities will be held by each Investor or the Investors' trading history
or investment strategies.
14.2 The number of Initial Tranche Reset Shares, as defined in the
Subscription Agreement, that the Company may be obligated to issue on the
Initial Tranche Reset Date, as defined in the Subscription Agreement may
increase substantially in certain circumstances, including the circumstance in
which the trading price of the Common Stock declines. The Company's executive
officers and directors have studied and fully understand the nature of this
Agreement and the Securities being sold hereunder and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded
in its good faith business judgment that such issuance is in the best interests
of the Company.
14.3 Company understands that there is no assurance as to how the market
and/or market makers will respond to the private placement structure.
14.4 Company acknowledges that Agent has not made (either directly or
through any agent or representative) any representations, warranties or
covenants contrary to sections 14.1 through 14.3 and that Agent has disclosed
the risks inherent in the structure of the Offering including, without
limitation, risks associated with the activities contemplated in Sections 14.1
through 14.3.
14.5 Company acknowledges that due to the existence of the reset
provision with respect to the Initial Tranche and the possible issuance of Three
Month Reset Shares and Six Month Reset Shares, an issuance of more than twenty
percent (20%) of the outstanding Common Stock of Company could occur.
14.6 Company acknowledges that this Offering will not be deemed to be
integrated with any prior placement of securities by the Company under Rule 502
of the Securities Act of 1933 or other applicable law.
15. NOTICES. Except as otherwise expressly provided in this Agreement:
15.1 Whenever notice is required by the provisions of this Agreement to
be given to the Company, such notice shall be in writing, addressed to the
Company, at:
If to Company: Attn: Elizabeth Gorbett-Frost
Techniclone Corporation
14282 Franklin Avenue
Tustin, CA 92780
Telephone: 714-508-6000
Facsimile: 714-838-4094
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<PAGE> 18
With a Copy to: Attn: R. C. Shepard
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport-Beach, CA 92660-6441
Telephone: 714-725-4000
Facsimile: 714-725-4100
15.2 Whenever notice is required by the provisions of this Agreement to
be given to the Agent, such notice shall be given in writing, addressed to the
Agent, at:
If to the Agent: Attn: Eric Swartz, President
Swartz Investments, LLC
1080 Holcomb Bridge Road
200 Roswell Sunumt, Suite 285
Roswell, Georgia 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
With a Copy to: Attn: Robert L. Hopkins, President
Dunwoody Brokerage Services, Inc.
8309 Dunwoody Place
Atlanta, Georgia 30350
Telephone: (770) 640-0011
Facsimile: (770) 993-1324
15.3 Any notice instructing the Escrow Agent to distribute monies or
Securities held in Escrow must be signed by authorized agents of both the
Company and the Agent in order to be valid.
16. MISCELLANEOUS.
16.1 Benefit. This Agreement is made solely for the benefit of the Agent
and the Company, their respective officers and directors and any controlling
person referred to in Section 15 of the Act and their respective successors and
assigns, and no other person may acquire or have any night under or by virtue of
this Agreement, including, without limitation, the holders of any Securities.
The term "successor" or the term "successors and assigns" as used in this
Agreement shall not include any purchasers, as such, of any of the Securities.
16.2 Survival. The respective indemnities, agreements, representations,
warranties, covenants and other statements of the Company and the Agent, or the
officers, directors or controlling persons of the Company and the Agent as set
forth in or made pursuant to this Agreement and the indemnity agreements of the
Company and the Agent shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company or the
Agent or any such officer, director or controlling person of the Company or of
the Agent; (ii) delivery of or payment for the Securities; or (iii) the Closing
Date, and any successor of the Company or the Agent or any controlling person,
officer or director thereof, as the case may be, shall be entitled to the
benefits hereof.
16.3 Governing Law, Jurisdiction and Arbitration. The validity,
interpretation and construction of this Agreement and of each party hereof will
be governed by the laws of the State of Delaware. Any controversy or claim
arising out of or related to this Agreement or the breach thereof, shall be
settled by binding
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<PAGE> 19
arbitration in Wilmington, Delaware in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association (AAA). A proceeding shall be commenced upon written demand by
Company or any Holder to the other. The arbitrator(s) shall enter a judgment by
default against any party which fails or refuses to appear in any properly
noticed arbitration proceeding. The proceeding shall be conducted by one (1)
arbitrator, unless the amount alleged to be in dispute exceeds two hundred fifty
thousand dollars ($250,000), in which case three (3) arbitrators shall preside.
The arbitrator(s) will be chosen by the parties from a list provided by the AAA,
and if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of parties' respective positions
in the issues in dispute. The award of the arbitrator(s) shall be final and
binding upon the parties and may be enforced in any court having jurisdiction.
The arbitration shall be held in such place as set by the arbitrator(s) in
accordance with Rule 55.
16.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
16.5 Confidential Information. All confidential financial or business
information (except publicly available or freely usable material otherwise
obtained from another source) respecting either party will be used solely by the
other party in connection with the within transactions, be revealed only to
employees or contractors of such other party who are necessary to the conduct of
such transactions, and be otherwise held in strict confidence.
16.6 Public Announcements. Neither party hereto will issue any public
announcement concerning the within transactions without the review and comment
of the other party. The Agent shall have the right to review and comment upon
any press release issued by the Company in connection with the Offering.
16.7 Finders. Company represents that it is not obligated to pay any
compensation or other fees, costs or related expenditures in cash or securities
in excess of $200,000 to any underwriter, broker, agent, finder or other
representative other than Agent. Company agrees to indemnify the Agent with
respect to any other claim for a fee in connection with the Offering. Agent
agrees to indemnify the Company with respect to any claim for a finder's fee
which arises because of Agent's agreement to pay a fee to the person or entity
making such claim.
16.8 Recitals. The recitals to this Agreement are a material part
hereof, and each recital Is incorporated into this Agreement by reference and
made a part of this Agreement.
17. ESCROW AGENT FEES.
The Placement Agent hereby agrees to pay the Escrow Agent for the
opening of the Escrow Account plus incidental expenses (to be paid out of moneys
will wired into escrow) for all ordinary services rendered (the "Escrow Fee")
pursuant to that certain Escrow Agreement and Instructions (the "Escrow
Agreement"), of even date herewith, by and between the Company, each Subscriber
and the Escrow Agent. The Placement Agent and Company further agree to pay the
Escrow Agent reasonable fees, which shall be agreed upon between the parties,
for any services in addition to those provided for pursuant to the Escrow
Agreement to the extent that the Placement Agent or the Company, respectively,
has expressly requested such extraordinary services and has been made aware of
their cost in advance of their performance.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have duly caused this Placement
Agent Agreement to be executed as of the day and year first above written.
"THE COMPANY"
TECHNICLONE CORPORATION
By: /s/ Elizabeth Gorbett-Frost
----------------------------------------
Elizabeth Gorbett-Frost, CFO
"THE AGENT"
SWARTZ INVESTMENTS, LLC
d/b/a SWARTZ INSTITUTIONAL FINANCE
By: /s/ Eric S. Swartz
----------------------------------------
Eric S. Swartz, President
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<PAGE> 1
EXHIBIT 4.15
SECOND AMENDMENT
TO
REGULATION D COMMON STOCK EQUITY LINE SUBSCRIPTION AGREEMENT
THIS SECOND AMENDMENT TO REGULATION D COMMON STOCK EQUITY LINE
SUBSCRIPTION AGREEMENT (this "Second Amendment") is entered into as of September
16, 1998, by and among Techniclone Corporation, a corporation duly incorporated
and existing under the laws of the State of Delaware (the "Company"), The Tail
Wind Fund, Ltd. and Resonance Limited (hereinafter referred to, individually, as
a "Subscriber" and, collectively, as the "Subscribers").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Twenty
Million Dollars ($20,000,000), excluding Warrants, of Common Stock of the
Company pursuant to that certain Regulation D Common Stock Equity Line
Subscription Agreement, dated June 16, 1998 between the Company and the
Subscribers, as amended by that certain Amendment to Regulation D Common Stock
Equity Line Subscription Agreement dated as of June 19, 1998 (as so amended,
(the "Subscription Agreement"), the Company has agreed to sell and the
Subscribers have agreed to purchase, from time to time, as provided in the
Subscription Agreement, shares of the Company's Common Stock (the "Equity Line
Shares") for a maximum aggregate offering amount of Twenty Million Dollars
($20,000,000) and the Company has agreed to issue to the Subscribers, from time
to time, warrants to purchase a number of shares of Common Stock, exercisable
through December 31, 2004 (the "Subscriber Warrants"); and
WHEREAS, the Subscribers have agreed to certain concessions in
connection with the registration under the Securities Act of 1933, as amended,
of the Equity Line Shares and the shares underlying the Subscriber Warrants and,
in consideration thereof, the Company has agreed to amend certain terms of the
Subscription Agreement as set forth herein.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this Second
Amendment and in the Subscription Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Amendment of Section 2.3.1. The Company and the Subscribers hereby
agree and amend Section 2.3.1 of the Subscription Agreement by deleting
subsection (d) thereof in its entirety and inserting in its place the following
new subsection (d):
'(d) The "Call Share Price" shall equal (i) eighty-two and
one-half percent (82.5%) of the Market Price on the Call Date or (ii) if
eighty-two and one-half percent of the Market Price on the Call Date results in
a discount of less than twenty cents ($0.20) per share from such Market Price,
such Market Price minus twenty cents ($0.20).'
<PAGE> 2
2. Amendment of Section 2.3.3. The Company and the Subscribers hereby
agree and amend Section 2.3.3 of the Subscription Agreement by deleting the
phrase "provided, however, if the Company does not deliver the certificate or
certificates representing the Call Shares on or before the Company Due Date,
then the Call Share Price for such Call for Proceeds shall be reset to equal
eighty five percent (85%) of the lower of the (i) the Market Price on the Call
Date, or (ii) the lowest Closing Bid Price on any Trading Day from the Call Date
until the date immediately preceding the date that the Company delivers the
certificate or certificates representing all of the Call Shares to the Escrow
Agent, including any additional shares required to be issued based upon such
reset of the Call Share Price, if applicable;" set forth therein and inserting
in its place the following phrase "provided, however, if the Company does not
deliver the certificate or certificates representing the Call Shares on or
before the Company Due Date, then the Call Share Price for such Call for
Proceeds shall be reset to equal the lower of (A) eighty-two and one-half
percent (82.5%) of the lower of the (i) the Market Price on the Call Date, or
(ii) the lowest Closing Bid Price on any Trading Day from the Call Date until
the date immediately preceding the date that the Company delivers the
certificate or certificates representing all of the Call Shares to the Escrow
Agent, including any additional shares required to be issued based upon such
reset of the Call Share Price, if applicable, or (B) the lower of (i) the Market
Price on the Call Date, or (ii) the lowest Closing Bid Price on any Trading Day
from the Call Date until the date immediately preceding the date that the
Company delivers the certificate or certificates representing all of the Call
Shares to the Escrow Agent, including any additional shares required to be
issued based upon such reset of the Call Share Price, if applicable, minus
twenty cents ($0.20);"
[The remainder of this page is intentionally left blank]
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<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 16th day of September, 1998.
TECHNICLONE CORPORATION
By: /s/ Elizabeth Gorbett-Frost
--------------------------------
Elizabeth Gorbett-Frost, CFO
Address: Techniclone Corporation
14282 Franklin Avenue
Tustin, CA 92780
Telephone No. (714) 508-6000
Facsimile No. (714) 838-4094
THE TAIL WIND FUND, LTD.
By: /s/ Jason McCarroll
/s/ Mizpah A. Albury
--------------------------------
Name: BRIGHTON HOLDINGS LIMITED
Title: AS SOLE DIRECTOR
Address: The Tail Wind Fund, Ltd.
Windermere House
404 East Bay Street
P.O. Box SS-5539
Nassau, Bahamas
Telephone No. (011) 44-171-468-7660
Facsimile No. (011) 44-171-468-7657
RESONANCE LIMITED
By: /s/ M. Mandel
--------------------------------
Name: M. Mandel
Title: Pres.
Address: Resonance Limited
c/o Isac Securities
310 Madison Avenue, Suite 503
New York, NY 10017
Telephone No. (212) 692-9577
Facsimile No. (212) 692-9598
<PAGE> 1
EXHIBIT 5
September 18, 1998
Techniclone Corporation
14282 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:
We are rendering this opinion in connection with the Registration Statement
on Form S-3 (the "Registration Statement"), filed by Techniclone Corporation
(the "Company") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, on September 18, 1998. The Registration Statement
relates to the resale of up to 3,023,998 shares of common stock, $.001 par value
(the "Common Stock"), of the Company by the holders thereof named therein (the
"Shares"). Initially capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned to such terms 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 and issuance of the
securities in the manner set forth in the Registration Statement. We have
examined such documents as we consider necessary to render this opinion. 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 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 Shares have been duly authorized, the
Institutional Investor Shares and the Placement Agent Shares have been validly
issued, are fully paid and nonassessable and the Shares issuable upon exercise
of the Warrants, when issued by the Company upon receipt of payment therefor (to
the extent required by the terms of such Warrants), 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 hereby consent to the filing of 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.
Sincerely,
/s/ Rutan & Tucker, LLP
-----------------------------
RUTAN & TUCKER, LLP
<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 June 15, 1998, except
for Note 12, as to which the date is July 17, 1998 (which expresses an
unqualified opinion and includes an explanatory paragraph regarding substantial
doubt about the Company's ability to continue as a going concern), appearing in
the Annual Report on Form 10-K of Techniclone Corporation for the year ended
April 30, 1998 and to the reference to us under the heading "Experts" in the
Prospectus, which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
September 17, 1998
