<PAGE>
As filed with the Securities and Exchange Commission on March 5, 1999
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)
WITH COPIES TO:
LARRY O. BYMASTER THOMAS J. CRANE, ESQ.
14282 FRANKLIN AVENUE, KENT M. CLAYTON, ESQ.
TUSTIN, CALIFORNIA 92780-7017 RUTAN & TUCKER, LLP
(714) 508-6000 611 ANTON BLVD.
(Name, address, including zip code, and telephone SUITE 1400
number, including area code, of agent for service) 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. | |
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $95,032,000 as of February 24, 1999, based upon
the price at which such stock was last sold in the principal market for such
stock as of such date.
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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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 REGIS-
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) TRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par 525,020 $1.17 $614,274 $182
value (3)
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Shares of Common Stock, 25,454 $1.375 $35,000 $11
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (4)
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Shares of Common Stock, 26,086 $1.17 $30,521 $9
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 95,454 $1.17 $111,682 $33
value (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 1,781,250 $1.17 $2,084,063 $615
value (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock, 178,125 $1.17 $208,407 $62
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (7)
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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 February 26, 1999, which was $1.17
per share and, with respect to shares of Common Stock of the Company
issuable upon exercise of outstanding warrants, the higher of (i) such
average sales price or (ii) the exercise price of such warrants.
(3) Represents shares of Common Stock issued to Dunwoody Brokerage Services,
Inc. (the "Registered Stockholder").
(4) Represents shares of Common Stock issuable to the Registered Stockholder
upon exercise of outstanding warrants issued to the Registered Stockholder
pursuant to the terms of a Placement Agent Agreement dated as of June 16,
1998 by and between the Company and the Registered Stockholder, as
successor in interest to Swartz Investments LLC, a Georgia limited
liability company d/b/a Swartz Institutional Finance (the "Placement Agent
Agreement"), in connection with the issuance of shares of Common Stock to
two institutional investors (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, supplemented and otherwise modified,
the "Equity Line Agreement"), by and between the Company and the
Institutional Investors.
(5) Represents shares of Common Stock that may be issued to the Registered
Stockholder on April 15, 1999 and July 15, 1999 (each such date, an
"Adjustment Date") pursuant to the terms of the Equity Line Agreement upon
adjustment of the purchase price for the initial shares of Common Stock
purchased by the Institutional Investors in June 1998 (the "Adjustment
Shares"), based on a reasonable estimate of a potential 10-day low closing
bid price immediately preceding such Adjustment Date (estimated solely for
purposes of this registration statement to be not less than $1.00 per share
of Common Stock, which allows the Company to sell the maximum number of
shares to the Institutional Investors under the terms of the Equity Line
Agreement). In the event the number of shares registered hereby to be
issued to the Registered Stockholder in connection with the issuance of the
Adjustment Shares to the Institutional Investors is insufficient, the
Company will use other shares registered hereby for the purpose of
satisfying its obligations under the Placement Agent Agreement and the
Equity Line Agreement to deliver registered shares to the Registered
Stockholder in connection with the issuance of the Adjustment Shares to the
Institutional Investors.
(6) Represents shares of Common Stock issuable to the Registered Stockholder
pursuant to the Placement Agent Agreement and the Equity Line Agreement
equal to 10% of the number of shares issuable to the Institutional
Investors pursuant to the Equity Line Agreement. Upon written notice given
by the Company to the Institutional Investors (the "Notice Date"), no more
than one time during any monthly period until June 16, 2001, the Company
may sell to the Institutional Investors a number of shares 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 lowest
closing bid price during the ten trading days (the "10-day low closing bid
price") immediately preceding such Notice Date (estimated solely for
purposes of this registration statement to be not less than $1.00 per share
of Common Stock, which allows the Company to sell the maximum number of
shares to the Institutional Investors under the terms of the Equity Line
Agreement), 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) (the "Purchase Price"), at a purchase price equal to the Purchase
Price immediately preceding the date on which such shares are sold to the
Institutional Investors; provided, that the number of such shares is
limited to the same number of shares of restricted securities that the
Institutional Investors would otherwise be able to sell pursuant to Rule
144(e) promulgated under the Securities Act, subject to a maximum remaining
dollar amount of $14,250,000 of shares of Common Stock and to certain other
limitations and restrictions (the "Equity Line Shares").
(7) Represents shares of Common Stock issuable to the Placement Agent upon
exercise of outstanding warrants issuable to the Registered Stockholder
pursuant to the Placement Agent Agreement and the Equity Line Agreement.
equal to 10% of the number of shares issuable upon exercise of warrants
issuable to the Institutional Investors pursuant to the Equity Line
Agreement. Pursuant to the terms of the Equity Line Agreement, the Company
is required to issue to the Institutional Investors warrants to purchase a
number of shares of Common Stock equal to 10% of the number of Equity Line
Shares sold to the Institutional Investors at exercise prices equal to the
respective prices per share at which the Equity Line Shares were sold to
the Institutional Investors (the "Equity Line Warrants") and, to the extent
that the relevant minimum aggregate commitment amount under the Equity Line
Agreement is not fully utilized by the Company, shares of Common Stock
issuable to the Institutional Investors upon exercise of warrants to be
issued to the Equity Line Investors on each of June 16, 1999, June 16, 2000
and June 16, 2001, to purchase a number of shares of Common Stock equal to
10% of an amount equal to the difference of the relevant minimum aggregate
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 (estimated solely for purposes of this registration
statement to be not less than $1.00 per share of Common Stock, which allows
the Company to sell the maximum number of Equity Line Shares to the
Institutional Investors under the terms of the Equity Line Agreement), at
an exercise price equal to the 10-day low closing bid price of the Common
Stock immediately preceding such date (the "Anniversary Warrants").
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.
================================================================================
<PAGE>
SUBJECT TO COMPLETION DATED MARCH , 1999
PROSPECTUS
2,631,389 SHARES
[Techniclone TECHNICLONE
Logo CORPORATION
Here]
COMMON STOCK
This Prospectus relates to the resale, from time to time, of up to
2,631,389 shares of Common Stock of Techniclone by the Registered Stockholder
named under "The Registered Stockholder." This Prospectus has been prepared for
the purposes of registering the shares offered by this Prospectus under the
Securities Act of 1933, as amended, to allow for future sales by the Registered
Stockholder to the public without restriction. All or a portion of the shares
offered by this Prospectus may be offered for sale, from time to time, by the
Registered Stockholder for its own benefit, pursuant to this Prospectus, 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 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. See "Plan of Distribution."
Of the 2,631,389 shares of Common Stock offered hereby:
o 525,020 shares are currently issued and outstanding;
o up to 1,781,250 shares may be issued to the Registered
Stockholder pursuant to the terms of a Placement Agent
Agreement dated as of June 16, 1998 with the Registered
Stockholder, as successor in interest to Swartz Investments
LLC, a Georgia limited liability company d/b/a Swartz
Institutional Finance, in connection with the issuance of
shares of Common Stock to two institutional investors pursuant
to the terms of a Regulation D Common Stock Equity Line
Subscription Agreement dated as of June 16, 1998;
o up to an aggregate of 95,454 shares may be issued to the
Registered Stockholder on April 15, 1999 and July 15, 1999
upon adjustment of the purchase price for the initial shares
of Common Stock purchased by the institutional investors in
June 1998, pursuant to the terms of the Equity Line Agreement;
and
o up to 25,454 shares may be issued to the Registered
Stockholder upon exercise of outstanding warrants at an
exercise price of $1.375 per share, up to 26,086 shares may be
issued to the Registered Stockholder upon exercise of
outstanding warrants at an exercise price of $0.8625 per
share, and up to an additional 178,125 shares may be issued to
the Registered Stockholder upon exercise of warrants issuable
to the Registered Stockholder pursuant to the Placement Agent
Agreement. See "The Equity Line Agreement."
The Registered Stockholder is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of the shares of
Common Stock offered hereby. The Registered Stockholder will pay all
commissions, transfer taxes and other expenses associated with the sales of the
shares by it. Techniclone will pay the expenses of the preparation of this
Prospectus. Techniclone has agreed to indemnify the Registered Stockholder
against certain liabilities, including liabilities arising under the Securities
Act of 1933, as amended. Techniclone will not receive any of the proceeds from
the sale of the shares of Common Stock sold by the Registered Stockholder.
Techniclone will not receive any proceeds from the exercise of the warrants
issued or issuable to the Registered Stockholder, which may only be exercised
pursuant to a cashless exercise by the Registered Stockholder. See "Plan of
Distribution."
Techniclone's Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and is listed on The Nasdaq
SmallCap Market under the symbol "TCLN". On February 26, 1999, the last reported
sale price of the Common Stock on The Nasdaq SmallCap Market was $1.16 per
share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS OF
OUR COMPANY" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
March , 1999
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
Incorporation of Certain Documents By Reference ........................ 2
Our Company ............................................................ 4
Risk Factors of Our Company ............................................ 6
The Equity Line Agreement .............................................. 18
Use of Proceeds ....................................................... 20
The Registered Stockholder ............................................ 21
Plan of Distribution .................................................. 22
Description of Securities ............................................. 24
Legal Matters .......................................................... 25
Experts ................................................................ 25
Indemnification of Directors and Officers ............................. 25
Additional Information ................................................. 26
Glossary of Terms ...................................................... 27
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of
this document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have filed with the Securities and
Exchange Commission ("SEC"), are incorporated by this reference into this
Prospectus:
o Annual Report on Form 10-K for the fiscal year ended April 30,
1998, as filed with the SEC on July 29, 1998 pursuant to
Section 13(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act");
o Definitive Proxy Statement with respect to the Annual Meeting
of Stockholders held on October 13, 1998, as filed with the
SEC on August 27, 1998;
o Quarterly Report on Form 10-Q for the quarter ended July 31,
1998, as filed with the SEC on September 14, 1998;
o Quarterly Report on Form 10-Q for the quarter ended October
31, 1998, as filed with the SEC on December 15, 1998;
o Quarterly Report on Form 10-Q for the quarter ended January
31, 1999, as filed with the SEC on March ___, 1999;
o Current Report on Form 8-K, as filed with the SEC on January
7, 1999;
o Current Report on Form 8-K, as filed with the SEC on June 29,
1998;
o Current Report on Form 8-K, as filed with the SEC on March 9,
1998;
2
<PAGE>
o Current Report on Form 8-K, as filed with the SEC on November
24, 1997;
o Current Report on Form 8-K, as filed with the SEC on May 12,
1997, as amended by Form 8-K/A Amendment No. 1 to such Form
8-K as filed with the SEC 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 SEC on October 14, 1997;
o Definitive Proxy Statement with respect to the Annual Meeting
of Stockholders held on April 23, 1998, as filed with the SEC
on March 17, 1998;
o 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; and
o 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 we have filed with the SEC 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 indicating that all securities
offered have been sold (or which re-registers all securities then remaining
unsold), are 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 in a
document incorporated or deemed to be incorporated by reference is deemed to be
modified or superseded to the extent that any statement contained in this
Prospectus, or in any other document we subsequently file with the SEC, modifies
or supersedes such statement. If any statement is so modified or superseded, it
does not constitute a part of this Prospectus, except as so modified or
superseded.
We will provide, without charge, upon written or oral request of any person
to whom a copy of this Prospectus is delivered, 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: Steven C. Burke, Chief Financial Officer, 14282 Franklin Avenue,
Tustin, California 92780-7017, telephone number (714) 508-6000.
3
<PAGE>
OUR COMPANY
OUR DATE OF INCORPORATION AND COMPANY STRUCTURE
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. This
merger was effected for the purpose of effecting a change in our state of
incorporation from California to Delaware and making certain changes in our
charter documents. As used in this Prospectus, the terms "we," "us," "our" and
"the Company" refers to Techniclone Corporation, Techniclone International
Corporation, its former subsidiary, Cancer Biologics Incorporated, which was
merged into the Company on July 26, 1994 and its wholly-owned subsidiary
Peregrine Pharmaceuticals, Inc., a Delaware corporation.
Our principal executive offices are located at 14282 Franklin Avenue,
Tustin, California 92780-7017 and our telephone number is (714) 508-6000.
OUR PRODUCT CANDIDATES
We are engaged in the research, development and commercialization of novel
cancer therapeutics in two principal areas - direct tumor targeting agents for
the treatment of refractory malignant lymphoma and collateral tumor targeting
agents for the treatment of solid tumors.
DIRECT TUMOR TARGETING AGENTS. Our most advanced direct tumor targeting
agent candidate, Oncolym(R), 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 for Oncolym(R) 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, The Medical University of South Carolina, Beth Israel Deaconess Medical
Center-Boston, Cleveland Clinic and University of Miami Hospital. We currently
anticipate adding up to eight additional clinical trial sites for Oncolym(R).
Following the completion of the clinical trials, we expect to file an
application with the United States Food and Drug Administration ("FDA") to
market Oncolym(R) in the United States.
COLLATERAL TUMOR TARGETING AGENTS. Collateral tumor targeting may be
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. Our three leading advanced collateral targeting agents for solid
tumors are Tumor Necrosis Therapy ("TNT"), Vascular Targeting Agents ("VTAs"),
and Vasopermeation Enhancement Agents ("VEAs").
o 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. Our first TNT- based
product is an investigational, chimeric monoclonal antibody
radiolabeled with the I131 isotope. During March 1998, we began
enrolling patients into a Phase I study of TNT for the treatment
of malignant glioma (brain cancer). We have since filed a
protocol with the FDA for a Phase II study of TNT for the
treatment of malignant glioma, which commenced in December 1998.
The clinical trials are currently being conducted at The Medical
University of South Carolina with additional clinical sites
underway. We have also received an unrestricted grant to conduct
Phase I/II systemic trials of TNT for prostate, pancreatic and
liver cancers at a clinical site in Mexico City.
4
<PAGE>
o 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. Our scientists are
doing preliminary studies on VTAs. The VTA technology was
acquired in April of 1997 through our acquisition of Peregrine
Pharmaceuticals, Inc.
o 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, our scientists were able to increase the
uptake of drugs or isotopes within a tumor by between 150% and
420% 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.
5
<PAGE>
RISK FACTORS OF OUR COMPANY
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING ANY OF OUR COMMON STOCK, TOGETHER WITH ALL OF THE
OTHER INFORMATION SET FORTH HEREIN OR INCORPORATED HEREIN BY REFERENCE IN THIS
PROSPECTUS.
EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND IN OUR REPORTS FILED WITH THE SEC ARE "FORWARD LOOKING"
STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND FINANCIAL PERFORMANCE. OUR
ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY PROVE TO BE VERY
DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF THIS PROSPECTUS
DUE TO CERTAIN RISKS AND UNCERTAINTIES. SOME OF THESE RISKS AND UNCERTAINTIES
INCLUDE, AMONG OTHERS, ACCURATELY FORECASTING OPERATING AND CAPITAL EXPENDITURES
AND CLINICAL TRIAL COSTS, GENERAL ECONOMIC CONDITIONS, PRICING PRESSURES AND
UNCERTAINTIES OF LITIGATION. THE RISKS DESCRIBED BELOW SPECIFICALLY ADDRESS SOME
OF THE FACTORS THAT MAY AFFECT OUR FUTURE OPERATING RESULTS AND FINANCIAL
PERFORMANCE.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our actual operating results may fluctuate significantly in the future.
Many factors may cause these fluctuations, including worldwide economic and
political conditions and industry specific factors. If we are to remain
competitive, we must develop and produce commercially viable products at
competitive prices in a timely manner, and must maintain access to external
financing sources until we can generate revenue from licensing transactions or
sales of products. Our ability to obtain financing and to manage expenses and
our cash depletion rate ("burn rate") is the key to the continued development of
product candidates and the completion of ongoing clinical trials. Our burn rate
will vary substantially from quarter to quarter as we fund non-recurring items
associated with clinical trials, product development, antibody manufacturing and
radiolabeling expansion and scale-up, patent legal fees and various consulting
fees. We have limited experience with clinical trials and if we encounter
unexpected difficulties with our operations or clinical trials, we may have to
expend additional funds, which would increase our burn rate.
WE ARE IN THE EARLY STAGES OF PRODUCT DEVELOPMENT
Since our inception, we have been engaged in the development of drugs and
related therapies for the treatment of people with cancer. Our product
candidates are generally in the early stages of development, with only two
product candidates currently in clinical trials. Revenues from product sales
have been insignificant and throughout our history there have been minimal
revenues from product royalties. If the initial results from any of the clinical
trials are poor, those results will adversely effect our ability to raise
additional capital, which will affect our ability to continue full-scale
research and development for our antibody technologies. In addition, product
candidates resulting from our research and development efforts, if any, are not
expected to be available commercially for at least the next year. We cannot
guarantee that our product development efforts, including clinical trials, will
be successful, that required regulatory approvals for the indications being
studied can be obtained, that our product candidates can be manufactured and
radiolabeled at an acceptable cost and with appropriate quality or that any
approved products can be successfully marketed.
WE WILL REQUIRE ADDITIONAL CAPITAL IN THE FUTURE
We have expended, and will continue to expend, substantial funds on the
development of our product candidates and for clinical trials. As a result, we
have experienced negative cash flows from operations since inception and expect
the negative cash flow from operations to continue for the foreseeable future.
We currently have commitments to expend additional funds for facilities
6
<PAGE>
construction, clinical trials, radiolabeling contracts, license contracts,
severance arrangements, employment agreements, consulting agreements, and for
the repurchase of Oncolym(R) marketing rights from Alpha Therapeutic Corporation
and Biotechnology Development, Ltd. We expect operating expenditures related to
clinical trials to increase in the future as clinical trial activity increases
and scale-up for clinical trial production continues. As activities in
connection with the Phase II/III clinical trials for Oncolym(R) and the Phase II
clinical trials for TNT increase and the development costs associated with VEAs
and VTAs increase, we expect that the monthly negative cash flow will continue.
Without obtaining additional financing and/or negotiating additional licensing
or collaboration agreements with other companies, we expect that current sources
of financing available to us will be sufficient to fund our operations and to
meet our obligations on a timely basis through ________ ____. Our ability to
access funds under our Regulation D Common Stock Equity Line Subscription
Agreement with two institutional investors is subject to the satisfaction of
certain conditions and the failure to satisfy these conditions may limit or
preclude our ability to access such funds, which could negatively affect our
financial position unless additional financing sources are available. See "The
Equity Line Agreement."
We will require additional funds to sustain our research and development
efforts, provide for future clinical trials, expand our manufacturing and
radiolabeling capabilities, and continue our operations until we able to
generate sufficient revenue from the sale and/or licensing of our products. We
will need to obtain additional funding through one or more methods including
obtaining additional equity or debt financing and/or negotiating a licensing or
collaboration agreement with another company. We cannot be certain whether we
can obtain the required additional funding on terms satisfactory to us, if at
all. If we do raise additional funds through the issuance of equity or
convertible debt securities, your stock ownership will be diluted. Further,
these new securities may have rights, preferences or privileges senior to yours.
If we are unable to raise additional funds when necessary, we may have to reduce
or discontinue development or clinical testing of some or all of our product
candidates or enter into financing arrangements on terms which we would not
otherwise accept.
WE HAVE HAD SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES
We have experienced significant losses since inception. As of January 31,
1999, our accumulated deficit was approximately $84,429,000. We expect to incur
significant additional operating losses in the future and expect 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. We expect losses to fluctuate substantially from
quarter to quarter. All of our products are currently in development,
preclinical studies or clinical trials, and no significant revenues have been
generated from product sales. To achieve and sustain profitable operations, we
must successfully develop and obtain regulatory approval for our products,
either alone or with others, and must also manufacture, introduce, market and
sell our products. The time frame necessary to achieve market success for our
products is long and uncertain. We do not expect to generate significant product
revenues for the next year. There can be no guarantee that we will ever generate
product revenues sufficient to become profitable or to sustain profitability.
THE VIABILITY OF OUR TECHNOLOGY AND PRODUCTS IS UNCERTAIN
Our future success is significantly dependent on our ability to develop and
test workable products for which we will seek FDA approval to market to certain
defined patient groups. There is a significant risk as to the performance and
commercial success of our technology and products. The products we are currently
developing will require significant additional laboratory and clinical testing
and investment over the foreseeable future. Although we are optimistic that we
will be able to complete development of one or more products, there are many
risk and uncertainties inherent in developing pharmaceutical products.
For example:
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o Our research and development activities may not be successful;
o Our proposed products may not prove to be effective in clinical
trials;
o Patient enrollment in the clinical trials may be delayed or prolonged
significantly, thus delaying the trials;
o Our product candidates may cause harmful side effects during clinical
trials;
o Our product candidates may take longer than anticipated to progress
through clinical trials;
o Our product candidates may prove impracticable to manufacture in
commercial quantities at a reasonable cost and/or with acceptable
quality;
o Our competitors may produce products which are superior to our
products;
o We may not be able to obtain all necessary governmental clearances and
approvals to market our products;
o Our product candidates may not prove to be commercially viable or
successfully marketed; and
o We may encounter unanticipated problems, including development,
manufacturing, distribution, financing and marketing difficulties.
Any of these factors could negatively affect our financial position and
results of operations.
WE HAVE LIMITED DATA TO DATE WITH RESPECT TO OUR PRODUCT CANDIDATES
The results of initial preclinical and clinical testing of the products we
are currently developing are not necessarily indicative of results that will be
obtained from subsequent or more extensive preclinical studies and clinical
testing. The clinical data gathered to date with respect to Oncolym(R) 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 a
treatment with a radiolabeled antibody. Further, the data from this Phase II
dose escalation trial was compiled from testing conducted at a single site and
with a relatively small number of patients. We will need to do substantial
additional development and clinical testing prior to seeking any regulatory
approval for commercialization of Oncolym(R). There can be no guarantee 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, which
would negatively affect our financial position and results of operations.
THERE ARE MANY RISKS ASSOCIATED WITH OBTAINING REGULATORY APPROVALS
Testing, manufacturing, radiolabeling, advertising, promotion, export and
marketing, among other things, of our 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. We presently believe that our products
will be regulated by the FDA as biologics. Manufacturers of biologics may also
be subject to state regulation.
There are numerous steps required before a biologic may be approved for
marketing in the United States, generally including:
o preclinical laboratory tests and animal tests;
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o 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;
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product;
o submission to the FDA of a Product License Application ("PLA") or a
Biologics License Application ("BLA");
o submission to the FDA of an Establishment License Application ("ELA");
o FDA review of the ELA and the PLA or BLA; and
o 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 we cannot guarantee that any approval will be granted on
a timely basis, if at all. We cannot guarantee 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 our 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 safety or efficacy of a product. There can be no assurance that
approval of any PLA or BLA we submit will be granted by the FDA 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 FDA 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 and/or its
manufacturer, including withdrawal of the product from the market. Also, new
government requirements may be established that could delay or prevent
regulatory approval of our product candidates.
We will also be subject to a variety of foreign regulations governing
clinical trials and sales of our 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, we intend, to the extent possible, to
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rely on licensees to obtain regulatory approval for marketing our products in
foreign countries.
THERE ARE MANY RISKS ASSOCIATED WITH THE COMMERCIAL PRODUCTION OF OUR PRODUCTS
In order to conduct clinical trials on a timely basis, obtain regulatory
approval and be commercially successful, we must scale-up our manufacturing and
radiolabeling processes so that those product candidates can be manufactured and
radiolabeled in commercial quantities. To date, we have expended significant
funds for the scale-up of our antibody manufacturing capabilities for clinical
trial requirements for our Oncolym(R) and TNT product candidates and for
refinement of the radiolabeling processes. We intend to use existing antibody
manufacturing capacity to meet the clinical trial requirements for our
Oncolym(R) and TNT product candidates and to support the initial
commercialization of Oncolym(R). In order to provide additional capacity, we
must successfully negotiate an agreement with contract antibody manufacturers to
have these products produced, the cost of which is estimated to be approximately
one to three million dollars in start-up costs and additional production costs
on a "per run basis". We believe we can successfully negotiate an agreement with
one or more contract radiolabeling companies to provide radiolabeling services
to meet commercial demands. Such a contract would, however, require a
substantial investment (estimated at five to nine 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. We
anticipate that production of our products in commercial quantities will create
technical and financial challenges. We have limited manufacturing experience,
and cannot make any guarantee as to our ability to scale-up our manufacturing
operations, the suitability of our present facility for clinical trial
production or commercial production, our ability to make a successful transition
to commercial production and radiolabeling or our ability to reach an acceptable
agreement with one or more contract manufacturers to produce and radiolabel
Oncolym(R), TNT, or any of our other product candidates, in clinical or
commercial quantities. Our failure to scale-up manufacturing and radiolabeling
for clinical trial or commercial production or to obtain contract manufacturers,
could negatively affect our financial position and results of operations.
THERE ARE SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE; THE SALE OF SUCH SHARES
MAY DEPRESS OUR STOCK PRICE
As of February 28, 1999, we had 70,898,581 shares of Common Stock
outstanding. We will issue additional shares of Common Stock and/or warrants to
purchase shares of Common Stock under the following agreements:
o 5% Adjustable Convertible Class C Preferred Stock ("Class C Stock");
o Regulation D Common Stock Equity Line Subscription Agreement and a
related Placement Agent Agreement; and
o other Option and Warrant Agreements.
CLASS C STOCK. Of the 70,898,581 shares of Common Stock outstanding as of
February 28, 1999, from September 26, 1997 (the date the Class C Stock became
convertible into Common Stock) through February 28, 1999, we issued 30,865,164
shares of Common Stock in conjunction with the conversion of the Class C Stock
(including shares of Class C Stock issued as dividends shares and penalty
shares) and the exercise of warrants to purchase shares of Common Stock (the
"Class C Warrants") for gross proceeds of approximately $15,641,000. The Class C
Warrants were issued to holders of Class C Stock in conjunction with the
conversion of the Class C Stock pursuant to the terms of the Company's agreement
with the holders of the Class C Stock. From September 26, 1997, the date on
which the Class C Stock was first convertible, through March 1998, the price of
the Common Stock steadily declined while the average trading volume increased
significantly. As of February 28, 1999, there were 121 shares of Class C Stock
outstanding and Class C Warrants outstanding to purchase up to 35,244 shares of
Common Stock. If the 121 shares of Class C Stock outstanding as of February 28,
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1999 were converted, we would be required to issue approximately 203,000 shares
of Common Stock (based on a conversion price of $0.5958 per share of Common
Stock) and Class C Warrants to purchase up to an aggregate of approximately
51,000 shares of Common Stock at an exercise price of $0.6554 per share.
EQUITY LINE AGREEMENT. As of February 28, 1999, we have issued an aggregate
of 5,789,506 shares of Common Stock and warrants to purchase up to an additional
632,496 shares of Common Stock at an average exercise price of $1.23 per share
to two institutional investors pursuant to the terms of a Regulation D Common
Stock Equity Line Subscription Agreement and to the Registered Stockholder
pursuant to the terms of a related Placement Agent Agreement for gross proceeds
of $5.75 million. Pursuant to the Regulation D Common Stock Equity Line
Subscription Agreement, and assuming a 10-day low closing bid price of $1.00 per
share (which allows us to sell the maximum number of shares of Common Stock), we
may, at our option, sell to the institutional investors up to an additional
17,812,500 shares of Common Stock and warrants to purchase up to an additional
1,781,250 shares of Common Stock and may be obligated to issue to the Registered
Stockholder for no additional consideration up to 1,876,704 shares of Common
Stock and warrants to purchase up to an 178,125 shares of Common Stock pursuant
to the Placement Agent Agreement. The shares of Common Stock will be issued and
sold to the institutional investors at a discount to the 10-day low closing bid
price of the Common Stock prior to the sale equal to the greater of twenty cents
($0.20) per share or a 17.5% discount to the 10-day low closing bid price of the
Common Stock. In addition, we may be obligated to issue to the institutional
investors an aggregate of up to 954,545 shares of Common Stock on April 15, 1999
and July 15, 1999 upon adjustment of the purchase price of the shares of Common
Stock sold to the institutional investors. We will not receive any proceeds from
the exercise by the institutional investors or the Registered Stockholder of
warrants to purchase shares of Common Stock, which may only be exercised
pursuant to a cashless exercise. See "The Equity Line Agreement," "Use of
Proceeds" and "Plan of Distribution."
OTHER OPTION AND WARRANT AGREEMENTS. In addition to the Class C Warrants
and the warrants issued and to be issued to the institutional investors and the
Registered Stockholder, at February 28, 1999, there were outstanding warrants
and options to employees, directors, consultants and other parties to issue
approximately 8,453,000 shares of Common Stock at an average exercise price of
$1.17 per share.
The sale and issuance of shares of Common Stock to the institutional
investors pursuant to the Equity Line Agreement may cause the market price of
the Common Stock to fall and might also make it more difficult for us to sell
equity or equity- related securities in the future, whether pursuant to the
Equity Line Agreement or otherwise. The issuance of shares of Common Stock to
the Registered Stockholder and the issuance of shares of Common Stock upon
conversion of the remaining Class C Stock and upon exercise of the Class C
Warrants, the warrants issued and issuable to the institutional investors and
the Registered Stockholder, and such other outstanding warrants and options, as
well as subsequent sales of shares of Common Stock in the open market, could
also cause the market price of the Common Stock to fall and impair our ability
to raise additional capital.
OUR STOCK PRICE AND TRADING VOLUME HAVE BEEN HIGHLY VOLATILE
The market price of the Common Stock, and the market prices of securities
of companies in the biotechnology industry generally, have been highly volatile
and is likely to continue to be highly volatile. Also, the trading volume in the
Common Stock has been highly volatile, ranging from as few as 89,000 shares per
day to as many as 19 million shares per day over the past year, and is likely to
continue to be highly volatile. The market price of the Common Stock may be
significantly impacted by, for example:
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o Announcements of technological innovations or new commercial products
by us or our competitors;
o Developments or disputes concerning patent or proprietary rights;
o Publicity regarding actual or potential medical results relating to
products under development by us or our competitors;
o Regulatory developments in both the United States and foreign
countries;
o Public concern as to the safety of biotechnology products;
o Economic and other external factors; and
o Period-to-period fluctuations in financial results.
THERE ARE RISKS RELATED TO SECURITIES LISTED ON THE NASDAQ SMALLCAP MARKET AND
LOW-PRICED SECURITIES
The Common Stock is presently traded on The Nasdaq SmallCap Market. To
maintain inclusion on The Nasdaq SmallCap Market, the Common Stock must continue
to be registered under Section 12(g) of the Exchange Act, and we 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 our latest fiscal year or in
two of our last three fiscal years) of at least $500,000. In addition, we 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 closing 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, we failed to maintain a $1.00 minimum
closing bid price. From May 5, 1998, through September 2, 1998, we met this
requirement. However, at various times since September 2, 1998, we have failed
to maintain a $1.00 minimum closing bid price and expect the closing bid price
of the Common Stock to fall below the $1.00 minimum bid requirement from time to
time in the future. If we fail to meet the minimum closing bid price of $1.00
for a period of 30 consecutive business days, we will be notified by The Nasdaq
Stock Market and will then have a period of 90 calendar days from such
notification to achieve compliance with the applicable standard by meeting the
minimum closing bid price requirement for at least 10 consecutive business days
during such 90 day period. We cannot guarantee that we will be able to maintain
these requirements in the future. If we fail to meet The Nasdaq SmallCap Market
listing requirements, the market value of the Common Stock could fall and
holders of 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 minimum closing bid price of the Common Stock is not at least
$1.00 per share for 10 consecutive business days before we make a call for
proceeds under our Regulation D Common Stock Equity Line Subscription Agreement
with two institutional investors or if the Common Stock ceases to be included on
The Nasdaq SmallCap Market, we would have limited or no access to funds under
the Regulation D Common Stock Equity Line Subscription Agreement.
If the Common Stock ceases to be included on The Nasdaq SmallCap Market,
the Common Stock could become subject to rules adopted by the SEC 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 The Nasdaq Stock Market, 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 SEC 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
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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
Common Stock becomes subject to the penny stock rules, investors may be unable
to readily sell their shares of Common Stock.
OUR INDUSTRY IS HIGHLY COMPETITIVE
The biotechnology industry is intensely competitive. It is also subject to
rapid change and sensitive to new product introductions or enhancements. We
expect to continue to experience significant and increasing levels of
competition in the future. Virtually all of our existing competitors have
greater financial resources, larger technical staffs, and larger research
budgets than we have and greater experience in developing products and running
clinical trials. Two of our competitors, Idec Pharmaceuticals Corporation and
Coulter Pharmaceuticals, Inc., each has a lymphoma antibody that may compete
with our Oncolym(R) product. Idec Pharmaceuticals Corporation is currently
marketing its lymphoma product for low grade non-Hodgkins Lymphoma and we
believe that Coulter Pharmaceuticals, Inc. will be marketing its respective
lymphoma product prior to the time our Oncolym(R) product will be submitted to
the FDA for marketing approval. Coulter Pharmaceuticals, Inc. 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. There are several
companies in preclinical studies with angiogenesis technologies which may
compete with our VTA technology. In addition, there may be other companies which
are currently developing competitive technologies and products or which may in
the future develop technologies and products which are comparable or superior to
our technologies and products. Some or all of these companies may also have
greater financial and technical resources than we have. Accordingly, we cannot
assure you that we will be able to compete successfully or that competition will
not negatively affect our financial position or results of operations. In
addition, we cannot assure you that our existing and future competitors will not
develop products which compete with our other product candidates.
THERE ARE MANY RISKS AND UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
We have limited experience in conducting clinical trials. The rate of
completion of our 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 clinical trial protocols, the existence of competing
protocols, the size of the patient population, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in patient
enrollment will result in increased costs and delays, which could negatively
affect our financial position and results of operations. We cannot assure you
that patients enrolled in our clinical trials will respond to our product
candidates. In fact, setbacks are to be expected in conducting human clinical
trials. In addition, our failure to comply with FDA regulations applicable to
this testing could result in substantial delays, suspension or cancellation of
the testing, or refusal by the FDA to accept the results of the testing. 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. We also cannot assure you that human clinical testing will show any
current or future product candidates to be safe or 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 negatively affect our
financial position and results of operations.
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MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
Even if our products are approved for marketing by the FDA and other
regulatory authorities, we cannot guarantee that our products will be
commercially successful. If our products currently 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. We or our 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 our products. Market acceptance
also could be affected by the availability of third party reimbursement. Failure
of Oncolym(R) or TNT to achieve market acceptance would negatively affect our
financial position and results of operations.
WE ARE DEPENDENT ON A LIMITED NUMBER OF PROVIDERS OF RADIOLABELING SERVICES
We currently procure, and intend in the future to procure, our
radiolabeling services pursuant to negotiated contracts with two domestic
entities and one European entity. We cannot guarantee that these suppliers will
be able to qualify their facilities or 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, or that clinical trials will not be delayed or disrupted.
Prior to commercial distribution, we will be required to identify and contract
with a commercial radiolabeling company for commercial services. We are
presently in discussions with a few companies to provide commercial
radiolabeling services. A commercial radiolabeling service agreement will
require us to make a substantial investment of funds. We currently rely on, and
expect in the future to rely on, our current suppliers for all or a significant
portion of our requirements for the Oncolym(R) and TNT antibody products.
Radiolabeled antibody cannot be stockpiled against future shortages due to the
eight- day half-life of the I131 radioisotope. Accordingly, any change in our
existing or future contractual relationships with, or an interruption in supply
from, any third-party supplier could negatively impact our ability to complete
ongoing clinical trials and to market the Oncolym(R) and TNT antibodies, if
approved, which would negatively affect our financial position and results of
operations.
THERE ARE RISKS ASSOCIATED WITH THE MANUFACTURING AND USE OF HAZARDOUS AND
RADIOACTIVE MATERIALS
The manufacturing and use of Oncolym(R) and TNT require the handling and
disposal of the radioactive isotope I131. We currently rely on, and intend in
the future to rely on, our current contract manufacturers to radiolabel
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 also a risk of accidental
contamination or injury. Accordingly, we 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 negatively affect our financial position and results of operations. In
addition, we may incur substantial costs to comply with environmental
regulations. 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 negatively impact our financial position and results of
operations.
WE ARE DEPENDENT ON THIRD PARTIES FOR COMMERCIALIZATION
We intend to sell our products in the United States and internationally in
collaboration with one or more marketing partners. At the present time, we do
not have a sales force to market Oncolym(R) or TNT, or any other product. If and
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when the FDA approves Oncolym(R) or TNT, the marketing of Oncolym(R) and TNT
will be contingent upon our ability to either license or enter into a marketing
agreement with a large company or our ability to recruit, develop, train and
deploy our own sales force. We do not presently possess the resources or
experience necessary to market Oncolym(R), TNT or any other product candidates.
Other than an agreement with Biotechnology Development, Ltd. with respect to the
marketing of Oncolym(R), we presently have no agreements for the licensing or
marketing of our product candidates, and we cannot assure you that we 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. We cannot assure you that
we 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 our product candidates.
OUR SUCCESS IS DEPENDENT ON OBTAINING AND MAINTAINING PATENTS AND LICENSES TO
PATENTS
Our success depends, in large part, on our ability to obtain or maintain a
proprietary position in our products through patents, trade secrets and orphan
drug designations. We have been granted several United States patents and have
submitted several United States patent applications and numerous corresponding
foreign patent applications, and have also obtained licenses to patents or
patent applications owned by other entities. However, we cannot assure you that
any of these patent applications will be granted or that our patent licensors
will not terminate any of our patent licenses. We also cannot guarantee that any
issued patents will provide competitive advantages for our products or that any
issued patents will not be successfully challenged or circumvented by our
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 we or our licensors are granted may
be infringed by others or may not be enforceable against others. We cannot
assure you that any of our or our licensors' patents would be held valid or
enforceable by a court of competent jurisdiction. Although we believe that our
patents and our licensors' patents do not infringe on any third party's patents,
we cannot be certain that we will not become involved in litigation involving
patents or other proprietary rights. Patent and proprietary rights litigation
entails substantial legal and other costs, and we do not know if we will have
the necessary financial resources to defend or prosecute our rights in
connection with any litigation. Responding to, defending or bringing claims
related to patents and other intellectual property rights may require our
management to redirect our human and monetary resources to address these claims
and may take several years to resolve.
A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody and angiogenesis fields, our competitors may have filed applications
for or have been issued patents and may obtain additional patents and
proprietary rights relating to similar or competitive products or processes. To
date, we are not aware of any consistent policy regarding the breadth of claims
allowed in biopharmaceutical patents. We cannot assure you that there are no
existing patents in the United States or in foreign countries or that no future
patents will be issued that would have a negative impact on our ability to
market any of our existing or future products or product candidates. We expect
that commercializing monoclonal antibody-based products may require licensing
and/or cross-licensing of patents with other companies in this field. We cannot
guarantee that any licenses which might be required for our processes or
products, will be available, if at all, on commercially acceptable terms. If we
are required to acquire rights to valid and enforceable patents but cannot do so
at a reasonable cost, our ability to manufacture our products would be
negatively impacted. Moreover, the likelihood of successfully contesting the
scope or validity of such patents is uncertain and the costs associated
therewith may be significant.
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We also rely on trade secrets and proprietary know-how, which we attempt to
protect, in part, by confidentiality agreements with our employees and
consultants. We cannot be certain that these agreements will not be breached,
that we will have adequate remedies for any breach, or that our trade secrets
will not otherwise become known or be independently developed by our
competitors.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS
The manufacture and sale of human therapeutic products involve an inherent
risk of product liability claims. We maintain only limited product liability
insurance. However, we cannot assure you that we 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. Our inability to obtain
sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims in excess of our insurance coverage,
if any, or a product recall could negatively impact our financial position and
results of operations.
THERE ARE RISKS ASSOCIATED WITH 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. We anticipate 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
negatively impact our ultimate profitability. Legislative debate is expected to
continue in the future, and market forces are expected to drive reductions of
health care costs. We cannot predict what impact the adoption of any federal or
state health care reform measures or future private sector reforms may have on
our business.
Our ability to successfully commercialize our 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 our 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
negatively impact our financial position 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
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<PAGE>
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 our product
candidates than we currently expect. The cost containment measures that health
care payers and providers are instituting and the effect of any health care
reform could negatively affect our ability to operate profitably.
WE ARE DEPENDENT ON KEY PERSONNEL
Our success is dependent, in part, upon a limited number of key executive
officers and technical personnel remaining employed with us, including Larry O.
Bymaster, our President and Chief Executive Officer, Steven C. Burke, our Chief
Financial Officer, Dr. John Bonfiglio, our Vice President of Business
Development, and Dr. Jamie Oliver, our Vice President of Clinical and Regulatory
Affairs. We also believe that our future success will depend largely upon our
ability to attract and retain highly-skilled research and development and
technical personnel. We face intense competition in our recruiting activities,
including larger companies. We do not know if we will be successful in
attracting or retaining skilled personnel. Further, the loss of certain key
employees or our inability to attract and retain other qualified employees could
negatively affect our financial position and results of operation.
YEAR 2000 ISSUE RISKS MAY RESULT IN A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The year 2000 problem is pervasive
and complex. Virtually every computer operation will be affected in some way by
the rollover of the two digit year value to "00". The issue is whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. We have identified substantially all
of our major hardware and software platforms in use and are continually
modifying and upgrading our software and information technology and other
systems. We have modified our current financial software to be year 2000
compliant and expect all of our internal computer systems to be year 2000
compliant by April 30, 1999 through the use of internal and external resources.
Although we do not presently believe that, with upgrades of existing software
and/or conversion to new software, the year 2000 problem will pose significant
operational problems for our internal computer systems or have a negative affect
on our financial position or results of operations, we cannot assure you that
any year 2000 compliance problems of our suppliers will not negatively affect
our financial position or results of operation. Because uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance, we intend to continue to make efforts to ensure that third parties
with whom we have relationships are year 2000 compliant. We have not incurred
significant costs to date associated with year 2000 compliance and presently
believe estimated future costs will not be material. However, actual results
could differ materially from our expectations due to unanticipated technological
difficulties or project delays. If we or any third parties upon which we rely
are unable to address the year 2000 issue in a timely manner, it could have an
adverse impact on our financial position and results of operations. In order to
assure that this does not occur, we are in the process of developing a
contingency plan intend to devote all resources required to attempt to resolve
any significant year 2000 issues in a timely manner.
THERE ARE RISKS ASSOCIATED WITH EARTHQUAKES
Our corporate and research facilities, where the majority of our research
and development activities are conducted, are located near major earthquake
faults which have experienced earthquakes in the past. Although we carry limited
earthquake insurance, in the event of a major earthquake or other disaster
affecting our facilities, our operations, financial position and results of
operations will be negatively affected.
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<PAGE>
THE EQUITY LINE AGREEMENT
On June 16, 1998, the Company entered into a Regulation D Common Stock
Equity Line Subscription Agreement (the "Equity Line Agreement") with two
institutional investors (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. The Company also entered
into a Placement Agent Agreement (the "Placement Agent Agreement") with Swartz
Investments, LLC, a Georgia limited liability company doing business as Swartz
Institutional Finance ("Swartz"), whereby the Company engaged the services of
Swartz as placement agent in connection with the placement of securities of the
Company with the Institutional Investors pursuant to the Equity Line Agreement.
Swartz subsequently assigned and conveyed all of its rights under the Placement
Agent Agreement and a related Registration Rights Agreement (as defined below)
to the Registered Stockholder and also transferred to the Registered Stockholder
all of the shares of Common Stock and warrants to purchase shares of Common
Stock previously issued to Swartz. The Registered Stockholder is a broker-dealer
registered with the SEC and the National Association of Securities Dealers, Inc.
with respect to which Swartz is an Office of Supervisory Jurisdiction (OSJ).
Pursuant to the Equity Line Agreement, on or about June 16, 1998, the
Company received immediate funding of $3,500,000 in exchange for an aggregate of
2,545,454 shares of Common Stock (the "Initial Institutional Investor Shares")
and warrants to purchase an aggregate of up to 254,454 shares of Common Stock at
an exercise price of $1.375 per share (the "Initial Institutional Investor
Warrants"). Pursuant to the terms of the Equity Line Agreement, one-half of the
number of Initial Institutional Investor Shares is subject to adjustment on
April 15, 1999, with the other half subject to adjustment on July 15, 1999 (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 or about 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 December 1998, the
Company issued an additional 96,055 shares of Common Stock to the Institutional
Investors pursuant to a separate agreement between the Company and the
Institutional Investors (the "Additional Shares").
Pursuant to the terms of the Equity Line Agreement, the Company may from
time to time until June 16, 2001, 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) (the "Purchase Price"), 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 the Institutional Investors would otherwise
be able to sell pursuant to Rule 144(e) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and subject to a maximum dollar amount
of $20,000,000 less the aggregate dollar amount of all shares of Common Stock
already issued and sold by the Company to the Institutional Investors). At the
time of each sale of shares of Common Stock, the Institutional Investors will be
issued warrants, expiring on December 31, 2004, to purchase a number of shares
18
<PAGE>
of Common Stock equal to 10% of the number of shares of Common Stock sold in
such sale at an exercise price equal to the price per share at which such 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, 1999, June 16, 2000 and June 16, 2001, 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 Company's ability to put shares of its Common Stock under the Equity
Line Agreement, and the Institutional Investors' obligations to purchase shares
of Common Stock, is conditioned upon the satisfaction of certain conditions and
subject to certain limitations. These conditions and limitations include: (i)
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, (ii) the Company shall have performed and complied with all
obligations under the Equity Line Agreement, the Registration Rights Agreement
and the warrants issued to the Institutional Investors required to be performed
as of the date of each put, (iii) 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, (iv) 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 SEC pursuant to the Exchange Act, (v) the Company's Common Stock
shall not have been delisted from The Nasdaq SmallCap Market nor suspended from
trading, (vi) 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 (vii) 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.
On February 2, 1999, the Company exercised a put under the Equity Line
Agreement (the "February 1999 Put") and sold an aggregate of 2,608,695 shares of
Common Stock to the Institutional Investors for an aggregate purchase price of
$2,250,000 ($0.8625 per share). In accordance with the terms of the Equity Line
Agreement, the Company also issued to the Institutional Investors warrants to
purchase an aggregate of up to 260,868 shares of Common Stock at a purchase
price of $0.8625 per share. As of the date of this Prospectus, there is a
maximum aggregate dollar amount of $14,250,000 remaining available to the
Company under the Equity Line Agreement.
Pursuant to the terms of the Placement Agent Agreement, the Registered
Stockholder is entitled to receive (i) a cash placement fee equal to seven
percent (7%) of the purchase price of any and all securities placed pursuant to
the Equity Line Agreement; (ii) 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 $10 million of securities placed pursuant
to the Equity Line Agreement; (iii) a one time non-accountable expenses
allowance equal to one hundred thousand dollars for any and all securities
placed in excess of the aggregate purchase price of the first $10 million of
securities placed pursuant to the Equity Line Agreement (such non-accountable
expenses allowance to be paid upon placement of any securities resulting in an
aggregate purchase price in excess of $10,100,000 placed pursuant to the Equity
Line Agreement); and (iv) an amount of securities equal to ten percent (10%) of
all Common Stock issued pursuant to the Equity Line Agreement and an amount of
securities equal to ten percent (10%) of all warrants issued pursuant to the
Equity Line Agreement. To date, in connection with the placement of the Initial
Institutional Investor Shares, the Initial Institutional Investor Warrants, the
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<PAGE>
Additional Shares and the February 1999 Put, the Company has issued to the
Registered Stockholder an aggregate of 525,020 shares of Common Stock, warrants
to purchase up to 25,454 Shares of Common Stock at an exercise price of $1.375
per share and warrants to purchase up to 26,086 Shares of Common Stock at an
exercise price of $0.8625 per share.
Pursuant to the requirements of the Placement Agent Agreement and a related
Registration Rights Agreement dated as of June 16, 1998, between the Company,
the Institutional Investors and the Registered Stockholder, as successor in
interest to Swartz (the "Registration Rights Agreement"), the Company has filed
a registration statement, of which this Prospectus forms a part, in order to
permit the Registered Stockholder to resell to the public the shares of Common
Stock issued and issuable to the Registered Stockholder pursuant to the
Placement Agent Agreement and any shares of Common Stock that the Registered
Stockholder may acquire upon exercise of warrants issued and issuable to the
Registered Stockholder pursuant to the Placement Agent Agreement (the
"Registered Stockholder Warrants").
The Institutional Investors and the Registered Stockholder 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 April 15, 1999 and the thirty calendar days prior
to July 15, 1999. The Institutional Investors and the Registered Stockholder
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 SEC.
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby
will be received directly by the Registered Stockholder. The Company will not
receive any proceeds from the sale of the shares of Common Stock offered hereby.
The Company will not receive any proceeds from the exercise of the Registered
Stockholder Warrants, which may only be exercised pursuant to a cashless
exercise by the Registered
Stockholder.
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<PAGE>
THE REGISTERED STOCKHOLDER
The following table sets forth certain information as of February 28, 1999,
with respect to the Registered Stockholder. The Company will not receive any of
the proceeds from the sale of the Shares by the Registered Stockholder.
<TABLE>
<CAPTION>
MAXIMUM NUMBER
SHARES BENEFICIALLY OF SHARES TO BE SOLD SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) PURSUANT TO THIS PROSPECTUS OWNED AFTER OFFERING(2)
NAME OF -------------------------- --------------------------- -----------------------
REGISTERED STOCKHOLDER NUMBER PERCENT NUMBER PERCENT
- ---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Dunwoody Brokerage
Services, Inc.(3)........ 2,631,389 3.7 % 2,631,389 0 0.0%
8309 Dunwoody Place
Atlanta, GA 30350
</TABLE>
- --------------
(1) Except as otherwise indicated below, beneficial ownership for purposes
of this table is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. Except as indicated by footnote, the Registered Stockholder
has sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by it. Includes (solely for
purposes of this Prospectus, and assuming a 10-day low closing bid
price of not less than $1.00 per share, which allows the Company to
sell the maximum number of shares of Common Stock to the Institutional
Investors under the terms of the Equity Line Agreement) up to an
aggregate of 2,054,829 shares of Common Stock that may be acquired by
the Registered Stockholder pursuant to the Placement Agent Agreement in
connection with the issuance and sale of shares of Common Stock to the
Institutional Investors pursuant to the Equity Line Agreement
(including up to 178,125 shares of Common Stock issuable upon the
exercise of warrants that may be issued to the Registered Stockholder),
which shares would not be deemed beneficially owned within the meaning
of Sections 13(d) and 13(g) of the Exchange Act prior to their
acquisition by the Registered Stockholder. See "The Equity Line
Agreement." Based on an aggregate of 70,898,581 shares of Common Stock
issued and outstanding as of February 28, 1999.
(2) Assumes that all of the Shares are sold pursuant to this Prospectus.
(3) As of the date of this Prospectus, the Registered Stockholder owns
576,560 shares of Common Stock of the Company, including 51,540 shares
of Common Stock issuable upon exercise of outstanding warrants which
are currently exercisable, which represents less than 1% of the issued
outstanding Common Stock of the Company as of February 28, 1999. Also
includes (solely for purposes of this Prospectus, and assuming a 10-day
low closing bid price of not less than $1.00 per share, which allows
the Company to sell the maximum number of shares of Common Stock to the
Institutional Investors under the terms of the Equity Line Agreement)
up to an aggregate of 2,054,829 shares of Common Stock that may be
acquired by the Registered Stockholder pursuant to the Placement Agent
Agreement in connection with the issuance and sale of shares of Common
Stock to the Institutional Investors pursuant to the Equity Line
Agreement (including up to 178,125 shares of Common Stock issuable upon
the exercise of warrants that may be issued to the Registered
Stockholder), which shares would not be deemed beneficially owned
within the meaning of Sections 13(d) and 13(g) of the Exchange Act
prior to their acquisition by the Registered Stockholder. See "The
Equity Line Agreement."
The Registered Stockholder has not had any material relationship with the
Company or any of its affiliates within the past three years other than as a
result of the ownership of securities of the Company, through the placement by
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<PAGE>
the Registered Stockholder or its affiliates of securities of the Company or as
a result of the negotiation and the execution of the Placement Agent Agreement
and the Equity Line Agreement. The natural persons controlling the Registered
Stockholder are Robert L. Hopkins and Dwight B. Bronnum.
The shares of Common Stock offered hereby by the Registered Stockholder
were or will be acquired pursuant to the Placement Agent Agreement or upon
exercise of the Registered Stockholder Warrants. Under the Placement Agent
Agreement and the Registration Rights Agreement, the Company agreed to register
the shares of Common Stock offered hereby under the Securities Act, for resale
by the Registered Stockholder to permit their resale by the Registered
Stockholder 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 of the shares of Common Stock 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 of the shares
of Common Stock 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.
PLAN OF DISTRIBUTION
The Company has been advised by the Registered Stockholder that all or a
portion of the shares of Common Stock offered by this Prospectus may be offered
for sale, from time to time, by the Registered Stockholder 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 Stockholder may effect these transactions by
selling the shares of Common Stock offered hereby directly to one or more
purchasers or to or through other broker-dealers or agents including: (a) in a
block trade in which the broker or dealer so engaged will attempt to sell the
shares as agent, but may position and resell a portion of the block as principal
to facilitate the transaction; (b) in purchases by another 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. 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 Stockholder has made no
arrangement with any brokerage firm (other than itself) for the sale of the
shares of Common Stock offered hereby. The Company has been advised by the
Registered Stockholder that it presently intends to dispose of the shares of
Common Stock offered hereby through itself or through other broker-dealers in
ordinary brokerage transactions at market prices prevailing at the time of the
sale. However, depending on market conditions and other factors, the Registered
Stockholder may also dispose of the shares through one or more of the other
methods described above. Concurrently with sales under this Prospectus, the
Registered Stockholder may effect other sales of the shares of Common Stock
offered hereby under Rule 144 or other exempt resale transactions. There can be
no assurance that the Registered Stockholder will sell any or all of the shares
of Common Stock offered hereby.
The Registered Stockholder is an "underwriter" within the meaning of the
Securities Act, in connection with the sale of the Shares offered hereby. Any
other broker-dealers or agents who act in connection with the sale of the Shares
may also be deemed to be underwriters. Profits on any resale of the Shares by
the Registered Stockholder and any discounts, commissions or concessions
received by any such broker-dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act.
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<PAGE>
Any broker-dealer participating in such transactions as agent may receive
commissions from the Registered Stockholder (and, if they act as agent for the
purchaser of such shares, from such purchaser). Broker-dealers may agree with
the Registered Stockholder to sell a specified number of shares of Common Stock
offered hereby 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 of Common Stock at the price required
to fulfill the broker-dealer commitment to the Registered Stockholder.
Broker-dealers who acquire shares of Common Stock offered hereby 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 of Common Stock 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 of Common Stock offered hereby 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 of Common Stock offered hereby, the Company and the
Registered Stockholder 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 Stockholder
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
of Common Stock offered hereby.
The Registered Stockholder has agreed that it 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
April 15, 1999 and the thirty calendar days prior to July 15, 1999. The
Registered Stockholder has further agreed that it 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 SEC.
The Registered Stockholder will pay all commissions, transfer taxes and
other expenses associated with the sales of shares of Common Stock by the
Registered Stockholder. 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 Stockholder against certain liabilities, including,
without limitation, liabilities arising under the Securities Act.
The Company will not receive any proceeds from the exercise of the
Registered Stockholder Warrants, which may only be exercised pursuant to a
cashless exercise by the Registered Stockholder. The Company will not receive
any of the proceeds from the sale of the shares of Common Stock offered hereby
by the Registered
Shareholder.
Pursuant to the terms of the Placement Agent Agreement, the Registered
Stockholder is entitled to receive (i) a cash placement fee equal to seven
percent (7%) of the purchase price of any and all securities placed pursuant to
the Equity Line Agreement; (ii) a non-accountable expense allowance equal to one
23
<PAGE>
percent (1%) of the purchase price of any and all securities placed up to the
aggregate purchase price of the first $10 million of securities placed pursuant
to the Equity Line Agreement; (iii) a one time non-accountable expenses
allowance equal to one hundred thousand dollars for any and all securities
placed in excess of the aggregate purchase price of the first $10 million of
securities placed pursuant to the Equity Line Agreement (such non-accountable
expenses allowance to be paid upon placement of any securities resulting in an
aggregate purchase price in excess of $10,100,000 placed pursuant to the Equity
Line Agreement); and (iv) an amount of securities equal to ten percent (10%) of
all Common Stock issued pursuant to the Equity Line Agreement and an amount of
securities equal to ten percent (10%) of all warrants issued pursuant to the
Equity Line Agreement.
In order to comply with the securities laws of certain states, if
applicable, the shares of Common Stock offered hereby may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the shares of Common Stock offered hereby may not be
sold unless such 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".
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
("Class B Stock") and 17,200 shares are designated as 5% Adjustable Convertible
Class C Preferred Stock ("Class C Stock"). As of February 28, 1999, there were
70,898,581 shares of Common Stock outstanding held by 5,863 stockholders of
record, 121 shares of Class C Stock outstanding held by 3 holders of record and
no shares of Class 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 Registered Stockholder 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 Registered Stockholder 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 Registered Stockholder 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 Registered
Stockholder Warrants. The holder of the Registered Stockholder Warrants will not
possess any rights as a stockholder of the Company until such holder exercises
the Registered Stockholder Warrants. The Registered Stockholder Warrants may be
exercised upon surrender on or before the expiration date of the relevant
Registered Stockholder 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 Registered Stockholder
Warrant is being exercised. The exercise price is payable only pursuant to a
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<PAGE>
"cashless exercise," in which that number of shares of Common Stock underlying
the Registered Stockholder 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 Registered Stockholder 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 Registered Stockholder Warrant. The
Registered Stockholder Warrant holder may be expected to exercise the Registered
Stockholder 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 Registered Stockholder Warrants.
Furthermore, the terms on which the Company could obtain additional capital
during the life of the Registered Stockholder Warrants may be adversely
affected.
This Prospectus does not cover any shares of Common Stock issued or
issuable to the Institutional Investors or shares of Common Stock issuable upon
exercise of warrants issued or issuable to the Institutional Investors pursuant
to the Equity Line Agreement, which shares have been separately registered for
resale under the Securities Act and are the subject of a separate Prospectus.
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 expresses an unqualified opinion and includes an
explanatory paragraph regarding substantial doubt about the Company's ability to
continue as a going concern), 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
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<PAGE>
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 SEC, 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.
ADDITIONAL INFORMATION
The Company has filed with the SEC 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 SEC. 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 SEC 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 SEC as well as copies of the Registration
Statement can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC'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 SEC 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 SEC'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". 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.
26
<PAGE>
GLOSSARY OF TERMS
Adjustment Date . . . . April 15, 1999 and July 15, 1999.
Adjustment Price . . . The 10-day low closing bid price immediately
preceding an Adjustment Date.
BLA . . . . . . . . . . Biologics License Application, which is submitted to
the FDA.
burn rate . . . . . . . Cash depletion rate.
CGMP . . . . . . . . . Current Good Manufacturing Practices, an industry
standard protocol applicable to manufacturing
practices and processes.
Class B Stock . . . . . Series B Convertible Preferred Stock of the Company.
Class C Stock . . . . . 5% Adjustable Convertible Class C Preferred Stock of
the Company.
Class C Warrants . . . Warrants to purchase shares of Common Stock at an
exercise price of $0.6554, which are issuable upon
conversion of shares of Class C Stock and which
expire in April 2002.
ELA . . . . . . . . . Establishment License Application, which is submitted
to the FDA.
Equity Line
Agreement . . . . . . . Regulation D Common Stock Equity Line Subscription
Agreement dated as of June 16, 1998, between the
Company and the Institutional Investors, as amended.
Exchange Act . . . . . Securities Exchange Act of 1934, as amended.
FDA . . . . . . . . . . United States Food and Drug Administration.
HCFA . . . . . . . . . Health Care Financing Administration.
HMOs . . . . . . . . Health maintenance organizations.
IND . . . . . . . . . Investigational new drug application for human
clinical testing, which is submitted to the FDA.
NHL . . . . . . . . . Non-Hodgkin's lymphoma.
Notice Date . . . . . The date on which written notice of a put is given by
the Company to the Institutional Investors pursuant
to the Equity Line Agreement
PLA . . . . . . . . . Product License Application, which is submitted to
the FDA
Placement Agent
Agreement . . . . . . Placement Agent Agreement dated as of June 16, 1998,
between the Company and the Registered Stockholder,
as successor in interest to Swartz.
27
<PAGE>
put . . . . . . . . . A sale of shares of Common Stock by the Company to
the Institutional Investors pursuant to the Equity
Line Agreement
Purchase Price . . . . The price per share for the shares of Common Stock to
be put by the Company to the Institutional Investors
determined by dividing the total dollar amount of the
put (up to $2,250,000, which amount may be increased
up to $5,000,000 by mutual agreement of the Company
and the Institutional Investors) 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).
Registered
Stockholder . . . . . Dunwoody Brokerage Services, Inc.
Registered Stock-
holder Warrants . . . Warrants issued and issuable to the Registered
Stockholder pursuant to the Placement Agent
Agreement.
Registration Rights
Agreement . . . . . . Registration Rights Agreement dated as of June 16,
1998, by and among the Company, the Institutional
Investors and the Registered Stockholder, as
successor in interest to Swartz.
SEC . . . . . . . . . Securities and Exchange Commission.
Securities Act . . . . Securities Act of 1933, as amended.
Swartz . . . . . . . Swartz Investments, LLC, a Georgia limited liability
company doing business as Swartz Institutional
Finance.
TNT . . . . . . . . . Tumor Necrosis Therapy, a universal tumor targeting
therapy potentially capable of treating a wide range
of solid tumors.
VEAs . . . . . . . . . Vasopermeation Enhancement Agents, which 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
which are believed to act by increasing the
concentration of killing agents at the core of the
tumor.
VTAs . . . . . . . . . Vascular Targeting Agents, which are multi-functional
molecules that target the capillaries and blood
vessels of solid tumors and are believed to act by
destroying the vasculature of solid tumors.
28
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================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
----------------------------------
TABLE OF CONTENTS
PAGE
----
Incorporation of Certain Documents By Reference ...................... 2
Our Company .......................................................... 4
Risk Factors of Our Company .......................................... 6
The Equity Line Agreement............................................. 18
Use of Proceeds....................................................... 20
The Registered Stockholder............................................ 21
Plan of Distribution.................................................. 22
Description of Securities............................................. 24
Legal Matters......................................................... 25
Experts............................................................... 25
Indemnification of Directors and Officers............................. 25
Additional Information................................................ 26
Glossary of Terms..................................................... 27
-------------------------------
2,631,389 Shares
(Techniclone TECHNICLONE
Logo CORPORATION
Here)
COMMON STOCK
-----------------
PROSPECTUS
-----------------
March , 1999
================================================================================
<PAGE>
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........................ $ 912
Printing and engraving expenses............. 2,500
Legal fees and expenses..................... 20,000
Blue Sky fees and expenses.................. 2,500
Accounting fees and expenses................ 15,000
Miscellaneous............................... 5,000
------
Total............................... $ 45,912
=======
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 SEC 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),
II-1
<PAGE>
be indemnified for expenses actually and reasonably incurred, judgments, fines
and 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.
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<PAGE>
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
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 SEC 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 SEC 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 SEC
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 SEC 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 SEC 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 SEC on or about January 24, 1996)
II-3
<PAGE>
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 SEC 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 SEC
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 SEC 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 SEC 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 SEC 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 SEC
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 SEC
on or about June 29, 1998)
II-4
<PAGE>
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
(Incorporated by reference to the exhibit
contained in Registration's Registration
Statement on Form S-3 (File No. 333-63773)
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 (Incorporated by reference
to the exhibit contained in Registration's
Registration Statement on Form S-3
(File No. 333-63773)
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 SEC on or about February
8, 1996)
II-5
<PAGE>
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 SEC 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 SEC 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 SEC 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)
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<PAGE>
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 SEC 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 SEC on or about
November 24, 1997)
10.44............ Severance Agreement between Lon H. Stone and
the Registrant dated July 28, 1998
(Incorporated by reference to the exhibit
contained in Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended October
31, 1998, as filed with the SEC on or about
December 15, 1998)
10.45............ Severance Agreement between William (Bix) V.
Moding and the Registrant dated September 25,
1998 (Incorporated by reference to the exhibit
contained in Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended
October 31, 1998, as filed with the SEC on or
about December 15, 1998)
10.46............ Option Agreement dated October 23, 1998
between Biotechnology Development Ltd. and the
Registrant (Incorporated by reference to the
exhibit contained in Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter
ended October 31, 1998, as filed with the SEC
on or about December 15, 1998)
23.1............. Consent of Rutan & Tucker, LLP (contained in
Exhibit 5)*
23.2............. Consent of Deloitte & Touche LLP*
- -------------------------
* Filed herewith.
II-7
<PAGE>
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 SEC 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.
(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
II-8
<PAGE>
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-9
<PAGE>
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 on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Tustin, State of California, on February 28,
1999
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 on Form S-3 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 February 28, 1999
- ----------------------------- Officer and Director (Principal
Larry O. Bymaster Executive Officer)
/s/ Steven C. Burke Chief Financial Officer February 28, 1999
- ----------------------------- (Principal Financial and
Steven C. Burke Principal Accounting Officer)
/s/ Thomas R. Testman Chairman of the Board February 28, 1999
- -----------------------------
Thomas R. Testman
/s/ Rock Hankin Director February 28, 1999
- -----------------------------
Rock Hankin
/s/ William C. Shepherd Director February 28, 1999
- -----------------------------
William C. Shepherd
/s/ Carmelo J. Santoro, Ph.D. Director February 28, 1999
- -----------------------------
Carmelo J. Santoro, Ph.D.
/s/ Clive R. Taylor Director February 28, 1999
- -----------------------------
Clive R. Taylor, M.D., Ph.D.
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
5 Opinion of Rutan & Tucker, LLP _____
23.2 Consent of Deloitte & Touche LLP _____
<PAGE>
EXHIBIT 5
March 5, 1999
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 March 5, 1999. The Registration Statement relates to
the resale of up to 2,631,389 shares of common stock, $.001 par value, of the
Company by Dunwoody Brokerage Services, Inc. (the "Shares").
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 by the Company 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, and when issued by the Company upon receipt of payment therefor
(to the extent required), the Shares 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.
Respectfully submitted,
/s/ Rutan & Tucker, LLP
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Techniclone Corporation (the Company) 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
March 4, 1999
