<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-19153
------------------------
VIMRX PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its Charter)
------------------------
Delaware 06-1192468
(State or other jurisdiction of (IRS Employer
Incorporation of organization) Identification No.)
2751 Centerville Road, Suite 210, Wilmington, Delaware 19808
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 998-1734
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or four such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate number of Registrant's shares outstanding on November 10, 1997
was 55,498,626 shares of Common Stock, $.001 par value.
------------------------
<PAGE>
VIMRX PHARMACEUTICALS, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996.............................. 3
Consolidated Statements of Operations (unaudited) for the
Three and Nine months ended September 30, 1997 and 1996,
and for the Period from Inception through September 30,
1997........................................................... 4
Consolidated Statements of Cash Flows (unaudited) for the
Nine months ended September 30, 1997 and 1996, and for
the Period from Inception through September 30, 1997........... 5
Notes to Financial Statements (unaudited)........................... 6
Item 2. Management's Discussion and analysis of Financial
Condition and Results of Operations.................................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 11
Item 2. Changes in Securities................................................... 11
Item 3. Defaults upon Senior Securities......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders..................... 11
Item 5. Other Information....................................................... 12
Item 6. Exhibits and Reports on Form 8-K........................................ 13
SIGNATURES ............................................................... 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIMRX PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
(In thousands except share data)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(unaudited) 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,235 $ 8,611
Short-term investments 31,391 38,300
Other current assets 121 348
--------------- ---------------
Total current assets 33,747 47,259
Equipment - net 2,917 2,650
Marketable equity securities 286 286
Other assets 351 261
Goodwill 927 1,236
--------------- ---------------
TOTAL $ 38,228 $ 51,692
=============== ===============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1,264 $ 1,903
Term note payable - warrantholder 36 36
Capital leases 472 472
--------------- ---------------
Total current liabilities 1,772 2,411
Team note payable - warrantholder 227 227
Capital leases 194 463
--------------- ---------------
Total liabilities 2,193 3,101
--------------- ---------------
Minority interest in subsidiary 968 2,381
--------------- ---------------
SHAREHOLDER'S EQUITY
Common stock; $0.001 par value, 120,000,000 shares
authorized, 55,498,626 and 54,429,887 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 56 54
Additional paid-in capital 90,919 89,478
Unearned compensation (491) (800)
Unrealized (loss) on investment (47) (143)
Cumulative translation adjustment (44) (8)
Deficit accumulated during the development stage (55,326) (42,371)
--------------- ---------------
Total shareholder's equity 35,067 46,210
--------------- ---------------
TOTAL $ 38,228 $ 51,692
=============== ===============
</TABLE>
3
<PAGE>
VIMRX PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
(In thousands except share data)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, December 30, 1986
-------------------------- ------------------------- (inception) to
1997 1996 1997 1996 September 30, 1997
------------ ------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 3,379 $ 717 $ 10,093 $ 1,693 $ 26,032
Purchased research and development -- 163 1,800 3,105 16,284
Termination of Agreement -- -- -- (464) --
General and administrative 1,517 782 5,645 2,906 19,427
------------ ------------ ------------ ----------- ------------------
4,896 1,662 17,538 7,240 61,743
------------ ------------ ------------ ----------- ------------------
Other (income) expenses:
Royalty payments -- -- 100 100 400
Interest (income) (527) (736) (1,809) (831) (4,760)
Interest expense 35 118 319 531
Provision for losses on notes receivable -- -- -- -- 135
Investment in and advances to research and
development entities charged to expense -- -- -- -- 700
Minority interest in net loss of consolidated
subsidiary (1,086) -- (2,962) -- (3,078)
Other -- net (70) (47) (30) (46) (345)
------------ ------------ ------------ ----------- ------------------
(1,648) (783) (4,583) (458) (6,417)
------------ ------------ ------------ ----------- ------------------
NET LOSS $ 3,248 $ 879 $ 12,955 $ 6,782 $ 55,326
============ ============ ============ =========== ==================
NET LOSS PER SHARE $ .06 $ .02 $ .24 $ .19
------------ ------------ ------------ -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 55,311,877 51,334,833 54,856,335 35,149,061
============ ============ ============ ===========
</TABLE>
4
<PAGE>
VIMRX PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
(In thousands except per share data)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
December 30, 1986
Nine months ended September 30, (inception) to
----------------------------------- September 30,
1997 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (12,955) $ (6,782) $ (55,326)
Adjustments to reconcile net(loss) to net cash
(used in) operating activities:
Depreciation and amortization 794 31 1,048
Amortization of debt discount 198 200
Interest expense settled through issuance of stock 72
Consulting fees settled through issuance of stock 149 75
Research and development expenses to be settled through
the issuance of stock (464)
Provision for losses on notes receivable 135
Investment in and advances to research and development
entities charged to expense 700
(Gain) on sale of subsidiaries (2,889)
Noncash compensation 309 888
Purchased in process research and development 1,200 1,562 18,574
Loss from disposal of equipment 20
Deferred financing cost 310 310
Minority interest in net loss (1,913) (2,029)
Changes in operating assets and liabilities:
Decrease in prepayment under research contracts
(Increase) in organization costs (3)
Decrease in other current assets and other assets 136 65 (63)
Increase (decrease) in accounts payable and accrued
expenses (641) 18 (525)
--------------- --------------- ---------------
Net cash (used in) operating activities (13,070) (4,913) (38,813)
--------------- --------------- ---------------
Cash flows from investing activities:
Net (purchases) sales of short-term investments 7,006 (48,386) (31,273)
Payment for acquisition, net of cash acquired (2,011)
Purchase of marketable securities (450)
Purchases of equipment (686) (585) (1,726)
Proceeds from sale of equipment 39
Loans to DNA Pharmaceuticals Inc. (296)
Repayment of DNA Pharmaceuticals Inc. Loans 161
Loans to Ribonetics GmbH (600)
Investment in and loan to CambES, Ltd. (325)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 6,320 (48,971) (36,481)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sales of preferred and common stock net 4,200 24,836
Proceeds from issuance of common stock in connection with
exercise of warrants/options 745 51,029 51,856
Purchase of treasury stock (8)
Proceeds from bridge loans 3,141
Repayment of bridge loans (2,000) (2,500)
Repayment of leased obligations (335) (335)
Issuance of convertible demand notes payable 600
Return of capital (14)
--------------- --------------- ---------------
Net cash provided by financing activities 410 53,229 77,576
--------------- --------------- ---------------
Effect of exchange rate used in changes on cash (36) (47)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (6,376) (655) 2,235
Cash and cash equivalents at beginning of period 8,611 2,219
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,235 $ 1,564 $ 2,235
=============== =============== ===============
</TABLE>
5
<PAGE>
VIMRX PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of VIMRX Pharmaceuticals Inc. and
subsidiaries (the "Company") herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) and
in the opinion of management, reflect all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These financial statements and the
notes thereto should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996. The results for the interim
periods are not necessarily indicative of the results for the full fiscal
year.
(2) Principles of Consolidation
Consolidated Financial Statements include the accounts of VIMRX
Pharmaceuticals Inc., Innovir Laboratories, Inc., and all subsidiaries
which are at least majority owned. All significant inter-company
transactions and balances have been eliminated.
(3) Cash Flows and Supplemental Cash Flow Disclosures
For purposes of the statements of cash flows, the Company considers
investments with original maturities of up to 90 days to be cash
equivalents.
(4) Royalty Payments
Royalty payments represent the annual $100,000 minimum royalty payment
under the Company's license agreement with New York University Medical
Center and the Weizmann Institute of Science in Israel.
(5) Research Agreements
On March 7, 1997, the Company entered into a research agreement with
Columbia University whereby the Company, through a newly established
subsidiary, VIMRX Genomics, Inc. (VGI) will provide $30 million in funding
to Columbia over the next five years at approximately $6 million per year
in exchange for the right to exclusively license technology developed by
Columbia. Columbia has a 10% interest in VIMRX Genomics, Inc. (valued at
$500,000), and has received 200,000 common shares of the Company (valued at
$700,000) which collectively ($1.2 million) have been allocated to
purchased research and development.
On March 28, 1997, the Company entered into a research agreement with
Columbia University whereby the Company will provide $2.7 million funding
over 3 years to research and develop Blood Factor IXai.
6
<PAGE>
During the second quarter of 1997, the Company acquired the rights to two
compounds, Blood Factor IXai (VM201) and a wound healing compound (VM301)
for cash payments aggregating $400,000. These payments and fees paid in
relation to the agreement between Columbia and VGI ($200,000) were
allocated to purchased research and development ($600,000).
(6) Asset Purchase Agreement
On June 12, 1997, the Company signed a letter of intent with Baxter
Healthcare Corporation (Baxter) to form a new company.
Pursuant to the definitive asset purchase agreement dated October 10, 1997,
certain of the assets of the Immunotherapy Division of Baxter Biotech, a
division of Baxter (the Business) will be transferred to a new company, yet
to be named, in which the Company will hold a majority ownership (80.5%)
and Baxter will hold a minority ownership (19.5%). The Company will issue
to Baxter 11 million shares of common stock and convertible preferred
shares with a nominal value $40 million. To the extent the 11 million
shares of common stock are worth less than $50 million at the time of
closing (based upon the average of the per share closing prices for the 15
trading days ending five days prior to the closing date), Baxter will
receive additional convertible preferred shares. The conversion price for
the preferred shares will be determined according to the closing prices of
the Company's common stock within the 18 month period following the closing
of the transaction, subject to a floor of $5.50 per share and a ceiling of
$7.50 per share. Baxter will purchase $30 million and the Company will
purchase $10 million of the new company's 6 1/2% subordinated debentures to
provide initial operating funds. The new company will pay Baxter milestone
payments, related to regulatory approvals, of up to $21 million over
several years. Baxter will retain its exclusive license to the CD34
antibody used in selection technology and sublicense it to the new company.
Baxter will have one representative on the new company's board of directors
and one representative on the Company's board of directors. The closing is
subject, among other conditions, to regulatory approval and the approval by
the stockholders of the Company, which is anticipated to occur in the
fourth quarter of 1997.
(7) New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This Statement establishes standards
for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
Statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings Per Share," and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim period;
earlier application is not permitted. This Statement requires restatement
of all prior-period EPS data presented. The adoption of this Statement will
not have any impact on the Company's EPS disclosure, as the Company's stock
options and warrants are anti-dilutive and will be excluded from the
denominator of
<PAGE>
earnings per share; thus earnings per common share is equal to basic
earnings per share as computed under SFAS No. 128
The FASB recently issued three new accounting standards, Statement No. 129,
Disclosure of Information about Capital Structure, Statement No. 130,
Reporting Comprehensive Income, and Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, and if adopted will be
effective for the period presented after December 31, 1997. The company is
evaluating the effect of these new statements.
8
<PAGE>
VIMRX PHARMACEUTICALS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996. The Company is i the development stage and
has had no operating revenues since its organization in December 1986.
Three Months Ended September 30, 1997 and 1996
Total operating expenses increased by $3,234,000, or 195%, due to a $2,662,000
increase in research and development expenses, a $163,000 decrease in purchased
research and development, and a $735,000 increase in general and administrative
expenses.
Research and development expenses increased $2,662,000 (371%) due to the
inclusion of the New York operations of Innovir Laboratories, Inc. ("Innovir"),
a majority interest of which was acquired by the Company on December 23, 1996
($918,000), increased expenses related to clinical trials for other research on
hyperiein and VM201 ($442,000), funding paid under the collaboration agreement
with Colunbia University by VIMRX Genomics Inc. ($1,175,000) and increases in
other expenses.
General and administrative expenses increased $735,000 (94%) principally due to
the inclusion of Innovir's operations ($689,000) and increases in European
operations ($64,000), offset by decreases in other expenses.
Interest income decreased $209,000 (28%), due to a decrease in funds available
for investment (see "Liquidity and Capital Resources") and a higher effective
interest rate. Interest expense relates to equipment leased by Innovir.
The minority interest in the net loss of consolidated subsidiaries ($1,086,000)
results from the interest of minority stockholders in Innovir and VIMRX
Genomics, Inc., two of the Company's subsidiaries.
Other net income increased $23,000 due to capital gains on short-term
investments.
The foregoing resulted in a $2,369,000 (270%) increase in the net loss for the
three-month period ended September 30, 1997, as compared to the three months
period ended September 30, 1996.
9
<PAGE>
Nine Months Ended September 30, 1997 and 1996
Operating expenses for the nine months ended September 30, 1997 increased
$10,298,000 (142%) from the same period in 1996, due principally to acquisitions
of companies and technologies made at various times during 1996 and 1997. During
that period, research and development expenses increased $8,400,000 (496%),
general and administrative expenses increased $2,739,000 (94%). These increases
were offset by a $1,305,000 (39%) decrease in purchased research and
development. In addition, the 1996 period experienced a one-time $464,000
credit for termination of agreement.
The $8,400,000 increase in research and development expense resulted from the
acquisition of Innovir Laboratories, Inc. which was included in the financial
statements from the date of acquisition, December 23, 1996 ($3,014,000),
increased operations in Europe ($1,025,000), funding paid under the
collaboration agreement with Columbia University by VIMRX Genomics, Inc.
($4,332,200) and increased in expenses related to clinical trials and other
expenses.
General and administrative expenses increased $2,739,000 principally due to the
inclusion of Innovir's operations ($2,223,000) and increased compensation
expense and public relations expenses partially offset by decreases in legal,
financing and other costs.
The purchased research and development expense recorded for the nine months
ended September 30, 1997 ($1,800,000) relates to the issuance of compound stock
of the Company to Colunbia University, the purchase of compound VM201 from
Columbia University and the purchase of compound VM301. The purchased research
and development expense recorded for the nine months ended September 30, 1996
relates to the acquisition of Ribonetics GmbdH ($3,105,000).
Interest income increased $978,000, due to an increase in funds available for
investment and a higher effective interest rate. Interest expenses decreased
$201,000 (63%) due to the bridge loan that was repaid in June 1996.
The minority interest in the net loss of consolidated subsidiaries ($2,962,000)
results from the interest of minority stockholders in Innovir and VIMRX
Genomics, two of the Company's subsidiaries.
The foregoing resulted in a $6,173,000 increase in the net loss for the nine
months ended September 30, 1997.
10
<PAGE>
Liquidity and Capital Resources
The Company is in the development stage, has realized no operating revenues and
has financed its operation through the sale of its securities.
The Company had $33,626,000 in cash, cash equivalents and marketable securities
held for sale at September 30, 1997, as compared to $46,911,000 at December 31,
1996 and working capital of $31,975,000 at September 30, 1997, as compared to
$44,848,000 at December 31, 1996. The decrease in cash and working capital
position results from the funds expended in operations and the expansion and
upgrade of Innovir's laboratory facilities.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products.
Based on current projections, which are subject to change, the Company's
management believes that the present balance of cash, cash equivalents and
marketable securities held for sale is sufficient to fund its operations for
about two years, assuming no capital infusions or revenues are received (it is
management's believe, however, that such capita infusions and revenues will
occur). Thereafter, the Company will require additional funds, which it may seek
to raise through public or private equity or debt financings, collaborative or
other arrangements with corporate sources, or through other sources of
financing.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
11
<PAGE>
Item 5. Other Information.
In May 1997, Registrant entered into an employment agreement with L. William
McIntosh pursuant to which Mr. McIntosh serves as Senior Vice President,
Business Development and Finance and Chief Financial Officer of Registrant. The
agreement provides for a base salary of $160,000 and an annual cash bonus based
on performance criteria, with an initial cash bonus targeted to be at least 33%
of Mr. McIntosh's base compensation. Mr McIntosh is entitled to four weeks
vacation and to participate in Registrant's medical, dental, life and long-term
disability insurance and other benefit programs. Pursuant to the agreement, Mr.
McIntosh was granted stock options to purchase 400,000 shares of Common Stock,
238,000 of which are non-incentive stock options for federal income tax purposes
and are exercisable at $1.906 per share, and the 162,000 share balance of which
are incentive stock options for federal tax purposes and are exercisable at
$2.469 per share (the closing sale price of the Common Stock on the Nasdaq Stock
Market on the date immediately preceding the date of grant). The options
collectively are exercisable at the rate of 100,000 shares (25%) per annum
commencing May 19, 1998 (one year from the date of grant), subject to the
acceleration of exercisability following the occurrence of certain events, and
terminate May 19, 2008, subject to earlier termination following the occurrence
of certain events. Mr. McIntosh's employment may be terminated by Registrant for
cause, or without cause upon 60 days' notice by either Registrant or Mr.
McIntosh. In the event Mr. McIntosh's employment is terminated by Registrant
without cause, or in the event Mr. McIntosh terminates his employment following
certain actions by Registrant (including a material reduction in Mr. McIntosh's
duties), Mr. McIntosh is entitled to receive a severance payment equal to six
months' of his base salary, payable in monthly installments. The agreement
contains certain non-competition and confidentiality provisions, and provides
that Registrant may obtain "key man" life insurance on the life of Mr. McIntosh
for Registrant's benefit. Mr. McIntosh received a $40,000 signing bonus on
execution of the agreement.
Pursuant to the definitive asset purchase agreement dated October 10, 1997,
between Registrant and Baxter Healthcare Corporation("Baxter"), certain of the
assets of the Immunotherapy Division of Baxter Biotech, a division of Baxter
(the "Business") will be transferred to a new company, yet to be named, in which
Registrant will hold a minority ownership (80.5%) and Baxter will hold a
minority ownership (19.5%). Registrant will issue to Baxter 11 million shares of
common stock and convertible preferred shares with a nominal value $40 million.
To the extent the 11 million shares of common stock are worth less than $50
million at the time of closing (based upon the average of the per share closing
prices for the 15 trading days ending five days prior to the closing date),
Baxter will receive additional convertible preferred shares. The conversion
price for the preferred shares will be determined according to the closing
prices of Registrant's common stock within the 18 month period following the
closing of the transaction, subject to a floor of $5.50 per share and a ceiling
of $7.50 per share. Baxter will purchase $30 million and Registrant will
purchase $10 million of the new company's 6 1/2% subordinated debentures to
provide initial operating funds. The new company will pay Baxter milestone
payments, related to regulatory approvals, of up to $21 million over several
years. Baxter will retain its exclusive license to the CD34 antibody used in
selection technology and sublicense it to the new company. Baxter will have one
representative on the new company's board of directors and one representative on
Registrant's board of directors. The closing is subject, among other conditions,
to regulatory approval and the approval by the stockholders of Registrant, which
is anticipated to occur in the fourth quarter of 1997.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
10.24 Copy of Employment Agreement dated May 19, 1997 between Registrant and L.
William McIntosh.
27. Financial Data Schedule
Reports on Form 8-K:
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1997
VIMRX PHARMACEUTICALS INC.
a Delaware Corporation
(Registrant)
By: /s/ Richard L. Dunning
-----------------------------
Richard L. Dunning
President and
Chief Executive Officer
By: /s/ Francis M. O'Connell
-----------------------------
Francis M. O'Connell
Chief Accounting Officer
14
<PAGE>
Exhibit 10.24
VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
May 19, 1997
L. William McIntosh
202 Somerset Court
Lansdale, PA 19446
Dear Bill:
This letter agreement sets forth in all respects the agreement between you
and VIMRx Pharmaceuticals Inc. ("VIMRx") as to the terms and conditions of your
employment by VIMRx.
1. You will be employed as Senior Vice President, Business Development and
Finance and Chief Financial Officer of VIMRx. You will report to the President
and Chief Executive Officer of VIMRx. At the option of the Board of Directors
of VIMRx, you agree to serve, for no additional compensation, as a director
and/or officer of any or all of VIMRx's subsidiaries throughout the term of your
employment. The place of employment will be at the offices of VIMRx in
Wilmington, Delaware.
2. The term of your employment will commence on May 19, 1997, and shall
continue until terminated under the provisions of Paragraph 6 below. You will
be a full-time employee of VIMRx and you agree to devote your business and
professional time, energy and skills to the affairs of VIMRx and its
subsidiaries and to serve VIMRx faithfully and to the best of your ability.
3. (a) As compensation for the services to be rendered by you hereunder,
VIMRx will pay you (i) a signing bonus of $40,000 payable on your execution and
delivery of this letter agreement, and (ii) a base salary of $160,000 per annum,
payable in installments in accordance with VIMRx's regular payroll practices,
and (iii) an annual cash bonus to be determined in accordance with the
provisions of subparagraph 3(d).
(b) As additional compensation, VIMRx shall award you, effective upon
commencement of your employment, Incentive and Non-Incentive Stock Options to
purchase 400,000 shares of VIMRx Common Stock pursuant to VIMRx's 1990 Incentive
and Non-Incentive Stock Option Plan (the "1990 Plan") and 1997 Incentive and
Non-Incentive Stock Option Plan (the "1997 Plan") (collectively, the "Plans"),
subject to approval of the Board of Directors of VIMRx and approval of certain
amendments to the 1990 Plan and the adoption of the 1997 Plan by the
shareholders of VIMRx. Such options will become exercisable in four equal
increments of 100,000 shares each on the first, second, third and fourth
anniversaries, respectively, of the date your employment commences. The
exercise price of the Incentive options will be the closing price of VIMRx
Common Stock on the NASDAQ Stock Market on the trading day immediately preceding
the date you commence employment; the exercise price of the Non-Incentive
options will be $1.906 per share. Subject to the provisions of the Plans and
the Incentive and Non-Incentive Stock Option
15
<PAGE>
Agreements to be entered into pursuant to the Plans regarding termination of
employment, the exercisability of all options subject to the Option Agreement
shall expire ten years from the date of grant.
(c) You will be eligible to participate in VIMRx's medical, dental,
life and long-term disability insurance and other benefit programs, including
any 401(k) or other retirement plans, from time to time in effect for VIMRx's
senior executives, your participation in any such plans to be in accordance with
their respective terms and conditions.
(d) Your performance will be reviewed annually by VIMRx's Board of
Directors,in connection with which your annual cash bonus and possible
increases base compensation for the future will be discussed, it being
understood any such decisions shall be within the discretion of VIMRx's Board of
Directors and/or its Compensation Committee (or other similar committee duly
appointed by VIMRx's Board of Directors). However, it is further understood that
the annual cash bonus is initially targeted at at lease 33% of base
compensation, assuming satisfactory performance, and that your bonus for the
first year of employment shall be not less than $42,000.
4. You will be entitled to take up to an aggregate of four weeks of
vacation each calendar year as business conditions permit. VIMRx shall not be
required to provide any additional compensation to you for vacation time not
utilized by you.
5. VIMRx will reimburse you for all reasonable and documental business
expenses incurred by you on behalf of VIMRx during the term of your employment
hereunder consistent with VIMRx's expense reporting policy (as the same may be
modified from time to time). Notwithstanding anything herein on the contrary,
the provisions of this Paragraph 5 shall survive the effective date of
termination of this Agreement for a period of six months.
6. (a) Your employment hereunder may be terminated at any time by VIMRx
for cause (as such term is hereinafter defined) or, upon at least 60 days' prior
written notice by you or by VIMRx, without cause.
(b) In the event your employment is terminated by VIMRx without cause,
this Agreement shall terminate immediately of the effective date of termination
of your employment, provided, however, that:
(i) you will be paid six months' base salary as severance in
monthly installments (in arrears) beginning the first full month following the
cessation of your employment with VIMRx;
(ii) you will be entitled to receive any accrued but unpaid salary
earned by you through the effective date of such termination.
(c) No severance shall be paid or payable to you in the event your
employment is terminated for cause, or you voluntarily resign from your
employment with VIMRx, in which events this Agreement shall terminate
immediately upon the effective date of termination of your employment or upon
the effective date of your resignation, respectively; provided, however, that
VIMRx shall nonetheless be obliged to pay you any accrued but unpaid salary
earned by you through the date of such termination.
<PAGE>
(d) For purposes of this Agreement, termination for "cause" shall mean
termination due to any or more of the following; (i) if you are indicted for
committing a felony or a decision or determination is rendered by any court or
governmental authority that you have committed any act involving fraud, willful
misconduct, dishonesty, breach of trust or moral turpitude; (ii) if you
willfully breach your duty of loyalty to, or commit an act of fraud or
dishonesty upon, VIMRx; (iii) if you demonstrate gross negligence or willful
misconduct in connection with your employment; (iv) if, in the reasonable, good
faith opinion of a majority of VIMRx's whole Board of Directors (excluding
yourself, if you shall then be a director of VIMRx), you engage in personal
misconduct of such a material nature as to render your presence as an officer of
VIMRx detrimental to VIMRx or its reputation and you fail to cure the same
within five days after notice thereof from VIMRx; or (v) if you commit a
material breach of or a default under any of the terms or conditions of this
Agreement and you fail to cure such breach or default within ten days after
prior written notice thereof from VIMRx.
(e) Your employment hereunder shall terminate immediately upon your
death or "permanent disability" (as such term is hereinafter defined). In either
such event, this Agreement shall terminate immediately upon the cessation of
your employment; provided, however, you (or your legal representative, as the
case may be) will be entitled to receive any accrued but unpaid salary earned by
you through the date of such termination, plus severance in monthly
installments (in arrears), beginning the first full month following the date of
such termination, in an aggregate amount equal to the positive difference, if
any, between (x) the base salary you would have received hereunder for the six
months immediately following such termination date had your employment continued
for such six month period, and (y) the total monies paid or payable to you with
respect to such six month period under the long-term disability insurance policy
or policies maintained by VIMRx for your benefit, if any. For purposes of this
Agreement, the term "permanent disability" shall have the meaning set
forth in the long-term disability insurance policy or policies then maintained
by VIMRx for the benefit of its employees, or if no such policy shall then be in
effect, or if more than one such policy shall then be in effect in which the
term "permanent disability" shall be assigned different definitions, then the
term "permanent disability" shall be defined for purposes hereof to mean any
physical or mental disability or incapacity which renders you incapable of fully
performing the service required of you in accordance with your obligations
hereunder for a period aggregating 120 days during any twelve-month period.
(f) In the event of occurrence of any of the following events, you
shall have the right to terminate your employment with VIMRx on at least 60
days' notice. Subject to the foregoing provisions of this Paragraph 6, in the
event such notice is given by you within 30 days of any one or more of such
events, such termination of employment shall be deemed termination of your
employment by VIMRx, without "cause" within the meaning of this Paragraph 6:
(i) a material breach of or default under this Agreement by VIMRx
which is not cured by VIMRx within ten (10) days after its receipt of written
notice thereof from you;
(ii) a material reduction in your duties by VIMRx's Board of
Directors (not arising from any physical or mental disability you may sustain)
which would be inconsistent with the position of Senior Vice President -
Business Development and Finance of VIMRx or such other executive position to
which you may be assigned and the same shall not have been alleviated by VIMRx's
Board of Directors with ten (10) days after its receipt of written notice
thereof from you.
17
<PAGE>
7. You hereby agree that you shall not, directly or indirectly, during the
term of your employment hereunder and until the expiration of six months after
you cease to be so employed by VIMRx, own, manage, operate, join, control or
become employed by, or render any services of an advisory nature or otherwise,
or participate in the ownership, management, operation or control of, or
otherwise be connected in any manner with, any business competitive with the
business of VIMRx or any of its directly or indirectly, wholly or partially
owned subsidiaries without VIMRx's prior written consent.
8. (a) You further hereby covenant and agree that you will not at any time
during, or (a) for a period of three (3) years following the termination of,
your employment with VIMRx, reveal, divulge or make known to any person or
entity any secrets or confidential information (whether oral, written, or
electronically encoded) whatsoever, of or concerning VIMRx or any of its
directly or indirectly, wholly or partially owned subsidiaries or its business
or anything connected therewith, all of which is and shall remain the property
of VIMRx and shall be returned by you to VIMRx (including all copies)
immediately upon any termination of your employment (or earlier, if requested by
VIMRx), or (b) for a period of three (3) years following the termination of your
employment with VIMRx, directly or indirectly entice away from VIMRx's
employment, retain or otherwise engage, any employee of VIMRx, or attempt to do
any of the foregoing.
(b) For purposes hereof, confidential information shall not include any
information which: (i) is or becomes generally available to the public other
than as a result of a wrongful disclosure by you or your representatives; (ii)
was known by you on a non-confidential basis prior to its disclosure to you by
VIMRx or its representatives; (iii) becomes available to you from a source other
than VIMRx or its representatives, provided that such source is not bound by a
confidentiality agreement with VIMRx or its representatives and otherwise has a
right to disclose the same; or (iv) is required to be disclosed by any
governmental or judicial authority, provided, in such case, that you shall use
your best efforts to notify VIMRx immediately of any such requirement so that
VIMRx shall have an opportunity to contest it.
9. In the event of any breach or threatened breach by you of any one or
more of the provisions of Paragraphs 7 (relating to non-competition) or 8
(relating to non-disclosure and non-enticement of employees) above, VIMRx will
be entitled, in addition to any remedy hereunder or under any applicable law or
in equity, to an injunction restraining the breach of such provisions hereof.
10. You agree that VIMRx may, in its discretion, apply for and take out in
its name and at its own expense, and solely for its benefit, key man life
insurance on you in any amount deemed advisable by VIMRx to protect its
interests, and you agree that you shall have no right, title or interest therein
and further agree to submit to any medical or other examination and to execute
and deliver any application or other instruments in writing reasonably necessary
to effectuate such insurance.
11. You represent and warrant that you are not under any obligation,
restriction or limitation, including but not limited to confidentiality and/or
non-competition restrictions, contractual or otherwise, to any other individual
or entity which would prohibit or impede you from performing your duties and
responsibilities hereunder and that you are free to enter into and perform the
terms and provisions of this Agreement.
18
<PAGE>
12. Notwithstanding anything herein to the contrary, the provisions of
Paragraphs 7, 8, 9 and 11 hereof shall expressly survive the expiration or
termination of this Agreement regardless of the reason for, or cause of, any
such termination.
13. All notices, requests, demands, and other communications provided for
by this Agreement shall be in writing and shall be either personally delivered
(including by couriers such as FedEx) or sent by pre-paid certified mail, return
receipt requested, addressed to the address stated below of the party to which
notice is given, or to such changed address as such party may have fixed by
notice given in accordance with the terms hereof:
TO VIMRx: VIMRx Pharmaceuticals Inc.
c/o Richard L. Dunning, President
2971 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
WITH A COPY TO: Lowell S. Lifschultz
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177-0077
TO Mr. McIntosh L. William McIntosh
202 Somerset Court
Lansdale, PA 19446
Any notice, sent as provided above, shall be deemed given upon receipt at
the address provided for above (or, in the event delivery is refused, the first
date on which delivery was tendered).
14. This Agreement contains the entire agreement and understanding between
the parties relating to the subject matter hereof and supersedes any and all
prior understandings, agreements and representations, written or oral, expressed
or implied, with respect thereto.
15. This Agreement may not be amended, modified, altered or terminated
(other than pursuant to its terms) except by an instrument in writing signed by
the parties.
16. In case any one or more of the provisions of this Agreement shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected thereby.
17. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely therein (without giving effect to the conflict of
law rules thereof).
19
<PAGE>
Kindly indicate your agreement with the foregoing by countersigning the
enclosed duplicate copy of this letter agreement and returning it to me on
behalf of VIMRx.
On behalf of VIMRx, we look forward to a long and mutually rewarding
relationship.
Sincerely,
VIMRx PHARMACEUTICALS INC.
By: /s/ Richard L. Dunning
-----------------------
Richard L. Dunning, President
ACCEPTED AND AGREED TO THIS
19th DAY OF MAY, 1997
/s/ L. William McIntosh
- ------------------------
L. William McIntosh
20
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