SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2751 Centerville Road, Wilmington, Delaware 19808
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(302) 998-1734
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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 for 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock (Common Stock, $.001 par
value) held by non-affiliates of the Registrant was approximately $ 143,019,702
on March 17, 1997 based on the closing sale price of the Common Stock on such
date.
The aggregate number of outstanding shares of Common Stock, $.001 par
value, of Registrant was 54,429,937 on March 17, 1997.
Documents incorporated by reference:
None
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PART I
Item 1. Business.
General
VIMRx Pharmaceuticals Inc. ("VIMRx" or the "Company") is a development
stage company focused on identifying, evaluating, acquiring and commercializing
scientific technologies to be developed by the Company in partnership with
others. The Company is engaged in developing therapeutic and related products
from synthetic hypericin principally for the treatment of viral and retroviral
diseases. The Company also owns approximately 68% of the capital stock of
Innovir Laboratories, Inc. (Nasdaq: INVR) ("Innovir") which, together with its
subsidiaries, is engaged in the research and development of Oligozymes, a new
class of biopharmaceutical agents for the treatment of a wide array of human
diseases. In order to diversify its potential product line and complement the
Company's recent acquisition of a controlling interest in Innovir, the Company
has entered into a research agreement with Columbia University, and continues to
seek emerging innovative technologies to diversify its portfolio of potential
products.
Hypericin
General
The Company's principal product, VIMRxyn(R), is comprised of chemically
synthesized hypericin and, in laboratory tests, has inhibited the infection of
normal cells by targeted viruses. Hypericin is an aromatic polycyclic dione
found in the stem and petals of the common Saint John's wort, a plant which has
been used as a folk remedy since the Middle Ages. Hypericin plant extracts
continue to be used as lay treatments for various disorders. The Company is
investigating utilizing VIMRxyn as a treatment for viral and retroviral
diseases, including the human immune deficiency virus ("HIV"), which is the
retrovirus responsible for Acquired Immune Deficiency Syndrome ("AIDS"), and
also is investigating utilizing VIMRxyn as a treatment for hepatitis C, as a
therapeutic for brain cancer (glioma), and as a means of inactivating HIV and
other lipid-enveloped viruses in blood collected for transfusions. The Company
has a worldwide exclusive license to commercialize and exploit synthetic
hypericin compounds for enumerated purposes acquired from New York University
and Yeda Research and Development Co., Ltd., an Israeli corporation engaged in
the commercial exploitation of scientific developments by scientists at a
Weizmann Institute of Science in Israel (New York University and YEDA,
collectively, the "Hypericin Licensors").
HIV/AIDS Research
The Company has not established the efficacy of VIMRxyn in human
clinical trials for the treatment of AIDS. In 1994, the Company completed data
analysis of Phase I/Phase II human clinical trials sponsored by the National
Institutes of Health to determine the maximum tolerated dose and any side
effects of VIMRxyn as a treatment for AIDS. From the data collected, the results
showed a favorable pharmacological profile with no major organ or hematological
toxicity, and with skin photosensitivity as the primary dose-limiting side
effect. All of the patients enrolled in the trials experienced varying levels of
skin photosensitivity and several experienced non-life threatening acute skin
photosensitivity which required medical treatment.
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Between January and September 1996, human clinical trials were
conducted in Thailand by a Dutch company retained by the Company under a
protocol submitted to the U.S. Food and Drug Administration (the "FDA") under
the Company's existing investigational new drug application to identify a
potentially efficacious lower dose of VIMRxyn, having minimal skin
photosensitivity, as a treatment for AIDS. The dosage administered was
well-tolerated by the patients and did not result in untoward toxicity or skin
photosensitivity and, based on the measurement criteria used, produced evidence
of anti-HIV activity. The Company is currently conducting in vitro interaction
studies to determine how VIMRxyn may be used in combination with other
anti-retroviral agents.
HIV Inactivation Blood Studies
In 1996, VIMRx continued to explore the anti-viral properties of
VIMRxyn with respect to whole red blood cells in blood collected for
transfusions. The Company's studies are being conducted under the direction of
Alfred M. Prince, M.D., of the New York Blood Center. Studies conducted by Dr.
Prince in 1996 have indicated that VIMRxyn combined with fluorescent light can
inactivate the HIV virus in packed red blood cells. The Company is developing
protocols for additional studies to determine the safety, cellular integrity and
efficacy of HIV virus in activation in treated whole red blood cells.
Hepatitis C Virus
The hepatitis C virus ("HCV") is a blood-borne pathogen infecting
approximately 200,000 people in the United States each year, with approximately
seventy to ninety percent of such infected persons (140,000 to 180,000 persons)
becoming chronic carriers of the virus. Chronic carriers of HCV are at high risk
of developing cirrhosis and liver cancer later in life. The Center for Disease
Control estimates that two and one-half to five million Americans are chronic
carriers, and there are an estimated 400 million persons worldwide who are
chronic carriers, most of whom are located in the Far East. Despite recent
advances in blood screening techniques, it is estimated that one in 3,000
transfusions in the United States transmits HCV.
Studies funded by the Company in the laboratories of Dr. Alfred M.
Prince at the New York Blood Center and Dr. Edward Dubovi at the Diagnostic
Laboratory of the New York State College of Veterinary Medicine at Cornell
University in Ithaca, New York have indicated that VIMRxyn may be effective in
inactivating HCV. The studies were conducted on bovine viral diarrhea virus
("BVDV") as a surrogate for HCV, as BVDV can be quantified in cell cultures
while HCV can only be assayed in animal studies using chimpanzees. In their
studies, Dr. Prince and Dr. Dubovi subjected BVDV, in the presence of packed
human red blood cells, to varying concentrations of VIMRxyn and different
periods of exposure to light, and found that VIMRxyn inactivated BVDV in doses
of only 1ug/ml during ten minutes of exposure to light. Such results indicate
that VIMRxyn may be effective in inactivating HCV.
In January 1997, the Company commenced a Phase I/Phase II clinical
trial to determine the antiviral effectiveness of VIMRxyn in reducing the amount
of HCV in the blood of patients suffering from infectious chronic hepatitis C.
The trial is being conducted at the Bronx VA Hospital in New York under the
direction of Dr. Jeffrey Jacobson, Associate Professor of Infectious Diseases at
Mt. Sinai School of Medicine.
Cancer/Malignant Brain Gliomas
Research groups worldwide are studying hypericin for a variety of
medical uses. One such effort, that of William T. Couldwell, M.D., Ph.D. in the
Division of Neurological Surgery at the University of North Dakota, School of
Medicine, demonstrated that hypericin effectively inhibits the growth of human
brain cancer cells (malignant gliomas). The data suggest that in the presence of
hypericin, glioma cell death is due to apoptosis, a process by which normal
cells die, but which is missing in cancer cells. Hypericin appears to limit the
uninhibited growth of cancer cells by restoring the natural mechanism of cell
death.
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In October 1996, the Company commenced a Phase I/Phase II clinical
trial at the North Dakota School of Medicine, under the direction of Dr.
Couldwell, to determine whether VIMRxyn has antiglioma properties in patients
with malignant brain gliomas.
The Company also has initiated pre-clinical laboratories studies to
evaluate the effectiveness of VIMRxyn against a variety of human cancer cell
lines, including non-Hodgkins B-cell lymphoma, endometrial carcinoma and
cutaneous T-cell lymphoma. In some of these studies, the Company is examining
the potential use of VIMRxyn as a light-activated topically applied treatment
for dermatological diseases caused by viruses and cancers.
Relationship with Hypericin Licensors
Pursuant to an agreement dated June 1, 1988, as amended (the "License
Agreement"), between the Company and the Hypericin Licensors, the Hypericin
Licensors granted the Company a worldwide exclusive license to commercialize and
exploit natural hypericin and synthetic hypericin compounds to inactivate
viruses and retroviruses, as a therapeutic or preventative for viral or
retroviral diseases, and for anti-glioma (brain tumor) indications.
Pursuant to the License Agreement, the Company is required to make
royalty and related payments to the Hypericin Licensors as follows: (i) 7% of
net sales of licensed products by VIMRx and/or its affiliates, (ii) 4.4% of net
sales of licensed products by sublicensees of VIMRx, (iii) 40% of down payments
and research and development payments received by VIMRx from sublicensees with
respect to the licensed products, and (iv) 12% of all consideration received by
VIMRx as an investment, loan or capital contribution from an entity selling
licensed products (to be offset against 50% of any royalties payable under (i)
and (ii) above); 50% of the cumulative patent expenses incurred by VIMRx will
offset up to 50% of the foregoing royalty payments. Minimum annual royalty
payments of $100,000 are required to be made by the Company to the Hypericin
Licensors under the License Agreement.
The Hypericin Licensors have made no representation or warranty,
express or implied, with respect to the research results or the efficacy or
possible commercial success of synthetic hypericin compounds.
The Company is required to indemnify the Hypericin Licensors for all
liability resulting from commercialization of the licensed products to be
secured, prior to the marketing of any licensed product, by $5,000,000 of
product liability insurance coverage with the Hypericin Licensors named as
additional insureds, or by an indemnity from an entity satisfactory to the
Hypericin Licensors. Under the Agreement, any improvements, new inventions,
developments or discoveries by VIMRx, its employees, affiliates or consultants
with respect to the technology covered by the license is the property of the
Hypericin Licensors. The exclusive license is subject to cancellation in the
event VIMRx fails to comply with its terms and conditions, including payment of
the royalties and other amounts due thereunder.
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Oligozymes; Affiliation with Innovir
General
In December 1996, the Company acquired an approximate 68% ownership
interest in Innovir, a biotechnology company engaged in the research and
development of a new class of biopharmaceutical therapeutic agents, collectively
termed "Oligozymes" by Innovir, for the treatment of a wide array of human
diseases. An Oligozyme is a chemically modified oligomer, not composed of RNA,
that participates in an essential manner in the sequence-specific, catalytic
cleavage of a targeted RNA molecule. The management of the Company and Innovir
believe that therapeutic agents based upon Innovir's proprietary core
technologies have the potential to be cost-effective and highly specific
therapeutics for designated disease targets and that these technologies can also
be used to fill a growing need in the pharmaceutical industry for better methods
to identify and validate targets for drug discovery. VIMRx's management also
believes that its collaboration with Columbia University may provide synergistic
opportunities for the Oligozyme technology owned by Innovir. See "Research
Agreement with Columbia University."
EGS Oligozymes
One of Innovir's two core technologies, its External Guide Sequence
("EGS") Oligozyme technology, directs a naturally occurring cellular ribozyme
(RNase P) to disease-causing RNA so that the RNase P will cleave the
disease-causing RNA and render it inactive. An EGS Oligozyme is a small,
chemically-modified oligonucleotide segment that binds to a disease-causing RNA
to create a structure resembling a type of RNA which is cleaved by RNase P,
which thereby destroys the disease-causing RNA molecules before they create
disease-causing proteins. Innovir's EGS Oligozyme technology is based upon Nobel
Prize-winning research by Sidney Altman, Ph.D., Sterling Professor of Biology at
Yale University, a consultant to and member of the Science Advisory Board of
Innovir, and Innovir has an exclusive worldwide license from Yale University for
the commercial application of such technology. Innovir is investigating the use
of EGS Oligozymes as a therapeutic to combat target viral and other diseases,
and currently is focussing on hepatitis B, hepatitis C, cancer, psoriasis and
bacterial infections caused by drug-resistant microorganisms.
RILON Oligozymes
Innovir's second core technology is its RILON(TM) Oligozyme technology,
which was acquired by Innovir as a result of its acquisition of VIMRx Holdings,
Ltd. ("Holdings") from the Company in December 1996. See "Item 13 Certain
Relationships and Related Transactions." RILON Oligozymes are composed of
certain types of chemically modified oligoribonucleotides, and are proprietary
to Innovir through Holdings' worldwide exclusive license from the European
Molecular Biology Laboratory and certain patents held by Innovir. RILON
Oligozymes consist of two classes: Type 1 RILON Oligozymes cut specific targeted
RNA molecules in a manner intrinsic to the RILON Oligozyme. Type 2 RILON
Oligozymes, which are shorter in length than Type 1 RILON Oligozymes and are
patented by Innovir's subsidiary, VIMRx Holdings, Ltd., participate with the
substrate of the targeted RNA molecule to form a structure that results in the
sequence-specific catalytic cleavage of the target RNA molecule. Innovir is
evaluating the potential use of RILON Oligozymes to combat viral and other
diseases, including cancer, central nervous system diseases and psoriasis.
Drug Target Identification and Validation
Innovir also is investigating the use of its Oligozyme technologies to
identify and validate disease targets for new drugs. Oligozymes can be used in
drug target identification and validation as substitutes for the
difficult-to-find selective inhibitors which otherwise are required in the drug
target identification and validation process. Such substitution is possible
because Oligozymes mimic the effect of select inhibitors at an earlier stage of
the disease-causing process than inhibitors. While inhibitors inhibit the
production of disease-causing proteins, Oligozymes inhibit the production of the
disease-causing messenger RNA molecules that produce such disease-causing
proteins and, in both cases, the pharmacological effect is the same.
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Management of the Company and Innovir do not anticipate that any of
Innovir's proposed products will be available for commercial sale for several
years, if at all. Innovir's current capital is insufficient to enable Innovir to
complete the development of any of its products.
Research Agreement with Columbia University
In March 1997, VIMRx entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University ("Columbia"), whereby VIMRx, through a newly established
subsidiary, VIMRx Genomics, Inc., ("Genomics"), 90%-owned by the Company and
10%-owned by Columbia, will provide $30 million in funding to the Columbia
Genome Center established by Columbia, with $4.7 million to be paid during the
first year in quarterly installments. In exchange, Genomics will receive an
exclusive license to develop, manufacture, use, sell or market products
resulting from any invention research information and biological materials
developed by the Columbia Genome Center and funded under the agreement.
Following an initial five-year term, the agreement automatically will renew for
successive two-year terms and, in the absence of an agreement to the contrary,
the amount of funding will be increased at a rate of 9% for every additional
year. The agreement is terminable by either Columbia or Genomics during the
initial five-year term upon six months notice, but in no event earlier than
September 7, 1999. Under the agreement, VIMRx agreed to issue 200,000 shares of
Common Stock to Columbia, and granted Columbia "piggyback" registration rights
with respect thereto during the period April 1, 1997 to April 1, 1999.
The Columbia Genome Center (the "Center") is devoted to mapping,
sequencing, gene discovery and technology development on the genomes of human
and selected model organisms. The Center evolved from the work of a group at
Columbia under the joint direction of Drs. I.S. Edelman and A. Efstratiadis over
the last five years. This group has advanced the technology used in fine mapping
of human chromosomes, generated a detailed cosmid-based map of human chromosome
13, fabricated highly representative normalized human cDNA libraries and
contributed significantly to gene discovery, e.g., the Cu-transport protein of
Wilson's Disease. The Center is building on this base to develop a comprehensive
genome center operating at the forefront of this field. Integrated genomic
mapping and sequencing is used to facilitate gene discovery and gene therapy
strategies in collaboration with laboratories throughout the University.
Investigators at the Center have been involved in localizing and
identifying novel human genes associated with genetically based diseases,
including cancer, late-onset Alzheimer's Disease, epilepsy, manic-depressive
disorder and glaucoma. VIMRx's management believes the collaboration with
Columbia may also provide synergistic opportunities for the Oligozyme technology
owned by Innovir. As the Center provides access to proprietary gene sequences
implicated in disease processes, the Oligozyme technology may aid in
understanding the function of such genes and potentially lead to the development
of new diagnostic and therapeutic compounds. See "--Oligozymes - General."
To enhance the commercial potential of the collaboration, VIMRx intends
to seek technology partnerships with pharmaceutical and/or diagnostic companies
and to solicit equity investments in Genomics from potential technology partners
and other investors.
Eric A. Rose, M.D. and Michael Weiner, M.D., directors of the Company,
have affiliations with Columbia. See "Item 13 -Certain Relationships and Related
Transactions."
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Patents and Licenses
The Company has been granted an exclusive license for the worldwide
rights to synthetic hypericin compounds for viral, retroviral and other
applications by the Hypericin Licensors which have been issued five U.S. patents
for anti-viral and anti-retroviral applications and manufacturing processes and
have filed patent applications for U.S. and foreign patents relating to the
synthesis and therapeutic uses of synthetic hypericin compounds. In addition,
the Company has acquired a worldwide exclusive license for rights to
commercialize and exploit synthetic catalytic oligonucleotide compounds for
pharmaceutical and diagnostic products. There can be no assurance that such
patents, or pending patents if issued, will provide adequate protection to the
Company. Infringement claims may be asserted against the Company and/or the
respective licensors (with respect to which the Company has agreed to indemnify
the Hypericin Licensors ) which, if affirmed, might require the Company to
acquire licenses from others.
The Company also has an exclusive license to develop, manufacture, use,
sell or market products resulting from any invention or research product
developed by the Columbia Genome Center under its research agreement. See "Item
1 - Business - Research Agreement with Columbia University."
Innovir has an exclusive license from Yale University for the worldwide
rights to 22 U.S. patents and patent applications for therapeutic uses of
Oligozymes, oligonucleotide delivery, and diagnostic applications of ribozymes.
Corresponding foreign applications are pending or issued.
The Company is aware of patents in the United States and Europe held by
an unaffiliated third party relating to catalytic ribonucleic compounds which
may be infringed by certain synthetic catalytic oligonucleotide compounds
licensed to VIMRx Holdings, Ltd., in which event a license from such third party
would be required. There can be no assurance that VIMRx Holdings, Ltd. would be
able to attain such license on reasonable terms, or at all.
Manufacturing
VIMRx has no manufacturing capability and has contracted with outside
suppliers to develop, produce, and package therapeutic formulations of a
synthesized form of hypericin for the human clinical trials. The synthesis
process has been developed at The Weizmann Institute of Science in Israel, using
a natural product available from a limited number of specialty chemical
suppliers as the precursor. Only limited quantities of synthetic hypericin have
been manufactured and the production process must be further developed and
refined for commercial quantities to be produced, as to the success of which
there can be no assurance.
Innovir manufactures EGS Oligozymes and RILON Oligozymes for use in its
test tube, cell culture, animal testing and target validation programs, and is
exploring other sources of supply.
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Government Regulation
The manufacture and marketing of therapeutic products is subject to
extensive regulation by the FDA, as well as by state and foreign authorities.
Prior to the release of VIMRxyn for marketing as a therapeutic product or agent,
its tolerance, safety and efficacy as a treatment must be established in human
clinical trials and approval of a new drug application ("NDA") obtained.
Although the Company-sponsored Thailand trials did not result in untoward
toxicity or skin photosensitivity and, based on the measurement criteria used,
produced evidence of anti-HIV activity in 10 out of 12 patients, there can be no
assurance that the FDA will accept the clinical results therefrom. Among other
additional regulatory requirements, it is possible that additional toxicology
studies will need to be performed in the United States, and Phase III clinical
trials, which are both costly and time-consuming, will need to be undertaken to
obtain an NDA. Prior to its commercialization as a means of inactivating HIV and
other lipid-enveloped viruses in blood collected for transfusions, a product
license application ("PLA") or an NDA must be obtained. These are long-term and
costly processes as to the successful completion of which there can be no
assurance.
In addition to regulations enforced by the FDA, the Company's proposed
products also may be subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other present and potential
future, state or local regulations. Outside the United States, the Company also
is subject to foreign regulatory requirements governing human clinical trials
and marketing approval for drugs. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
Innovir's development, manufacture and sale of therapeutics similarly
is subject to regulation by a variety of governmental authorities.
Competition
The biomedical industry is highly competitive. Competition in the field
in which the Company is engaged is intense and expected to increase as knowledge
and interest in the technology and products being developed by the Company
increase. The Company faces competition from biotechnology companies, large
pharmaceutical companies, academic institutions, government agencies and public
and private research organizations, many of which have extensive resources and
experience in research and development, clinical testing, manufacturing,
regulatory affairs, distribution and marketing. Some of these entities have
significant research and development activities in areas upon which the
Company's programs focus. Many of the Company's competitors possess
substantially greater research and development, financial, technical, marketing
and human resources than the Company and may be in a better position to develop,
manufacture and market products. Current and future treatments for AIDS, and the
use of combination therapy in connection therewith, may render the Company's
synthetic hypericia program for treating AIDS obsolete or non-competitive. In
addition, forms of hypericin extracted from plants are being used as lay
treatments for a variety of disorders, including AIDS. The Company is similarly
subject to substantial competition from pharmaceutical, chemical and
biotechnology firms in the attempt to develop a means of inactivating blood and
other lipid-enveloped viruses in blood collected for transfusions, and in
seeking to develop treatments for hepatitis C and therapeutics for brain cancer
(glioma).
Innovir is likewise subject to substantial competition in the
development and marketing of its Oligozyme technologies.
Employees
At March 1, 1997, the Company had nine full-time employees in the
United States consisting of its five executive officers, one financial analyst
and three administrative assistants. At December 31, 1996, the Company believes
that its relations with its employees is satisfactory.
Innovir has 27 full-time U.S. employees and 23 full-time non-U.S.
employees.
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Consultants
The Company is dependent on third parties for significant aspects of
its research and development operations. Research with respect to potential
therapeutic applications for hypericin and certain analogues thereof is being
performed by New York University Medical Center and the Weizmann Institute of
Science in Israel (the "Research Institutions") under the supervision of four
principal researchers who, together with other scientists at the Research
Institutions, are also consultants to the Company. Consultants have also been
retained to assist in supervising the IND regulatory process, monitoring the
human clinical trials and establishing the toxicology tests for hypericin. The
Company also retains financial consultants. The Company's Medical Director,
responsible for developing clinical protocols and monitoring the performance of
these protocols, was also a consultant to the Company through February 28, 1995.
The Company's consultants are employed by and/or have consulting
agreements with entities other than the Company, some of which may conflict or
compete with the Company, and are expected to devote only a minor portion of
their time to the affairs of the Company. Regulations or policies now in effect
or adopted in the future by their respective employers may limit the ability of
such persons to consult with the Company. The loss of the services of certain of
such persons may adversely affect the Company.
In August 1995, the Company entered into a financial consulting
arrangement with Lindsay A. Rosenwald, M.D. (who was elected a director of the
Company in June 1996) in consideration for the grant of an option to purchase
2,000,000 shares of Common Stock at approximately $.53 per share commencing
August 7, 1996 (one year from the date of grant) and expiring August 7, 1998,
and in November 1995, entered into consulting arrangements with Donald G.
Drapkin and Eric A. Rose, M.D., directors of the Company, pursuant to which each
was granted options to purchase 650,000 shares of Common Stock at approximately
$.94 per share, exercisable cumulatively at the rate of 25% of the number of
underlying shares per year commencing one year from the date of grant. See "Item
13 - Certain Relationships and Related Transactions."
Item 2. Properties.
The Company occupies 5,266 square feet of office space at 2751
Centerville Road, Suite 210, Wilmington, Delaware under a lease at a monthly
rent of $9,009. The lease expires on August 31, 1999, with an option to renew
for five years.
Innovir sublets approximately 8,500 square feet of space in New York
City for its laboratory and executive offices, approximately 5,000 square feet
of space in Cambridge, England, approximately 2,500 square feet of space in
Gottingen, Germany and approximately 4,000 square feet of space in Rosdorf,
Germany.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Registrant's Securities and Related Stockholder Matters.
The Company's Common Stock is traded in the over-the-counter market on
The Nasdaq Stock Market's National Market System under the symbol VMRX. The
following table sets forth for the Company's Common Stock the high and low
closing sales prices for each calendar quarter from January 1, 1995 through
March 17, 1997. Prior to December 31, 1996, the Company's Common Stock traded on
The Nasdaq Stock Market's Small-Cap Market.
High Low
1995
First Quarter................ 25/32 3/8
Second Quarter............... 5/8 13/32
Third Quarter................ 1 5/16 7/16
Fourth Quarter............... 1 3/16 25/32
1996
First Quarter................ 3 1/32 1 1/8
Second Quarter............... 6 1/4 2 25/32
Third Quarter................ 4 15/16 3
Fourth Quarter............... 3 13/16 2 9/32
1997
First Quarter (through
March 17, 1997)............ 3 1/2 2 15/32
On March 17, 1997, there were approximately 14,000 holders of the
Company's Common Stock, including beneficial owners of shares registered in
nominee or street name.
The Company is in the development stage, has not paid a cash dividend
and does not anticipate the payment of cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
On May 23, 1996, the Company issued to Dr. Herbert Stadler warrants to
purchase 365,000 shares of the Company's Common Stock at an exercise price of
$.01 per share, as part of the consideration paid by VPI Holdings, Ltd. (then a
subsidiary of the Company but subsequently sold to Innovir Laboratories, Inc.)
to Dr. Stadler for acquiring all of the issued and outstanding capital stock of
Ribonetics GmbH. Dr. Stadler was also paid $1,500,000 in cash in such
transaction.
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On June 21, 1996, the Company completed a private placement pursuant to
a subscription agreement dated March 21, 1996, to a group of investors, of
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription
Warrants, for an aggregate purchase price of $4,199,987. Each Common Stock
Subscription Warrant is exercisable through June 20, 2006 to purchase one share
of Common Stock at an exercise price of $1.50 per share. Pursuant to the
subscription agreement, the private placement investors agreed not to transfer
their shares of Common Stock or warrants prior to June 21, 1997, and the Company
agreed to register the shares of Common Stock and warrants for public sale under
the Securities Act of 1933 subsequest thereto. Concurrently with the closing of
the private placement, 1,000,000 warrants issued in conjunction with the
Company's December 1995 bridge loan financing automatically were converted into
1,000,000 Common Stock Subscription Warrants.
On December 23, 1996, the Company issued an aggregate of 3,000,000
shares of Common Stock to The Aries Fund, a Cayman Island trust (the "Aries
Trust"), and The Aries Domestic Fund, L.P., a Delaware limited partnership ("The
Aries Limited Partnership" and, together with the Aries Trust, the "Aries
Funds"), as part of the consideration for 9.5 million shares of the Common Stock
of Innovir Laboratories, Inc. See "Item 13 Certain Relationships and Related
Transactions."
The foregoing transactions of the Company were exempt from registration
under the Securities Act of 1933, as amended, under Sections 4(2), 2(3) and
3(a)(9) thereunder, and all stock and warrant certificates issued in connection
therewith were legended to reflect their restricted status.
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Item 6. Selected Financial Data.
The following selected financial data have been derived from the
Company's audited financial statements. The Statements of Operations Data
relating to the fiscal years 1994, 1995 and 1996 and for the period from
inception through December 31, 1996 and the Balance Sheets Data at December 31,
1995 and 1996 should be read in conjunction with the Company's audited financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this Annual Report on Form 10-K.
Statements of Operations Data:
<TABLE>
<CAPTION>
December 30, 1986
Year Ended December 31, (Inception) to
1996 1995 1994 December 31, 1996
---- ---- ----
<S> <C> <C> <C> <C>
Operating expenses:
Research and development.. $2,950,000 $2,840,000 $1,463,000 $15,939,000
Purchased research and
development............. 14,484,000 - - 14,484,000
General and administrative 4,300,000 2,272,000 1,646,000 13,782,000
---------- ------------ ---------- ----------
21,734,000 5,112,000 3,109,000 44,205,000
---------- ---------- ---------- ----------
Other (income) expense:
Royalty payments.......... 100,000 100,000 100,000 300,000
Interest (income)......... (1,792,000) (160,000) (189,000) (2,951,000)
Interest expense.......... 329,000 2,000 413,000
Provision for losses (recovery)
on notes receivable..... - - - 135,000
Minority interest in consolidated
subsidiary................... (116,000) - - (116,000)
Investment in and advances to
research and development
entities charged to expense - 185,000 515,000 700,000
Other - net.................... (395,000) 1,000 74,000 (315,000)
------------ ------------- ---------- ---------
(1,874,000) 128,000 500,000 (1,834,000)
------------- ------------- ---------- -----------
Net loss..................... $19,860,000 $5,240,000 $3,609,000 $42,371,000
=========== ============ ============ ===========
Net loss per share............ $.50 $.27 $.19
==== ==== ====
Weighted average number of
shares of Common Stock
outstanding............... 39,398,644 19,747,595 19,066,754
============ ========== ===========
Balance Sheets Data:
<CAPTION>
December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working capital........... $ 44,848,000 $ 391,000 $ 4,742,000
Total assets.............. 51,692,000 2,958,000 5,249,000
Total liabilities......... 3,101,000 2,698,000 116,000
Minority interest in
subsidiary............ 2,381,000
Deficit accumulated during
development stage...... (42,371,000) (22,511,000) (17,271,000)
Stockholders' equity...... 46,210,000 260,000 5,134,000
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Years Ended December 31, 1996 and 1995
Total operating expenses increased by 325% ($16,622,000) due
principally to a $14,484,000 purchased research and development charge, an 89%
($2,028,000) increase in general and administrative expenses and an 4%
($110,000) increase in research and development expenses.
The $14,484,000 purchased research and development charge consists of
$3.5 million from the acquisition of Ribonetics GmbH in May 1996 and $10.9
million net of a gain of $2,889,000 on the sale of VIMRx Holdings, Ltd. ("VHL")
from the acquisition of an approximate 68% interest in Innovir in December 1996,
in connection with the acquisition of a controlling interest in Innovir. These
charges to the statement of operations reflect the value placed on the on-going
research and development of the Oligozyme technologies. Approximately $13.5
million of this expense is non-cash incurred through the issuance of 3,000,000
shares of Common Stock and warrants to purchase 365,000 shares of Common Stock.
General and administrative expenses increased 89% ($2,028,000)
principally due to approximately $1 million non-recurring costs principally
related to employees, recruiting, and bridge loan finance costs and
approximately $1 million increases in recurring expenses for public and
stockholder relations, consulting fees and costs related to VHL's European
operations and Innovir.
Research and development expenses increased 4% ($110,000) principally
due to an increase in salaries and expenses related to VHL's European operations
and $350,000 write-down on Epoch Investment, offset by a $464,000 termination of
agreement credit resulted from the termination of the Company's research and
development with Ribonetics in 1996.
Interest income increased $1.6 million in 1996 as compared to 1995 due
to an increase in funds available for investments (see Liquidity and Capital
Resources) and a higher effective interest rate. Interest expense of $327,000
related principally to the December 1995 bridge loan which was repaid in June
1996.
Other income increased $396,000 due to capital gains on short-term
investments.
The foregoing resulted in a 279% ($14,620,000) increase in the net loss
for the year ending December 31, 1996.
Years Ended December 31, 1995 and 1994
Total operating expenses increased by 64% ($2,003,000) due to a 94%
increase in research and development expenses, and a 38% increase in general and
administrative expenses.
Research and development expenses increased 94% ($1,377,000) due to (1)
$1,053,000 paid to Ribonetics in 1995 under the Ribonetics research and
development agreement, (2) a $464,000 expense for the accrual of common stock
due to Ribonetics under the Ribonetics research and development agreement (this
accrual was reversed in the first quarter of 1996 when the agreement was
terminated), (3) a $317,000 increase in research and development administrative
salaries, (4) a $76,000 increase in consulting and other expenses related to
research in the United Kingdom, partially offset by (5) $125,000, $213,000 and
$126,000 decreases in expenses related to CambES Ltd., drug production support
and drug production development, respectively, and (6) a $69,000 decrease in
miscellaneous research and development expenses.
13
<PAGE>
General and administrative expenses increased 38% ($626,000) due to (1)
a $449,000 increase in legal fees for the acquisition of intellectual property
from Ribonetics, (2) a $37,000 increase in rent expense as a result of the
Company's lease in the third quarter of 1994 of new space for its executive
offices and new space for the newly formed U.K. subsidiary company and (3) a
$90,000 increase in legal fees for patents, partially offset by (4) $24,000 net
decreases in recruiting, relocating, consulting and other expenses.
Other (income) expense decreased by $372,000 principally due to a
decrease in investments in and advances for research and development entities
charged to expense.
The foregoing resulted in a 45% ($1,631,000) increase in the net loss
for the year ended December 31, 1995.
Liquidity and Capital Resources
The Company is in the development stage, has realized no operating
revenues and has financed its operations through the sale of its securities.
The Company had $46,911,000 in cash, cash equivalents and marketable
securities held for sale at December 31, 1996, as compared to $2,219,000 at
December 31, 1995 and working capital of $44,848,000 at December 31, 1996, as
compared to $391,000 at December 31, 1995. The increase in cash and working
capital position results from the net proceeds upon exercise of the Company's
Redeemable Class A and Class B Warrants and a private placement financing
offset, in part, by funds used in the operations of the Company.
On April 9, 1996, the Company exercised its right to redeem all
outstanding Redeemable Class Warrants (the "Class A Warrants") on May 10, 1996
(the "Redemption Date"). Between January 1, 1996 and the Redemption Date,
approximately 13,900,000 Class A Warrants were exercised resulting in the issue
of one share of Common Stock and one Redeemable Class B Warrant (the "Class B
Warrant") resulting in net proceeds of approximately $20.1 million.
On April 25, 1996, the Company exercised its rights to redeem all
outstanding Redeemable Class B Warrants on June 13, 1996, (the "B Class
Redemption Date"). Between January 1, 1996 and the B Class Redemption Date,
approximately 14,200,000 Class B Warrants were exercised, resulting in the
issuance of one share of Common Stock for $2.25. The exercise of Class B
Warrants yielded net proceeds of approximately $30.7 million.
On June 21, 1996, the Company completed a private placement pursuant to
a subscription agreement dated March 21, 1996, to a group of investors, of
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription
Warrants, for an aggregate purchase price of approximately $4,199,987. Each
Common Stock Subscription Warrant is exercisable through June 20, 2006 to
purchase one share of Common Stock at an exercise price of $1.50 per share.
Pursuant to the subscription agreement, the private placement investors agreed
not to transfer their shares of Common Stock or warrants prior to June 21, 1997,
and the Company agreed to register the shares of Common Stock and warrants for
public sale under the Securities Act of 1933 subsequent thereto. Concurrently
with the closing of the private placement, 1,000,000 warrants issued in
conjunction with the Company's December 1995 bridge loan financing automatically
were converted into 1,000,000 Common Stock Subscription Warrants.
14
<PAGE>
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 over two years, assuming no capital infusions or revenues are
received (it is management's belief, however, that such capital 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.
Item 8. Financial Statements and Supplementary Data.
See Index to Financial Statements on page F-1.
No financial statement schedules are required because they are not
applicable or the information is disclosed in the financial statements or
related notes.
Item 302 - Supplementary Financial Information of Regulation S-K is not
applicable.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of VIMRx are as follows:
Name Age Position
Richard L. Dunning 51 President and Chief Executive
Officer
Francis M. O'Connell 51 Vice President, Finance and Chief
Financial Officer
David A. Jackson, Ph.D. 54 Executive Vice President and Chief
Scientific Officer
Alfonso J. Tobia, Ph.D. 54 Vice President, Research and
Development
Donald G. Drapkin 48 Director (1)
Laurence D. Fink 48 Director (2)
Jerome Groopman, M.D. 44 Director
Linda G. Robinson 43 Director (2)
Eric A. Rose, M.D. 45 Director (1)
Lindsay A. Rosenwald, M.D. 41 Director (1)
Michael Weiner, M.D. 50 Director (2)
- - ---------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
RICHARD L. DUNNING has been President and Chief Executive Officer of
the Company since April 1996. Prior to joining the Company, Mr. Dunning served
as Executive Vice President and Chief Financial Officer of the DuPont Merck
Pharmaceutical Company since 1991.
FRANCIS M. O'CONNELL, CPA, has served as Chief Financial Officer of the
Company since February 1995. Prior to joining the Company, Mr. O'Connell was
Director of Litigation Support in the New York office of J.H. Cohn & Company, a
C.P.A. firm, from June 1994 to February 1995, and was Vice-President of Hickok
Associates Inc., a financial consulting company, from March 1992 to June 1994,
and for 17 years prior thereto, was a partner with KPMG Peat Marwick (formerly
KMG Main Hurdman).
DAVID A. JACKSON, Ph.D., has served as Executive Vice President and
Chief Scientific Officer of VIMRx Pharmaceuticals Inc. since September 1996.
Prior to joining VIMRx, Dr. Jackson was with DuPont Merck Pharmaceutical Company
since 1991, most recently serving as Senior Director, Cancer, Virology and
Molecular Biology Research.
16
<PAGE>
ALFONSO J. TOBIA, Ph.D. was elected an executive officer of the Company
in March 1995, having joined the Company as Vice President, Research and
Development in June 1994. Prior to joining VIMRx, Dr. Tobia served as Vice
President of Scientific Affairs at Great Valley Pharmaceuticals, a
biopharmaceutical company, from April 1993 to June 1994. From 1990 to 1991, Dr.
Tobia served as Senior Director of R.W. Johnson Pharmaceutical Research
Institute; from 1985 to 1990, as Director of Pharmacology at Johnson & Johnson's
Ortho Pharmaceutical Corporation; and from 1974 to 1977 as Senior Scientist at
SmithKline Laboratories.
DONALD G. DRAPKIN was elected a director of the Company on November 17,
1995. Since March 1987, Mr. Drapkin has served as Vice Chairman and a director
of MacAndrews & Forbes Holdings Inc., and was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom in New York City for more than five years
prior thereto. Mr. Drapkin also serves as a director of the following
corporations which file reports pursuant to the Securities Exchange Act of 1934:
The Coleman Company, Inc., Coleman Holdings Inc., Coleman Worldwide Corporation,
Marvel Entertainment Group, Inc., Marvel Holdings Inc., Marvel (Parent) Holdings
Inc., Marvel III Holdings Inc., Revlon Consumer Products Corporation, Revlon
Worldwide Corporation and Toy Biz, Inc.
LAURENCE D. FINK was elected a director of the Company in June 1996.
Mr. Fink has been Chairman and Chief Executive Officer and Director of BlackRock
Financial Management (investment advisor) since 1988. Mr. Fink is a director of
the closed end funds for which BlackRock serves as investment advisor.
JEROME GROOPMAN, M.D. was elected a director of the Company in June
1996. Dr. Groopman has been a professor of Medicine at Harvard Medical School
since 1993. Dr. Groopman has been an attending physician and member of the
executive committee of New England Deaconess Hospital since 1989. Dr. Groopman
is director of the following corporations which file reports pursuant to the
Exchange Act: Advance Tissues Sciences.
LINDA G. ROBINSON was elected a director of the Company in June 1996.
Ms. Robinson has been Chairman, Chief Executive Officer and Partner of Robinson
Lerer Sawyer Miller (strategic communications) for more than the past five
years. Ms. Robinson is a director of the following corporation which files
reports pursuant to the Exchange Act: Laboratory Corporation of America
Holdings.
ERIC A. ROSE, M.D. was elected a director of the Company in November
1995. Dr. Rose is Surgeon-In-Chief at Columbia Presbyterian Medical Center in
New York, a position he has held since August 1994, has served as Chairman of
the Department of Surgery at the College of Physicians and Surgeons of Columbia
University since 1994 and as Director of the Division of Cardiothoracic Surgery
of the Department since 1990. Dr. Rose is a past president of the International
Society for Heart and Lung Transplantation.
LINDSAY A. ROSENWALD, M.D. was elected a director of the Company in June
1996. Dr. Rosenwald has been the Chairman and Chief Executive Officer of
Paramount Capital, Incorporated (investment bank) since 1992. Dr. Rosenwald is
also chairman of Paramount Capital Investments, LLC, Paramount Capital Asset
Mgt., Inc. and The Castle Group. Dr. Rosenwald serves as a director of the
following corporations which file reports pursuant to the Exchange Act: Ansan,
Inc., Amgen, Inc., Atlantic Pharmaceuticals, Inc., BioCryst Pharmaceuticals,
Inc., Interneuron Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta
Pharmaceuticals, Inc., Titan Pharmaceuticals, Inc. and Xenometrix, Inc.
17
<PAGE>
MICHAEL WEINER, M.D. was elected a director of the Company in June
1996. Dr. Weiner has been the Hellinger Professor of Clinical Pediatrics at
Columbia University College of Physicians and Surgeons since January 1996 and
has been an attending pediatrician at Columbia Presbyterian Medical Center since
January 1996. Dr. Weiner has served as Associate Director of Pediatrics
Hematology/Oncology and Associate Attending Physician of Hackensack Medical
Center and an Associate Attending Pediatrician UMDNJ Division of Pediatric
Hematology/Oncology, since 1987.
----------------------------
All directors hold office until the next annual meeting of shareholders
and until their successors are elected and qualified. Officers are elected
annually and serve at the pleasure of the Board of Directors, subject to rights,
if any, under contracts of employment.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires
that officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their trading in Company
equity securities with the Securities and Exchange Commission. Based on a review
of Section 16 forms filed by the Reporting Persons during the last fiscal year,
Eric Rose, M.D., a director of the Company, filed his Form 5 reporting the
exercise of warrants approximately one month late; the Company believes that the
Reporting Persons otherwise timely complied with all applicable Section 16
filing requirements.
Item 11. Executive Compensation.
Summary Compensation
The following table sets forth a summary of the compensation for the
year ended December 31, 1996 earned by the Company's Principal Executive Officer
and be each other executive officer whose compensation exceeded $100,000 during
1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------- Awards
Name and Principal Position Year Salary Bonus Options Compensation
<S> <C> <C> <C> <C> <C> <C>
Richard L. Dunning 1996 $133,833 $40,000 800,000 (1) $4,500 (2)
President and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Francis M. O'Connell 1996 $123,800 $35,000 -- --
Vice President, Finance and 1995 $ 96,125 -- 100,000 (3) --
Chief Financial Officer 1994 -- -- -- --
Alfonso J. Tobia, Ph.D. 1996 $147,272 $50,000
Senior Vice President 1995 $130,000 $12,500 -- --
1994 $59,696 -- 150,000 (4) $25,000 (5)
</TABLE>
- - --------------------
18
<PAGE>
(1) Number of shares of Common Stock purchasable. See Option Grant
Table below for exercise price and vesting terms.
(2) Reimbursement of personal medical and health care insurance.
(3) Number of shares of Common Stock purchasable at $.44 per share.
(4) Number of shares of Common Stock purchasable at $.69 per share.
(5) Consists of a one-time relocation fee.
Option Grant Table
The following table sets forth certain information concerning options
granted in 1996 to the individuals named in the Summary Compensation Table:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% of Total
Number of Securities Options Granted to Exercise
Underlying Options Employees in Fiscal Price Per Expiration Date
Name Granted Year Share
<S> <C> <C> <C> <C>
Richard L. Dunning 800,000(1) 54.4 $2.56 4/2/01
</TABLE>
- - --------------------------
(1) Granted pursuant to Mr. Dunning'sagreement. See "Employment
Arrangements" below.
Option Exercises and Value Table
The following table sets forth certain information concerning options
exercised during 1996, and the number of unexercised options as at December 31,
1996 held, by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION EXERCISE AND VALUES AT DECEMBER 31, 1996
Number of Unexercised
Options at Value of Unexercised
Shares December 31, 1996 In-the-Money Options
Acquired On Value Exercisable(E)/ at
Name Exercise Realized Unexercisable(U) December 31, 1996(1)
---- -------- -------- --------------- --------------------
<S> <C> <C>
Richard L. Dunning........... 800,000(U) $650,000
Francis M. O'Connell......... 25,000(E) $73,438
75,000(U) $220,313
Alfonso J. Tobia, Ph.D. 75,000(E) $201,375
75,000(U) $201,375
</TABLE>
19
<PAGE>
(1) Based upon the $3 7/16 closing sale price of the Common Stock on The
Nasdaq Stock Market on December 31, 1996.
Employment Arrangements
In October 1996, the Company entered into a restated employment
agreement with Richard L. Dunning, effective March 27, 1996, pursuant to which
Mr. Dunning serves as President and Chief Executive Officer of the Company. The
agreement provides for a base annual salary of $200,000, which may be increased
at the discretion of the Board of Directors or the Compensation Committee, and
an annual cash bonus based on performance criteria, with an initial cash bonus
targeted to be at least 33% of Mr. Dunning's base compensation. Mr. Dunning is
entitled to four weeks' vacation and to participate in the Company's medical,
dental, life and long-term disability insurance and other benefit programs.
Pursuant to the agreement, Mr. Dunning was granted stock options to purchase an
aggregate of 800,000 shares of Common Stock at an exercise price of $2.56 per
share, exercisable cumulatively at the rate of 25% per annum commencing March
28, 1997 (one year from the date of grant). Mr. Dunning's employment may be
terminated by the Company for cause, or without cause upon 60 days' notice by
either the Company or Mr. Dunning. In the event Mr. Dunning's employment is
terminated by the Company without cause, or in the event Mr. Dunning terminates
his employment following certain actions by the Company (including a material
reduction in Mr. Dunning's duties or a relocation of the Company's principal
executive offices), Mr. Dunning is entitled to 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 the Company may obtain "key man" life insurance on the life of Mr. Dunning
for the Company's benefit. Mr. Dunning received a $40,000 signing bonus upon
execution of the agreement.
In August 1996, the Company entered into an employment agreement with
David A. Jackson, Ph.D., pursuant to which Dr. Jackson serves as Vice President
- - - Research and Development and Chief Scientific Officer of the Company. The
agreement provides for a base annual salary of $175,000, which may be increased
at the discretion of the Board of Directors or the Compensation Committee, and
an annual cash bonus based on performance criteria, with an initial cash bonus
targeted to be at least 33% of Dr. Jackson's base compensation. Dr. Jackson is
entitled to four weeks' vacation and to participate in the Company's medical,
dental, life and long-term disability insurance and other benefit programs.
Pursuant to the agreement, Dr. Jackson was granted stock options to purchase an
aggregate of 500,000 shares of Common Stock at an exercise price of $3.3125 per
share, exercisable cumulatively at the rate of 25% per annum commencing August
26, 1997 (one year from the date of grant). Dr. Jackson's employment may be
terminated by the Company for cause, or without cause upon 60 days' notice by
either the Company or Dr. Jackson. In the event Dr. Jackson's employment is
terminated by the Company without cause, or in the event Dr. Jackson terminates
his employment following certain actions by the Company (including a material
reduction in Dr. Jackson's duties or a relocation of the Company's principal
executive offices), Dr. Jackson is entitled to a severance payment equal to
twelve months' of his base salary, payable in monthly installments. The
agreement contains certain non-competition and confidentiality provisions, and
provides that the Company may obtain "key man" life insurance on the life of Dr.
Jackson for the Company's benefit. Dr. Jackson received a $40,000 signing bonus
upon execution of the agreement.
20
<PAGE>
In June 1994, the Company entered into an employment agreement with
Alfonso J. Tobia, Senior Vice President of the Company, effective July 1, 1994,
providing for a base annual salary of $125,000, to be increased to $150,000 upon
the redemption by the Company of its outstanding Class A Warrants, and
eligibility for a discretionary bonus up to $25,000. The agreement provides that
Dr. Tobia is eligible to receive options to purchase 150,000 shares of Common
Stock (which were granted on August 24, 1994), and is eligible to participate in
the Company's benefit programs, which currently include a medical program,
dental/vision insurance and group life insurance.
- - --------------------------------------------------------------------------------
(1) Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of January 31, 1997 information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of such
Common Stock, (ii) each director of the Company, (iii) each executive officer
named in the Summary Compensation Table in "Item 11. Executive Compensation,"
and (iv) all directors and executive officers as a group, together with their
respective percentage ownership of such shares:
<TABLE>
<CAPTION>
Shares Percent
Name Beneficially Owned Outstanding
<S> <C> <C>
Richard L. Dunning................................. 203,595(1) *
Francis M. O'Connell............................... 50,000(2) *
Alfonso, J. Tobia, Ph.D. .......................... 75,000(2) *
Donald G. Drapkin ................................. 462,500(3)(4) *
Laurence D. Fink .................................. 450,000(3)(5) *
Jerome Groopman, M.D. ............................. 50,000(3) *
Linda G. Robinson ................................. 183,333(3) *
Eric A. Rose, M.D. ................................ 584,900(6) *
Lindsay A. Rosenwald, M.D. ........................ 6,014,999(3)(7) 10.7%
Michael Weiner, M.D. .............................. 62,410(3) *
Paramount Capital Asset
Management, Inc.................................. 4,049,999(8) 7.4%
787 Seventh Avenue
New York, New York 10019
Mellon Bank Corporation............................ 2,865,000(9)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
All directors and executive
officers as a group (11) persons) ............... 8,136,737(10) 14.3%
</TABLE>
- - --------------------
* ......Less than one percent.
21
<PAGE>
(1) Consists of currently exercisable options to purchase 200,000 shares
owned by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning,
and 500 shares owned by each of Mr. Dunning's spouse, son and another
daughter, respectively. Mr. Dunning disclaims beneficial ownership of
the shares held by his spouse, son and daughters.
(2) Consists of currently exercisable options.
(3) Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of
Mr. Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of
restricted stock which vests at the rate of 25% per year commencing
June 20, 1997, provided the respective individual continues to serve as
a director of the Company, and subject to a non-lapsing right of first
refusal by the Company.
(4) Includes currently exercisable options to purchase 262,500 shares.
(5) Includes 66,666 shares owned by a family trust for the benefit of Mr.
Fink's children. Mr. Fink disclaims beneficial ownership of the shares
held by the family trust.
(6) Includes currently exercisable options to purchase 262,500 shares.
(7) Includes currently exercisable options to purchase 1,915,000 shares
owned by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by
Paramount Capital Asset Management, Inc. ("PCAM") (see note (8) below).
Dr. Rosenwald serves as President and is sole shareholder of PCAM. Dr.
Rosenwald disclaims beneficial ownership of the shares beneficially
owned by PCAM except to the extent of his pecuniary interest, if any.
(8) Information is from a Schedule 13D dated December 23, 1996 filed by
PCAM which is the investment manager of The Aries Fund, a Cayman
Islands Trust, (the "Aries Trust") and the general partner of Aries
Domestic Fund, L.P. (the "Aries Limited Partnership"), and reports
shared voting and dispositive power of 5,964,999 shares and 2,750,000
shares, respectively, by the Aries Trust and the Aries Limited
Partnership.
(9) Information is from a Schedule 13G dated January 24, 1997, filed by
Mellon Bank Corporation, which reflects sole voting power with respect
to 2,865,000 shares and sole dispositive power with respect to
2,750,000 shares.
(10) See notes (1) - (7).
Item 13. Certain Relationships and Related Transactions.
In August 1995, the Company entered into a consulting agreement with
Lindsay A. Rosenwald, M.D., who was elected a director of the Company in June
1996, pursuant to which Dr. Rosenwald has agreed to act as a financial
consultant to the Company pursuant to the terms thereof and the Company granted
Dr. Rosenwald an option to purchase 2,000,000 shares of Common Stock at $.53125
per share (the closing bid price of the Common Stock on The Nasdaq Stock Market
on the date preceding the date of grant), exercisable through August 6, 1998. In
June 1996, Dr. Rosenwald transferred 85,000 of the underlying option shares to
other persons.
22
<PAGE>
In November 1995, the Company entered into an arrangement with Donald
G. Drapkin, a director of the Company, pursuant to which Mr. Drapkin agreed to
make available to the Company his business and financial acumen for a five-year
period, and the Company granted Mr. Drapkin an option to purchase 650,000 shares
at $.9375 per share (the closing bid price of the Common Stock on The Nasdaq
Small Cap Market on the date preceding the date of grant), exercisable at the
rate of 25% of the aggregate number of underlying shares per annum commencing
one year from the date of grant. Concurrently, the Company entered into a
five-year consulting arrangement with Eric A. Rose, M.D., a director of the
Company, pursuant to which Dr. Rose agreed to provide scientific consulting
services to the Company, and the Company granted Dr. Rose an option to purchase
650,000 shares at $.9375 per share, exercisable at the rate of 25% of the
aggregate number of underlying shares per annum commencing one year from the
date of grant.
On June 21, 1996, the Company completed a private placement pursuant to
a subscription agreement dated March 21, 1996 to a group of investors (see "Item
5. - Market for Registrant's Securities and Related Stockholder Matters - Recent
Sales of Unregistered Securities"), including the following directors or persons
or entities affiliated with such directors: (i) Laurence D. Fink, a director of
the Company, purchased 266,667 shares of Common Stock and 133,333 Common Stock
Purchase Warrants for $400,000, and a family trust of Mr. Fink purchased 66,666
shares of Common Stock and 33,333 Common Stock Purchase Warrants for $100,000;
(ii) Linda G. Robinson, a director of the Company, purchased 133,333 shares of
Common Stock and 66,666 Common Stock Subscription Warrants for $200,000; and
(iii) The Aries Trust Fund, a Cayman Island trust (the "Aries Trust"), and The
Aries Domestic Fund, L.P., a Delaware limited partnership ("The Aries Limited
Partnership" and, together with the Aries Trust, the "Aries Funds"), , in the
manner described below, purchased an aggregate of 666,666 shares of Common Stock
and 333,333 Common Stock Subscription Warrants for an aggregate of $1,000,000.
Lindsay A. Rosenwald, M.D., a director of the Company, serves as President and
is the sole shareholder of the investment manager of the Aries Trust, and serves
as President and is the sole shareholder of the general partner of the Aries
Limited Partnership. Jerome Groopman, M.D., a director of the Company, , is a
member of the Scientific Advisory Board of the Aries Funds.
On December 23, 1996, the Company acquired an approximate 68% ownership
interest in Innovir pursuant to an agreement dated November 21, 1996, as
amended, among the Company and the Aries Funds and an agreement dated November
21, 1996 between the Company and Innovir. Pursuant to the agreements, as amended
(i) the Aries Funds, which owned 4 million shares of Innovir's common stock
prior to the transaction, exercised warrants and unit purchase options to
purchase an additional 6 million shares, thereby providing $3 million in cash to
Innovir and resulting in the Aries Funds owning 10 million shares of Innovir's
common stock; (ii) the Company acquired 9.5 million shares of Innovir's common
stock from the Aries Funds for $3,000,000 in cash and 3,000,000 newly issued
shares of the Company's Common Stock, and (iii) the Company exchanged all of the
capital stock of its wholly-owned subsidiary, VIMRx Holdings Ltd., a Delaware
corporation ("VHL") (to which, prior to closing, the Company had made a capital
contribution of $4,000,000), for 8.7 million shares of Innovir's convertible
preferred stock (convertible into 8.7 million shares of Innovir's common stock),
plus five-year warrants to purchase an additional 2 million shares of Innovir's
common stock (1 million shares at an exercise price of $1.00 per share and 1
million shares at an exercise price of $2.00 per share). The Company has agreed
to file a registration statement (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") for the public resale of
the 3,000,000 shares of Common Stock issued to the Aries Funds, to use its best
efforts to cause the Registration Statement to be declared effective by the
23
<PAGE>
Commission under the Securities Act as soon as practicable and to use
its best efforts to keep the Registration Statement effective until the earlier
of the date such shares shall have been disposed of or the date on which all of
such shares are eligible for sale pursuant to Rule 144 under the Securities Act.
The acquisition of the 9.5 million shares of Innovir stock from the Aries Funds
was negotiated at arms' length with the Aries Funds and an opinion was issued by
an independent investment banking firm that the transaction was fair from a
financial point of view to the Company and its public shareholders. Drs.
Rosenwald and Groupman did not participate in the meeting of the Board of
Directors in which the acquisition was approved.
On March 7, 1997, the Company entered into a research agreement with
Columbia University ("Columbia") whereby the Company, through a newly
established subsidiary, VIMRx Genomics, Inc. ("Genomics"), 90%-owned by the
Company and 10%-owned by Columbia University, will provide $30 million in
funding to the Columbia Genome Center established by Columbia, with $4.7 million
to be paid during the first year in quarterly installments. In exchange,
Genomics will receive an exclusive license to develop, manufacture, use, sell or
market products resulting from any invention or research product developed by
the Columbia Genome Center and funded under the agreement. Following an initial
five-year term, the agreement automatically will renew for successive two-year
terms and, in the absence of an agreement to the contrary, the amount of funding
will be increased at a rate of 9% for every additional year. Under the
agreement, the Company agreed to issue Columbia a one-time payment of 200,000
shares of Common Stock, and granted Columbia "piggyback" registration rights
with respect to such shares during the period April 1, 1997 to April 1, 1999.
See "Item 1 - Business - Research Agreement with Columbia University." Eric A.
Rose, M.D., a director of the Company, is a Surgeon-In-Chief at Columbia
Presbyterian Medical Center in New York, an affiliate of Columbia, and has
served as Chairman of the Department of Surgery at the College of Physicians and
Surgeons of Columbia since 1994 and as a Director of the Division of
Cardiothoracic Surgery of the Department since 1990. Michael Weiner, M.D., a
director of the Company, is the Hellinger Professor of Clinical Pediatrics at
Columbia's College of Physicians and Surgeons, Director of Pediatric Oncology,
and is an attending physician at Columbia Presbyterian Medical Center.
The Company believes that the consulting arrangements with Dr.
Rosenwald, Mr. Drapkin and Dr. Rose are on terms no less favorable than could
have been negotiated with unrelated third parties of similar expertise, and the
research agreement with Columbia was negotiated on an arm's length basis.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Lists.
1. See Index to Financial Statements on page F-1.
2. See Item 8 regarding financial statement schedules.
3. Exhibits.
24
<PAGE>
Exhibit
Number Description
2.2a Copy of Agreement dated November 21, 1996 (the "Aries
Agreement") by and among the Company and The Aries Domestic
Fund, L.P. (1)
2.2b Copy of Amendment to the Aries Agreement dated December 23,
1996 by and among the Company and the Aries Fund and The
Aries Domestic Fund, L.P. (1)
2.3 Copy of Agreement dated November 21, 1996 by and between
the Registrant and Innovir Laboratories, Inc. (1)
4.4 Copy of Warrant Agreement dated June 17, 1996 between the
Company and American Stock Transfer & Trust Company.
10.3 Copy of the Company's Amended and Restated 1990 Incentive
and Non-Incentive Stock Option Plan, as amended through
February 22, 1997.*
10.9 Copy of Employment letter agreement dated June 21, 1994
between the Company and Alfonso J. Tobia.* (2)
10.11 Copy of the Company's 1995 Outside Directors Stock Option
Plan.*(3)
10.12 Copy of letter agreement dated August 7, 1995 between
the Company and Lindsay A. Rosenwald, M.D. (3)
10.13 Copy of Stock Option Agreement dated August 7, 1995 between
Registrant and Lindsay A. Rosenwald, M.D. (3)
10.14 Copy of Consulting and Stock Option Agreement dated
November 17, 1995 between the Company and Eric A. Rose,M.D.
(3)
10.15 Copy of Stock Option Agreement dated November 17, 1995
between the Company and Donald G. Drapkin. (3)
10.16 Copy of the Company's 1996 Non-Employee Director Restricted
Stock Award Plan.* (3)
10.17 Copy of Registration Rights Agreement dated December 23,
1996, between Registrant and The Aries Fund and The Aries
Domestic Fund, L.P. (1)
10.18 Copy of Research Agreement dated as of March 7, 1997 among
the Company, The Trustees of Columbia University in the
City of New York and VIMRx Genomics, Inc. (4)
10.19 Copy of the Company's 1997 Incentive and Non-Incentive
Stock Option Plan, together with forms of stock option
agreements.*
10.20 Copy of Employment Agreement date October 30, 1996 between
the Company and Richard L. Dunning.*
10.21 Copy of Employment Agreement dated August 26, 1996 between
the Company and David A. Jackson, Ph.D.*
25
<PAGE>
21 List of Subsidiaries.
23 Consent of Richard A. Eisner & Company, LLP.
- - ----------
* Denotes management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report on Form 10-K.
- - --------------------------------------------------------------------------------
(1) Filed as the same numbered Exhibit to the Company's Current Report on
Form 8-K (Commission File No. 0-19153) filed January 3, 1997 and
incorporated herein by reference thereto.
(2) Filed as the same numbered Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (Commission File No.
0-19153) and incorporated herein by reference.
(3) Filed as the same numbered Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (Commission File No.
0-19153) and incorporated herein by reference thereto.
(4) Filed as the same numbered Exhibit to the Company's Current Report on
Form 8-K (Commission File No. 0-19153) filed March 21, 1997 and
incorporated herein by reference thereto.
(b) Reports on Form 8-K.
None.
26
<PAGE>
>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-2
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
1996 AND DECEMBER 31, 1995 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED
DECEMBER 31, 1996 AND FOR THE PERIOD
FROM DECEMBER 30, 1986 (INCEPTION) TO
DECEMBER 31, 1996 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY FOR EACH OF THE YEARS
IN THE TEN-YEAR PERIOD FROM DECEMBER 30, 1986
(INCEPTION) TO DECEMBER 31, 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED
DECEMBER 31, 1996 AND FOR THE PERIOD
FROM DECEMBER 30, 1986 (INCEPTION)
TO DECEMBER 31, 1996 F-8
NOTES TO FINANCIAL STATEMENTS F-9
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
VIMRx Pharmaceuticals Inc.
Wilmington, Delaware
We have audited the accompanying consolidated balance sheets of VIMRx
Pharmaceuticals Inc. and subsidiaries (a development stage enterprise) as at
December 31, 1996 and December 31, 1995, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996 and the amounts for such
years included in the period December 30, 1986 (inception) to December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of VIMRx
Pharmaceuticals Inc. and subsidiaries at December 31, 1996 and December 31,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the three-year period ended December 31,
1996 in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 14, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,611,000 $ 2,219,000
Short-term investments 38,300,000
Deferred finance costs 310,000
Other current assets 348,000 96,000
----------- ----------
Total current assets 47,259,000 2,625,000
Equipment - net 2,650,000 108,000
Notes receivable 225,000
Marketable equity securities 286,000
Other assets 261,000
Goodwill 1,236,000
------------ ------------
T O T A L $ 51,692,000 $ 2,958,000
============ ============
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $ 1,903,000 $ 432,000
Innovir note payable - warrantholder;
current portion includes accrued
interest of $5,000 36,000
Notes payable 1,802,000
Capital lease - current portion 472,000
--------- ---------
Total current liabilities 2,411,000 2,234,000
Innovir note payable - warrantholder,
includes accrued interest
of $39,000 227,000
Capital leases 463,000
Other liabilities 464,000
--------- ----------
Total liabilities 3,101,000 2,698,000
--------- ---------
Minority interest in subsidiary 2,381,000
---------
Contingencies, commitments and other matters
(Notes 4, 10, 11, 13, 14 and 16)
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C> <C>
Common stock; $0.001 par value, 120,000,000 shares
authorized, 54,429, 887 and 19,894,576 shares
issued and outstanding at December 31, 1996
and December 31, 1995, respectively 54,000 20,000
Additional paid-in capital 89,478,000 23,244,000
Unearned compensation (800,000) (493,000)
Unrealized (loss) on investment (143,000)
Cumulative translation adjustment (8,000)
Deficit accumulated during the development stage (42,371,000) (22,511,000)
----------- -----------
Total shareholders' equity 46,210,000 260,000
---------- -------
T O T A L $ 51,692,000 $ 2,958,000
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 30,1986
(Inception) to
Year Ended December 31, December 31,
1996 1995 1994 1996
---- ---- ---- ----
Operating expenses:
<S> <C> <C> <C> <C>
Research and development $ 2,950,000 $ 2,840,000 $ 1,463,000 $15,939,000
Purchased research and development (net
of gain on sale of subsidiary of $2,889,000) 14,484,000 14,484,000
General and administrative 4,300,000 2,272,000 1,646,000 13,782,000
--------- --------- --------- ----------
21,734,000 5,112,000 3,109,000 44,205,000
---------- --------- --------- ----------
Other (income) expenses:
Royalty payments 100,000 100,000 100,000 300,000
Interest (income) (1,792,000) (160,000) (189,000) (2,951,000)
Interest expense 329,000 2,000 413,000
Provision for losses on notes receivable 135,000
Investment in and advances to research and
development entities charged to expense 185,000 515,000 700,000
Minority interest in net loss of consolidated
subsidiary (116,000) (116,000)
Other - net (395,000) 1,000 74,000 (315,000)
-------- ----- ------ --------
(1,874,000) 128,000 500,000 (1,834,000)
---------- ------- ------- ----------
NET LOSS $19,860,000 $ 5,240,000 $ 3,609,000 $42,371,000
=========== =========== =========== ===========
NET LOSS PER SHARE $0.50 $0.27 $0.19
===== ===== =====
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING 39,398,644 19,747,595 19,066,754
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
<TABLE>
<CAPTION>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996
Preferred Stock Treasury Stock
---------------------------------------- ---------------------
Series A Series B Common Stock
---------------- ------------------- Common -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 30, 1986
Issuance of common stock ($.02 a 1,066,158 $ 1,000
share) --------- -------
Net (loss) for year
Balance - December 31, 1987 1,066,158 1,000
Reverse stock split of one for ten (959,543) (1,000)
shares
Return of capital to adjust purchase
price for effect
of reverse stock split
Issuance of common stock ($.03 a 876,295 1,000
share)
Purchase of treasury stock ($.03 a (1,797)
share)
Sale of treasury stock ($.03 a share) 1,797
Issuance of Series A preferred stock 600,000 $ 6,000
($1.07 a share)
Issuance of Series B preferred stock
($2.58495 a share)
and related warrants 773,709 $ 8,000
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1988 600,000 6,000 773,709 8,000 - 0 - $ - 0 - 982,910 1,000
Purchase of treasury stock ($.03 a (242,611) (8,000)
share)
Issuance of common stock ($.50 a 6,888 3,000
share)
Issuance of common stock (.03 share) 55,928
Issuance of Series B preferred stock
($2.58495 a share)
and related warrants 604,461 6,000
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1989 600,000 6,000 1,378,170 14,000 (242,611) (8,000) 1,045,726 1,000
Purchase of treasury stock ($.03 a (7,188)
share)
Conversion of bridge loan plus
accrued interest in
common stock 2,117,782 2,000
Issuance of common stock (average
price of $.05
a share) 161,063
Recapitalization (600,000) (6,000) (1,378,170) (14,000) 249,799 8,000 1,435,858 2,000
Initial public offering - net ($5.00
a unit)
($1.00 per share) 5,750,000 6,000
Issuance of common stock ($.50 a 18,010
share)
Net (loss) for year
------- ----- ------- ----- ------- ------- ---------- -------
Balance - December 31, 1990 (carried - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 10,528,439 11,000
forward)
(continued)
<PAGE>
<CAPTION>
Deficit
Accumulated
Additional Unrealized Cumulative During
Paid-in Unearned (Loss) on Translation Development
Capital Compensation Investments Stage Adjustment
------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 30, 1986
Issuance of common stock ($.02 a $ 17,000
share)
Net (loss) for year $ (106,000)
------------ ----------- ----------- ---------- -------------
Balance - December 31, 1987 17,000 (106,000)
Reverse stock split of one for ten 1,000
shares
Return of capital to adjust purchase
price for effect
of reverse stock split (14,000)
Issuance of common stock ($.03 a 28,000
share)
Purchase of treasury stock ($.03 a
share)
Sale of treasury stock ($.03 a share)
Issuance of Series A preferred stock 637,000
($1.07 a share)
Issuance of Series B preferred stock
($2.58495 a share)
and related warrants 1,992,000
Net (loss) for year (1,046,000)
------------ ----------- ----------- ---------- -------------
Balance - December 31, 1988 2,661,000 (1,152,000)
Purchase of treasury stock ($.03 a
share)
Issuance of common stock ($.50 a share) 3,000
Issuance of common stock ($.03 share) 2,000
Issuance of Series B preferred stock
($2.58495 a share) and related warrants 1,557,000
Net (loss) for year (2,531,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1989 4,223,000 (3,683,000)
Purchase of treasury stock ($.03 a
share)
Conversion of bridge loan plus
accrued interest in
common stock 928,000
Issuance of common stock (average
price of $.05 a share) 7,000
Recapitalization 10,000
Initial public offering - net ($5.00
a unit)($1.00 per share) 4,540,000
Issuance of common stock ($.50 a 9,000
share)
Net (loss) for year (2,988,000)
------------ ----------- ----------- ---------- ----------
Balance - December 31, 1990 (carried 9,717,000 (6,671,000)
forward)
F-5
<CAPTION>
<PAGE>
(continued)
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996
(continued)
Preferred Stock Treasury Stock
---------------------------------------- ---------------------
Series A Series B Common Stock
---------------- ------------------- Common -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1990 (brought - 0 - $ - 0 - - 0 - $ - 0 - - 0 - $ - 0 - 10,528,43 $11,000
forward)
Exercise of options ($.30 a share) 500
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1991 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 10,528,939 11,000
Issuance of common stock in public
offering - net
($5,000 a unit) ($2.20 per share) 3,139,500 4,000
Exercise of options and warrants - 412,754
net ($.30 - $.50 per share)
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1992 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 14,081,193 15,000
Exercise of options and warrants - 27,683
net ($.30 - $.50 per share)
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1993 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 14,108,876 15,000
Issuance of common stock in public
offering - net
($5,000 a unit) ($2.20 per share) 5,393,200 5,000
Exercise of warrants - net ($1.50 per 500
share)
Issuance of common stock for services 240,000
($0.3125 per share)
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1994 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 19,742,576 20,000
Exercise of warrants - net ($1.50 per 2,000
share)
Exercise of options ($0.4375 per 150,000
share)
Value of options issued to consultants
Value assigned to warrants issued in
private
placement of debt securities
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -----
Balance - December 31, 1995 (carried - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 19,894,576 20,000
forward)
(continued)
<CAPTION>
Deficit
Accumulated
Additional Unrealized Cumulative During
Paid-in Unearned (Loss) on Translation Development
Capital Compensation Investments Stage Adjustment
------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1990 (brought $ 9,717,000 $ (6,671,000)
forward)
Exercise of options ($.30 a share)
Net (loss) for year (2,016,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1991 9,717,000 (8,687,000)
Issuance of common stock in public
offering - net
($5,000 a unit) ($2.20 per share) 5,706,000
Exercise of options and warrants - 489,000
net ($.30 - $.50 per share)
Net (loss) for year (2,451,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1992 15,912,000 (11,138,000)
Exercise of options and warrants - 17,000
net ($.30 - $.50 per share)
Net (loss) for year (2,524,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1993 15,929,000 (13,662,000)
Issuance of common stock in public
offering - net
($5,000 a unit) ($2.20 per share) 6,380,000
Exercise of warrants - net ($1.50 per
share)
Issuance of common stock for services 75,000
($0.3125 per share)
Net (loss) for year (3,609,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1994 22,384,000 (17,271,000)
Exercise of warrants - net ($1.50 per 3,000
share)
Exercise of options ($0.4375 per 65,000
share)
Value of options issued to consultants 591,000 $(493,000)
Value assigned to warrants issued in
private
placement of debt securities 200,000
Net (loss) for year (5,240,000)
------------ ----------- ----------- ---------- -----------
Balance - December 31, 1995 (carried 23,243,000 (493,000) (22,511,000)
forward)
(continued)
F-6
<PAGE>
<CAPTION>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996
(continued)
Preferred Stock Treasury Stock
---------------------------------------- ---------------------
Series A Series B Common Stock
---------------- ------------------- Common -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 (brought - 0 - $ - 0 - - 0 - $ - 0 - - 0 - $ - 0 - 19,894,576 $20,000
forward)
Exercise of warrants ($1.50 per
share) (net of $712,000
expense) 13,907,015 14,000
Exercise of warrants ($2.25 per
share) (net of
$1,275,000 expense) 14,210,315 14,000
Issuance of common stock in private
placement
($1.50 per unit) (net of $142,000 2,799,991 3,000
expense)
Issuance of warrants in connection
with acquisition of Ribonetics
Exercise of options ($.50 - $1.16 per 217,990
share)
Issuance of restricted stock to 400,000
nonemployee directors
Issuance of shares in connection with
acquisition of Innovir ($3 per share) 3,000,000 3,000
Compensatory stock options
Translation adjustment
Unrealized (loss) on investments
Net (loss) for year
------- ----- ------- ----- ------- ------- --------- -------
Balance - December 31, 1996 - 0 - $ - 0 - - 0 - $ - 0 - - 0 - $ - 0 - 54,429,887 $54,000
======= ===== ======= ===== ======= ======= ========== =======
<CAPTION>
Deficit
Accumulated
Additional Unrealized Cumulative During
Paid-in Unearned (Loss) on Translation Development
Capital Compensation Investments Stage Adjustment
------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995 (brought $23,243,000 $(493,000) $(22,511,000)
forward)
Exercise of warrants ($1.50 per
share) (net of $712,000 expense) 20,135,000
Exercise of warrants ($2.25 per
share) (net of
$1,275,000 expense) 30,684,000
Issuance of common stock in private
placement
($1.50 per unit) (net of $142,000 4,055,000
expense)
Issuance of warrants in connection
with acquisition
of Ribonetics 1,562,000
Exercise of options ($.50 - $1.16 per 195,000
share)
Issuance of restricted stock to 400,000 (347,000)
nonemployee directors
Issuance of shares in connection with
acquisition
of Innovir ($3 per share) 8,997,000
Compensatory stock options 207,000 40,000
Translation adjustment $(8,000)
Unrealized (loss) on investments $(143,000)
Net (loss) for year (19,860,000)
------------ ----------- ----------- -------- -------------
Balance - December 31, 1996 $89,478,000 $(800,000) $(143,000) $(8,000) $(42,371,000)
=========== ========= ========= ======= ============
F-7
</TABLE>
the accompanying notes to financial statements are an integral part hereof.
<PAGE>
<TABLE>
<CAPTION>
F-8
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 30, 1986
Year Ended December 31, Inception) to
------------------------------------------ December 31,
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(19,860,000) $(5,240,000) $(3,609,000) $(42,371,000)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization 155,000 24,000 10,000 254,000
Amortization of debt discount 198,000 2,000 200,000
Interest expense settled through issuance of stock 72,000
Consulting fees settled through issuance of stock 75,000 75,000
Research and development expenses to be
settled through the issuance of stock (464,000) 464,000
Provision for losses on notes receivable 135,000
Investment in and advances to research and
development entities charged to expense 185,000 515,000 700,000
(Gain) on sale of subsidiaries (2,889,000) (2,889,000)
Noncash compensation 481,000 98,000 579,000
Purchased in process research and development 17,374,000 17,374,000
Loss from disposal of equipment 12,000 20,000
Deferred financing cost 310,000 310,000
Minority interest in net loss (116,000) (116,000)
Changes in operating assets and liabilities:
Decrease in prepayments under research
contracts 47,000 8,000
(Increase) in organization costs (3,000)
(Increase) decrease in other current assets
and other assets (103,000) 69,000 (110,000) (199,000)
Increase (decrease) in accounts payable and
accrued expenses (265,000) 266,000 1,000 116,000
---------- ---------- ---------- -----------
Net cash (used in) operating activities (5,167,000) (4,085,000) (3,110,000) (25,743,000)
---------- ---------- ---------- -----------
Cash flows from investing activities:
Net (purchases) sales of short-term investments (38,279,000) 2,590,000 (588,000) (38,279,000)
Payment for acquisition, net of cash acquired (2,011,000) (2,011,000)
Purchase of marketable securities (450,000) (450,000)
Purchases of equipment (802,000) (50,000) (71,000) (1,040,000)
Proceeds from sale of equipment 12,000 39,000
Loans to DNA Pharmaceuticals, Inc. (296,000)
Repayment of DNA Pharmaceuticals, Inc. loans 161,000
Loans to Ribonetics GmbH (600,000) (600,000)
Investment in and loan to CambES, Ltd. (100,000) (225,000) (325,000)
----------- --------- ---------- -----------
Net cash provided by (used in) investing
activities (41,530,000) 2,440,000 (1,484,000) (42,801,000)
----------- --------- ---------- -----------
Cash flows from financing activities:
Proceeds from sales of preferred and
common stock, net 4,058,000 6,450,000 24,836,000
Proceeds from issuance of common stock in
connection with the exercise of warrants/options 51,042,000 69,000 1,000 51,111,000
Purchase of treasury stock (8,000)
Proceeds from bridge loans 1,740,000 3,141,000
Repayment of bridge loans (2,000,000) (2,500,000)
Issuance of convertible demand notes payable 600,000
Return of capital (14,000)
---------- --------- --------- ----------
Net cash provided by financing activities 53,100,000 1,809,000 6,451,000 77,166,000
---------- --------- --------- ----------
Effect of exchange rate changes on cash (11,000) (11,000)
------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 6,392,000 164,000 1,857,000 8,611,000
Cash and cash equivalents at beginning of period 2,219,000 2,055,000 198,000
--------- --------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 8,611,000 $ 2,219,000 $ 2,055,000 $ 8,611,000
============ =========== =========== =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 124,000 $ 124,000
For noncash transactions see Notes 2, 7 and 11.
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-8
<PAGE>
VIMRx PHARMACEUTICALS INC. and Subsidiaries
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(continued)
Note 1 - The Business:
VIMRx Pharmaceuticals Inc. ("VIMRx") is a development stage company focused
on identifying, evaluating, acquiring and commercializing scientific
technologies to be developed by the Company in partnership with others. The
Company is engaged in developing therapeutic and related products form synthetic
hypericin principally for the treatment of viral and retroviral diseases. The
Company also owns approximately 68% of the capital stock of Innovir
Laboratories, Inc. ("Innovir") (see below) which, together with its
subsidiaries, is engaged in the research and development of oligozymes, a new
class of biopharmaceutical agents for the treatment of a wide array of human
diseases.
In January 1995, to complement and diversify its potential hypericin-based
product line, VIMRx, through its subsidiary, VIMRx Holdings, Ltd. ("VHL"),
acquired a worldwide exclusive license from Ribonetics GmbH ("Ribonetics"), a
German company. The worldwide exclusive license gives VHL the right to
commercialize and exploit oligozymes for pharmaceutical and diagnostic products.
On May 23, 1996, VHL acquired 100% of the outstanding capital stock of
Ribonetics (see Note 2[b]).
On December 23, 1996, VIMRx and Innovir and certain shareholders of Innovir
entered into a series of agreements (the "Transaction") whereby VIMRx
effectively acquired 68% of Innovir and Innovir acquired all of the issued and
outstanding shares of VHL, a wholly owned subsidiary of VIMRx. As discussed
further in Note 2, for financial reporting purposes, the Transaction has been
accounted for as a partial sale of VHL to Innovir and a partial acquisition of
Innovir. In connection therewith, the purchase price has been allocated to net
tangible assets, purchased in-process research and development and goodwill. The
purchased in-process research and development was charged to operations. The
accompanying consolidated financial statements include the accounts of VIMRx,
Innovir and all subsidiaries which are wholly owned (collectively, the
"Company").
The Company is subject to those risks associated with development stage
companies. All of the Company's efforts to date have been devoted to acquiring
technology, research and development, setting up laboratories and raising
capital. The Company does not yet generate any revenues from product sales. The
Company has research laboratories in the United States, the United Kingdom and
Germany. In addition, research and development and clinical trials are
contracted to independent institutions in the United States and elsewhere.
F-9
<PAGE>
Note 2 - Acquisitions:
[a] Transactions to acquire 68% of Innovir Laboratories, Inc.:
As discussed in Note 1, VIMRx, Innovir and certain stockholders of Innovir
(the "Aries Funds") entered into the Transaction whereby VIMRx acquired 68% of
Innovir and Innovir acquired 100% of the outstanding capital stock of VHL. In
consideration of the acquisition of VHL, Innovir, on December 23, 1996, issued
8,666,666 shares of a newly designated series of preferred stock, Class D
convertible preferred stock and warrants to purchase two million shares of the
Innovir's common stock. The warrants expire after five years. The exercise price
for one million warrants is $1.00 per share; the remaining one million warrants
have an exercise price of $2.00 per share.
Simultaneously with Innovir's acquisition of VHL, VIMRx, in exchange for $3
million and three million shares of VIMRx's common stock, acquired 9.5 million
shares of Innovir's common stock from the Aries Funds. In addition, VIMRx and
the Aries Funds entered into an agreement whereby VIMRx obtained the right to
vote 500,000 shares of Innovir's common stock held by the Aries Funds, thereby
effectively giving VIMRx voting control of an aggregate of 18,666,666 shares of
Innovir's stock.
VIMRx's partial acquisition of Innovir and Innovir's acquisition of VHL,
have been accounted for as a purchase in accordance with APB Opinion No. 16,
"Business Combinations" ("APB No. 16") and Emerging Issues Task Force Issue No.
90-13, "Accounting for Simultaneous Common Control Mergers" ("EITF No. 90-13").
The application of APB No. 16 and EITF No. 90-13 requires that the Transaction
be accounted for as a partial sale of VHL to the minority shareholders of
Innovir and a partial acquisition of Innovir. VIMRx's purchase price of its 68%
of Innovir totaled approximately $17 million. Of the total purchase price,
approximately $3.7 million was allocated to tangible assets, $1.8 million to
liabilities, $13.8 million to purchased in-process research and development and
the balance to goodwill. Technological feasibility of the purchased in-process
research and development has not yet been established and the technology has no
alternative future use. In connection with the partial sale of VHL, the Company
recorded a gain on $2.8 million which has been included with purchased research
and development expense. The accompanying statement of operations include the
operations of Innovir from December 23, 1996 to December 31, 1996.
[b] Acquisition of Ribonetics:
During 1996, VHL acquired 100% of the outstanding capital stock of
Ribonetics in consideration for approximately $1.6 million of cash and a warrant
to purchase 365,000 shares of VIMRx's common stock at an exercise price of $.01
per share (the "Acquisition"). The Company valued the warrants at approximately
$1,562,000. The Acquisition has been accounted for as a purchase and the
operating results of the Company include those of Ribonetics for the seven
months ended December 31, 1996. The total purchase price aggregated
approximately $3.7 million and has been allocated to tangible assets,
liabilities and purchased in-process research and development of $475,000,
$289,000 and $3,528,000,
F-10
<PAGE>
Note 2 - Acquisitions: (continued)
[b] Acquisition of Ribonetics: (continued)
respectively. It was determined at the date of acquisition that the
purchased in-process research and development had not reached technological
feasibility and that the technology had no alternative future use.
[c] Pro forma results of operations (unaudited):
The following pro forma unaudited results of operations have been prepared
as if the Transaction and the Acquisition discussed above had occurred at the
beginning of the respective periods ended December 31.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Revenues $ 2,089,000 $ 470,000
Expenses 17,367,000 12,021,000
---------- ----------
Net loss $15,278,000 $11,551,000
=========== ===========
Net loss per share $0.36 $0.51
===== =====
</TABLE>
The pro forma results of operations above include adjustments for the
amortization of intangibles and exclude nonrecurring charges related to
purchased in-process research and development arising from the Transaction and
the Acquisition.
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Transaction and the
Acquisition been consummated at the beginning of the respective periods, nor are
they necessarily indicative of future operating results.
F-11
<PAGE>
Note 3 - Summary of Significant Accounting Policies:
[a] Consolidation:
The accompanying consolidated financial statements include the accounts
of VIMRx, Innovir and all subsidiaries which are wholly owned. All significant
inter-company balances and transactions have been eliminated.
[b] Research and development:
Research and development costs are charged to expense as incurred.
[c] Foreign currency translation:
Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses and gains and losses. Where the local currency is the functional
currency, translation adjustments are recorded as a separate component of
shareholders' equity (deficit). Where the U.S. dollar is the functional
currency, translation adjustments are included in operating results. Foreign
exchange gains and losses included in operations were not material. As of
December 31, 1996, approximately 2% and approximately 3% of the Company's total
assets are located in the United Kingdom and Germany, respectively.
[d] Amortization of goodwill:
Goodwill represents the excess of the purchase price paid by the Company
over 68% of the fair value of the net assets and purchased in-process research
and development of Innovir. Such amount is being amortized on a straight-line
basis over the period of expected benefit of three years. Total amortization of
goodwill for the year ended December 31, 1996 was not material. The carrying
value of goodwill will be reviewed periodically based on the advancement of
Innovir's technology and the continued employment of Innovir's workforce and
consultants. Should this review indicate that goodwill will not be realized, the
Company's carrying value of the goodwill will be reduced.
F-12
<PAGE>
Note 3 - Summary of Significant Accounting Policies: (continued)
[e] Fixed assets:
Fixed assets consist of office and laboratory equipment and leasehold
improvements stated at cost. Equipment is depreciated on a straight-line basis
over its estimated useful life of five years. Leasehold improvements are
amortized over the life of the lease or of the improvement, whichever is
shorter. Expenditures for maintenance and repairs which do not materially extend
the useful lives of the assets are charged to operations as incurred. The cost
and related accumulated depreciation or amortization of assets retired or sold
are removed from the respective accounts and any gain or loss is recognized in
operations.
[f] Deferred financing costs:
Direct costs associated with obtaining debt financing have been
capitalized and are being amortized on a basis which approximates the interest
method, over the terms of the respective loans.
[g] Cash and cash equivalents:
The Company considers all highly liquid debt instruments which have
maturities of three months or less when acquired to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates its fair value. Cash and cash equivalents subject the Company to
concentrations of credit risk. At December 31, 1996, the Company had invested
approximately $6.6 million in money market funds with two investment companies
and held approximately $1.7 million of commercial paper issued by four entities,
with maturities not in excess of three months. The Company holds no collateral
for these financial instruments.
[h] Investments:
The Company classifies certain investments as "available-for-sale".
Investments in securities that are classified as available-for-sale and have
readily determinable fair values are measured at fair market value in the
balance sheet, and unrealized holding gains and losses for these investments are
reported as a separate component of shareholders' equity until realized.
[i] Net loss per share:
Net loss per share is computed on the basis of the net loss for the
period divided by the weighted average number of shares of common stock
outstanding during the period. The net loss per share for all periods excludes
the number of shares issuable upon exercise of the outstanding options and
warrants since such inclusion would be anti-dilutive.
F-13
<PAGE>
Note 3 - Summary of Significant Accounting Policies: (continued)
[j] Government grants:
Proceeds from government grants are recognized as income as the related
research is performed. For the year ended December 31, 1996, approximately
$90,000 was recognized as income and is included in other income.
[k] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
[l] Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined on the basis of the difference between tax bases of
assets and liabilities and their respective financial-reporting amounts
("temporary differences") at enacted tax rates in effect for the year in which
the temporary differences are expected to reverse (see Note 12).
[m] Stock based employee compensation:
The accompanying financial position and results of operations of the
Company have been prepared in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the accompanying financial statements in
connection with the awarding of stock option grants to employees provided that,
as of the grant date, all terms associated with the award are fixed and the
quoted market price of the Company's stock, as of the grant date, is not greater
than the amount an employee must pay to acquire the stock as defined; however,
to the extent that stock options are granted to nonemployees for goods or
services, the fair value of these options are included in operating results as
an expense.
Disclosures required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, have been included in Note 11[b].
F-14
<PAGE>
Note 3 - Summary of Significant Accounting Policies: (continued)
[n] Fair value of financial instruments:
Financial instruments include notes receivable and accounts payable. The
carrying amount of these instruments approximate fair value due either to their
short-term nature or because the Company believes the instrument could be
exchanged in a current transaction for that carrying amount (also see Note 10).
[o] Reclassifications:
Certain reclassifications have been made to the financial statements for
1995 in order to conform with current year's presentation.
Note 4 - Research Contracts:
[a] Pursuant to an agreement with New York University ("NYU") and Yeda
Research and Development Co., Ltd. ("Yeda"), located in Israel, (NYU and Yeda,
collectively, the "Licensors"), the Licensors granted VIMRx a worldwide
exclusive license to commercialize and exploit natural hypericin and synthetic
hypericin compounds to inactivate viruses and retro-viruses as a therapeutic or
preventive treatment for viral or retroviral diseases, and for anti-glioma
(brain tumor) indications. Between 1988 and May 1995, VIMRx paid the Licensors
an aggregate of approximately $4,928,000 for research and development with
respect to hypericin, and approximately $434,000 for reimbursement of patent
expenses and approximately $300,000 in minimum royalty payments since June 1,
1993. The agreement requires VIMRx to protect the Licensors and their related
parties (consultants and scientists) from damages arising out of the conduct of
the research project and the use or practice of the research technology,
products or processes by VIMRx or its related parties. VIMRx must also maintain
employer's liability insurance for all its employees engaged in work involving
the research project.
In addition, the Company is required to make royalty and related
payments to licensors under the agreement consisting of: (1) royalties of 7% on
net sales of products licensed; (2) royalties of 4.4% on net sales of products
sublicensed; (3) 40% of payments from third parties to Fund research and
development and (4) 12% of consideration received from an entity selling
licensed products.
Commencing June 1, 1993, minimum annual royalty payments of $100,000 are
due until the later of the expiration of the Licensors' patents or 15 years from
the first commercial sale of products under the agreement. During 1996, 1995 and
1994, such payments were made.
F-15
<PAGE>
Note 4 - Research Contracts: (continued)
[b] On March 7, 1995, VHL entered into a one year research and
development agreement with Ribonetics with respect to rights and the related
technology acquired from Ribonetics. During 1995, approximately $1,050,000 of
such funding was made. The agreement provides for the issuance by the Company of
500,000 shares of its common stock at the anniversary date of the research and
development agreement. However, should the agreement be terminated prior to any
anniversary date the unissued shares shall not be payable. At December 31, 1995
a liability of $464,000 reflecting this agreement has been recorded based on the
pro rata shares earned at the current market price, and research and development
expense had been charged.
In 1996, VHL terminated its research and development agreement with
Ribonetics resulting in a reversal of the accrual for payments of common stock
under that agreement.
[c] Innovir (as licensee) has entered into an exclusive worldwide
licensing agreement with a university whereby Innovir has the exclusive right to
use certain technology owned by the university. According to the terms of the
agreement, as amended, Innovir is required to pay royalties which commence one
year after the first sale of a product developed from the licensed technology.
Such royalties are based upon the greater of annual minimum royalties, as
defined, or a percentage of net sales of licensed products and a portion of
sublicensing income, as defined. Annual minimum royalties are not material. The
licensing agreement expires on a country by country basis as underlying patents
expire in such country. In addition, the license may be terminated in the event
that Innovir fails to implement a plan directed at development and
commercialization of products based on the licensed technology or if Innovir
fails to satisfy certain other contractual obligations. In the event of
termination, all licensing rights under the agreement would revert to the
university. The termination of the license would have a material adverse effect
on the business of Innovir. Although Innovir intends to use its best efforts to
comply with the terms of the license, there can be no assurance that the
licensing agreement will not be terminated. Innovir believes, based on the
opinion of counsel, that the use of this licensed technology does not infringe
on a patent held by a third party. Nevertheless, there can be no assurance that
infringement proceedings will not be brought against Innovir.
In April 1994, Innovir (as licensee) entered into another non-exclusive
licensing agreement with a university whereby Innovir has the non-exclusive,
non-transferable right to use certain technology owned by the university.
According to the terms of this agreement, Innovir is required to remit royalties
on a quarterly basis, at various rates, as defined, beginning after the first
commercial sale of a licensed
F-16
<PAGE>
Note 4 - Research Contracts: (continued)
[c] (continued)
product, as defined. In addition, Innovir is required to pay a minimum annual
advance on earned royalties ("Advance") of $10,000, which is nonrefundable, but
may be credited, as defined, against future royalties due the university.
Advances paid to date have not been material. Royalties shall continue to be
payable, irrespective of the termination of this license agreement, until such
time as all sales of licensed products shall have ceased.
During 1996, VHL entered into a research collaboration and licensing
agreement with a pharmaceutical company ("Pharmaceutical Company"). Under the
terms of the agreement, the Pharmaceutical Company and VHL will jointly develop
certain technology and the Pharmaceutical Company obtained certain rights to the
technology or received a defined royalty in the event VHL licenses the
technology to a third party. The agreement also provides for the Pharmaceutical
Company to make defined payments to VHL upon the occurrence of certain events
related to the technology's development and the achievement of defined
milestones. The agreement is for one year unless extended by the parties. During
the year ended December 31, 1996, VHL received $40,000 from the Pharmaceutical
Company in accordance with the agreement. Such amount has been included in other
income.
Note 5 - Investments:
Securities available for sale at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Estimated Unrealized
Cost Fair Value Gain (Loss)
---- ------------- -----------
<S> <C> <C> <C>
U.S. Treasury and agencies 4,867,000 $ 4,845,000 $(22,000)
Mortgage-backed securities 17,548,000 17,583,000 35,000
Asset-backed securities 11,181,000 11,182,000 1,000
Corporate debt securities 4,683,000 4,690,000 7,000
--------- --------- -----
$38,279,000 $38,300,000 $ 21,000
=========== =========== ========
</TABLE>
During the year ended December 31, 1996 and December 31, 1994, the Company
realized a gain (loss) of approximately $272,000 and ($74,000), respectively, on
the sale of available-for-sale investments, included in other income.
F-17
<PAGE>
Note 5- Investments: (continued)
The cost and estimated fair value of available for sale securities by
contractual maturity at December 31, 1996 is as follows:
Estimated
Cost Fair Value
---- -----------
Due after one year through five years $14,098,000 $14,083,000
Due after five years through ten years 5,721,000 5,719,000
Due after ten years 912,000 915,000
Mortgage-backed securities 17,548,000 17,583,000
---------- ----------
$38,279,000 $38,300,000
=========== ===========
Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to repay obligations without
repayment penalties.
During 1996, the Company purchased for $800,000 an aggregate of 457,143
shares of the common stock of Epoch Pharmaceuticals, Inc. ("Epoch"), warrants to
purchase 450,000 shares of Epoch's common stock at $2.00 per share and warrants
to purchase an additional 450,000 common shares at $3.00 per share, which
warrants expire on October 1, 1997 and October 1, 1998, respectively. In
connection therewith, Epoch released the Company and its affiliates from any
claims Epoch might have with respect to the Innovir's subsidiary, Ribonetics.
During 1996, the Company recorded a charge to operations of $350,000
representing the excess over the fair value of securities at the date of
purchase. On December 31, 1996, the Company recorded an unrealized loss of
$164,000 on this investment which has been included as a reduction of
shareholders' equity.
Note 6 - Equipment:
Equipment consists of the following:
December 31,
--------------------
1996 1995
---- ----
Office and laboratory equipment $2,042,000 $ 91,000
Computers 114,000 57,000
Leasehold improvements 689,000
------- ---------
2,845,000 148,000
Less accumulated depreciation and amortization 195,000 40,000
------- ------
Net equipment $2,650,000 $108,000
========== ========
F-18
<PAGE>
Note 7 - Notes Receivable:
Notes receivable, at December 31, 1995, consist of two notes of $250,000,
each bearing interest at 12.5%, due on December 7, 1994 and January 21, 1995,
respectively, and a $250,000 unsecured demand note bearing interest at 10% from
Ribonetics. The notes were collateralized by laboratory equipment and a license
for certain patent rights. At December 31, 1995 and December 31, 1994, $85,000
and $290,000, respectively, of the notes were charged to expense. On January 16,
1995, the Company assigned its rights to the notes and related agreements to
VHL. On January 18, 1995, VHL took possession of the license in return for
$150,000 of the notes which have been included in research and development
expense as of December 31, 1994. No interest income was recognized for these
notes for 1996, 1995 and 1994. The carrying value of these notes was included in
the purchase price when the Company acquired Ribonetics as discussed in Note 2.
Note 8 - Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
December 31,
1996 1995
---- ----
Accounts payable $ 859,000 $136,000
Accrued expenses 435,000
Accrued payroll and related costs 42,000
Professional fees 567,000 296,000
------- -------
$1,903,000 $432,000
========== ========
Note 9 - Notes Payable:
In December 1995, the Company issued $2,000,000 of unsecured promissory
notes due at the earlier of one year or five days following a sale of equity
securities of the Company, grossing proceeds of at least $2,000,000. The notes
were issued in connection with a private placement of units, each unit
consisting of a $50,000 unsecured promissory note bearing interest at a rate of
12% per annum (effective interest rate 24%) and 25,000 warrants ("bridge
warrants") of the Company. The Company valued the warrants issued at $200,000
which has been accounted for as debt discount. The warrants contained
F-19
<PAGE>
Note 9 - Notes Payable: (continued)
provisions that in the event the Company consummates a public or private
placement of its equity securities prior to December 26, 1998 which includes
warrants ("new warrants"), then the bridge warrants would convert into new
warrants. Effective with the private placement in 1996 (see Note 11), the bridge
warrants were converted into new warrants. On June 28, 1996, the Company repaid
the notes and accrued interest. The debt discount was recorded as interest
expense.
Note 10 - Innovir Note Payable - Warrantholder:
The term note provides for interest, payable quarterly at a rate of 8% per
annum. The noteholder holds a lein on all the assets of Innovir. In connection
with the issuance of the term note, Innovir issued a warrant which provides the
holder with the right to acquire an aggregate of 40,000 shares of Innovir's
common stock at $6.25 per share. Any accrued and unpaid interest ($44,000 as of
December 31, 1996) related to the term note may also be used to acquire
additional shares of common stock at a price of $6.25 per share. The warrant
expires on February 10, 1998 and contains anti-dilution provisions and other
defined adjustments in the event of a merger or reorganization, as defined. As
of December 31, 1996, the warrant was exercisable and outstanding. The estimated
fair value of the term note at December 31, 1996 was approximately $200,000. The
fair value was estimated on the basis of the current rate of debt with similar
characteristics.
In addition, during November 1996, the payment terms of the term note were
amended. (the "Amended Note") and related accrued and unpaid interest as of that
date was deferred. In consideration for such amendment, Innovir issued a second
warrant, which expires on November 21, 2001, to the noteholder to purchase
20,000 shares of the Company's common stock at $1.50 per share. The fair value
of the warrant totaled approximately $16,000. Such amount is being accounted for
as deferred financing cost and amortized over the remaining life of the Amended
Note. Pursuant to the Amended Note, future payments of principal and deferred
interest are as follows:
<TABLE>
<CAPTION>
Year Ending Future
December 31, Payments
<S> <C>
1997 $ 36,000
1998 130,000
1999 97,000
---- ------
$263,000
========
</TABLE>
Interest expense with regard to the Amended Note was not material for all
periods presented.
F-20
<PAGE>
Note 11 - Shareholders' Equity:
[a] Public offerings:
On July 25, 1990, the Company effected an initial public offering of its
securities. A total of 1,150,000 units, each comprised of five shares of common
stock and five redeemable Class A warrants, were sold for $5.00 a unit, yielding
net proceeds of approximately $4,546,000 after underwriting commissions and
expenses.
Prior to the initial public offering, the Company was recapitalized,
whereby all outstanding preferred stock was converted into common stock, the
treasury stock was retired, the par value of the common stock was changed from
$0.01 to $0.001 a share, and the Company effected a .599-for-1 reverse stock
split.
On January 23, 1992, the Company effected a second public offering of its
securities. A total of 1,380 units, each comprised of 2,275 shares of common
stock and 2,275 redeemable Class A warrants, were sold for $5,000 a unit during
January and February of 1992. This offering yielded net proceeds of
approximately $5,710,000 after underwriting commissions and expenses.
On January 27, 1994, the Company effected a third public offering of its
securities. A total of 1,552 units, each comprised of 3,475 shares of common
stock and 3,475 redeemable Class A warrants, were sold for $5,000 a unit,
yielding net proceeds of approximately $6,385,000 after underwriting commissions
and expenses.
On April 9, 1996, the Company exercised its right to redeem all outstanding
redeemable Class A warrants (the "Class A warrants") on May 10, 1996 (the
"Redemption Date"). Between January 1, 1996 and the Redemption Date,
approximately 13,900,000 Class A warrants were exercised resulting in the issue
of one share of common stock and one redeemable Class B warrant (the "Class B
warrant") for $1.50. On April 25, 1996, the Company exercised its right to
redeem all outstanding Class B warrants on June 13,1996 (the "B Class Redemption
Date"). Between January 1, 1996 and the B Class Redemption Date, approximately
14,200,000 Class B warrants were exercised, resulting in the issuance of one
share of common stock for $2.25. The exercise of Class A and B warrants yielded
net proceeds of approximately $50,847,000 after commissions of $1,949,000 to an
investment firm.
On March 21, 1996, VIMRx entered into a Subscription and Registration
Rights Agreement (the "Agreement") with a group of individuals, under which the
Company agreed to issue 2,799,991 units, at a price of $1.50 per unit,
consisting of one share of common stock and one-half of a warrant. Each warrant
entitles the holder to purchase one share of common stock at an exercise price
of $1.50 per share subject to adjustment, and exercisable through June 20, 2006.
The net proceeds to the Company were approximately $4,058,000.
F-21
<PAGE>
Note 11 - Shareholders' Equity: (continued)
[a] Public offerings: (continued)
On June 21, 1996, the authorized capital stock of the Company was increased
from 60,000,000 to 120,000,000 shares of common stock.
[b] Stock option plans:
The Company has established two employee stock option plans (the "1989
Plan" and the "1990 Plan"). No further options may be granted under the 1989
Plan. On June 20, 1996, the 1990 Plan was amended increasing the number of
shares of common stock issuable upon exercise of options granted under the Plan
from 1,200,000 to 2,400,000 shares. The shares of common stock are reserved for
issuance upon exercise of either incentive or nonincentive options, which may be
granted from time to time by a committee of the Board of Directors to employees
and others. The terms of each incentive option and nonincentive option are for
five years and ten years, respectively, from date of grant. The grant prices
must be no less than 50% and 100% of the fair market value for nonincentive and
incentive options, respectively. At December 31, 1996, options for 411,900
shares were available for future grant. Generally, options vest 25% per annum on
the anniversary date of grant.
<TABLE>
<CAPTION>
Stock options outstanding under these plans are as follows:
1989 Plan 1990 Plan
------------------------- ---------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 15,594 520,808
Granted 1,545,146 $0.87
Expired (1,755,954) 0.80
-------- ---------- ----
Outstanding at December 31, 1994 15,594 310,000
Granted 250,000 0.44
Expired (15,594) $0.50 (135,500) 1.59
Exercised (150,000) 0.44
-------- -------- ----
Outstanding at December 31, 1995 - 0 - 274,500
Granted 1,475,000 2.71
Exercised (12,000) 1.16
-------- ------- ----
Outstanding at December 31, 1996 - 0 - 1,737,500 $2.34
======== ========= =====
</TABLE>
F-22
<PAGE>
Note 11 - Shareholders' Equity: (continued)
[b] Stock option plans: (continued)
The following table summarizes information about stock options
outstanding at December 31, 1996 under the 1990 Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- -------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Price Outstanding (in Years) Price Exercisable Price
--------------------------- --------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
.44 - .69 250,000 2.88 $ .59 100,000 $0.63
1.38 - 1.66 187,500 3.95 1.64 12,500 1.38
2.56 - 3.31 1,300,000 4.41 2.85
--------- ---- ---- -------- -----
1,737,500 4.14 $2.34 112,500 $1.46
========= ==== ===== ======= =====
</TABLE>
In August 1995, the Company adopted a Directors Stock Option Plan (the
"Directors Plan") authorizing the issuance of five year options to purchase an
aggregate of 920,000 shares at an exercise price equal to the fair market value
of the common stock at date of grant. All the options were granted under the
Directors Plan and no further options are available for grant.
Additional information with respect to the Directors Plan option activity
is summarized as follows:
Weighted-
Average
Exercise
Shares Price
------ -----
Granted 920,000 $0.86
------- -----
Outstanding at December 31, 1995 920,000 0.86
Exercised (200,000) 0.89
-------- ----
Outstanding at December 31, 1996 720,000 $0.85
======= =====
F-23
<PAGE>
Note 11 - Shareholders' Equity: (continued)
[b] Stock option plans: (continued)
At December 31, 1996, all the options under the Directors Plan are
exercisable.
The following table summarizes information about stock options outstanding
at December 31, 1996 under the Directors Plan:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Weighted-
Average
Remaining
Contractual
Exercise Number Life
Price Outstanding (in Years)
---------- -------------- ----------------
<S> <C> <C>
$.75 350,000 3.67
.9375 370,000 3.88
------- ----
720,000 3.80
======= ====
</TABLE>
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the grant price of the
option at the date of grant. The effect of applying SFAS No. 123 on 1995 and
1996 pro forma net loss as stated above is not necessarily representative of the
effects on reported net loss for future years due to, among other things, (1)
the vesting period of the stock options and the (2) fair value of additional
stock options in future years. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under the plans consistent with the methodology prescribed under SFAS No.
123, the Company's net loss in 1996 and 1995 would have been approximately
$20.948 million and $5.28 million, or $.53 per share and $.27 per share,
respectively. The fair value of the options granted during 1996 and 1995 are
estimated at $2.20 per share and $.61 per share, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%, volatility of 1.10%, risk-free interest rate
of 6.10% - 6.73% for 1996 and 5.77% - 7.08% for 1995, and expected life of 5
years.
F-24
<PAGE>
Note 11 - Shareholders' Equity: (continued)
[c] Nonemployee director restricted stock award plan:
On June 21, 1996, the Company adopted the 1996 Nonemployee Director
Restricted Stock Award Plan (the "Award Plan") under which an aggregate of
900,000 shares of common stock are reserved for issuance as restricted shares of
common stock to nonemployer directors. Restricted shares shall be forfeited by
the nonemployee director in the event the director ceases to serve as director
of the Company, except that such forfeiture provision will lapse at a rate of
25% of the number of restricted shares per annum commencing one year from the
date of issuance.
The Company has the right of first refusal to purchase any vested
restricted shares proposed to be transferred by a nonemployee director for a
period of 30 days after receipt of written notice at a per share price equal to
the difference between the fair market value at the date of proposed transfer
minus the difference between the fair market value at the date of grant less
$1.00. During the year ended December 31, 1996, the Company granted 400,000
restricted shares under the Award Plan, none of which have vested. The Company
valued these shares at $400,000, which is being amortized over the vesting
period.
[d] Warrants to acquire common stock:
As of December 31, 1996, the Company had warrants to purchase 2,400,000
shares of common stock at an exercise price of $1.50 per share, exercisable
through June 20, 2006 (see Notes 9 and 11).
In addition, at December 31, 1996 the Company has warrants to purchase
365,000 shares of common stock at an exercise price of $.01 per share,
exercisable through May 21, 2006 (see Note 2[b]).
As of December 31, 1996 there were 2,765,000 warrants exercisable at a
weighted-average exercise price of $1.30.
[e] Other options:
In connection with its public offerings, the Company sold to the
underwriter, at a nominal amount, the following options for the purchase of
units:
Exercise Number of
Number Price Shares
of Units Per Unit Reserved Expiration Date
1992 offering 120 $8,000 819,000 July 24, 1997
1994 offering 135 7,000 1,407,374 January 20, 1999
F-25
<PAGE>
Note 11 - Shareholders' Equity: (continued)
[e] Other options: (continued)
The units are identical to the units sold in the respective offerings
except that the warrants included therein, which expire on July 24, 1997, are
not subject to redemption by the Company. The units are subject to adjustment
for dilution (as defined). Each Class A warrant entitles the holder to purchase
a unit consisting of one share of common stock and one redeemable Class B
detachable warrant. Each Class B warrant entitles the holder to purchase one
share of common stock.
The Company has granted stock options to certain consultants, who are also
directors, of the Company as follows:
Number of Exercise
Shares Price Term Expiration Date
1,300,000 $0.94 5 years November 17, 2000 (1)
2,000,000 0.53 3 years August 6, 1998 (1)
100,000 1.47 10 years March 11, 2006 (2)
100,000 1.47 10 years March 11, 2006 (2)
(1) During 1995 the Company valued these options at an aggregate of $591,000
which are being amortized over the vesting period.
(2) Options granted in connection with the March 1996 agreement (see Note 11
[a]) whereby certain directors agreed to provide operating funds if
needed through September 1996.
Note 12 - Income Taxes:
There is no provision (benefit) for federal, state or local income taxes
for all periods presented, since the Company has incurred operating losses since
inception and has established a valuation allowance equal to the total deferred
tax asset.
F-26
<PAGE>
Note 12 - Income Taxes: (continued)
The federal tax effect of net operating loss carryforwards, temporary
differences and research and development tax credit carryforwards is as follows:
December 31,
-------------------
1996 1995
---- ----
Deferred tax assets and valuation allowance:
Net operating loss carryforwards $ 15,947,000 $ 6,698,000
Deferred liabilities 40,000
Deferred costs 285,000
Research and experimental tax credit
carryforwards 570,000
Valuation allowance (16,842,000) (6,698,000)
----------- ----------
$ - 0 - $ - 0 -
============= ==========
As of December 31, 1996, the Company has available for tax purposes the
following net operating loss carryforwards:
United States (expires through 2011) (including
approximately $25,000,000 relating to Innovir) $47,000,000
United Kingdom (no expiration date) 970,000
Germany (no expiration date) 1,700,000
The Company's research and development tax credit carryforward of
approximately $570,000 expires in various years from 2005 through 2012 and is
subject to limitation due to a change in ownership pursuant to Section 382 of
the Internal Revenue Code.
At December 31, 1996 the Company had available net operating loss
carryforwards to reduce future taxable income of approximately $47,000,000. The
net operating loss carryforwards expire in various amounts through 2011. The
Company's ability to utilize $25,000,000 of its $47,000,000 net operating loss
carryforwards is subject to a cumulating, annual limitation of approximately
$1,200,000 pursuant to Section 382 of the Internal Revenue Code. The $22,000,000
balance would become subject to limitation (the amount of which would be based
on the then value of the Company's outstanding shares) if and when an "ownership
change" (as defined in Section 382 of the Internal Revenue Code) were to occur.
F-27
<PAGE>
Note 13 - Related Party Transactions:
[a] Employment agreements:
On April 1, 1996 Innovir entered into an employment agreement with an
officer/stockholder ("officer") of Innovir expiring March 31, 1998, whereby the
officer has agreed to devote his full business time to Innovir to further
develop certain Company technology. The terms of the agreement provide for a
base salary of $200,000 per annum, adjusted annually, plus a key performance
bonus, as determined by Innovir's Board of Directors (the "Board"). In addition,
the agreement provides for the officer to supply certain equipment to Innovir to
be used during his term of employment. At the conclusion of employment, the
equipment will be returned to the officer.
[b] Consulting agreements:
Innovir has several agreements with consultants, two of whom are
stockholders ("stockholders/consultants") of Innovir. The consultants perform
services for Innovir in consideration for certain fees. The consultants have
also agreed to assign to Innovir any inventions, ideas, patents and copyrights
conceived if related to Innovir's business and provide other services as defined
in agreements. To date, fees paid to the stockholders/consultants have not been
material. Future minimum quarterly payments to the stockholders/consultants are
approximately $46,000 through March 31, 1998 and $24,000 thereafter through
March 31, 2000. Under certain conditions, Innovir may have to pay additional
amounts ("patent award"), as defined, in the event the research performed by one
of the consultants leads to the issuance of a patent. Patent awards paid to date
have not been material.
In April 1994, the Company retained MKS Enterprises Inc. ("MKS"), an entity
50% owned by one of the then Company's directors, to perform financial and
consulting services. In consideration, therefore, the Company paid $62,500 and
$112,500, respectively, in 1995 and 1994 and issued 240,000 shares of common
stock in December 1994 valued at $75,000. MKS was dissolved in 1995.
[c] CambES, Ltd:
In 1994, the Company completed its purchase of 60,060 shares of
preferred stock of CambES, Ltd. ("CambES), a U.S. company, for $200,000 and
provided $50,000 of additional funding.
F-28
<PAGE>
Note 13 - Related Party Transactions: (continued)
[c] CambES, Ltd: (continued)
In April 1995, VIMRx acquired the debt and equity interest in CambES
held by Venkol Ventures, Ltd. and Venkol Ventures, L.P. (collectively, the
"Venkol Entities") for $100,000. The then Chairman of the Company is a general
partner of Venkol Ventures General Partners, L.P., which is the general partner
of Venkol Ventures, L.P. and a shareholder and advisor to Venkol Ventures, Ltd.
CambES has no material assets or liabilities at December 31, 1996,
December 31, 1995 and December 31, 1994 and no material operations in 1996, 1995
and 1994.
Note 14 - Commitments and Other Matters:
[a] Research agreements:
The Company has entered into research fellowships and other agreements
with universities and institutions (the "Institutions"). Future payments
aggregate approximately $600,000 payable at various dates through June 1998.
Under certain conditions, the Company or the Institutions may terminate the
respective agreements with 30 or 60 days notice.
[b] Lease commitments:
Operating leases:
The Company leases various office and laboratory spaces under
noncancelable operating leases and subleases (the "Leases") expiring at periods
between May 31, 1999 and June 30, 2001. In addition, the Company leases certain
laboratory space on a month-to-month basis. The Leases provide for escalations
of the minimum rent during the lease terms.
The Company also leases automobiles and office equipment under
noncancelable operating leases. The Leases expire at various times through June
2001.
F-29
<PAGE>
Note 14 - Commitments and Other Matters: (continued)
[b] Lease commitments: (continued)
Operating leases: (continued)
Future minimum rental payments under all operating leases are as
follows:
Year Ending Minimum
December 31, Annual Rental
------------ -------------
1997 $ 534,000
1998 553,000
1999 312,000
2000 80,000
2001 39,000
----------
$1,518,000
==========
Rent expense approximated $250,000, $107,000 and $31,000 for the years
ended December 31, 1996, December 31, 1995 and December 31, 1994, respectively.
Innovir was required by the terms of one of the leases to obtain the
required approval for the lessor prior to the consummation of the Transaction
discussed in Note 2 to the financial statements. Accordingly, the Company may be
considered to be in violation of the terms of the amended sublease, which would
also trigger certain cross default provisions contained in capital leases
obligations. The present value of long-term portion of the capital lease
obligations, which may be considered to be in default, totals approximately
$40,000. The accompanying financial statements reflect such amount as a current
liability.
Capital leases:
Innovir leases certain equipment under various noncancelable capital
lease agreements. Lease terms range from three to five years, after which
Innovir has the option to purchase the equipment at amounts defined by the
respective lease agreements. In lieu of purchasing the equipment, certain leases
may be extended for specified periods, at defined monthly payments. Upon
expiration of the extended lease terms, Innovir may purchase the equipment for
one dollar or must return the equipment to the lessor.
F-30
<PAGE>
Note 14 - Commitments and Other Matters: (continued)
[b] Lease commitments: (continued)
Capital leases: (continued)
Certain capital leases, as amended (the "Amended Leases") contain
various covenants which include maintaining a minimum cash level, as defined, of
$250,000 during the term of the leases. This covenant indirectly restricts
Innovir's ability to pay dividends.
At December 31, 1996, minimum rental payments under all capital leases,
including payments to acquire leased equipment, are as follows:
Year Ending Minimum
December 31, Annual Rental
1997 $ 536,000
1998 357,000
1999 165,000
2000 46,000
2001 36,000
---- ---------
1,140,000
Less amount representing interest 205,000
---------
Present value of net minimum
capital lease payments $ 935,000
===========
Leased equipment included as a component of fixed assets was
approximately $1,387,000 at December 31, 1996; related accumulated depreciation
was approximately $405,000 for the same period. There was no leased equipment at
December 31, 1995.
Note 15 - Retirement Plans:
Innovir adopted the provisions of two defined contribution retirement
plans (the Plans"). The terms of the Plans, among other things, allow certain
eligible employees who have met certain age and service requirements to
participate in the Plans. Innovir has agreed to contribute defined amounts
("Contributions") to the plans. In addition, based upon Innovir's profitability,
Innovir may also make discretionary contributions to the Plans. Contributions to
date have not been material.
F-31
<PAGE>
Note 16 - Contingencies:
During February 1996, Innovir was named as a defendant in an action
filed by an investor alleging that Innovir refused to honor the investor's
request to convert certain shares of Innovir's common stock. During February
1997, the investor and Innovir settled the action at no material cost to Innovir
or to the Company.
The Company is aware of patents in the United States and Europe held by
an unaffiliated third party relating to certain technology which may be
infringed by certain of VHL's oligozymes, in which event a license from such
third party would be required.
Note 17 - Foreign Operations:
A summary of financial data of foreign subsidiaries included in the
consolidated financial statements as follows:
December 31,
-------------------------
1996 1995
--------- --------
Assets $ 853,000 $ 117,000
Liabilities 336,000 19,000
Net Loss 1,535,000 1,311,000
Note 18 - Subsequent Event:
On March 7, 1997 the Company entered into a research agreement with the
trustees of Columbia University in the City of New York ("Columbia") to fund the
Columbia Genome Center ("CGC"). In connection therewith VIMRx Genomics, Inc. was
formed (owned 90% by the Company and 10% by Columbia) to provide $30,000,000
($4.7 million to be paid during the first year in quarterly installments) of
funding for CGC related projects over five years. In addition, the Company
granted Columbia 200,000 shares of common stock.
F-32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Wilmington, State of Delaware, on the 31th day of March, 1997.
VIMRx PHARMACEUTICALS INC.
By: /s/ Richard L. Dunning
--------------------------
Richard L. Dunning
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Richard L. Dunning President and Chief Executive March 31, 1997
- - ---------------------- Officer and Director (Principal
Richard L. Dunning Executive Officer)
/s/ Donald G. Drapkin Chairman of the Board and Director March 31, 1997
- - ---------------------
Donald G. Drapkin
/s/ Francis M. O'Connell Chief Financial Officer (Principal March 31, 1997
- - ------------------------ Financial and Accounting Officer)
Francis M. O'Connell
/s/ Laurence D. Fink Director March 31, 1997
- - --------------------
Laurence D. Fink
/s/ Jerome Groopman, M.D. Director March 31, 1997
- - -------------------------
Jerome Groopman, M.D.
/s/ Linda G. Robinson Director March 31, 1997
- - ---------------------
Linda G. Robinson
/s/ Lindsay A. Rosenwald, M.D. Director March , 1997
- - ------------------------------
Lindsay A. Rosenwald, M.D.
/s/ Eric Rose, M.D. Director March 31, 1997
- - -------------------
Eric A. Rose, M.D.
/s/ Michael Weiner, M.D. Director March 31, 1997
- - ------------------------
Michael Weiner, M.D.
<PAGE>
INDEX TO EXHIBITS
Exhibit Index
Page
2.2a - Copy of Agreement dated November 21, 1996 (the "Aries
Agreement") by and among the Registrant and The Aries
Domestic Fund,
L.P....................................................... (1)
2.2b - Copy of Amendment to the Aries Agreement dated December
23, 1996 by and among the Registrant and the Aries Fund
and The Aries Domestic Fund, L.P.......................... (1)
2.3 - Copy of Agreement dated November 21, 1996 by and
between the Registrant and Innovir Laboratories,
Inc....................................................... (1)
4.4 - Copy of Warrant Agreement dated June 17, 1996 between
the Registrant and American Stock Transfer & Trust
Company..................................................
10.3 - Copy of Registrant's Amended and Restated 1990
Incentive and Non-Incentive Stock Option Plan, as amended
through February 22, 1997................................
10.9 - Copy of Employment letter agreement dated June 21, 1994
between Registrant and Alfonso J.
Tobia..................................................... (2)
10.11 - Copy of Registrant's 1995 Outside Directors Stock
Option Plan.............................................. (3)
10.12 - Copy of letter agreement dated August 7, 1995 between
Registrant and Lindsay A. Rosenwald,
M.D....................................................... (3)
10.13 - Copy of Stock Option Agreement dated August 7, 1995
between Registrant and Lindsay A. Rosenwald,
M.D....................................................... (3)
10.14 - Copy of Consulting and Stock Option Agreement dated
November 17, 1995 between Registrant and Eric A. Rose,
M.D.................................................... (3)
10.15 - Copy of Stock Option Agreement dated November 17, 1995
between Registrant and Donald G.
Drapkin................................................... (3)
10.16 - Copy of Registrant's 1996 Non-Employee Director
Restricted Stock Award
Plan...................................................... (3)
10.17 - Copy of Registration Rights Agreement dated December
23, 1996, between Registrant and The Aries Fund and The
Aries Domestic Fund, L.P................................. (1)
10.18 - Copy of Research Agreement dated as of March 7, 1997
among Registrant, The Trustees of Columbia University in
the City of New York and VIMRx Genomics,
Inc....................................................... (4)
10.19 - Copy of Registrant's 1997 Incentive and Non-Incentive
Stock Option Plan........................................
10.20 - Copy of Employment Agreement dated October 30, 1996
between the Registrant and Richard L. Dunning
..........................................................
10.21 - Copy of the Employment Agreement dated August 26, 1996
between the Registrant and David A. Jackson, Ph.D.
.........................................................
21 - List of Subsidiaries...................................
23 - Consent of Richard A. Eisner & Company,
LLP......................................................
(1) Filed as the same numbered Exhibit to Registrant's Current Report on Form
8-K (Commission File No. 0-19153) filed January 3, 1997 and incorporated
herein by reference thereto.
(2) Filed as the same numbered Exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (Commission File No. 0-19153) and
incorporated herein by reference.
(3) Filed as the same numbered Exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 (Commission File No. 0-19153) and
incorporated herein by reference thereto.
(4) Filed as the same numbered Exhibit to Registrant's Current Report on Form
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated
herein by reference thereto.
<PAGE>
Exhibit 4.4
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of June 17, 1996 between VIMRx
Pharmaceuticals Inc., a Delaware corporation (the "Company"), and American Stock
Transfer & Trust Company (the "Warrant Agent").
WHEREAS, in connection with a private placement offering of up
to 2,800,000 units ("Units"), each Unit consisting of one share of the Company's
Common Stock, $.001 par value ("Common Stock") and one-half a Common Stock
Subscription Warrant (each a "Warrant" and collectively, the "Warrants")
pursuant to a Subscription and Registration Rights Agreement dated March 21,
1996 between the Company and the investors signatory thereto, and the automatic
conversion of certain warrants issued by the Company in December 1995 upon the
closing of the private placement offering of Units, the Company will issue up to
2,400,000 Warrants; and
WHEREAS, each Warrant entitles the registered holder thereof
(each a "Holder" and collectively, the "Holders") to purchase one share of
Common Stock at an Exercise Price (as defined in Section 9 hereof) of $1.50,
subject to adjustment as hereinafter provided (the shares of Common Stock
issuable upon exercise of the Warrants hereinafter referred to as the "Warrant
Shares"); and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, transfer and exchange of the Warrants, the
exercise of the Warrants, and the rights of the Holders;
NOW, THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder of the Company, the Holders and the Warrant
Agent, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the provisions set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment. As used herein, the term "Warrant Agent" shall mean the
Warrant Agent and any successor appointed hereunder.
SECTION 2. Form and Countersignature of Warrants.
2.1 Form of Warrant. The text of the Warrant, the subscription
form (the "Subscription Form"), and form of assignment shall be substantially as
set forth in the form of warrant certificate attached hereto as Exhibit A. The
Warrants shall be executed on behalf of the Company by one or more authorized
officers. The signature of any such officers on the Warrants may be made
manually or by facsimile.
2.2 Countersignature of Warrants. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent and shall not be
valid for any purpose unless so countersigned. Warrants may be countersigned by
the Warrant Agent and may be issued or delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature, issuance or delivery. Warrants shall be
dated as of the date of issuance or countersignature thereof by the Warrant
Agent either upon initial issuance or upon exchange, substitution or transfer.
SECTION 3. Issuance and Registration of Warrants.
3.1 Initial Issuance of Warrants. The Warrant Agent shall
issue the Warrants upon receipt of, and in accordance with, a statement from an
authorized representative of the Company as contemplated by Section 14.10 hereof
specifying the identity of, and number of Warrants to be issued to, each person
or entity to be issued Warrants.
3.2 Registration. The Warrants shall be numbered and shall be
registered in a warrant register maintained by the Warrant Agent as they are
issued. The Company and the Warrant Agent may deem and treat the registered
holder of a Warrant Certificate as the absolute owner thereof (notwithstanding
any notation of ownership or other writing thereon made by anyone), for the
purpose of any exercise thereof and any distribution to the holder thereof and
for all other purposes and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. The Company shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person.
SECTION 4. Transfer and Exchange of Warrants.
4.1 Transfer of Warrants. The Warrants shall be transferable
only on the books of the Warrant Agent maintained at the principal office of the
Warrant Agent upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, which endorsement shall be
guaranteed by an eligible guarantor institution which is a member of a signature
guarantee program satisfactory to the Warrant Agent (an "Eligible Institution").
Warrants may be transferred only in whole, so as to allow the Holder of each
Warrant to purchase one full share of Common Stock. In all cases of transfer by
an attorney-in-fact, the original power of attorney, duly approved, or a copy
thereof, duly certified, in such form and with such other evidence of authority
as the Warrant Agent shall request, shall be deposited and remain with the
Warrant Agent. In case of transfer by executors, administrators, guardians or
other legal representatives, duly authenticated evidence of their authority
shall be produced, in such form and with such other evidence of authority as the
Warrant Agent shall request, and may be required to be deposited and remain with
the Warrant Agent in its discretion. Upon any such registration of transfer, the
Warrant Agent shall countersign and deliver a new Warrant or Warrants to the
person entitled thereto.
4.2 Exchange of Warrant Certificates. Each Warrant certificate
may be exchanged upon surrender at the principal office of the Warrant Agent for
another certificate or certificates entitling the Holder thereof to purchase a
like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Warrant Agent, and shall surrender, properly endorsed,
the certificate or certificates to be so exchanged. Thereupon, the Warrant Agent
shall countersign and deliver to the Holder a new Warrant certificate or
certificates, as the case may be, as so requested, in the name of such Holder.
No fractional Warrant certificates shall be issued and no new Warrant
certificate entitling the Holder thereof to purchase fractional shares will be
issued.
SECTION 5. Term of Warrants; Exercise of Warrants.
5.1 Term of Warrants. Subject to the terms of this Agreement,
each Holder shall have the right, which may be exercised commencing at the
opening of business on June 21, 1996 until 5:00 p.m., New York time, on June 20,
2006 (the "Expiration Date"), to purchase from the Company the number of fully
paid and nonassessable Warrant Shares which the Holder may at the time be
entitled to purchase on exercise of such Warrants.
5.2 Exercise of Warrants. A Warrant may be exercised upon
surrender to the Warrant Agent at its principal office of the certificate or
certificates evidencing the Warrants to be exercised, together with the
Subscription Form duly completed and signed, which signature shall be guaranteed
by an Eligible Institution, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price (as defined in Section 9 hereof and
subject to adjustment in accordance with the provisions of Section 10 hereof)
for the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of the aggregate Exercise Price shall be made by certified or
official bank check.
Upon the surrender of Warrants and payment of the Exercise
Price as aforesaid, the Warrant Agent shall (i) cause to be issued and delivered
as soon as practicable to or upon the written order of the Holder in such name
or names as the Holder may designate, a certificate or certificates for the
number of full Warrant Shares so purchased upon the exercise of such Warrants
and, if the Warrants are exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, pay to the Holder or
such other person as the Holder may designate cash in an amount equal to the
closing price per share on the trading day preceding the date of such exercise
multiplied by such fraction, and (ii) deliver the other securities and
properties receivable upon the exercise of the Warrants pursuant to the
provisions of the Warrants. The Company shall promptly provide to the Warrant
Agent the cash payable in lieu of a fractional share. No certificate for
fractional Warrant Shares will be issued. If permitted by applicable law, such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the receipt by the Warrant Agent
of such Warrants and payment of the Exercise Price, as aforesaid. The rights of
purchase represented by the Warrants shall be exercisable, at the election of
the Holders thereof, either in full or from time to time in part, and in the
event that a certificate evidencing Warrants is exercised in respect of less
than all of the Warrant Shares purchasable on such exercise at any time prior to
the date of expiration of the Warrants, a new certificate evidencing the
remaining Warrant or Warrants will be issued to the Holder thereof, and the
Warrant Agent is hereby authorized to countersign and deliver the required new
Warrant certificate or certificates pursuant to the provisions of this Section
and Section 2 hereof.
5.3 Compliance with Government Regulations. The Company
covenants that if any shares of Common Stock required to be reserved for
purposes of exercise of Warrants require, under any federal securities law or
applicable governing rule or regulation of any national securities exchange or
over-the-counter market, registration with or approval of any governmental
authority, or listing on any such national securities exchange or
over-the-counter market, the Company will in good faith prior to the issuance of
such shares endeavor to cause such shares to be duly registered, approved or
listed on the relevant national securities exchange or over-the-counter market,
as the case may be. The Company covenants that it will use reasonable efforts to
obtain any required approvals or registration under state "blue sky" securities
laws for the issuance of the Warrant Shares.
SECTION 6. Payment of Taxes. The Company will pay all stamp,
original issue, transfer, or similar taxes, if any, attributable to the initial
issuance of Warrant Shares upon the exercise of Warrants; provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery of any
Warrants or certificates for Warrant Shares in a name other than that of the
Holder of such Warrants.
SECTION 7. Mutilated or Missing Warrants. In case any of the
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue, and the Warrant Agent shall
countersign and deliver in exchange and substitution for and upon cancellation
of the mutilated Warrant certificate, or in lieu of and in substitution for the
Warrant certificate lost, stolen or destroyed, a new Warrant certificate of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company and the Warrant Agent of such loss, theft
or destruction of such Warrant and an indemnity or bond, if requested, also
satisfactory to them. An applicant for such a substitute Warrant certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 8. Reservation of Warrant Shares;
Purchase and Cancellation of Warrants.
8.1 Reservation of Warrant Shares. Commencing June 20, 1996
(following the filing by the Company of a Certificate of Amendment increasing
the Company's authorized shares of Common Stock to 20,000,000 shares), there
shall have been reserved, and the Company shall at all times keep reserved, out
of its authorized Common Stock, a number of shares of Common Stock sufficient to
provide for the exercise of the rights of purchase represented by the
outstanding Warrants. The transfer agent for the Common Stock (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Warrant
Agent is hereby authorized to requisition from time to time from the Transfer
Agent the stock certificates required to honor outstanding Warrants upon
exercise thereof in accordance with the terms of this Agreement. The Company
will supply the Transfer Agent and any such subsequent transfer agent with duly
executed stock certificates for such purposes. The Company will furnish the
Transfer Agent and any such subsequent transfer agent a copy of all notices of
adjustments delivered by the Company to the Warrant Agent hereunder.
8.2 Purchase of Warrants by the Company. The Company shall
have the right, except as limited by law, other agreements or herein, to
purchase or otherwise acquire Warrants at such times, in such manner and for
such consideration as it may deem appropriate.
8.3 Cancellation of Warrants. In the event the Company shall
purchase or otherwise acquire Warrants, the same shall thereupon be delivered to
the Warrant Agent and be cancelled by it and retired. The Warrant Agent shall
cancel any Warrant surrendered for exchange, substitution, transfer or exercise
in whole or in part and such cancelled Warrant Certificate shall be disposed of
by the Warrant Agent in a manner satisfactory to the Company.
SECTION 9. Exercise Price. The price per share at which a
Warrant Share shall be purchasable upon exercise of a Warrant (the "Exercise
Price") shall be $1.50, subject to adjustment as provided in Section 10 hereof.
SECTION 10. Adjustments. The Exercise Price and the number and
kind of securities subject to purchase upon the exercise of each Warrant shall
be subject to adjustment form time to time upon the happening of certain events,
as hereinafter set forth. The Aggregate Warrant Price with respect to each
Holder shall equal $1.50 multiplied by the number of Warrant Shares represented
by the certificate evidencing the Warrants issuable to a Holder on the date
hereof.
10.1 Adjustments. (a) If, at any time or from time to time
after the issuance date of the Warrants, the Company shall issue or distribute
to the holders of shares of Common Stock evidence of its indebtedness, any other
securities of the Company or any cash, property or other assets (excluding a
subdivision, combination or reclassification, or dividend or distribution
referred to in Section 10.1(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof, which together with the value of other dividends and
distributions made substantially concurrently therewith or pursuant to a plan
which includes payment thereof, is equivalent to not more than 5% of the
Company's net worth) (any such non-excluded event being herein called a "Special
Dividend"), then the Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such Special Dividend shall be adjusted by
multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the then Current Market Price (as defined in paragraph (g) below)
of the Common Stock less the fair market value of the evidence of indebtedness,
cash, securities or property, or other assets issued or distributed in such
Special Dividend applicable to one share of Common Stock, and the denominator of
which shall be the then Current Market Price of the Common Stock. An adjustment
made pursuant to this Section 10.1(a) shall become effective immediately after
the record date of any such Special Dividend.
(b) Except for an event set forth in Section 10.1(e) in case
the Company shall hereafter (i) pay a dividend or make a distribution on its
capital stock in shares of Common Stock, (ii) subdivide its outstanding shares
of Common Stock into a greater number of shares, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares or (iv) issue by
reclassification of its Common Stock any shares of capital stock of the Company,
the Exercise Price in effect immediately prior to the close of business on the
record date fixed for such dividend or distribution, subdivision, combination or
reclassification shall be adjusted to be equal to a fraction, the numerator of
which shall be the Aggregate Warrant Price and the denominator of which shall be
the number of shares of Common Stock or other capital stock of the Company which
such Holder would have owned immediately following such action had such Warrants
been exercised immediately prior thereto. An adjustment made pursuant to this
Subsection 10.1(b) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c)(i) Except as provided in Sections 10.1(a) and 10.1(e), in
case the Company shall hereafter issue or sell any Common Stock, any securities
convertible into Common Stock or any rights, options or warrants to purchase
Common Stock or securities convertible into Common Stock, or set a record date
for the determination of holders of any securities entitled to receive any such
issuance, in each case for a price per share or entitling the holders thereof to
purchase Common Stock at a price per share (determined by dividing (x) the total
amount, if any, received or receivable by the Company in consideration of the
issuance or sale of such securities plus the total consideration, if any,
payable to the Company upon exercise or conversion thereof (the "Total
Consideration") by (y) the number of additional shares of Common Stock issuable
upon exercise or conversion of such securities) less than the greater of (x) the
Current Market Price and (y) the then current Exercise Price in effect on the
record date for such issuance or, if there is no record date, the date of such
issuance or sale, the Exercise Price shall be adjusted by multiplying the
Exercise Price then in effect by a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock outstanding on such issue or
sale date or record date and (2) the number of additional shares of Common Stock
which the Total Consideration would purchase at the greater of (x) the Current
Market Price or (y) the then current Exercise Price, and the denominator of
which shall be the sum of (1) the number of shares of Common Stock outstanding
on such record date or, if there is no record date, immediately prior to such
issue or sale and (2) the number of additional shares of Common Stock to be
sold, issued or issuable (or into which the convertible securities to be sold,
issued or issuable are convertible). An adjustment pursuant to this Section
10.1(c) shall be made successively whenever an event described in this Section
10.1(c) shall occur and shall become effective on the record date for the
determination of holders entitled to receive such issuance or if there is no
record date, immediately after the date of such sale or issuance.
(ii) For purposes of this Section 10.1(c), in the
event the Company shallassume, amend or modify the terms of any right, option,
warrant or convertible security, for purposes of determining an adjustment, if
any, to the Exercise Price, if any, pursuant to this Section 10.1(c) such right,
option, warrant or convertible security shall be deemed issued or sold on the
date of such assumption or amendment or modification.
(iii) No further adjustment to the Exercise Price
shall be made upon the subsequent issue or sale of shares of Common Stock or
convertible securities or upon the exercise of such rights, options or warrants,
or the conversion of such convertible securities; provided that to the extent
that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of any rights, options or
warrants to purchase Common Stock or securities convertible into Common Stock,
the Exercise Price shall be readjusted to the Exercise Price which would then be
in effect had the adjustments made upon the issuance of such securities
convertible into Common Stock or any rights, options or warrants to purchase
Common Stock or securities convertible into Common Stock been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(d) No adjustment in the Exercise Price shall be required in
the case of the issuance by the Company of Common Stock pursuant to the exercise
of these Warrants or the issuance of shares of Common Stock pursuant to the
option, warrants, rights, convertible securities and contracts set forth in
Section 3.2 of the Subscription and Registration Rights Agreement as such
option, warrants, rights, convertible securities and contracts are in effect on
the date hereof.
(e) In case of any capital reorganization or reclassification
(other than a change in par value), or any consolidation or merger to which the
Company is a party, or in case of any sale or conveyance to another entity of
the property of the Company as an entirety or substantially as an entirety, the
Warrants shall after such reorganization, reclassification, consolidation,
merger, sale or conveyance be exercisable, upon the terms and conditions of the
Warrants, for the kind and amount of securities, cash or other property which
the Holder would have owned or have been entitled to receive immediately after
such reorganization, reclassification, consolidation, merger, sale or conveyance
had the Warrants been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale or conveyance and
in any such case, if necessary, the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the Holders of the Warrants
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the exercise of the Warrants. The above provisions of this
Section 10.1 shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or conveyances. The
subdivision or combination of shares of Common Stock at any time outstanding
into a greater or lesser number of shares shall not be deemed to be a
reclassification of the Common Stock for the purposes of this Section 10.1(e).
The Company shall not effect any such reorganization, reclassification,
consolidation, merger, sale or conveyance unless prior to or simultaneously with
the consummation thereof the successor corporation (if other than the Company)
resulting from such transaction or the corporation purchasing such assets or
other appropriate corporation or entity shall assume, by written instrument
executed and delivered to the Holders, the obligation to deliver to the Holders
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Holders may be entitled to purchase and the other obligations
under the Warrants. The issuer of any shares of stock or other securities or
property thereafter deliverable on the exercise of the Warrants shall be
responsible for all of the agreements and obligations of the Company hereunder.
Notice of any such reorganization, reclassification, consolidation, merger, sale
or conveyance and of said provisions so proposed to be made, shall be mailed to
the Holders not less than 30 days prior to such event.
(f) For purposes of any computation respecting consideration
received pursuant to Sections 10.1(a), (b) or (c) above, the following shall
apply:
(i)_) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith; and
(ii)_) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination shall be
conclusive.
(g) For purposes hereof, the Current Market Price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices for 30 consecutive trading days ending on the date immediately prior to
such date, and if the Common Stock is no longer listed on a national securities
exchange or over-the-counter market, the Current Market Price (and the closing
price per share in Section 5.2) shall be as determined by the Board of
Directors.
(h) In the event of any adjustment to the Exercise Price
pursuant to this Section 10.1, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Exercise Price in effect immediately
after such adjustment.
(i) In case any event shall occur as to which the other
provisions of this Section 10.1 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles hereof then, in each such case, the Holders representing the right to
purchase a majority of the shares of Common Stock and other securities and
properties receivable upon the exercise of the Warrants may appoint a firm of
independent public accountants of recognized national standing reasonably
acceptable to the Company, which shall give their opinion as to the adjustment,
if any, on a basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights represented by
these Warrants. Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the Holders and shall make the adjustments described therein.
The fees and expenses of such independent public accountants shall be borne by
the Company.
(j) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least $0.05
per share of Common Stock; provided, however, that any adjustments which by
reason of this Section 10.1(j) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided, further,
however, that adjustments shall be required and made in accordance with the
provisions of this Section 10.1 (other than this Section 10.1(j)) not later than
such time as may be required in order to preserve the tax-free nature of any
distribution to the Holders or Common Stock issuable upon the exercise of the
Warrants. All calculations under this Section 10.1 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be. Anything in this
Section 10.1 to the contrary notwithstanding, the Company shall be entitled to
make such reductions in the Exercise Price, in addition to those required by
this Section 10.1, as it in its discretion shall deem to be advisable in order
that any stock dividend, subdivision of shares or distribution of options,
rights or warrants to purchase stock or securities convertible for stock
hereafter made by the Company to its holders of the Common Stock shall not be
taxable.
(k) Whenever the Exercise Price is adjusted as provided in
this Section 10.1 and upon any modification of the rights of the Holders of
these Warrants in accordance with this Section 10.1, the Company shall promptly
but in no event later than ten days after any request for an adjustment by the
Holder, obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Exercise Price and the
number of shares of Common Stock and other securities and properties receivable
upon exercise of the Warrants after such adjustment or the effect of such
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants.
(l) If, as a result of an adjustment made pursuant to this
Section 10.1, the Holder thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder promptly after such adjustment) shall determine the
allocation of the adjusted Exercise Price between or among shares or such
classes of capital stock or shares of Common Stock and other capital stock. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 10.1, the holder of any Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than shares
of Common Stock, thereafter the number of such other shares so receivable upon
exercise of the Warrants shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares of Common Stock contained in Section 10.1, and the
remainder of the terms of the Warrants shall apply on like terms to any such
other shares.
10.2 Notice of Adjustment. Whenever the Exercise Price is
adjusted, as herein provided, the Company shall cause the Warrant Agent promptly
to give notice to the Holders as provided in Section 17 hereof of such
adjustment or adjustments and shall deliver to the Warrant Agent a certificate
setting forth the Exercise Price after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection thereof during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holders to determine whether any facts exist which
may require any adjustment of the Exercise Price or other stock or property
purchasable on the exercise thereof, or with respect to the nature or extent of
any such adjustment when made, or with respect to the method employed in making
such adjustment.
10.3 Statement on Warrants. Irrespective of any adjustments in
the Exercise Price or the number or kind of shares or other property purchasable
upon the exercise of the Warrants or other amendments to or corrections of this
Agreement, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.
SECTION 11. No Rights as Stockholders; Notice to Holders.
Nothing contained in this Agreement or in any of the Warrants shall be construed
as conferring upon the Holders or their transferees the right to vote or to
receive dividends or to consent or to receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company. If
the Board of Directors of the Company shall set a record date for any action
which would require an adjustment pursuant to Section 10, the Company shall
cause the Warrant Agent to mail notice thereof to the Holders of the Warrants
not less than 10 days prior to the record date with respect to any such action.
SECTION 12. Disposition of Proceeds on Exercise of Warrants;
Inspection of Warrant Agreement. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the Holders
during normal business hours at its principal office. The Company shall supply
the Warrant Agent from time to time with such number of copies of this Agreement
as the Warrant Agent may request.
SECTION 13. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to substantially all of the business of the Warrant Agent, shall be
the successor to the Warrant Agent hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto, provided
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 15 hereof. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned; and in case
at that time any of the Warrants shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrants either in the name
of the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in any such cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignatures under its prior
name and deliver such Warrants so countersigned; and in case at that time any of
the Warrants shall not have been countersigned, the Warrant Agent may
countersign such Warrants either in its prior name or in its changed name; and
in all such cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
SECTION 14. Concerning the Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Warrants, shall be bound.
14.1 Correctness of Statements. The statements contained
herein and in the Warrants shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as otherwise provided herein.
14.2 Breach of Covenants. The Warrant Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
of the Company contained in this Agreement or in the Warrant.
14.3 Reliance on Counsel. The Warrant Agent may consult at any
time with legal counsel satisfactory to it (who may be counsel for the Company)
and the Warrant Agent shall incur no liability or responsibility to the Company
or to any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel.
14.4 Proof of Actions Taken. Whenever in the performance of
its duties under this Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed and except for a
notice pursuant to Section 10.2) may be deemed conclusively to be proved and
established by a certificate signed by an officer of the Company and delivered
to the Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
14.5 Compensation and Indemnification. The Company agrees to
pay the Warrant Agent reasonable compensation for all services rendered by the
Warrant Agent in the performance of its duties under this Agreement, to
reimburse the Warrant Agent for all expenses, taxes and governmental charges and
other charges of any kind and nature reasonably incurred by the Warrant Agent in
the performance of its duties under this Agreement, and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the performance of its duties under this Agreement except as a result
of the Warrant Agent's gross negligence or bad faith. In connection with such
indemnification, the Company shall be entitled to conduct any litigation and
shall only be required to pay the reasonable costs and fees of one counsel
selected by the Company. The Warrant Agent will cooperate in the defense of any
such action and will not settle such action without the consent of the Company.
14.6 Other Transactions in Securities of Company. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the Company
or become pecuniarily interested in any transaction in which the Company may be
interested or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent was not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any legal entity including, without
limitation, acting as a lender to the Company or an affiliate thereof.
14.7 Liability of Warrant Agent. The Warrant Agent shall act
hereunder solely as the agent of the Company and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this Agreement
except for its own gross negligence or bad faith. Anything in this Agreement to
the contrary notwithstanding, in no event shall the Warrant Agent be liable for
special, indirect or consequential loss or damage whatsoever (including, but not
limited to, lost profits) even if the Warrant Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
14.8 Reliance on Documents. The Warrant Agent will not incur
any liability or responsibility to the Company or to any Holder for any action
taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably believed by it to
be genuine and to have been signed, sent or presented by the proper party or
parties.
14.9 Validity of Agreement. The Warrant Agent shall not be
under any responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the Warrant
Agent) or in respect of the validity and execution of any Warrant (except its
countersignature thereof); nor shall the Warrant Agent by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Warrant Shares (or other stock) to be issued pursuant to this
Agreement or any Warrant, or as to whether any Warrant Shares (or other stock)
will, when issued, be validly issued, fully paid and nonassessable, or as to the
Exercise Price or the number or amount of Warrant Shares or other securities or
other property issuable upon exercise of any Warrant.
14.10 Instructions from Company. The Warrant Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from the Chairman of the Board, the President, the Chief
Financial Officer, any Vice Chairman of the Board, or any Executive, Senior or
other Vice President of the Company or any other employee of the Company
expressly authorized in writing by any of such persons as having the authority
to deliver instructions hereunder, and to apply to such officers or employees
for advice or instructions in connection with its duties, and shall not be
liable for any action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officers or employees.
SECTION 15. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by giving to the
Company 30 days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then any Holder may apply to any
court of competent jurisdiction located in Hartford, Connecticut for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company. Any successor
Warrant Agent, whether appointed by the Company or such a court, shall be a bank
or trust company, in good standing, incorporated under the laws of the United
States of America or any state thereof and having at the time of its appointment
as Warrant Agent a combined capital and surplus of at least $5,000,000. After
appointment, the successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former warrant agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to file any notice provided for
in this Section 15, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the warrant agent or the
appointment of the successor warrant agent, as the case may be. In the event of
such resignation or removal, the successor warrant agent shall mail, by first
class mail, postage prepaid, to each Holder, written notice of such removal or
resignation and the name and address of such successor warrant agent.
SECTION 16. Identity of Transfer Agent. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock, or any other
shares of the Company's capital stock issuable upon exercise of the Warrant, the
Company will file with the Warrant Agent a statement setting forth the name and
address of such subsequent transfer agent.
SECTION 17. Notices. Any notice pursuant to this Agreement by
the Company or by any Holder to the Warrant Agent, or by the Warrant Agent or by
any Holder to the Company, shall be in writing and shall be delivered in person,
by overnight courier, or by facsimile transmission (with hard copy to follow
promptly by first class mail or overnight courier), or mailed first class,
postage prepaid (a) to the Company at its offices 1200 High Ridge Road,
Stamford, Connecticut 06905, fax: (203) 329-0557, Attention: President; or (b)
to the Warrant Agent its corporate office, 40 Wall Street, New York, New York
10005. Each party hereto may from time to time change the address as facsimile
numbers to which notices to it are to be delivered or mailed hereunder by notice
to the other party.
Any notice required to be mailed pursuant to this Agreement by
the Company or the Warrant Agent to the Holders shall be in writing and shall be
mailed first class, postage prepaid, or otherwise delivered, to such Holders at
their respective addresses on the books of the Warrant Agent. Any other notices
which the Company or the Warrant Agent may wish to provide to the Holder may be
made in such manner (including by publication in a newspaper of national
circulation) as the Company or the Warrant Agent, as the case may be, shall
elect. Any notice requested by any other person may be dispatched in the
discretion of the Warrant Agent, but at no expense to the Warrant Agent or the
Company.
SECTION 18. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any Holder in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable, which shall not adversely affect in any
material manner the interest of the Holders. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement in any other respect
with the written consent of the Holders of not less than a majority of the
Warrants then outstanding; provided, however, that no change in the number or
nature of the securities purchasable upon the exercise of any Warrant, or
increase in the Exercise Price of any Warrant, or acceleration of the Expiration
Date of any Warrant, shall be made without the written consent of the Holder of
such Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable law.
SECTION 19. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 20. Applicable Law. This Agreement and each Warrant
issued hereunder shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made and to be performed within
such State, without giving effect to principles of conflicts of laws.
SECTION 21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent, and the Holders any legal or equitable right, remedy
or claim under this Agreement; this Agreement shall be for the sole and
exclusive benefit of the Company, the Warrant Agent and the Holders of the
Warrants.
SECTION 22. Counterparts. This Agreement may be executed in
counterparts and by facsimile and each of such counterparts and facsimile copies
shall for all purposes be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
SECTION 23. Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
<PAGE>
SECTION 24. Captions. The captions of the Sections and
subsections of this Agreement have been inserted for convenience only and shall
have no substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
VIMRx PHARMACEUTICALS INC.
By: /s/ Richard L. Dunning
Name: Richard L. Dunning
Title: President and Chief Executive
Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herbert J. Lemmer
Name: Herbert J. Lemmer
Title: Vice President
<PAGE>
Exhibit A
Form of Warrant Certificate
(obverse)
EXERCISABLE ONLY ON OR AFTER JUNE 21, 1996 AND ON OR
BEFORE 5:00 P.M. NEW YORK CITY TIME ON JUNE 20, 2006
NUMBER
VPW: ________ WARRANTS: ________
SEE REVERSE SIDE
FOR DEFINITIONS
COMMON STOCK
SUBSCRIPTION WARRANTS CUSIP 927186 13 0
Incorporated Under the Laws of The State of Delaware
VIMRx PHARMACEUTICALS, INC.
This certifies that FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Common Stock Subscription Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate and the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share of
Common Stock, $.001 par value (the "Common Stock"), of VIMRx Pharmaceuticals
Inc., a Delaware corporation (the "Company"), at any time between June 21, 1996
and 5:00 p.m. (New York City time) on June 20, 2006 (the "Expiration Date"),
upon surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the principal office of American Stock Transfer
& Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $1.50 per Warrant (the "Exercise Price") by certified
or official bank check made payable to the Warrant Agent for the account of the
Company.
<PAGE>
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
as of June 17, 1996, by and between the Company and the Warrant Agent. A copy of
the Warrant Agreement may be obtained by the Registered Holder upon written
request to the Company.
Upon the occurrence of certain events provided for in the
Warrant Agreement, the Exercise Price and the number and kind of securities
subject to purchase upon the exercise of each Warrant represented hereby are
subject to adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all of the Warrants represented
hereby, the Company shall execute a new Warrant Certificate, which the Warrant
Agent shall countersign and deliver, for the balance of such Warrants.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the principal office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates entitling such Registered
Holder to purchase a like aggregate number of shares of Common Stock as this
Warrant Certificate entitles such Registered Holder to purchase. A Registered
Holder desiring to exchange this Warrant Certificate shall make such request in
writing delivered to the Warrant Agent, and shall surrender, properly endorsed,
this Warrant Certificate to be so exchanged. Thereupon, the Warrant Agent shall
countersign and deliver to the Registered Holder a new Warrant Certificate or
Warrant Certificates as so requested, in the name of such Registered Holder,
subject to the limitations provided in the Warrant Agreement. No fractional
Warrant Certificate shall be issued and no new Warrant Certificate entitling the
Registered Holder thereof to purchase fractional shares will be issued.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided in the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the
Registered Holder as the absolute owner hereof (notwithstanding any notation of
ownership or other writing hereon made by anyone) for all purposes and shall not
be affected by any notice to the contrary.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted thereon.
VIMRx PHARMACEUTICALS INC.
By:
Secretary
By:
President and
Chief Executive Officer
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent
By:____________________________
Authorized Officer
<PAGE>
(Reverse)
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN ACT-______Custodian_______
in common (Cust) (Minor)
TEN ENT - as tenants by under Uniform Gifts to Minors
the entireties Act__________________
JT TEN - as joint tenants with right (State)
of survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above
list.
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of a
certified or official bank check in the amount of $
Please issue a certificate or certificates for such shares of
Common Stock in the name of:
Name
(Please Print Name, Address and Social Security
or Taxpayer Identification Number)
And, if said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder.
Signature __________________________________________
Note: The above signature must correspond
exactly with the name on the face of this Warrant
Certificate or with the name of assignee appearing
in the assignment form below.
____________________________________
Signature Guarantee Signatures should be guaranteed
by an eligible guarantor institution which
is a member of a signature guarantee
program satisfactory to the Warrant Agent.
ASSIGNMENT
(To be executed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
_______________________________________________________________________________
the within Warrant Certificate, hereby irrevocably constituting and appointing
______________________________________________________________________, Attorney
to transfer said Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:_________________________________ ______________________________
Signature of Registered Holder
Note: The above signature must correspond
exactly with the name on the face
of this Warrant Certificate.
- - ------------------------------------
Signature Guarantee Signatures should
be guaranteed by an eligible
guarantor institution which
is a member of a signature
guarantee program
satisfactory to the Warrant
Agent.
AMENDED AND RESTATED
1990 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
OF
VIMRx PHARMACEUTICALS INC.
(AS AMENDED JULY 15, 1991, AUGUST 31, 1995 MAY 13, 1996
AND FEBRUARY 6, 1997)
1. Purpose of Plan.
The purpose of this Incentive and Non-Incentive Stock Option
Plan ("Plan") is to further the growth and development of VIMRx Pharmaceuticals
Inc. ("Company") and any subsidiaries thereof by encouraging selected employees,
directors and other persons who contribute and are expected to contribute
materially to the Company's success to obtain a proprietary interest in the
Company through the ownership of stock, thereby providing such persons with an
added incentive to promote the best interests of the Company and affording the
Company a means of attracting to its service persons of outstanding ability.
2. Stock Subject to the Plan.
An aggregate of 2,400,000 shares of the Company's Common
Stock, $.001 par value ("Common Stock") subject, however, to adjustment or
change pursuant to paragraph 12 hereof, shall be reserved for issuance upon the
exercise of options which may be granted from time to time in accordance with
the Plan ("Options"). Such shares may be, in whole or in part, authorized but
unissued shares or issued shares which have been reacquired by the Company. If,
for any reason, an Option shall lapse, expire or terminate without having been
exercised in full, the unpurchased shares covered thereby shall again be
available for purposes of the Plan.
3. Administration.
(a) Except as provided in paragraph (c) below, the Plan shall
be administered by the Committee. The Board of Directors shall appoint the
Committee from among its members. Such Committee shall be composed of two or
more Directors who, to the extent practicable, shall be "outside directors" as
defined in regulations under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-employee directors" as defined by
Regulation 240.16b-3 under the Securities Exchange Act of 1934, as amended. Such
Committee shall have and may exercise any and all of the powers relating to the
administration of the Plan and the grant of Options thereunder as are set forth
in subparagraph 3(b) hereof as the Board of Directors shall confer and delegate.
The Board of Directors shall have power at any time to fill vacancies in, to
change the membership of, or to discharge such Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
time and at such places as it shall deem advisable. A majority of such Committee
shall constitute a quorum and such majority shall determine its action. Any
action may be taken without a meeting by written consent of all the members of
the Committee. The Committee shall keep minutes of its proceedings and shall
report the same to the Board of Directors at the meeting next succeeding.
(b) The Committee shall administer the Plan and, subject to
the provisions of the Plan, shall have sole authority in its discretion to
determine the persons to whom, and the time or times at which, Options shall be
granted; the number of shares to be subject to each such Option; the provisions
regarding exercisability of each Option; the expiration date of each Option;
whether the Option shall contain a "cashless exercise" provision; whether all or
any portion of the Options shall be incentive stock options ("Incentive
Options") qualifying under Section 422A of the Code or stock options which do
not so qualify ("Non-Incentive Options"); whether a Non-Incentive Option shall
have limited transferability as permitted under the Plan; and whether a
Non-Incentive Option granted to a non-employee shall terminate following the
non-employee's termination of engagement in performing services for the Company
or its subsidiaries pursuant to Section 9 of the Plan. Both Incentive Options
and Non-Incentive Options may be granted to the same person at the same time
provided each type of Option is clearly designated. In making such
determinations, the Committee may take into account the nature of the services
rendered by such persons, their present and potential contribution to the
Company's success and such other factors as the Committee in its sole discretion
may deem relevant. Subject to the express provisions of the Plan, the Committee
shall also have authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating thereto; to determine the terms and provisions of
the respective Option Agreements, which shall be substantially in the forms
attached hereto as Exhibit A and Exhibit B; to amend the provisions of
outstanding Options to provide for accelerated exercisability or the extension
of the expiration date of such Options; and to make all other determinations
necessary or advisable for the administration of the Plan, all of which
determinations shall be conclusive and not subject to review.
(c) The Board of Directors may administer the Plan, in lieu of
and with the same powers as the Committee, with respect to any Options granted
or to be granted under the Plan, provided that such administration is consistent
with the provisions of Section 162(m) of the Code.
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only
to employees (including officers) of the Company and/or any of its subsidiaries.
A director of the Company or any subsidiary who is not an employee of the
Company or of one of its subsidiaries is not eligible to receive Incentive
Options under the Plan. Further, Incentive Options may not be granted to any
person who, at the time the Incentive Option is granted, owns (or is considered
as owning within the meaning of Section 425(d) of the Code) stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary (10% Owner), unless at the time the Incentive Option
is granted to the 10% Owner, the option price is at least 110% of the fair
market value of the Common Stock subject thereto and such Incentive Option by
its terms is not exercisable subsequent to five years from the date of grant.
The aggregate fair market value (determined as of the time an Incentive Option
is granted) of the shares of the Company's Common Stock initially purchasable
upon exercise of an Incentive Option during any calendar year may not exceed
$100,000.
(b) Non-Incentive Options. Non-Incentive Options may be
granted to any employees (including employees who have been granted Incentive
Options), directors, consultants, agents, independent contractors and other
persons whom the Board of Directors (or Committee) determines will contribute to
the Company's success.
(c) The maximum number of shares that may be subject to
options under this Plan granted during any calendar year to any executive
officer of the Company is 800,000 shares.
(d) In the event on outstanding Incentive Option or a portion
thereof no longer qualifies as an incentive stock option under Section 422A of
the Code, such Option or portion thereof, as applicable, thereafter shall be
deemed a Non-Incentive Option under the Plan.
5. Option Price.
The purchase price of the shares of Common Stock under each
Option shall be determined by the Committee, which determination shall be
conclusive and not subject to review, but in no event shall the purchase price
be less than 100% of the fair market value of the Common Stock on the date of
grant in the case of Incentive Options (110% of fair market value in the case of
Incentive Options granted to a 10% Owner) and 50% of the fair market value of
the Common Stock on the date of the grant in the case of Non-Incentive Options.
For purposes of the Plan, unless the Committee determines
otherwise, the "fair market value" of a share of Common Stock as of a certain
date shall be the closing sale price of the Common Stock on The Nasdaq Stock
Market or, if the Common Stock is not then traded on The Nasdaq Stock Market,
such national securities exchange on which the Common Stock is then traded, on
the trading date immediately preceding the date fair market value is being
determined. The Committee may make such other determination of fair market
value, based on other factors, as it shall deem appropriate.
For purposes of the Plan, the date of grant of an Option shall
be the date on which the Committee shall by resolution duly authorize such
Option.
6. Term of Options.
The term of each Option shall be such number of years as the
Committee shall determine, subject to earlier termination as herein provided,
but in no event more than ten years from the date such Option is granted.
7. Exercise of Options.
(a) Each Option shall be exercisable to the extent determined
by the Committee, but in no event shall an Option be exercisable until at least
six months from the date of grant.
(b) An Option may not be exercised for fractional shares of
the Company's Common Stock.
(c) Except as provided in paragraphs 9, 10 and 11 hereof, and
unless determined otherwise by the Committee with respect to Non-Incentive
Options granted to non-employees, no Option shall be exercisable unless the
holder thereof shall have been an employee, director, consultant, agent,
independent contractor or other person employed by or engaged in performing
services for the Company and/or a subsidiary continuously from the date of grant
to the date of exercise.
(d) The exercise of an Option shall be contingent upon receipt
from the holder thereof of a written representation that at the time of such
exercise it is the optionee's then present intention to acquire the Option
shares for investment and not with a view to the distribution or resale thereof
(unless a Registration Statement covering the shares purchasable upon exercise
of the Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares. The Committee may, in its
discretion, include a "cashless exercise" provision in the applicable Option
Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a fair market value equal to the
exercise price in payment of the full purchase price of such shares, or (ii) to
request that the Company withhold shares of Common Stock issuable upon exercise
of such Option with a fair market value equal to the exercise price of the
shares being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(e) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares purchasable upon exercise of the Option
until a certificate for such shares shall have been issued to the holder upon
due exercise of the Option.
(f) The proceeds received by the Company upon exercise of an
Option shall be added to the Company's working capital and be available for
general corporate purposes.
8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or the laws of descent or distribution and an Option may
be exercised during the lifetime of the holder only by such holder, provided,
however, that the Committee may provide for transferability of a Non-Incentive
Option to an optionee's family members or family trusts.
9. Termination of Employment or Engagement.
(a) Except as provided in paragraph (b) below, In the event
the employment of the holder of an Option shall be terminated by the Company or
a subsidiary for any reason other than by reason of death or disability, or the
engagement of a non-employee holder of a Non-Incentive Option shall be
terminated by the Company or a subsidiary for any reason, such holder may,
within three months from the date of such termination, exercise such Option to
the extent such Option was exercisable by such holder at the date of such
termination. Notwithstanding the foregoing, no Option may be exercised
subsequent to the date of its expiration. Absence on leave approved by the
employer corporation shall not be considered an interruption of employment for
any purpose under the Plan. In addition, at the discretion of the Committee, the
exercisability of an outstanding Non-Incentive Option may be extended to a date
determined by the Committee but not beyond ten years from the date of grant.
(b) The Committee may, in its discretion, at the time of grant
or by amending the applicable outstanding Non-Incentive Option, delete the
foregoing termination provision with respect to a Non-Incentive Option granted
to a non-employee of the Company or its subsidiaries.
(c) Nothing in the Plan or in any Option Agreement granted
hereunder shall confer upon any Optionholder any right to continue in the employ
of the Company or any subsidiary or obligate the Company or any subsidiary to
continue the engagement of any Optionholder or interfere in any way with the
right of the Company or any such subsidiary to terminate such Optionholder's
employment or engagement at any time.
10. Disability of Holder of Option.
If the employment of the holder of an Option shall be
terminated by reason of such holder's disability, such holder may, within twelve
months from the date of such termination, exercise such option to the extent
such Option was exercisable by such holder at the date of such termination.
Notwithstanding the foregoing, no Option may be exercised subsequent to the date
of its expiration.
11. Death of Holder of Option.
If the holder of any Option shall die while in the employ of,
or while performing services for, the Company or one or more of its subsidiaries
(or within six months following termination of employment due to disability),
the Option theretofore granted to such person may be exercised, but only to the
extent such Option was exercisable by the holder at the date of death (or, with
respect to employees, the date of termination of employment due to disability)
by the legatee or legatees of such person under such person's Last Will, or by
such person's personal representative or distributees, within twelve months from
the date of death but in no event subsequent to the expiration date of the
Option.
12. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the
Company shall by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by such Option and the
price per share thereof shall be proportionately adjusted for any such change by
the Committee whose determination thereon shall be conclusive.
13. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), all outstanding Options shall become immediately fully
exercisable. For purposes of the Plan, a "change in control" of the Company
shall mean (i) the acquisition at any time by a "person" or "group" (as such
terms are used Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities representing 50% or more of the combined voting power
in the election of directors of the then outstanding securities of the Company
or any successor or the Company; (ii) the termination of service of directors,
for any reason other than death, disability or retirement from the Board of
Directors, during any period of two consecutive years or less, of individuals
who at the beginning of such period constituted a majority of the Board of
Directors, unless the election of or nomination for election of each new
director during such period was approved by a vote of at least two-thirds of the
directors still in office who were directors at the beginning of the period;
(iii) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange as a result of which the Common Stock shall be
changed, converted or exchanged (other than a merger, consolidation or share
exchange with a wholly-owned Subsidiary) or liquidation of the Company or any
sale or disposition of 80% or more of the assets or earning power or the
Company; or (iv) approval by the stockholders of the Company of any merger,
consolidation, or statutory share exchange to which the Company is a party as a
result of which the persons who were stockholders immediately prior to the
effective date of the merger, consolidation or share exchange shall have
beneficial ownership of less than 50% of the combined voting power in the
election of directors of the surviving corporation; provided, however, that no
change in control shall be deemed to have occurred if, prior to such time as a
change in control would otherwise be deemed to have occurred, the Company's
Board of Directors deems otherwise.
<PAGE>
14. Vesting of Rights Under Options.
Neither anything contained in the Plan nor in any resolution
adopted or to be adopted by the Committee, the Board of Directors or the
stockholders of the Company shall constitute the vesting of any rights under any
Option. The vesting of such rights shall take place only when a written Option
Agreement, substantially in the form of the Incentive Stock Option Agreement
attached hereto as Exhibit A or the Non-Incentive Stock Option Agreement
attached hereto as Exhibit B, shall be duly executed and delivered by and on
behalf of the Company and the person to whom the Option shall be granted.
15. Withholding Taxes.
Whenever under the Plan shares are to be issued in
satisfaction of the exercise of Options granted thereunder, the Company shall
have the right to require the recipient to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares.
16. Termination and Amendment.
The Plan, which was adopted by the Board of Directors on July
10, 1990 and approved by the shareholders of the Company, shall terminate on
July 9, 2000 and no Option shall be granted under the Plan after such date. The
Board of Directors may at any time prior to such date terminate the Plan or make
such modifications or amendments thereto as it shall deem advisable, provided,
however, that shareholder approval shall be required:
(i) to increase the number of shares reserved for issuance
under the Plan;
(ii) to materially increase the benefits accruing to participants
under the Plan;
(iii) to materially modify the requirements of eligibility for
participation in the Plan; or
(iv) if otherwise required to comply with the incentive stock
option provisions of Section 162(m) of the Code or the listed
company requirements of The Nasdaq Stock Market or of a
national securities exchange on which the Common Stock is then
traded,
and, provided, further, that no modification or amendment shall adversely affect
the rights of a holder of an Option previously granted under the Plan without
such holder's written consent.
<PAGE>
5
EXHIBIT A
VIMRx PHARMACEUTICALS INC.
INCENTIVE STOCK OPTION AGREEMENT
----------------------
To:
We are pleased to notify you that by the determination of
theStock Option Plan Committee (hereinafter the "Committee") an incentive
stockoption to purchase ______ shares of the Common Stock of VIMRx
Pharmaceuticals Inc.(herein called the "Company") at a price of $______ per
share has this ____ day of___________been granted to you under the Company's
1990 Incentive and Non-Incentive Stock Option Plan (herein called the "Plan").
This option may be exercised only upon the terms and conditions set forth below.
<PAGE>
1. Purpose of Option.
The purpose of the Plan under which this incentive stock
option has been granted is to further the growth and development of the Company
and its subsidiaries by encouraging key employees, directors, consultants,
agents, independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this incentive stock option agreement will
indicate your acceptance of and your willingness to be bound by its terms; it
imposes no obligation upon you to purchase any of the shares subject to this
option. Your obligation to purchase shares can arise only upon your exercise of
the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
(a) The option granted you hereunder may not be exercised for
a period of six months from the date of its grant by the Committee as set forth
above. Thereafter, this option shall be exercisable as follows:
[Insert exercisability provisions. A typical example, although
not required under the Plan, is as follows:]
[(i) at the end of one year from the date
of grant, up to 25% of the total
shares subject to the option;
(ii) at the end of the second year from
the date of grant, up to 50%;
(iii) at the end of the third year from
the date of grant, up to 75%;
(iv) at the end of the fourth year from
the date of grant, up to 100%.]
This option may not be exercised for less than ten shares at any one time (or
the remaining shares then purchasable if less than ten) and expires at the end
of ________ years [insert number of years; maximum up ten] from the date of
grant whether or not it has been duly exercised (hereinafter, the "Option
Expiration Date"), unless sooner terminated as provided in paragraphs 5, 6 or 7
hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices, signifying your election
to exercise the option. The notice must state the number of shares of Common
Stock as to which your option is being exercised, must contain a statement by
you (in a form acceptable to the Company) that such shares are being acquired by
you for investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be accompanied by
cash or a check to the order of the Company for the full purchase price of the
shares being purchased [if "cashless exercise" is permitted, add the following
phrase:] [, unless exercised pursuant to the following "cashless exercise"
provision.]
[Insert the following "cashless exercise" provision, if granted by the
Committee:] [In lieu of paying for the shares purchasable under this option by
cash or check, you may (i) deliver previously owned shares of Common Stock with
a fair market value equal to the full purchase price of the shares being
purchased under this option, or (ii) request that the Company withhold shares of
Common Stock issuable upon exercise of this option with a fair market value
equal to the full purchase price of the shares being purchased under this option
(thereby reducing the number of shares issuable upon exercise of this option).
For purposes of this option, unless the Committee determines otherwise, the
"fair market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.]
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition to the
exercise of this option, the submission to the Company of appropriate proof of
the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
any stock exchange on which the Company's Common Stock may then be listed and
all applicable state laws in connection with the issuance or sale of such shares
or the listing of such shares on said exchange. Until the issuance of the
certification for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other
person as may be permitted to exercise this option, to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock issuable upon exercise of this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason other than by death or disability, you may
exercise, within three months from the date of such termination, that portion of
the option which was exercisable by you at the date of such termination,
provided, however, that such exercise occurs no later than the Option Expiration
Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof)
is terminated by reason of your disability, you may exercise, within twelve
months from the date of such termination, that portion of this option which was
exercisable by you at the date of such termination, provided, however, that such
exercise occurs no later than the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary
thereof) or within six months after termination of your employment due to
disability, that portion of this option which was exercisable by you at the date
of your death may be exercised by your legatee or legatees under your Will, or
by your personal representatives or distributees, within twelve months from the
date of your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the
laws of descent and distribution, and may be exercised during your lifetime only
by you.
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation, or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by this option and the
price of each such share shall be proportionately adjusted for any such change
by the Committee, whose determination shall be conclusive.
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), this option shall become immediately fully exercisable. For
purposes of this option, a "change in control" of the Company shall mean (i) the
acquisition at any time by a "person" or "group" (as such terms are used
Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 50% or more of the combined voting power in the election
of directors of the then outstanding securities of the Company or any successor
or the Company; (ii) the termination of service of directors, for any reason
other than death, disability or retirement from the Board of Directors, during
any period of two consecutive years or less, of individuals who at the beginning
of such period constituted a majority of the Board of Directors, unless the
election of or nomination for election of each new director during such period
was approved by a vote of at least two-thirds of the directors still in office
who were directors at the beginning of the period; (iii) approval by the
stockholders of the Company of any merger, consolidation, or statutory share
exchange as a result of which the Common Stock shall be changed, converted or
exchanged (other than a merger, consolidation or share exchange with a
wholly-owned Subsidiary) or liquidation of the Company or any sale or
disposition of 80% or more of the assets or earning power or the Company; or
(iv) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange to which the Company is a party as a result of which
the persons who were stockholders immediately prior to the effective date of the
merger, consolidation or share exchange shall have beneficial ownership of less
than 50% of the combined voting power in the election of directors of the
surviving corporation; provided, however, that no change in control shall be
deemed to have occurred if, prior to such time as a change in control would
otherwise be deemed to have occurred, the Company's Board of Directors deems
otherwise.
11. Subject to Terms of the Plan.
This incentive stock option agreement shall be subject in all
respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:
Name:
Title:
Agreed to and accepted this
_____ day of ________, 199 .
_____________________
Signature of Optionee
<PAGE>
5
VIMRx PHARMACEUTICALS INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
---------------------------------------
To:
We are pleased to notify you that by the determination of the
Stock Option Plan Committee (herein called the "Committee") a non-incentive
stock option to purchase ______ shares of the Common Stock of VIMRx
Pharmaceuticals Inc. (herein called the "Company") at a price of $ ____ per
share has this day of _____ been granted to you under the Company's 1990
Incentive and Non-Incentive Stock Option Plan (herein called the "Plan"). This
option may be exercised only upon the terms and conditions set forth below.
<PAGE>
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development of the Company
and its subsidiaries by encouraging key employees, directors, consultants,
agents, independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound by its terms;
it imposes no obligation upon you to purchase any of the shares subject to this
option. Your obligation to purchase shares can arise only upon your exercise of
the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder shall be exercisable as
follows: [set forth terms and expiration date of Option, but in no event shall
the Option be exercisable until at least six months from the date of grant].
This option may not be exercised for less than ten shares at
any one time (or the remaining shares then purchasable if less than ten) and
expires at the end of ________ years [insert number of years; maximum up ten]
from the date of grant whether or not it has been duly exercised (hereinafter,
the "Option Expiration Date"), unless sooner terminated as provided in
paragraphs 5, 6 or 7 hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices, signifying your election
to exercise the option. The notice must state the number of shares of Common
Stock as to which your option is being exercised, must contain a statement by
you (in a form acceptable to the Company) that such shares are being acquired by
you for investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchased has been declared effective
by the Securities and Exchange Commission) and must be accompanied by cash or a
check to the order of the Company for the full purchase price of the shares
being purchased, plus such amount, if any, as is required for withholding taxes.
[If "cashless exercise" is permitted, add the following phrase:]
[Notwithstanding the foregoing, this option may also be exercised pursuant to
the following "cashless exercise" provision.]
[Insert the following "cashless exercise" provision, if granted by the
Committee:] [In lieu of paying for the shares purchasable under this option by
cash or check, you may (i) deliver previously owned shares of Common Stock with
a fair market value equal to the full purchase price of the shares being
purchased under this option, or (ii) request that the Company withhold shares of
Common Stock issuable upon exercise of this option with a fair market value
equal to the full purchase price of the shares being purchased under this option
(thereby reducing the number of shares issuable upon exercise of this option).
For purposes of this option, unless the Committee determines otherwise, the
"fair market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.] .
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition to the
exercise of this option, the submission to the Company of appropriate proof of
the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
any stock exchange on which the Company's Common Stock may then be listed and
all applicable state laws in connection with the issuance or sale of such shares
or the listing of such shares on said exchange. Until the issuance of the
certificate for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other
person as may be permitted to exercise this option, to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock issuable upon exercise of this option.
5. Termination of Employment or Engagement.
[The Committee may determine to delete this provision, at the
time of grant or by amendment, to non-employees, in which event the words
"Intentionally omitted" should be inserted.] If your employment with the Company
(or a subsidiary thereof) is terminated for any reason other than by death or
disability, or if a you are not an employee of the Company and your engagement
by the Company (or a subsidiary) is terminated for any reason, you may exercise,
within three months from the date of such termination, that portion of this
option which was exercisable by you at the date of such termination, provided,
however, that such exercise occurs prior to the Option Expiration Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof)
is terminated by reason of your disability, you may exercise, within twelve
months from the date of such termination, that portion of this option which was
exercisable by you at the date of such termination, provided, however, that such
exercise occurs prior to the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary
thereof) or within six months after termination of your employment due to
disability, that portion of this option which was exercisable by you at the date
of your death may be exercised by your legatee or legatees under your Will, or
by your personal representatives or distributees, within twelve months from the
date of your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the
laws of descent and distribution, and may be exercised during your lifetime only
by you.
[Alternative Section 8, if provided for by the Committee:]
[8. Limited Transferability of Option.
This option shall not be transferable except to members of
your family or to your family trust(s), and by Will or the laws of descent and
distribution.]
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation, or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by this option and the
price of each such share shall be proportionately adjusted for any such change
by the Committee, whose determination shall be conclusive.
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), this option shall become immediately fully exercisable. For
purposes of this option, a "change in control" of the Company shall mean (i) the
acquisition at any time by a "person" or "group" (as such terms are used
Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 50% or more of the combined voting power in the election
of directors of the then outstanding securities of the Company or any successor
or the Company; (ii) the termination of service of directors, for any reason
other than death, disability or retirement from the Board of Directors, during
any period of two consecutive years or less, of individuals who at the beginning
of such period constituted a majority of the Board of Directors, unless the
election of or nomination for election of each new director during such period
was approved by a vote of at least two-thirds of the directors still in office
who were directors at the beginning of the period; (iii) approval by the
stockholders of the Company of any merger, consolidation, or statutory share
exchange as a result of which the Common Stock shall be changed, converted or
exchanged (other than a merger, consolidation or share exchange with a
wholly-owned Subsidiary) or liquidation of the Company or any sale or
disposition of 80% or more of the assets or earning power or the Company; or
(iv) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange to which the Company is a party as a result of which
the persons who were stockholders immediately prior to the effective date of the
merger, consolidation or share exchange shall have beneficial ownership of less
than 50% of the combined voting power in the election of directors of the
surviving corporation; provided, however, that no change in control shall be
deemed to have occurred if, prior to such time as a change in control would
otherwise be deemed to have occurred, the Company's Board of Directors deems
otherwise.
11. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
12. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422A of the Internal Revenue Code of 1986, as
amended, and the income tax implications of your receipt of a non-incentive
stock option and your exercise of such an option should be discussed with your
tax counsel.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:_______________________
Name:___________________
Title:__________________
Agreed to and accepted this
____ day of _______ , 199 .
_____________________
Signature of Optionee
1997 INCENTIVE AND NON-INCENTIVE
STOCK OPTION PLAN
OF
VIMRx PHARMACEUTICALS INC.
1. Purpose of Plan.
The purpose of this Incentive and Non-Incentive Stock Option
Plan ("Plan") is to further the growth and development of VIMRx Pharmaceuticals
Inc. ("Company") and any subsidiaries thereof by encouraging selected employees,
directors and other persons who contribute and are expected to contribute
materially to the Company's success to obtain a proprietary interest in the
Company through the ownership of stock, thereby providing such persons with an
added incentive to promote the best interests of the Company and affording the
Company a means of attracting to its service persons of outstanding ability.
2. Stock Subject to the Plan.
An aggregate of 1,000,000 shares of the Company's Common
Stock, $.001 par value ("Common Stock") subject, however, to adjustment or
change pursuant to paragraph 12 hereof, shall be reserved for issuance upon the
exercise of options which may be granted from time to time in accordance with
the Plan ("Options"). Such shares may be, in whole or in part, as the committee
appointed by the Board of Directors to administer the Plan (hereinafter, the
"Committee") shall from time to time determine, authorized but unissued shares
or issued shares which have been reacquired by the Company. If, for any reason,
an Option shall lapse, expire or terminate without having been exercised in
full, the unpurchased shares covered thereby shall again be available for
purposes of the Plan.
3. Administration.
(a) Except as provided in paragraph (c) below, the Plan shall
be administered by the Committee. The Board of Directors shall appoint the
Committee from among its members. Such Committee shall be composed of two or
more Directors who, to the extent practicable, shall be "outside directors" as
defined in regulations under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-employee directors" as defined by
Regulation 240.16b-3 under the Securities Exchange Act of 1934, as amended. Such
Committee shall have and may exercise any and all of the powers relating to the
administration of the Plan and the grant of Options thereunder as are set forth
in subparagraph 3(b) hereof as the Board of Directors shall confer and delegate.
The Board of Directors shall have power at any time to fill vacancies in, to
change the membership of, or to discharge such Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
time and at such places as it shall deem advisable. A majority of such Committee
shall constitute a quorum and such majority shall determine its action. Any
action may be taken without a meeting by written consent of all the members of
the Committee. The Committee shall keep minutes of its proceedings and shall
report the same to the Board of Directors at the meeting next succeeding.
(b) The Committee shall administer the Plan and, subject to
the provisions of the Plan, shall have sole authority in its discretion to
determine the persons to whom, and the time or times at which, Options shall be
granted; the number of shares to be subject to each such Option; the provisions
regarding exercisability of each Option; the expiration date of each Option;
whether the Option shall contain a "cashless exercise" provision; whether all or
any portion of the Options shall be incentive stock options ("Incentive
Options") qualifying under Section 422A of the Code or stock options which do
not so qualify ("Non-Incentive Options"); whether a Non-Incentive Option shall
have limited transferability as permitted under the Plan; and whether a
Non-Incentive Option granted to a non-employee shall terminate following the
non-employee's termination of engagement in performing services for the Company
or its subsidiaries pursuant to Section 9 of the Plan. Both Incentive Options
and Non-Incentive Options may be granted to the same person at the same time
provided each type of Option is clearly designated. In making such
determinations, the Committee may take into account the nature of the services
rendered by such persons, their present and potential contribution to the
Company's success and such other factors as the Committee in its sole discretion
may deem relevant. Subject to the express provisions of the Plan, the Committee
shall also have authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating thereto; to determine the terms and provisions of
the respective Option Agreements, which shall be substantially in the forms
attached hereto as Exhibit A and Exhibit B; to amend the provisions of
outstanding Options to provide for accelerated exercisability or the extension
of the expiration date of such Options; and to make all other determinations
necessary or advisable for the administration of the Plan, all of which
determinations shall be conclusive and not subject to review.
(c) The Board of Directors may administer the Plan, in lieu of
and with the same powers as the Committee, with respect to any Options granted
or to be granted under the Plan, provided that such administration is consistent
with the provisions of Section 162(m) of the Code.
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only
to employees (including officers) of the Company and/or any of its subsidiaries.
A director of the Company or any subsidiary who is not an employee of the
Company or of one of its subsidiaries is not eligible to receive Incentive
Options under the Plan. Further, Incentive Options may not be granted to any
person who, at the time the Incentive Option is granted, owns (or is considered
as owning within the meaning of Section 425(d) of the Code) stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary (10% Owner), unless at the time the Incentive Option
is granted to the 10% Owner, the option price is at least 110% of the fair
market value of the Common Stock subject thereto and such Incentive Option by
its terms is not exercisable subsequent to five years from the date of grant.
The aggregate fair market value (determined as of the time an Incentive Option
is granted) of the shares of the Company's Common Stock initially purchasable
upon exercise of an Incentive Option during any calendar year may not exceed
$100,000.
(b) Non-Incentive Options. Non-Incentive Options may be
granted to any employees (including employees who have been granted Incentive
Options), directors, consultants, agents, independent contractors and other
persons whom the Board of Directors (or Committee) determines will contribute to
the Company's success.
(c) The maximum number of shares that may be subject to
options under this Plan granted during any calendar year to any executive
officer of the Company is 800,000 shares.
(d) In the event an outstanding Incentive Option or a portion
thereof no longer qualifies as an incentive stock option under Section 422A of
the Code, such Option or portion thereof, as applicable, thereafter shall be
deemed a Non-Incentive Option under the Plan.
5. Option Price.
The purchase price of the shares of Common Stock under each
Option shall be determined by the Committee, which determination shall be
conclusive and not subject to review, but in no event shall the purchase price
be less than 100% of the fair market value of the Common Stock on the date of
grant in the case of Incentive Options (110% of fair market value in the case of
Incentive Options granted to a 10% Owner) and 50% of the fair market value of
the Common Stock on the date of the grant in the case of Non-Incentive Options.
For purposes of the Plan, unless the Committee determines
otherwise, the "fair market value" of a share of Common Stock as of a certain
date shall be the closing sale price of the Common Stock on The Nasdaq Stock
Market or, if the Common Stock is not then traded on The Nasdaq Stock Market,
such national securities exchange on which the Common Stock is then traded, on
the trading date immediately preceding the date the fair market value is being
determined. The Committee may make such other determination of fair market
value, based on other factors, as it shall deem appropriate.
For purposes of the Plan, the date of grant of an Option shall
be the date on which the Committee shall by resolution duly authorize such
Option.
6. Term of Options.
The term of each Option shall be such number of years as the
Committee shall determine, subject to earlier termination as herein provided,
but in no event more than ten years from the date the Option is granted.
7. Exercise of Options.
(a) Each Option shall be exercisable to the extent determined
by the Committee, but in no event shall an Option be exercisable until at least
six months from the date of grant.
(b) An Option may not be exercised for fractional shares of
the Company's Common Stock.
(c) Except as provided in paragraphs 9, 10 and 11 hereof, and
unless determined otherwise by the Committee with respect to Non-Incentive
Options granted to non-employees, no Option shall be exercisable unless the
holder thereof shall have been an employee, director, consultant, agent,
independent contractor or other person employed by or engaged in performing
services for the Company and/or a subsidiary continuously from the date of grant
to the date of exercise.
(d) The exercise of an Option shall be contingent upon receipt
from the holder thereof of a written representation that at the time of such
exercise it is the optionee's then present intention to acquire the Option
shares for investment and not with a view to the distribution or resale thereof
(unless a Registration Statement covering the shares purchasable upon exercise
of the Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares. The Committee may, in its
discretion, include a "cashless exercise" provision in the applicable Option
Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a fair market value equal to the
exercise price in payment of the full purchase price of such shares, or (ii) to
request that the Company withhold shares of Common Stock issuable upon exercise
of such Option with a fair market value equal to the exercise price of the
shares being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(e) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares purchasable upon exercise of the Option
until a certificate for such shares shall have been issued to the holder upon
due exercise of the Option.
(f) The proceeds received by the Company upon exercise of an
Option shall be added to the Company's working capital and be available for
general corporate purposes.
8. Transferability of Options.
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or the laws of descent or distribution and an Option may
be exercised during the lifetime of the holder only by such holder, provided,
however, that the Committee may provide for transferability of a Non-Incentive
Option to an optionee's family members or family trusts.
9. Termination of Employment or Engagement.
(a) Except as provided in paragraph (b) below, in the event
the employment of the holder of an Option shall be terminated by the Company or
a subsidiary for any reason other than by reason of death or disability, or the
engagement of a non-employee holder of a Non-Incentive Option shall be
terminated by the Company or a subsidiary for any reason, such holder may,
within three months from the date of such termination, exercise such Option to
the extent such Option was exercisable by such holder at the date of such
termination. Notwithstanding the foregoing, no Option may be exercised
subsequent to the date of its expiration. Absence on leave approved by the
employer corporation shall not be considered an interruption of employment for
any purpose under the Plan. In addition, at the discretion of the Committee, the
exercisability of an outstanding Non-Incentive Option may be extended to a date
determined by the Committee but not beyond ten years from the date of grant.
(b) The Committee may, in its discretion, at the time of grant
or by amending the applicable outstanding Non-Incentive Option, delete the
foregoing termination provision with respect to a Non-Incentive Option granted
to a non-employee of the Company or its subsidiaries.
(c) Nothing in the Plan or in any Option Agreement granted
hereunder shall confer upon any Optionholder any right to continue in the employ
of the Company or any subsidiary or obligate the Company or any subsidiary to
continue the engagement of any Optionholder or interfere in any way with the
right of the Company or any such subsidiary to terminate such Optionholder's
employment or engagement at any time.
10. Disability of Holder of Option.
If the employment of the holder of an Option shall be
terminated by reason of such holder's disability, such holder may, within twelve
months from the date of such termination, exercise such option to the extent
such Option was exercisable by such holder at the date of such termination.
Notwithstanding the foregoing, no Option may be exercised subsequent to the date
of its expiration.
11. Death of Holder of Option.
If the holder of any Option shall die while in the employ of,
or while performing services for, the Company or one or more of its subsidiaries
(or within six months following termination of employment due to disability),
the Option theretofore granted to such person may be exercised, but only to the
extent such Option was exercisable by the holder at the date of death (or, with
respect to employees, the date of termination of employment due to disability)
by the legatee or legatees of such person under such person's Last Will, or by
such person's personal representative or distributees, within twelve months from
the date of death but in no event subsequent to the expiration date of the
Option.
12. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the
Company shall by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by such Option and the
price per share thereof shall be proportionately adjusted for any such change by
the Committee whose determination thereon shall be conclusive.
13. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), all outstanding Options shall become immediately fully
exercisable. For purposes of the Plan, a "change in control" of the Company
shall mean (i) the acquisition at any time by a "person" or "group" (as such
terms are used Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities representing 50% or more of the combined voting power
in the election of directors of the then outstanding securities of the Company
or any successor or the Company; (ii) the termination of service of directors,
for any reason other than death, disability or retirement from the Board of
Directors, during any period of two consecutive years or less, of individuals
who at the beginning of such period constituted a majority of the Board of
Directors, unless the election of or nomination for election of each new
director during such period was approved by a vote of at least two-thirds of the
directors still in office who were directors at the beginning of the period;
(iii) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange as a result of which the Common Stock shall be
changed, converted or exchanged (other than a merger, consolidation or share
exchange with a wholly-owned Subsidiary) or liquidation of the Company or any
sale or disposition of 80% or more of the assets or earning power or the
Company; or (iv) approval by the stockholders of the Company of any merger,
consolidation, or statutory share exchange to which the Company is a party as a
result of which the persons who were stockholders immediately prior to the
effective date of the merger, consolidation or share exchange shall have
beneficial ownership of less than 50% of the combined voting power in the
election of directors of the surviving corporation; provided, however, that no
change in control shall be deemed to have occurred if, prior to such time as a
change in control would otherwise be deemed to have occurred, the Company's
Board of Directors deems otherwise.
<PAGE>
14. Vesting of Rights Under Options.
Neither anything contained in the Plan nor in any resolution
adopted or to be adopted by the Committee, the Board of Directors or the
stockholders of the Company shall constitute the vesting of any rights under any
Option. The vesting of such rights shall take place only when a written Option
Agreement, substantially in the form of the Incentive Stock Option Agreement
attached hereto as Exhibit A or the Non-Incentive Stock Option Agreement
attached hereto as Exhibit B, shall be duly executed and delivered by and on
behalf of the Company and the person to whom the Option shall be granted.
15. Withholding Taxes.
Whenever under the Plan shares are to be issued in
satisfaction of the exercise of Options granted thereunder, the Company shall
have the right to require the recipient to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares.
16. Termination and Amendment.
The Plan, which was adopted by the Board of Directors on
February 6, 1997 and is subject to stockholder approval, shall terminate on
February 6, 2007 and no Option shall be granted under the Plan after such date.
The Board of Directors may at any time prior to such date terminate the Plan or
make such modifications or amendments thereto as it shall deem advisable,
provided, however, that shareholder approval shall be required:
(i) to increase the number of shares reserved for issuance under
the Plan;
(ii) to materially increase the benefits accruing to participants
under the Plan;
(iii) to materially modify the requirements of eligibility for
participation in the Plan; or
(iv) if otherwise required to comply with the incentive stock
option provisions of Section 162(m) of the Code or the listed
company requirements of The Nasdaq Stock Market or of a
national securities exchange on which the Common Stock is then
traded,
and, provided, further, that no modification or amendment shall adversely affect
the rights of a holder of an Option previously granted under the Plan without
such holder's written consent.
<PAGE>
5
EXHIBIT A
VIMRx PHARMACEUTICALS INC.
INCENTIVE STOCK OPTION AGREEMENT
----------------------
To:
We are pleased to notify you that by the determination of the
Stock Option Plan Committee (hereinafter the "Committee") an incentive stock
option to purchase _____ shares of the Common Stock of VIMRx Pharmaceuticals
Inc. (herein called the "Company") at a price of $ _______ per share has this
day of ________ been granted to you under the Company's 1997 Incentive and
Non-Incentive Stock Option Plan (herein called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
<PAGE>
1. Purpose of Option.
The purpose of the Plan under which this incentive stock
option has been granted is to further the growth and development of the Company
and its subsidiaries by encouraging key employees, directors, consultants,
agents, independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this incentive stock option agreement will
indicate your acceptance of and your willingness to be bound by its terms; it
imposes no obligation upon you to purchase any of the shares subject to this
option. Your obligation to purchase shares can arise only upon your exercise of
the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
(a) The option granted you hereunder may not be exercised for
a period of six months from the date of its grant by the Committee as set forth
above. Thereafter, this option shall be exercisable as follows:
[Insert exercisability provisions. A typical example, although
not required under the Plan, is as follows:]
[(i) at the end of one year from the date of grant,
up to 25% of the total shares subject to the option;
(ii) at the end of the second year from the date of
grant, up to 50%;
(iii) A the end of the third year from the date of grant,
up to 75%;
(iv) at the end of the fourth year from the date of
grant, up to 100%.]
This option may not be exercised for less than ten shares at any one time (or
the remaining shares then purchasable if less than ten) and expires at the end
of ________ years [insert number of years; maximum up ten] from the date of
grant whether or not it has been duly exercised (hereinafter, the "Option
Expiration Date"), unless sooner terminated as provided in paragraphs 5, 6 or 7
hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices, signifying your election
to exercise the option. The notice must state the number of shares of Common
Stock as to which your option is being exercised, must contain a statement by
you (in a form acceptable to the Company) that such shares are being acquired by
you for investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be accompanied by
cash or a check to the order of the Company for the full purchase price of the
shares being purchased [if "cashless exercise" is permitted, add the following
phrase:] [, unless exercised pursuant to the following "cashless exercise"
provision.]
[Insert the following "cashless exercise" provision, if granted by the
Committee:] [In lieu of paying for the shares purchasable under this option by
cash or check, you may (i) deliver previously owned shares of Common Stock with
a fair market value equal to the full purchase price of the shares being
purchased under this option, or (ii) request that the Company withhold shares of
Common Stock issuable upon exercise of this option with a fair market value
equal to the full purchase price of the shares being purchased under this option
(thereby reducing the number of shares issuable upon exercise of this option).
For purposes of this option, unless the Committee determines otherwise, the
"fair market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.]
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition to the
exercise of this option, the submission to the Company of appropriate proof of
the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
any stock exchange on which the Company's Common Stock may then be listed and
all applicable state laws in connection with the issuance or sale of such shares
or the listing of such shares on said exchange. Until the issuance of the
certification for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other
person as may be permitted to exercise this option, to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock issuable upon exercise of this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof)
is terminated for any reason other than by death or disability, you may
exercise, within three months from the date of such termination, that portion of
the option which was exercisable by you at the date of such termination,
provided, however, that such exercise occurs no later than the Option Expiration
Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof)
is terminated by reason of your disability, you may exercise, within twelve
months from the date of such termination, that portion of this option which was
exercisable by you at the date of such termination, provided, however, that such
exercise occurs no later than the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary
thereof) or within six months after termination of your employment due to
disability, that portion of this option which was exercisable by you at the date
of your death may be exercised by your legatee or legatees under your Will, or
by your personal representatives or distributees, within twelve months from the
date of your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the
laws of descent and distribution, and may be exercised during your lifetime only
by you.
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation, or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by this option and the
price of each such share shall be proportionately adjusted for any such change
by the Committee, whose determination shall be conclusive.
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), this option shall become immediately fully exercisable. For
purposes of this option, a "change in control" of the Company shall mean (i) the
acquisition at any time by a "person" or "group" (as such terms are used
Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 50% or more of the combined voting power in the election
of directors of the then outstanding securities of the Company or any successor
or the Company; (ii) the termination of service of directors, for any reason
other than death, disability or retirement from the Board of Directors, during
any period of two consecutive years or less, of individuals who at the beginning
of such period constituted a majority of the Board of Directors, unless the
election of or nomination for election of each new director during such period
was approved by a vote of at least two-thirds of the directors still in office
who were directors at the beginning of the period; (iii) approval by the
stockholders of the Company of any merger, consolidation, or statutory share
exchange as a result of which the Common Stock shall be changed, converted or
exchanged (other than a merger, consolidation or share exchange with a
wholly-owned Subsidiary) or liquidation of the Company or any sale or
disposition of 80% or more of the assets or earning power or the Company; or
(iv) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange to which the Company is a party as a result of which
the persons who were stockholders immediately prior to the effective date of the
merger, consolidation or share exchange shall have beneficial ownership of less
than 50% of the combined voting power in the election of directors of the
surviving corporation; provided, however, that no change in control shall be
deemed to have occurred if, prior to such time as a change in control would
otherwise be deemed to have occurred, the Company's Board of Directors deems
otherwise.
11. Subject to Terms of the Plan.
This incentive stock option agreement shall be subject in all
respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:
Name:
Title:
Agreed to and accepted this
day of , 199 .
Signature of Optionee
<PAGE>
2
EXHIBIT B
VIMRx PHARMACEUTICALS INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
---------------------------------------
To:
We are pleased to notify you that by the determination of the
Stock Option Plan Committee (herein called the "Committee") a non-incentive
stock option to purchase ______ shares of the Common Stock of VIMRx
Pharmaceuticals Inc. (herein called the "Company") at a price of $ ______ per
share has this day of ___________ been granted to you under the Company's 1997
Incentive and Non-Incentive Stock Option Plan (herein called the "Plan"). This
option may be exercised only upon the terms and conditions set forth below.
<PAGE>
1. Purpose of Option.
The purpose of the Plan under which this non-incentive stock
option has been granted is to further the growth and development of the Company
and its subsidiaries by encouraging key employees, directors, consultants,
agents, independent contractors and other persons who contribute and are
expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound by its terms;
it imposes no obligation upon you to purchase any of the shares subject to this
option. Your obligation to purchase shares can arise only upon your exercise of
the option in the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
The option granted you hereunder shall be exercisable as
follows: [set forth terms and expiration date of Option, but in no event shall
the Option be exercisable until at least six months from the date of grant].
This option may not be exercised for less than ten shares at
any one time (or the remaining shares then purchasable if less than ten) and
expires at the end of ________ years [insert number of years; maximum up ten]
from the date of grant whether or not it has been duly exercised (hereinafter,
the "Option Expiration Date"), unless sooner terminated as provided in
paragraphs 5, 6 or 7 hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices, signifying your election
to exercise the option. The notice must state the number of shares of Common
Stock as to which your option is being exercised, must contain a statement by
you (in a form acceptable to the Company) that such shares are being acquired by
you for investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchased has been declared effective
by the Securities and Exchange Commission) and must be accompanied by cash or a
check to the order of the Company for the full purchase price of the shares
being purchased, plus such amount, if any, as is required for withholding taxes.
[If "cashless exercise" is permitted, add the following phrase:]
[Notwithstanding the foregoing, this option may also be exercised pursuant to
the following "cashless exercise" provision.]
[Insert the following "cashless exercise" provision, if granted by the
Committee:] [In lieu of paying for the shares purchasable under this option by
cash or check, you may (i) deliver previously owned shares of Common Stock with
a fair market value equal to the full purchase price of the shares being
purchased under this option, or (ii) request that the Company withhold shares of
Common Stock issuable upon exercise of this option with a fair market value
equal to the full purchase price of the shares being purchased under this option
(thereby reducing the number of shares issuable upon exercise of this option).
For purposes of this option, unless the Committee determines otherwise, the
"fair market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.] .
If notice of the exercise of this option is given by a person
or persons other than you, the Company may require, as a condition to the
exercise of this option, the submission to the Company of appropriate proof of
the right of such person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will
be issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
any stock exchange on which the Company's Common Stock may then be listed and
all applicable state laws in connection with the issuance or sale of such shares
or the listing of such shares on said exchange. Until the issuance of the
certificate for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other
person as may be permitted to exercise this option, to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock issuable upon exercise of this option.
5. Termination of Employment or Engagement.
[The Committee may determine to delete this provision, at the
time of grant or by amendment, to a non-employee, in which event the words
"Intentionally omitted" should be inserted.] If your employment with the Company
(or a subsidiary thereof) is terminated for any reason other than by death or
disability, or if a you are not an employee of the Company and your engagement
by the Company (or a subsidiary) is terminated for any reason, you may exercise,
within three months from the date of such termination, that portion of this
option which was exercisable by you at the date of such termination, provided,
however, that such exercise occurs prior to the Option Expiration Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof)
is terminated by reason of your disability, you may exercise, within twelve
months from the date of such termination, that portion of this option which was
exercisable by you at the date of such termination, provided, however, that such
exercise occurs prior to the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary
thereof) or within six months after termination of your employment due to
disability, that portion of this option which was exercisable by you at the date
of your death may be exercised by your legatee or legatees under your Will, or
by your personal representatives or distributees, within twelve months from the
date of your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the
laws of descent and distribution, and may be exercised during your lifetime only
by you.
[Alternative Section 8, if provided for by the Committee:]
[8. Limited Transferability of Option.
This option shall not be transferable except to members of
your family or to your family trust(s), and by Will or the laws of descent and
distribution.]
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the
Company shall, by stock dividend, split-up, combination, reclassification or
exchange, or through merger or consolidation, or otherwise, change its shares of
Common Stock into a different number or kind or class of shares or other
securities or property, then the number of shares covered by this option and the
price of each such share shall be proportionately adjusted for any such change
by the Committee, whose determination shall be conclusive.
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company
(as defined below), this option shall become immediately fully exercisable. For
purposes of this option, a "change in control" of the Company shall mean (i) the
acquisition at any time by a "person" or "group" (as such terms are used
Sections 13(d) and 14(d)(2) of the Exchange Act of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 50% or more of the combined voting power in the election
of directors of the then outstanding securities of the Company or any successor
or the Company; (ii) the termination of service of directors, for any reason
other than death, disability or retirement from the Board of Directors, during
any period of two consecutive years or less, of individuals who at the beginning
of such period constituted a majority of the Board of Directors, unless the
election of or nomination for election of each new director during such period
was approved by a vote of at least two-thirds of the directors still in office
who were directors at the beginning of the period; (iii) approval by the
stockholders of the Company of any merger, consolidation, or statutory share
exchange as a result of which the Common Stock shall be changed, converted or
exchanged (other than a merger, consolidation or share exchange with a
wholly-owned Subsidiary) or liquidation of the Company or any sale or
disposition of 80% or more of the assets or earning power or the Company; or
(iv) approval by the stockholders of the Company of any merger, consolidation,
or statutory share exchange to which the Company is a party as a result of which
the persons who were stockholders immediately prior to the effective date of the
merger, consolidation or share exchange shall have beneficial ownership of less
than 50% of the combined voting power in the election of directors of the
surviving corporation; provided, however, that no change in control shall be
deemed to have occurred if, prior to such time as a change in control would
otherwise be deemed to have occurred, the Company's Board of Directors deems
otherwise.
11. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject in
all respects to the terms and conditions of the Plan and in the event of any
question or controversy relating to the terms of the Plan, the decision of the
Committee shall be conclusive.
12. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422A of the Internal Revenue Code of 1986, as
amended, and the income tax implications of your receipt of a non-incentive
stock option and your exercise of such an option should be discussed with your
tax counsel.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:
Name:
Title:
Agreed to and accepted this
day of , 199 .
Signature of Optionee
VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
October 30, 1996
Mr. Richard L. Dunning
909 Cecil Road
Westover Hills
Wilmington, DE 19807
Dear Dick:
This letter agreement amends, modifies, clarifies and restates in all
respects the agreement dated March 27, 1996 between you and VIMRx
Pharmaceuticals Inc. ("VIMRx") as to the terms and conditions of your employment
by VIMRx.
1. In your capacity as President and Chief Executive Officer of VIMRx,
you will report to VIMRx's Board of Directors. VIMRx has caused you to be
elected to its Board of Directors, as well as to the Board of Directors of one
or more subsidiaries of VIMRx, and, at the option of the Board of Directors of
VIMRx, you agree to serve, for no additional compensation, as a Director of
VIMRx and as a Director and/or officer of any or all of its subsidiaries
throughout the term of your employment.
2. The term of your employment commenced on March 27, 1996, and shall
continue until terminated under the provisions of Paragraph 6 below. You are a
full-time employee of VIMRx and 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
$200,000 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 has awarded you Incentive
Stock Options to purchase 156,064 shares of VIMRx Common Stock pursuant to that
certain Incentive Stock Option Agreement dated March 28, 1996 (the "ISO
Agreement"), and Non-Incentive Stock Options to purchase 643,936 Shares of VIMRx
Common Stock pursuant to that certain Non-Incentive Stock Option Agreement dated
March 28, 1996 (the "Non-ISO Agreement"). Subject to approval by the Board of
Directors, VIMRx will amend your Non-ISO Agreement to include provisions as to
the following matters:
(i) The shares subject to the Non-ISO agreement will
become exercisable as follows:
March 28, 1997 214,649 shares
March 28, 1998 214,649 shares
March 28, 1999 214,648 shares
(ii) Subject to the provisions of the Non-ISO Agreement
regarding termination of employment, the exercisability of all options subject
to the Non-ISO Agreement shall expire on March 27, 2006.
(iii) In the event your employment is terminated by
VIMRx (except for "cause" (as hereinafter defined), but including "constructive"
termination pursuant to Paragraph 6(f) of this letter agreement and termination
on account of permanent disability (as hereinafter defined)) on or before March
27, 1997, options to purchase 214,649 shares will immediately become exercisable
and may be exercised at any time during the three-month period following the
effective date of such termination, and the exercisability of the remaining
shares subject to the Non-ISO Agreement will lapse. In the event you are so
terminated after March 27, 1997, all options subject to the Non-ISO Agreement
will immediately become exercisable and may be exercised at any time during the
three-month period following the effective date of such termination but in no
event subsequent to March 27, 2006;
(iv) In the event you die on or before March 27, 1997,
options to purchase 214,649 shares will immediately become exercisable and the
exercisability of the remaining shares subject to the Non-ISO Agreement will
lapse. In the event you die thereafter, all options subject to the Non-ISO
Agreement will become exercisable. In either event, such options may be
exercised by your heirs, personal representatives or distributees within twelve
months of the date of your death but in no event after March 27, 2006.
(v) All shares subject to the ISO Agreement and the
Non-ISO Agreement will be registered on Form S-8 as soon as practicable after
the Board of Directors approves such registration.
(vi) In the event (i) a sale of substantially all the
assets of VIMRx, to a Person (as hereinafter defined) other than an "Affiliate"
(as hereinafter defined) of VIMRx, is consummated, or (ii) any Person, or group
of Persons acting in concert, directly or indirectly, by purchase, merger or
otherwise, acquires beneficial ownership of stock representing more than fifty
percent (50%) of the voting power of the then outstanding stock of VIMRx (or any
successor of VIMRx by merger or consolidation), or (iii) a single transaction,
or a series of related transactions, is consummated pursuant to which the
beneficial ownership of more than fifty percent (50%) of the voting stock of
VIMRx changes, all stock options theretofore granted to you under the Non-ISO
Agreement will accelerate and become exercisable as of the date of such event.
For purposes of this subparagraph 3(b): "Person" shall mean any individual,
company, limited liability company, partnership, association, trust or other
entity; an "Affiliate" of a Person shall mean any Person controlling, controlled
by or under common control with such Person; and open market transactions by
unaffiliated Persons not acting in concert shall not be deemed "related
transactions."
(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. In lieu of participation in VIMRx's
medical and dental plans (if any) you may elect to receive a $500 monthly
allowance therefor.
(d) Your performance will be reviewed annually by VIMRx's Board of
Directors, in connection with which your annual cash bonus and possible
increases in your base compensation for the future will be discussed, it being
understood that 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 least 33% of base
compensation, assuming satisfactory performance.
4. You will be entitled to take up to an aggregate of four weeks of
vacation each calendar year as business conditions permit, it being understood
that no more than one week of unused vacation per year of service with VIMRx may
be carried over to the succeeding year. 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 documented 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 to 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 on 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; and
(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 obligated to pay you any accrued but unpaid salary
earned by you through the date of such termination.
(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 President and
Chief Executive Officer 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 services 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 or a material
interference with the exercise of your authority 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 President and Chief Executive Officer of
VIMRx and the same shall not have been alleviated by VIMRx's Board of Directors
within ten (10) days after its receipt of written notice thereof from you;
(iii) relocation of VIMRx's principal executive offices
to a location whose distance is at least fifty (50) miles farther from your
current residence in Wilmington, Delaware than the distance between VIMRx's
offices in the Wilmington, Delaware, area and such residence address, provided
that you shall not have approved the decision to effect such relocation.
(g) Notwithstanding anything in Paragraphs 6(b) or 6(c) above to
the contrary:
(i) you shall not have any obligation to VIMRx to
mitigate any termination of your employment whereby you would be required by
VIMRx promptly to seek, procure or commence substitute employment; and
(ii) in the event you do seek, procure or commence such
substitute employment, none of the income derived or to be derived by you
therefrom shall be setoff by VIMRx against the balance of any severance
payments, if any, owing to you by VIMRx under this Agreement.
7. You hereby agree that you shall not, directly or indirectly, during
the term of your employment hereunder and until the expiration of one year 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 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 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.
(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, 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.
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 Donald G. Drapkin, Chairman
MacAndrews & Forbes Holdings, Inc.
35 East 62nd Street
New York, New York 10021
WITH A COPY TO:
Lowell S. Lifschultz
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177-0077
TO RICHARD L. DUNNING:
Richard L. Dunning
909 Cecil Road
Westover Hills
Wilmington, Delaware 19807
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. This Agreement shall be binding upon the parties hereto and their
heirs, distributees, successors and assigns.
17. 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.
18. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Connecticut applicable to contracts
made and to be performed entirely therein (without giving effect to the conflict
of law rules thereof).
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/ Donald G. Drapkin
Donald G. Drapkin
Chairman
ACCEPTED AND AGREED TO THIS
30th DAY OF October, 1996:
/s/ Richard L. Dunning
Richard L. Dunning
VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
August 26, 1996
Mr. David A. Jackson
49 Guyencourt Road
Wilmington, DE 19807-1415
Dear David:
This letter agreement will serve to set forth the terms and
conditions of your employment by VIMRx Pharmaceuticals Inc. ("VIMRx").
You are being employed as the Executive Vice President -
Research and Development and Chief Scientific Officer of VIMRx. In such
capacity, you will have general charge of and administration over VIMRx's
research and development activities and programs and primary responsibility for
technology assessment and the making of scientific and technology determinations
with respect to the corporation's business plans. You will report directly to
the President and Chief Executive Officer. If requested, you agree to serve, for
no additional compensation, in like capacities for any VIMRx subsidiaries
throughout the term of your employment.
The term of your employment will commence as of the date of
this letter agreement and shall continue until terminated under the provisions
of Paragraph 6 below. You will be a full-time employee of VIMRx and agree to
devote your business and professional time and energy and skills to the affairs
of VIMRx and its subsidiaries and to serve VIMRx faithfully and to the best of
your ability.
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 not
less than $175,000 per annum, payable in installments in accordance with VIMRx's
regular payroll practices. You will also be entitled to a discretionary cash
bonus determined as of the end of each calendar year during the term hereof
(based on performance criteria to be agreed upon between VIMRx and you and such
additional discretionary factors as the President and Chief Executive Officer
and the Board of Directors of VIMRx (the "Board") may apply from time to time).
The minimum target bonus amount each year, assuming satisfactory performance by
you, will be one-third ( ) of your base compensation. The bonus determined as of
December 31, 1996 will be calculated as if you had been employed by VIMRx for
the entire 1996 calendar year at the base annual compensation referenced above.
As additional compensation, VIMRx shall award you, (i) an
Incentive Stock Option (the "Incentive Option") to purchase a number of shares
of VIMRx Common Stock ("Shares") equal to 400,000 divided by the fair market
value of one Share on the date of grant of the Incentive Option and (ii) a
Non-Incentive Stock Option (the "Non-Incentive Option" and collectively with the
Incentive Option, the "Options") to purchase a number of Shares equal to 500,000
minus the number of Shares issuable pursuant to the Incentive Option, in each
case pursuant to VIMRx's Amended and Restated 1990 Incentive and Non-Incentive
Stock Option Plan, as amended (the "1990 Plan"). The purchase price for Shares
under each Option shall be the fair market value of VIMRx Common Stock on the
date of grant of the Options. Shares subject to the Incentive Option will become
exercisable in accordance with the terms of the 1990 Plan. Subject to the
further exercise terms set forth below, Shares subject to the Non-Incentive
Option will become exercisable as follows: one year from the date of grant, up
to 20% of the total Shares subject to such Option; two years from the date of
grant, up to 40%; three years from the date of grant, up to 60%; four years from
the date of grant, up to 80%; and at the end of five years from the date of
grant and until termination of the Non-Incentive Option, up to 100%. Subject to
the provisions of the 1990 Plan, the Non-Incentive Option shall expire ten years
from the date of grant. Additional provisions relating to the Options are as
follows:
In the event your employment is terminated by VIMRx (except
for Cause (as defined in Paragraph 6(d)), but including constructive termination
pursuant to Paragraph 6(f) of this letter agreement and termination on account
of Permanent Disability (as defined in Paragraph 6(e))) on or before one year
from the date of this letter agreement (the "First Anniversary Date"), the
Non-Incentive Option will immediately become exercisable to purchase 20% of
total number of Shares subject to Non-Incentive Option and may be exercised at
any time during the three-month period following the effective date of such
termination, and the exercisability of the remaining Shares subject to the
Non-Incentive Option will lapse. In the event you are so terminated after the
First Anniversary Date, the Non-Incentive Option will immediately become
exercisable with respect to all Shares subject to the Option and may be
exercised at any time during the three-month period following the effective date
of such termination but in no event subsequent to ten years from the date of
grant.
In the event you die on or before the First Anniversary Date,
the Non-Incentive Option will immediately become exercisable to purchase 20% of
the total number of Shares subject to the Non-Incentive Option, and the
exercisability of the remaining Shares subject to the Non-Incentive Option will
lapse. In the event you die after the First Anniversary Date, the Non-Incentive
Option will become exercisable with respect to all Shares subject to the Option.
In either event, the Non-Incentive Option may be exercised with respect to the
applicable number of Shares by your heirs, personal representatives or
distributees within twelve months of the date of your death but in no event
subsequent to ten years from the date of grant.
All Shares subject to the Options will be registered on Form
S-8 as soon as practicable after the Board approves such registration.
In the event a sale of substantially all the assets of VIMRx,
to a Person (as hereinafter defined) other than an Affiliate (as hereinafter
defined) of VIMRx, is consummated, or any Person or group of Persons acting in
concert, directly or indirectly, by purchase, merger or otherwise, acquires
beneficial ownership of stock representing more than fifty percent (50%) of the
voting power of the then-outstanding stock of VIMRx (or any successor of VIMRx
by merger or consolidation), or a single transaction, or a series of related
transactions, is consummated pursuant to which the beneficial ownership of more
than fifty percent (50%) of the voting stock of VIMRx changes, the Non-Incentive
Option will immediately become exercisable with respect to all Shares subject to
the Option. For purposes of this subparagraph 3(b)(iv): "Person" shall mean any
individual, company, limited liability company, partnership, association, trust
or other entity; "Affiliate" of a Person shall mean any Person controlling,
controlled by or under common control with such Person; and open market
transactions by unaffiliated Persons not acting in concert shall not be deemed
"related transactions."
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 or welfare 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. In lieu of
participation in VIMRx's medical and dental plans (if any), you may elect to
receive a $500 (after tax) monthly allowance therefor.
Your performance will be reviewed annually by the President
and Chief Executive Officer and the Board (or its compensation or like
committee), in connection with which they will consider an increase in your base
compensation, it being understood that any such increase will be discretionary.
You will be entitled to take up to an aggregate of four weeks
vacation each calendar year as business conditions permit, it being understood
that no more than one week of unused vacation per year of service with VIMRx may
be carried over to the succeeding year. VIMRx will not be required to provide
any additional compensation to you for vacation time not utilized by you.
VIMRx will reimburse you for all reasonable and documented
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 to the
contrary, the provisions of this Paragraph 5 shall survive the effective date of
termination of this Agreement for a period of six months.
Your employment hereunder may be terminated at any time by
VIMRx for Cause or, upon at least 60 days' prior written notice by you or by
VIMRx, without Cause.
In the event your employment is terminated by VIMRx without
Cause (including a constructive termination under Paragraph 6(f)), this
Agreement shall terminate immediately on the effective date of termination of
your employment; provided, however, that: you will be paid twelve months' base
salary as severance in monthly installments (in arrears) beginning the first
full month following the cessation of your employment with VIMRx (during which
time you will be entitled to continue to participate in VIMRx's benefit plans to
the extent permitted by such plans); and you will be entitled to receive any
accrued but unpaid salary earned by you through the effective date of such
termination.
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 (excluding a constructive termination under Paragraph
6(f)), in which event 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 obligated to pay you any accrued but unpaid salary earned by you through the
date of such termination.
For purposes of this Agreement, termination for "Cause" shall
mean termination due to any one 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 (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 a senior executive officer
detrimental to VIMRx or its reputation and you fail to cure the same within five
days after written notice thereof from VIMRx; or (v) if you commit a material
breach of or default under any of the terms or conditions of this Agreement and
you fail to cure such breach or default within ten days after written notice
thereof from VIMRx.
Your employment hereunder shall terminate immediately upon
your death or Permanent Disability. 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 twelve months immediately following such
termination date had your employment continued for such twelve month period, and
(y) the total monies paid or payable to you with respect to such twelve 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 and the term Permanent Disability shall
be assigned different definitions in such policies, 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
services required of you in accordance with your obligations hereunder for a
period aggregating 120 days during any twelve-month period.
Upon the occurrence of any of the following events, you shall
have the right to terminate your employment with VIMRx on at least 60 days'
notice. 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, for all
purposes of this Agreement, as a termination of your employment by VIMRx without
Cause:
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;
a material reduction in your duties or a material interference
with the exercise of your authority (not arising from any physical or mental
disability you may sustain) which would be inconsistent with your position and
authority as referenced in Paragraph 1 hereof and the same shall not have been
alleviated by the President and Chief Executive Officer or the Board within ten
(10) days after its receipt of written notice thereof from you; or
a relocation of VIMRx's principal executive offices from
Wilmington, Delaware to a location whose distance is at least fifty (50) miles
(by road) farther from your current residence in Wilmington, Delaware than the
distance between VIMRx's current offices in Wilmington, Delaware area and such
residence address, provided that you shall not have approved the decision to
effect such subsequent relocation.
Notwithstanding anything in Paragraphs 6(b) or 6(c) above to
the contrary:
you shall not have any obligation to VIMRx to mitigate any
termination of your employment whereby you would be required by VIMRx promptly
to seek, procure or commence substitute employment; and
in the event you do seek, procure or commence such substitute
employment, none of the income derived or to be derived by you therefrom shall
be setoff by VIMRx against the balance of any severance payments, if any, owing
to you by VIMRx under this Agreement.
You hereby agree that you shall not, directly or indirectly,
during the term of your employment hereunder, own, manage, operate, join,
control or become employed by, or render any services of an advisory nature or
otherwise, or participate in the ownership (other than shares held for
investment in publicly traded companies), management, operation or control of,
or otherwise be connected in any manner with, any business that sells products
or services that are competitive in a material respect with the products or
services sold by VIMRx, without VIMRx's prior written consent. The restriction
on competitive activities set forth in the prior sentence shall continue to
apply for a period of one year following the effective date of termination of
your employment hereunder in the event you voluntarily terminate your employment
(excluding a constructive termination under Paragraph 6(f)) prior to the date
that is two years from the date of this letter agreement or your employment is
terminated by VIMRx for Cause. In the event the restriction on competition
remains in effect for the 12-month period following your termination pursuant to
the prior sentence, you further agree that during such period you will not
directly or indirectly entice away from VIMRx's employment, retain or otherwise
engage, any employee of VIMRx.
You further hereby covenant and agree that you will not at any
time during, or 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 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). 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.
In the event of any breach or threatened breach by you of any
one or more of the provisions of Paragraph 7 (relating to non-competition and
non-enticement of employees) or Paragraph 8 (relating to non-disclosure), VIMRx
will be entitled, in addition to any remedy otherwise available at law, to an
injunction restraining the breach of such provision hereof.
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.
You represent and warrant that you are not under any
obligation, restriction or limitation, 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.
Notwithstanding anything herein to the contrary, the
provisions of Paragraphs 5, 7, 8, 9 and 11 hereof shall survive the expiration
or termination of this Agreement.
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.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
Attn: Richard L. Dunning
President & CEO
With A Copy To:
Lowell S. Lifschultz
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177-0077
TO DAVID A. JACKSON:
Mr. David A. Jackson
49 Guyencourt Road
Wilmington, DE 19807-1415
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).
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.
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.
This Agreement shall be binding upon the parties hereto and
their heirs, distributees, successors and assigns.
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.
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).
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: _______________________
Richard L. Dunning
President & CEO
ACCEPTED AND AGREED TO THIS
26th day of August, 1996
- - --------------------------------
David A. Jackson
Exhibit 21
----------
Subsidiaries of VIMRx Pharmaceuticals Inc. (the "Registrant")
State or Jurisdiction of
Incorporation or Organization
Name(1)
Innovir Laboratories, Inc.(2) Delaware
VIMRx Holdings, Ltd.(3) Delaware
VPI (UK) Ltd.(4) United Kingdom
VPI Gesselschaft fur die Entwicklung und Federal Republic of Germany
Synthese von Oligomeren GmbH(4)
Ribonetics GmbH Gesselschaft fur molekulare Federal Republic of Germany
Therapie(4)
VIMRx Genomics, Ltd.(5) Delaware
Cambes, Ltd.(6) Delaware
- - -----------------------------
(1) Each listed subsidiary does business under the name indicated.
(2) Approximately 68%-owned by the Registrant.
(3) 100%-owned by Innovir Laboratories, Inc.
(4) 100%-owned by VIMRx Holdings, Ltd.
(5) 90%-owned by the Registrant.
(6) Controlled by the Registrant through the ownership of
all outstanding shares of voting preferred stock and
one-third of the outstanding shares of common stock.
<PAGE>
Exhibit 23
----------
Consent of Independent Auditors
VIMRx Pharmaceuticals Inc.
Wilmington, Delaware
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (File Nos. 333-03106 and 333-15693) of our report dated March 14,
1997 on the consolidated financial statements of VIMRx Pharmaceuticals Inc. and
subsidiaries (the "Company") as at December 31, 1996 and December 31, 1995 and
for each of the years in the three-year period then ended and the amounts for
such years included in the period December 30, 1986 (inception) to December 31,
1996, included in the Company's 1996 Annual Report on Form 10-K.
/s/ Richard A. Eisner & Company. LLP
New York, New York
March 14, 1997
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