<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
------
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
------
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NO. 0-19153
________________________
VIMRX PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its Charter)
________________________
DELAWARE 06-1192468
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
2751 CENTERVILLE ROAD, SUITE 210, WILMINGTON, DELAWARE 19808
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 998-1734
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
------ ------
The aggregate number of Registrant's shares outstanding on August 3, 1998
was 66,902,796 shares of Common Stock, $.001 par value.
________________________
<PAGE>
VIMRX PHARMACEUTICALS, INC.
INDEX
-----
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997................. 3
Consolidated Statements of Operations (unaudited) for the three months and
six months ended June 30, 1998 and 1997.......................................................... 4
Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 1998 and 1997.......................................................................... 5
Notes to Consolidated Financial Statements (unaudited)............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................... 10
Item 2. Changes in Securities.................................................................................. 10
Item 3. Defaults upon Senior Securities........................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 10
Item 5. Other Information...................................................................................... 10
Item 6. Exhibits............................................................................................... 10
SIGNATURES............................................................................................................ 11
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(unaudited) 1997
----------------------- ---------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 47,430,000 $ 57,830,000
Receivables from related party 2,987,000 4,235,000
Inventory 1,625,000 2,227,000
Other current assets 392,000 922,000
----------------------- ---------------------
Total current assets 52,434,000 65,214,000
Fixed assets net 15,101,000 15,464,000
Intangible assets- net 38,984,000 40,773,000
Other assets 474,000 496,000
----------------------- ---------------------
Total assets $ 106,993,000 $ 121,947,000
======================= =====================
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 9,466,000 $ 3,380,000
Long-term debt current portion 94,000 130,000
Capital leases current portion 283,000 350,000
----------------------- ---------------------
Total current liabilities 9,843,000 3,860,000
Long-term debt ($31,056,000 and $30,075,000) from related party 31,123,000 30,171,000
Capital leases 81,000 208,000
----------------------- ---------------------
Total liabilities 41,047,000 34,239,000
----------------------- ---------------------
Minority interest in subsidiary 1,270,000 4,161,000
SHAREHOLDERS' EQUITY
Class A Convertible Preferred Stock; $.001 Par value
150,000 authorized shares; 66,304 issued and outstanding at
June 30, 1998 (liquidation value $68,280,000) and December
31, 1997 (liquidation value $66,304,000) 100 100
Common Stock; $.001 Par value, 120,000 shares authorized,
66,903,000 and 66,498,000 shares issued and outstanding at June
30, 1998 and December 31, 1997, respectively. 67,000 67,000
Unrealized gain (loss) on investment 126,000 --
Additional paid-in capital 182,538,900 182,538,900
Unearned compensation (364,000) (449,000)
Cumulative translation adjustment (47,000) (40,000)
Accumulated deficit (117,645,000) (98,570,000)
----------------------- ---------------------
Total shareholders' equity 64,676,000 83,547,000
----------------------- ---------------------
Total liabilities and shareholders' equity $ 106,993,000 $ 121,947,000
======================= =====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 3,267,000 $ -- $ 6,086,000 $ --
Cost of goods sold 2,102,000 -- 4,157,000 --
------------- ------------ ------------- -------------
Gross Profit 1,165,000 -- 1,929,000 --
------------ ------------ ------------- --------------
Operating expenses:
Research and development 6,628,000 3,497,000 14,972,000 6,714,000
Purchased research and development -- 600,000 -- 1,800,000
General and administrative 3,650,000 2,325,000 6,650,000 3,922,000
Goodwill amortization 883,000 103,000 1,761,000 206,000
Selling and marketing 719,000 -- 1,053,000 --
------------- ------------ ------------- -------------
Total operating expenses 11,880,000 6,525,000 24,436,000 12,642,000
Operating (loss) (10,715,000) (6,525,000) (22,507,000) (12,642,000)
------------- ------------ ------------- -------------
Other (income) expenses:
Royalty expense 100,000 50,000 150,000 100,000
Minority interest in net loss of
consolidated subsidiaries (1,146,000) (929,000) (2,917,000) (1,876,000)
Interest income (705,000) (601,000) (1,482,000) (1,282,000)
Interest expense 527,000 46,000 1,046,000 83,000
Other, net (180,000) (64,000) (229,000) 40,000
------------- ------------ ------------- -------------
Total other (income) expenses (1,404,000) (1,498,000) (3,432,000) (2,935,000)
Net (loss) (9,311,000) (5,027,000) (19,075,000) (9,707,000)
Preferred Stock Dividends 986,000 - 1,976,000 -
------------- ------------ ------------- -------------
Net (loss) applicable to Common Stock $ (10,297,000) $ (5,027,000) $ (21,051,000) $ (9,707,000)
============= ============ ============= =============
Basic loss per share $ (.15) $ (.09) $ (.31) $ (.18)
------------- ------------ ------------- -------------
Weighted average number of shares of
common stock outstanding 66,903,000 54,772,000 66,903,000 54,627,000
============= ============ ============= =============
Diluted loss per share $ (.15) $ (.09) $ (.31) $ (.18)
------------- ------------ ------------- -------------
Weighted average number of shares of
common stock and dilutive equivalent
shares outstanding 66,903,000 54,772,000 66,903,000 54,627,000
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(19,075,000) $(9,707,000)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization............................. 3,214,000 514,000
Noncash compensation...................................... 85,000 266,000
Purchased in process research and development............. -- 1,200,000
Minority interest in net loss............................. (2,891,000) (1,846,000)
Changes in operating assets and liabilities:
Decrease in other current assets and other assets....... 2,399,000 70,000
Increase (decrease) in accounts payable and accrued
Expenses.............................................. 6,023,000 (58,000)
-------------------- ---------------------
Net cash (used in) operating activities......................... (10,245,000) (9,561,000)
-------------------- ---------------------
Cash flows from investing activities:
Unrealized Gain on Securities................................. 126,000 --
Net sales of short-term investments........................... -- 3,904,000
Purchases of equipment....................................... (1,069,000) (754,000)
-------------------- ---------------------
Net cash provided by (used in) investing activities............. (943,000) 3,150,000
-------------------- ---------------------
Cash flows from financing activities:
Proceeds from issuance of common stock in connection
with the exercise of warrants/options....................... -- 472,000
Increase in long term debt due to interest from related
parties..................................................... 981,000 -
Repayment of capital leases................................... (194,000) (171,000)
-------------------- ---------------------
Net cash provided by financing activities.................. 787,000 301,000
-------------------- ---------------------
Effect of exchange rate changes on cash......................... 1,000 (56,000)
-------------------- ----------------------
Net (decrease) in cash and cash equivalents..................... (10,400,000) (6,166,000)
Cash and cash equivalents at beginning of period................ 57,830,000 8,611,000
-------------------- ---------------------
Cash and cash equivalents at end of period...................... $ 47,430,000 $ 2,445,000
==================== =====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
VIMRX PHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of VIMRX Pharmaceuticals Inc. and
subsidiaries (the "Company") herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations
for the interim periods presented. Certain information and footnote
disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These unaudited financial statements
have been prepared in conformity with the accounting principles applied in
our 1997 Annual Report on Form 10-K for the year ended December 31, 1997.
These financial statements and the notes thereto should be read in
conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997. The results for the interim periods are not necessarily
indicative of the results for the full fiscal year.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
VIMRX, Nexell, VIMRX Genomics, Inc. ("VGI"), Innovir and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
(3) RESEARCH AGREEMENTS
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"). The agreement provides for VIMRX, through
VGI, to provide $30 million in funding to the Center over a 5-year period
and for VGI to receive an exclusive license to develop, manufacture, use,
sell or market products resulting from any invention, research information
and biological materials developed by the Center and funded under the
agreement. The agreement is terminable by either Columbia or VGI during the
initial five-year term upon six months' notice, but in no event earlier than
September 7, 1999. Under the agreement, VIMRX issued 200,000 shares of
Common Stock to Columbia, which shares have subsequently been registered
under the Securities Act of 1933, as amended. VGI had paid Columbia $6.0
million in funding in quarterly installments in respect of its obligations
for 1997 under the Agreement.
VGI has sought technology collaborations with pharmaceutical and/or
diagnostic companies and has solicited equity investments in VGI from
potential technology partners
6
<PAGE>
and other investors, but has been unable to consummate any such transactions
on reasonable terms.
As a result, VGI is engaged in discussions with Columbia with a view to
reconstructing its relationship with Columbia. The Company anticipates that
this restructuring will involve a termination of the Research Agreement with
Columbia, and the transfer to VGI, to be renamed "Ventiv Biogroup Inc."
(hereinafter, "Ventiv"), of the Hypericin VM201 and VM301 programs. Ventiv
is expected to retain rights to the BCL-6 and MUM-1 genes. Under such a
restructuring, the current obligation to provide $30,000,000 in funding over
5 years would be terminated and replaced with a commitment to provide
approximately $3,625,000 in funding over the next 2 years.
(4) ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This Statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual financial
statement. For example, other comprehensive earnings may include foreign
currency translation adjustments, minimum pension liability adjustments and
unrealized gains and losses on marketable securities classified as
available-for-sale. Annual financial statement for prior periods will be
reclassified, as required. The Company's total comprehensive earnings were
as follows.
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
Net Loss $19,075,000 $9,707,000
Foreign currency translation 7,000 (56,000)
Unrealized (Gain)/loss on investments (126,000) 24,000
-------------------- ---------------------
Comprehensive loss $18,956,000 $9,675,000
==================== =====================
</TABLE>
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share". Adoption of this Statement, which requires
restatement of previously reported amounts, had no impact on prior year loss
per share. Basic loss per share is calculated by dividing loss by the
weighted average number of common shares outstanding during the period. For
diluted loss per share, net loss is divided by the weighted average number
of common and potentially diluted shares outstanding during the period.
Potentially dilutive common shares consist of stock options and warrants
using the treasury stock method, but are excluded if their effect is
antidilutive.
7
<PAGE>
VIMRX PHARMACEUTICALS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Three Months Ended June 30, 1998 and 1997
Revenue of $3,267,000 resulted from sales generated by Nexell, Inc., a majority
owned subsidiary acquired in December 1997. This revenue was offset by cost of
goods sold $2,102,000 to net a gross profit of $1,165,000.
Total operating expenses increased by $5,355,000 or 82% due to increases in
research and development, $3,131,000 or 90%, general and administration,
$1,325,000 or 57%. Goodwill amortization, $780,000 and sales and marketing,
$719,000. These increases were offset by a $600,000 decrease in purchased
research and development.
The $3,131,000 increase in research and development expenses results primarily
from the inclusion of the operations of Nexell ($4,736,000) fully for the first
time in 1998. This was offset by spending decreases on VIMRX and VGI programs.
General and administrative expenses increased $1,325,000 due to the inclusion of
Nexell ($2,045,000) and increased cost related to VGI ($121,000), offset by
decreases in costs related to Innovir ($175,000) and VIMRX ($666,000).
The increase in goodwill amortization ($780,000) and the selling and marketing
expense ($719,000) are due to the inclusion of Nexell.
Minority interest in the net loss of consolidated subsidiaries increased
$217,000, due principally to the loss incurred by Nexell which was not included
in the second quarter of 1997, offset by a decrease in the participation of
minority interests in the losses of Innovir.
The increase in interest income of $104,000 or 17% is mainly due to an increase
in the cash and cash equivalents average of 1998 as compared to the average cash
and marketable securities balance in the same period in 1997.
Interest expense increased $481,000 due principally to the interest related to
the long-term debt due to a related party.
Other income/expenses net increased $116,000 due principally to the inclusion of
Nexell expenses.
The foregoing resulted in an increase in the net loss of $4,284,000.
8
<PAGE>
Six Months Ended June 30, 1998 and 1997
Operating loss for the six months ended June 30, 1998 increased $9,865,000 or
78% from the same period in 1997, due principally to acquisitions of companies
and technologies made at various times during 1997. During that period, research
and development expenses increased $8,258,000 or 123%, general and
administrative expenses increased $2,728,000 or 70%, amortization of goodwill
increased $1,555,000 and selling and marketing expenses were recorded for the
first time at $1,053,000. These increases were offset by a $1,800,000 decrease
in purchased research and development.
The $8,258,000 or 123% increase in research and development expense is due
principally to the inclusion of Nexell ($9,076,000) offset by decreases in the
VGI programs.
General and administrative expenses increased $2,728,000 or 70% principally due
to the inclusion of Nexell's operations ($2,826,000) offset by decreases in
Innovir's expenses.
Goodwill amortization increased due to the inclusion of Nexell in 1998.
Selling and marketing expenses were fully incurred for the first time in 1998
due to the inclusion of Nexell.
Minority interest in net loss of consolidated subsidiaries increased $1,041,000
or 55% due to the inclusion of Nexell in 1998.
Interest income increased $200,000 or 16% due to an increase on average funds
available for investment. Interest expense increases $963,000 principally due to
the interest on the long-term debt due to a related party.
The foregoing resulted in a $9,368,000 or 97% increase in the net loss for the
six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Before fiscal 1997, the Company had not realized any operating revenues and has
financed its operation through the sale of its securities.
The Company had $47,430,000 in cash and cash equivalents at June 30, 1998 as
compared to $57,830,000 in cash and cash equivalents at December 31, 1997 and
working capital of $42,591,000 at June 30, 1998 as compared to $61,354,000 at
December 31, 1997. The decrease in cash was due principally to the cash used in
operations of the Company ($10,245,000) and the purchase of equipment
($1,069,000) offset by the increase in long term debt due to the accrual of
interest payable to a related party which is payable initially on November 30,
2002. The decrease in working capital is principally a result of the step-up of
operations of Nexell.
9
<PAGE>
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products
as well as the step up of marketing activities at Nexell. Based on current
projections, which are subject to change, the Company's management believes that
the present balance of cash and cash equivalents is sufficient to fund its
operations for approximately two years, assuming no capital infusions or
revenues are received. Thereafter, the Company will require additional funds,
which it may seek through public or private equity or debt financing,
collaborative or other arrangements with corporate sources or through other
sources of financing.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
---------
10.36 Employment Agreement, effective as of October 1, 1997, between
Innovir, Thomas R. Sharpe and Registrant.
27 Financial Data Schedule.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1998
VIMRX PHARMACEUTICALS INC.
a Delaware Corporation
(Registrant)
By: /s/ Richard L. Dunning
---------------------------
Richard L. Dunning
President and
Chief Executive Officer
By: /s/ Francis M. O'Connell
-----------------------------
Francis M. O'Connell
Chief Accounting Officer
11
<PAGE>
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of October 1, 1997, between Innovir
Laboratories, Inc., a Delaware corporation (the "Company"), and Thomas R. Sharpe
(the "Employee"). VIMRX Pharmaceuticals, Inc. ("VIMRX"), a Delaware corporation
and the majority owner of the Company, is also a party to and guarantor of this
Agreement.
The Company desires to employ the Employee as President and CEO of the
Company and the Employee desires to accept such employment by the Company, on
the terms and subject to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual convenants and obligations
set forth in this Agreement, the Company and the Employee agree as follows:
1. Employment. The Company hereby employs the Employee, and the Employee
----------
hereby accepts employment by the Company, upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for earlier termination set forth in
----
this Agreement, the employment of the Employee hereunder shall initially be for
the period commencing on October 1, 1997 (the "Effective Date") and ending on
the second anniversary thereof (the "Initial Term"). The term of this Agreement
shall automatically be extended annually on the anniversary date of this
Agreement for additional successive two-year periods (each a "Renewal Term")
unless either the Company or the Employee notifies the other party in writing of
its election not to extend this Agreement, such notice to be provided on or
prior to the date 60 days before commencement of any Renewal Term. The Initial
Term and any Renewal Term are referred to herein collectively as the "Employment
Period".
3. Duties.
------
(a) The Employee shall be employed in an executive management capacity
as the President and CEO of the Company. The Employee shall perform such
duties and services, consistent with his position as the President and CEO
of the Company, as may be assigned to him from time to time by the Board of
Directors of the Company or its designee. In furtherance of the foregoing,
the Employee hereby agrees to perform well and faithfully the aforesaid
duties and responsibilities and the other reasonable duties and
responsibilities consistent with his position as the President and CEO of
the Company assigned to him from time to time by the Board of Directors of
the Company or its designee.
(b) The Company shall use its best efforts to cause the Employee to be
elected to the Board of Directors and the Executive Committee of the Board
of Directors of the Company.
3. Time to be Devoted to Employment.
--------------------------------
<PAGE>
2
(a) Except for reasonable vacations (consistent with Company policies)
and absences due to temporary illness, during the Employment Period the Employee
shall devote his full time and energy to the business of the Company.
(b) During the Employment Period the Employee shall not be engaged in
any other business activity which, in the reasonable judgment of the Company,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
4. Compensation; Benefits.
----------------------
(a) During the Initial Term, the Company shall pay to the Employee an
annual base salary (the "Base Salary") of not less than $162,000, payable in
such installments as is the policy of the Company with respect to the employees
of the Company at substantially the same employment level as the Employee. Said
Base Salary shall be reviewed at the conclusion of each fiscal year and shall be
subject to increase at the option and in the sole discretion of the Board of
Directors of the company, said increase shall be made effective at the time that
annual merit increases for other employees of the Company at substantially the
same employment level as the Employee shall be made effective.
(b) The Employee may also receive an annual cash bonus based on the
Company's achievement of performance objectives established by the Board of
Directors for each fiscal year. Such performance objectives, as adopted by the
Board form time to time, shall be incorporated by reference in this Agreement.
For the Initial Term, such bonus shall be an amount in the range of 0% to 50% of
the Base Salary, as determined by the Board of Directors in its sole discretion.
For subsequent years the bonus a amount shall be determined by the Board of
Directors in its sole discretion. Any such cash bonus shall be paid promptly
after the end of the fiscal year, at the time that cash bonuses for other
employees of the Company at substantially the same employment level as the
Employee shall be paid.
(c) During the Employment Period, the Employee shall be entitled to
such insurance and other fringe benefits, including medical, life and disability
insurance as are made available form time to time to the employees of the
Company at substantially the same employment level as the Employee.
5. Reimbursements; Other Expenses.
------------------------------
(a) The Company shall reimburse the Employee, in accordance with the
practice from time to time for other officers of the Company, for all reasonable
and necessary traveling expenses, disbursements and other reasonable and
necessary incidental expenses incurred by him for or on behalf of the Company on
or after the Effective Date and in the performance of his duties hereunder upon
presentation by the Employee to the Company of appropriate vouchers.
(b) If the Employee vacates his corporate apartment at 1775 York
Avenue, #15B, New York, New York 10128 for any reason, the Company, VIMRX or the
acquiring entity of either or both will assume all responsibility for all
payments required for the balance of the apartment and furniture leases in
effect at that time.
<PAGE>
3
(c) If the Employee's position as President and CEO of Innovir is
terminated for any reason except for cause, the Company or VIMRX or the
acquiring entity of either or both will pay the Employee's moving expenses from
New York to Wilmington, Delaware if the Employee so requests.
(d) Upon initiation of employment, Innovir will pay the Employee a
signing bonus of $20,000.
(e) Upon completion of one year of employment, Employee will be
eligible for payment of a bonus based on his and the Company's performance
during the prior year, the amount of which is to be determined at the sole
discretion of the Company's Board of Directors, except that in no case will the
amount of the bonus in the first year of employment be less than $18,000 unless
during said first year of employment the Employee has been terminated for cause.
6. Involuntary Termination.
-----------------------
(a) If the Employee is incapacitated or disabled by accident, sickness
or otherwise so as to render him mentally or physically incapable of performing
the services required to be performed by him under this Agreement for a period
of ninety (90) consecutive days or longer or for ninety (90) days during any six
(6) month period (such condition being herein referred to as "Disability"), the
company may, at that time or any time thereafter, at its option, with the
approval of a majority of the Board of Directors of the Company, terminate the
employment of the Employee under this Agreement immediately upon giving him
notice to that effect (such termination as well as a termination under Section
7(b) hereof, being hereinafter called an "Involuntary Termination"). until the
Company shall have terminated the Employee's employment hereunder in accordance
with the foregoing, the Employee shall be entitled to receive his compensation
notwithstanding any such physical or mental disability.
(b) If the Employee dies during the Employment Period, his employment
hereunder shall be deemed to cease as of the date of his death.
8. Termination for Cause. The Company may, with the approval of a
---------------------
majority of the Board of Directors of the Company, terminate the employment of
the Employee hereunder at any time during the Employment Period for "cause"
(such termination being hereinafter called a "Termination for Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination shall take effect immediately. For the purposes of this Section 8,
"cause" shall mean (a) the Employee's willful misconduct with respect to the
business and affairs of the Company or any subsidiary or affiliate thereof, (b)
the Employee's neglect of duties or failure to act which can reasonably be
expected to materially and adversely affect the business or affairs of the
Company or any subsidiary or affiliate thereof, (c) the Employee's breach of
this Agreement or of his confidentiality obligation to the Company or its
majority owner, VIMRX, (d) the commission by the Employee of an act involving
embezzlement or fraud or (e) the Employee's indictment for any crime; provided,
---------
however, that (i) in the event of a Termination for Cause, solely pursuant to
- -------
clause (e) hereof, and such indictment is subsequently withdrawn or the Employee
is subsequently acquitted of such crime (and has not at such time been convicted
of any other crime), then upon such withdrawal or acquittal the Employee shall
be entitled to the payments provided for pursuant to Section 11(c) hereof, and
(ii) in the event of a Termination for Cause, solely pursuant to clauses (a) or
(b) hereof, the Company shall first provide written notice
<PAGE>
4
to the Employee specifying the manner in which Employee has engaged in willful
misconduct or has neglected or failed to act, and Employee shall have 30 days
after receipt of such notice to cure such specified matters, and if a cure is
effected, in the reasonable determination of the Board of Directors, within such
30-day period, the Company shall not have the right to effect a Termination for
Cause relating to the matters specified in such notice.
9. Termination without Cause. The Company may, with the approval of
-------------------------
a majority of the Board of Directors of the Company, terminate the employment of
the Employee hereunder at any time during the Employment Period without "cause"
(such termination being hereinafter called a "Termination without Cause") by
giving the Employee notice of such termination, upon the giving of which such
termination shall take effect immediately.
10. Voluntary Termination. Any termination of the employment of the
---------------------
Employee hereunder otherwise than as a result of an Involuntary Termination, a
Termination for Cause or a Termination without Cause shall be deemed to be a
"Voluntary Termination". A Voluntary Termination shall be deemed to be
effective immediately upon such termination.
11. Effect of Termination of Employment.
-----------------------------------
(a) Upon the termination of the Employee's employment hereunder
pursuant to a Voluntary Termination or a Termination for Cause, neither the
Employee nor his beneficiary or estate shall have any further rights or claims
against the Company under this Agreement except to receive:
(i) any unpaid portion of the Base Salary provided for in Section
5(a), computed on a pro rata basis to the date of termination;
--------
(ii) reimbursement for any expenses for which the Employee shall not
have theretofore been reimbursed as provided in Section 6; and
(iii) payment for any accrued but unused vacation.
(b) Upon the termination of the Employee's employment hereunder
pursuant to an Involuntary Termination, neither the Employee nor his beneficiary
or estate shall have any further rights or claims against the Company under this
Agreement except to receive a termination payment equal to that provided for in
Section 11(a) hereof.
(c) Upon termination of the Employee's employment hereunder pursuant
to a Termination Without Cause, neither the Employee nor his beneficiary or
estate shall have any further rights or claims against the Company under this
Agreement except to receive a termination payment equal to that provided for in
Section 11(a) hereof, PLUS an amount equal to $100,000 payable in six (6) equal
monthly installments.
12. Change of Control. In the event that, within twelve (12) months
-----------------
following a Change of Control (as defined below), the Employee terminates his
employment for Good Reason (as defined below), the Employee shall be entitled to
the payments set forth in Section 11(c), treating such termination for purposes
of this Agreement as a Termination without Cause. The term "Change of Control"
means the sale of substantially all of the assets of the Company to, or the
merger of the Company into, another corporation or entity, or the acquisition of
more
<PAGE>
5
than 50% of the voting securities of the Company by an entity which is not
a majority stockholder of the Company as of the Effective Date. The term "Good
Reason" means: (a) any significant diminution in the Employee's position,
duties, responsibilities, power, title or office as in effect immediately prior
to a Change in Control; (b) any reduction in the Employee's annual base salary,
or material reduction in the benefits made available to the Employee, as in
effect on the Effective Date or as may be increased from time to time; or (c)
any requirement by the Company that the location at which the Employee performs
his principal duties for the Company be changed to a new location outside a
radius of fifty (50) miles from the Employee's principal residence at the time
of the Change of Control.
13. Liquidation. In the event that the Company is dissolved,
-----------
liquidated or otherwise ceases to do business, the Employee will be deemed to
have been subject to a Termination without Cause, and shall be entitled to the
payments set forth in Section 11(c).
14. Remedies and Survival. The Employee acknowledges and understands
---------------------
that the provisions of this Agreement are of a special and unique nature, the
loss of which cannot be accurately compensated for in damages by an action at
law, and that the breach or threatened breach of the provisions of this
Agreement would cause the Company irreparable harm. In the event of a breach or
threatened breach by the Employee, the Company shall be entitled to an
injunction restraining him from such breach. Nothing herein contained shall be
construed as prohibiting the Company from pursuing any other remedies available
for any breach or threatened breach of this Agreement.
15. Notices. All notices and other communications which are required
-------
or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by aid courier or first class certified or registered mail,
return receipt requested and postage prepaid, addressed as follows:
If to the Employee: Thomas R. Sharpe
1775 York Avenue, Apt 15B
New York, NY 10128
If to the Company: David A. Jackson, Chairman
Innovir Laboratories, Inc.
c/o VIMRX Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, DE 19808
With a copy to: Merrill M. Kraines, Esquire
Fulbright & Jaworski, L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
or to such other address as the party to whom notice is given may have furnished
to the other party in writing in accordance herewith. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of delivery if
personally delivered; on the business day after the date when sent if sent by
air courier; and on the fifth business day after the date when sent if sent by
mail, in
<PAGE>
6
each case addressed to such party as provided in this Section or in
accordance with the latest unrevoked direction from such party.
16. Binding Agreement; Benefit. The provisions of this Agreement
--------------------------
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
17. Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of Delaware.
18. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any subsequent breach by such other
party.
19. Entire Agreement; Amendments. This Agreement contains the entire
----------------------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings among the parties with respect
thereto. This Agreement may be amended only by an agreement in writing signed
by the parties hereto.
20. Headings. The section headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
21. Severability. Any provision of this agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
22. Assignment. This Agreement is personal in its nature and the
----------
parties hereto shall not, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that
-----------------
the provisions hereof shall inure to the benefit of, and be binding upon (i)
each successor of the Company, whether by merger, consolidation, transfer of all
or substantially all assets, or otherwise and (ii) the heirs and legal
representatives of the Employee.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INNOVIR LABORATORIES, INC. VIMRX PHARMACEUTICALS, INC.
_____________________________ __________________________________
By: David A. Jackson By: Richard L. Dunning
Chairman President and CEO
<PAGE>
7
ACCEPTED:
_______________________________
Thomas R. Sharpe
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> $47,430,000 $2,445,000
<SECURITIES> 0 34,372,000
<RECEIVABLES> 2,987,000 0
<ALLOWANCES> 0 0
<INVENTORY> 1,625,000 0
<CURRENT-ASSETS> 52,434,000 37,063,000
<PP&E> 18,610,000 4,726,000
<DEPRECIATION> 3,509,000 1,630,000
<TOTAL-ASSETS> 106,993,000 41,767,000
<CURRENT-LIABILITIES> 9,843,000 2,353,000
<BONDS> 0 0
0 0
100 0
<COMMON> 67,000 55,000
<OTHER-SE> 64,608,900 37,805,000
<TOTAL-LIABILITY-AND-EQUITY> 106,993,000 41,767,000
<SALES> 6,086,000 0
<TOTAL-REVENUES> 6,086,000 0
<CGS> 4,157,000 0
<TOTAL-COSTS> 24,436,000 12,642,000
<OTHER-EXPENSES> (4,478,000) (3,018,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,046,000 83,000
<INCOME-PRETAX> (19,075,000) 9,707,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,075,000) (9,707,000)
<EPS-PRIMARY> (0.31) (0.18)
<EPS-DILUTED> (0.31) (0.18)
</TABLE>
