As filed with the Securities and Exchange Commission on MARCH 30, 1999
Registration Statement No. 333-64393
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No. 2
To
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IMMTECH INTERNATIONAL, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 8733 39-1523370
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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T. Stephen Thompson, President
1890 Maple Avenue, Suite 110
Evanston, Illinois 60201
(847) 869-0033
(Name, address including zip code and telephone number,
including area code of agent for service)
Copies to:
Vincent J. McGill
John P. Goebel Phillips, Nizer, Benjamin, William M. Prifti
Gardner, Carton & Douglas Krim & Ballon LLP Prifti Law Offices
321 North Clark Street, 666 Fifth Avenue 220 Broadway, Suite 204
Suite 3400 New York, New York Lynnfield, Massachusetts
Chicago, Illinois 60610-4795 10103-0084 01940
(312) 245-8747 (212) 841-0566 (781) 593-4525
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering of shares of Common Stock (the
"United States Prospectus") and one to be used in connection with a concurrent
international offering of shares of Common Stock (the "International
Prospectus"). The United States Prospectus and the International Prospectus are
identical except that (i) they contain different front and back cover pages and
different descriptions of the plan of distribution (contained under the caption
"Underwriting" in each of the United States and International Prospectuses) and
(ii) the International Prospectus contains an additional section under the
caption "Certain U.S. Tax Considerations Applicable to Non-U.S. Holders of the
Common Stock." The form of United States Prospectus is included herein and is
followed by those pages to be used in the International Prospectus which differ
from, or are in addition to, those in the United States Prospectus. Each of the
pages for the International Prospectus included herein is labeled "Alternate
Page for International Prospectus."
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 30, 1999
P R O S P E C T U S
1,000,000 Shares
[LOGO] IMMTECH INTERNATIONAL, INC.
Common Stock
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Immtech International, Inc. (the "Company" or "Immtech") is offering to
the public 1,000,000 shares (the "Shares") of Common Stock, $0.01 par value (the
"Common Stock"), of which 300,000 shares are being offered hereby in the United
States (the "U.S. Offering") and 700,000 shares are being offered in a
concurrent international offering outside the United States (the "International
Offering" and together with the U.S. Offering, the "Offering" of the
"Offerings"). The initial public offering price and the aggregate underwriting
discount per share and non-accountable expense allowance will be identical for
both offerings. See "Underwriting." It is currently estimated that the initial
public offering price will be between $9.00 and $11.00 per Share. For
information regarding the factors considered in determining the initial public
offering price of the Common Stock, see "Risk Factors" and "Underwriting". Prior
to the Offerings there has been no market for the Common Stock and there can be
no assurance that a trading market will develop after the Offerings with respect
to the Common Stock. Application has been made for the Common Stock to be
approved for quotation on the Nasdaq SmallCap Market under the symbol "IMMT."
The Company has made application to list the Common Stock on the Boston Stock
Exchange. See "Risk Factors - Arbitrary Determination of Offering Price; No
Public Market for the Shares."
The Securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 9 for a discussion of certain matters that should be
considered by prospective purchasers of the securities offered hereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions(1) Stockholders(1)(2)
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Per Share.................. $ $ $
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Total (3) ................. $ $ $
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(1) In addition, the Company has agreed to the following: (i) it will pay
Westport Resources Investment Services, Inc. (the "U.S. Underwriter") and
The New China Hong Kong Securities Ltd. and China Everbright Securities
(H.K.), Ltd. (the "International Underwriters" and together with the U.S.
Underwriter, the "Underwriters") a 3% non-accountable expense allowance;
(ii) it will issue to the Underwriters, upon the closing of this offering,
warrants (the "Underwriters' Warrants") to purchase up to 100,000 Shares,
which Underwriters' Warrants are exercisable for a period of four years,
commencing twelve months from the date of this Prospectus, at 160% of the
initial public offering price; (iii) it will pay to the Underwriters
certain other items of compensation; and (iv) the Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act") (see "Underwriting").
(2) Before deducting expenses of the offering payable by the Company estimated
at $860,000, including the non-accountable expense allowance payable to
the Underwriters (see "Underwriting").
(3) The Company has granted the U.S. Underwriter an option for 45 days to
purchase up to an additional 45,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments (the "U.S. Over-Allotment Option"). Additionally, the
Company has granted an over-allotment option with respect to an additional
105,000 shares as part of the International Offering (the "International
Over-Allotment Option" and collectively with the U.S. Over-Allotment
Option, the "Over-Allotment Option"). If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Company (before deducting estimated expenses) will be
$__________, $__________ and $____________, respectively. See
"Underwriting."
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The Shares offered by this Prospectus are being offered by the U.S.
Underwriter on a firm commitment basis. The U.S. Underwriter reserves the right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice in accordance with applicable state law. It is expected
that certificates for the shares of Common Stock will be available for delivery
on or about __________, 1999 at the offices of the U.S. Underwriter at 315 Post
Road West, Westport, Connecticut 06880.
WESTPORT RESOURCES
[LOGO]-------------------------
INVESTMENT SERVICES, INC.
The date of this Prospectus is _____________, 1999
<PAGE>
AVAILABLE INFORMATION
The Company is not subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Once the
Company's securities are registered under the Exchange Act, it will file reports
and other information with the Securities and Exchange Commission (the
"Commission"). The Company intends to register its securities under Section
12(g) of the Exchange Act. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the Pacific
Regional Office located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036-3648, the New York Regional Office located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and the Chicago Regional Office
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 ("SEC Regional Offices") and can be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System ("EDGAR")
which is publicly available through the Commission's web site
(http://www.sec.gov).
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports containing unaudited interim financial
statements for the first three quarters of each fiscal year.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission thereunder. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the Commission's public
reference facilities at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, at the SEC Regional Offices and copies of all or any
part thereof may be obtained at prescribed rates from the Public Reference
Section of the Commission. Such reports and other information can be reviewed
through EDGAR.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE INFORMATION PROVIDED UNDER "RISK FACTORS." EXCEPT
WHERE OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
Immtech, a development stage enterprise, is a biopharmaceutical company
focused on the discovery and commercialization of therapeutics for the treatment
of patients afflicted with opportunistic infectious diseases, cancer or
compromised immune systems. The Company has not generated meaningful revenue to
date and does not have any therapeutic products currently available for sale.
The Company has two independent programs for developing drugs. The first is
based on a technology for the design of a class of pharmaceutical compounds
referred to as dications. The Company believes that pharmaceutical dications can
be designed to inhibit the growth of a wide variety of infectious organisms
which cause parasitic, fungal, protozoan, bacterial and viral diseases. The
second is based on biological proteins that work in conjunction with the body's
immune system. These biological proteins are derivatives of C-Reactive Protein
("CRP"), which occurs naturally in the body and which the Company believes can
be used to control the structural environment around cancerous tumors and to
reprogram cancerous cells to stop growing uncontrollably and revert to normal
cell behavior.
Pharmaceutical Products - Dications
The Company's pharmaceutical platform technology for developing dications
is the result of a research program focused on understanding Pentamidine (a drug
marketed by Fujisawa Healthcare, Inc.). Although the drug has reported toxicity,
Pentamidine is effective for the treatment of Pneumocystis carinii pneumonia
("PCP"), a form of pneumonia common in patients with compromised immune systems.
Researchers at the University of North Carolina at Chapel Hill ("UNC")
discovered that most of Pentamidine's toxicity was caused by certain metabolites
formed as the drug breaks down within the body. This discovery led the
researchers to design new compounds with more stable molecular structures which,
the Company believes, do not break down into toxic substances that cause side
effects. These newly designed compounds proved to be significantly less toxic
and more effective in treating PCP than Pentamidine. The methodology used by
these researchers to develop these new compounds evolved into the Company's
platform technology for designing dicationic compounds. The Company intends to
use this technology to design pharmaceutical compounds to treat a wide variety
of infectious diseases.
The Company has two dicationic compounds ready to begin human clinical
trials. The first compound, DAP-092, is for the treatment of Cryptosporidium
parvum, a parasite that causes severe diarrhea and wasting. The second compound,
DB-289, is for the treatment of PCP. These two orally administered drugs are
ideally suited to demonstrate the power of the dicationic technology platform.
DAP-092 was developed to treat a parasite that is found only in the
gastro-intestinal tract ("gut"). Because of its positive charges, DAP-092 cannot
cross the digestive membranes, and stays in the digestive tract. As a result,
potential harmful side-effects are greatly reduced. On the other hand, DB-289
which works in the circulatory system, was developed with a proprietary
(patented) method of temporarily neutralizing the positive charges allowing it
to readily pass through the digestive membranes into the circulatory system
where the dications become activated for treatment of diseases.
DAP-092
DAP-092, administered orally, is designed to treat diarrhea and wasting
syndromes caused by Cryptosporidium parvum, a parasite which is only found in
the gut. Cryptosporidiosis is recognized around the world as one of the most
common infections of the intestinal tract. Currently, no drug is available in
the market to treat this disease. DAP-092 was designed to block a key enzyme
from binding in the minor groove of the Cryptosporidium's DNA, thus inhibiting
or killing the growth of the organism. DAP-092 is unique because it will work
directly in the gut and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side-effects. The Company has
specifically targeted a drug for the treatment of Cryptosporidiosis in an effort
to take advantage of the fast track Food and Drug Administration ("FDA")
approval process often afforded to drugs which cure diseases for which there is
no acceptable treatment. See "Risk Factors - No Assurance of FDA Approval;
Government Regulation." The Company estimates the worldwide market for DAP-092
to be approximately $100 million per annum.
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DB-289
DB-289 was developed as an oral substitute for the drug Pentamidine,
currently used to treat PCP. Pentamidine is administered via slow I.V. infusion
or inhalation due to its inability to cross membranes and its toxicity; it is
generally administered in a hospital setting at substantial cost. DB-289 is an
analog of Pentamidine in that its positive charges have been neutralized to
enable DB-289 to cross the digestive membranes. Also, DB-289 was designed with a
more stable molecular structure which delivers more drug to the infected site
and reduces toxicity caused by breakdown products. Once DB-289 enters the
circulatory system, naturally occurring enzymes remove the patented masking or
neutralizing charges to expose the active drug. Since DB-289 can be given orally
and does not result in toxic metabolites as it breaks down, it is anticipated
that it will be self-administered at home, making it substantially less
expensive to use than Pentamidine. The Company believes DB-289 will receive a
fast-track approval from the FDA and capture the existing Pentamidine market
shortly after market introduction. The Company estimates that DB-289's market
potential is approximately $200 million annually.
Both DAP-092 and DB-289 will enter Phase I/IIa trials upon completion of
this Offering. The Company also has a series of dication compounds under
development to treat cancer and a variety of fungal infections, malaria and
tuberculosis. The market for drugs currently used to treat these diseases is
greater than one billion dollars in annual sales.
University Consortium Agreement
The Company has an agreement with Pharm-Eco Laboratories, Inc.
("Pharm-Eco") and UNC, acting on behalf of a consortium of universities
including UNC, Duke University, Auburn University and Georgia State University
(the "Consortium"), regarding the continuing development and commercialization
of the technology underlying the Company's dicationic pharmaceutical product
candidates. Pursuant to this Agreement, the Company has obtained rights to the
technology platform for making dicationic pharmaceutical products, and the
exclusive right to treat microbial infections using an existing library of 800
compounds developed by the Consortium and future Compounds designed by the
Consortium. The Company considers its relationship with the Consortium, which
includes many of the world's leading experts in opportunistic infections and
rational drug design, a substantial asset. Members of the Consortium have
laboratory testing systems for screening compounds for activity to specific
micro-organisms (using both laboratory and animal models). Additionally, Georgia
State University has a proprietary computer modeling program which simulates the
binding of dicationic compounds to cellular DNA, which facilitates the work of
research chemists in designing dicationic compounds to treat specific
infections.
Biological Products - Modified CRP
The Company's biological program is focused on strengthening the innate or
natural immune system by (1) improving the structural environment around cells
and (2) reprogramming cancer cells to act normally. The immune system
coordinates the body's responses to injury and infection. It is the body's
primary defense against disease. The Company's scientists discovered that, as
part of the immune system's response to disease, the blood protein CRP is
modified by the body to form modified CRP or mCRP. Modified CRP strengthens
tissues and their interconnective structures which work to increase their
ability to resist disease and improve the effectiveness of the immune system.
Modified CRP is found naturally in healthy tissues surrounding blood vessels, in
the tissues in lymphatic organs, and in cells that have secretory functions. In
contrast, mCRP is absent (or present in greatly reduced amounts) in cancerous
tissues, such as those found in the lung, breast or prostate.
Cancers occur when normal cells grow uncontrollably. Rapidly dividing
cancer cells produce enzymes which attack and weaken surrounding tissues,
allowing cancer cells to grow unrestrained and become tumors. This unrestrained
growth may destroy surrounding organs or impair physiological functions, often
leading to death. The Company's scientists discovered that when cancerous cells
come in contact with mCRP, cell behavior is markedly changed, abnormal rapid
growth ceases and the cell returns to normal activity. The Company's biological
program focuses on replacing mCRP in areas where mCRP is deficient, increasing
barriers between cells to reduce the entry and propagation of disease, and
enhancing immune reactions.
Many scientists believe that although therapies that directly kill
infected or cancerous cells - e.g. chemotherapy, radiation therapy - are the
cornerstone to curing cancer, it is also necessary to develop therapies which
will bolster the immune system during treatment and foster regeneration of a
normal immune system. By combining "killing" therapies with "strengthening"
therapies, the chances for recovery are greatly increased. The Company believes
that its mCRP based biotherapeutic product is such a strengthening therapy. The
Company has developed a synthetic or recombinant form of mCRP (rmCRP) which can
be produced economically. In 1996, the Company conducted a Phase I human
clinical trial of rmCRP in HIV-infected volunteers. The clinical results showed
that the drug was safe to administer and duplicated the positive results seen in
the animal pre-clinical tests. The Company recently entered into an agreement
with the Franklin Research Group, a
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venture capital partnership, to obtain funding to accelerate the Company's
biotherapeutic program for the treatment of cancer and related diseases based on
rmCRP.
Strategy
The Company's pharmaceutical strategy is to utilize the platform
technology developed by the Consortium's scientists for making pharmaceutical
products. The initial two objectives are to (1) commercialize dications in niche
markets by gaining fast-track FDA approvals and (2) demonstrate the power of the
dication platform technology upon which many new drugs can be developed. The
Company will continue to develop other dications which target diseases with
larger patient populations, and hence, larger markets. The Company's biological
strategy is to commercialize its rmCRP products as a primary therapy against
cancer and as an adjuvant for use with chemotherapy in treating cancer and in
the administration of vaccines.
The principal elements of the Company's short-term strategy are to (i)
focus its resources on current core technologies, (principally DAP-092 and
DB-289) and gain FDA acceptance of its dicationic technology; (ii) commence
human clinical trials of DAP-092 and DB-289; (iii) commence human clinical
trials of rmCRP as a primary treatment for cancer; and (iv) leverage its
resources through corporate joint ventures to minimize the cost to the Company
of extended clinical trials and the development of manufacturing procedures for
the production of the Company's products. The current status of the Company's
products planned for clinical trials is summarized below:
Clinical Development Plan
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Clinical Trial Trial Design/Phase Expected Result
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Dication Therapy Against o Phase I/IIa o Shorter diarrhea duration
Opportunistic Diarrhea; o 20-30 HIV-infected o Prevent weight loss
Cryptosporidiosis patients o Safety and efficacy
DAP-092 o Oral dosing established
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Pro-drug Oral o Phase I/IIa o Equivalent/improved anti-
Administration for o 25-50 PCP-infected, microbial effect against
Pneumocystis and tropical HIV-infected patients PCP
diseases DB-289 o Oral dosing o Facilitated drug delivery
o Bioavailability o Reduced side effects
o Safety and efficacy
established
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RmCRP o Phase I/IIa o Tumor growth stopped
Anticancer Therapy; o 30-50 patients - o Reduced metastatic disease
NextEra all cancers o Tumor cells killed
o IV injections
o Dose escalation
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New Government Grant Proposals
The Company and the Consortium in the last six months have filed for
approximately $15 million in grants to support new programs for the continued
development of the dication platform technology. The new NIH programs request
include funding for a $5 million NCI grant for using combinatorial chemistry to
generate and screen new anti-cancer dication compounds, a research proposal for
approximately $1.2 million for studying the use of dications to inhibit
receptors in the brain that are related to memory, a proposal for $3 million to
fund additional research into anti-fungal compounds, a $4 million extension of
the existing NCDDG grant for tropical disease applications, and a proposal for
$0.8 million to fund additional research into Cryptosporidium. In November 1998,
Immtech received a notice from the NIH that a $0.9 million SBIR II grant to
complete the GLP preclinical studies for DAP-092, a drug to treat
Cryptosporidium, had received a "fundable score". Immtech and the Consortium
members will continue in 1999 to apply for new grants to support applications
for expanding the dication platform technology. However, the process of
obtaining grants is extremely competitive and there can be no assurance that any
of the Company's grant applications will be acted upon favorably.
History
A predecessor of the Company was incorporated under the laws of the State
of Wisconsin on October 15, 1984 and subsequently merged into the current
Delaware corporation on April 1, 1993. The Company's executive offices are
located at 1890 Maple Avenue, Suite 110, Evanston, Illinois 60201, telephone
number 847-869-0033.
Recapitalization, Private Placement and Recent Reverse Stock Splits.
As of July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization") pursuant to
which: (i) the Company effected a 0.645260-for-1 reverse stock split of all of
the shares of Common Stock issued and outstanding immediately prior to the
Effective Date, resulting in the reduction in the number of issued and
outstanding shares of Common Stock from 2,305,166 to 1,487,431 (the "First
Reverse Stock Split"); (ii) the Company converted approximately $3,151,000 in
indebtedness (consisting of stockholder advances, notes payable and related
accrued interest and accounts payable) outstanding immediately prior to the
Effective Date into 1,209,962 shares of Common Stock (after giving effect to the
First Reverse Stock Split), (iii) 1,794,550 shares of Series A Preferred Stock
issued and outstanding immediately prior to the Effective Date were converted
into 1,157,931 shares of Common Stock (after giving effect to the First Reverse
Stock Split), (iv) 1,600,000 shares of Series B Preferred Stock issued and
outstanding immediately prior to the Effective Date were converted into
1,232,133 shares of Common Stock (after giving effect to the First Reverse Stock
Split), (v) as a result of the First Reverse Stock Split, options outstanding
immediately prior to the Effective Date and held by employees of or consultants
to the Company to purchase an aggregate of 1,716,815 shares of Common Stock were
automatically converted into options to purchase 1,107,792 shares of Common
Stock and the purchase prices thereof were adjusted proportionately and (vi) the
total number of authorized shares was increased to 35,000,000, consisting of
30,000,000 shares of Common Stock, $0.01 par value and 5,000,000 shares of
Preferred Stock, $0.01 par value.
Contemporaneously with the completion of the Recapitalization, the Company
issued and sold 1,150,000 shares of Common Stock for $0.87 per share, or
aggregate consideration to the Company (without deducting expenses of the
Private Placement and payments to the Placement Agent thereof) of $1,000,000, to
one or more accredited investors in a transaction exempt from registration under
the Securities Act pursuant to Section 4(2) thereof and Regulation D thereunder
(the "Private Placement"). In connection with the Private Placement, the Company
paid a placement agency fee to The New China Hong Kong Securities Ltd. ("NCHK")
consisting of $50,000 and warrants to purchase an aggregate of 150,000 shares of
Common Stock at an exercise price of $0.05 per share.
On February 5, 1999, the Company effected a 1-for-2 reverse stock split of
all of the shares of Common Stock issued and outstanding immediately prior to
the effectiveness of such stock split, resulting in the reduction in the number
of issued and outstanding shares of Common Stock from 6,491,135 to 3,245,517
(the "Second Reverse Stock Split").
All share and per share amounts contained in this Prospectus other than
those contained in the first two paragraphs of this Section have been restated
to give effect to the First Reverse Stock Split and the Second Reverse Stock
Split.
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The Offerings
Securities offered by the
Company in the Offerings.......... 1,000,000 Shares. An additional 150,000
Shares have been reserved for issuance
pursuant to the Underwriter's Over-allotment
Option.
Offering Price.................... Estimated to be between $9.00 and $11.00 per
Share.
Common Stock Outstanding Prior
to the Offerings (1)(2) .......... 3,884,914 shares
Common Stock Outstanding After
the Offerings (2)................. 4,884,914 shares
Estimated Net Proceeds to the
Company from the Offerings (3).... $8,150,000
Use of Proceeds by the Company.... For research and development, clinical
trials, royalty payments and license fees,
purchase of equipment, working capital and
general corporate purposes. See "Use of
Proceeds."
Risk Factors...................... The Shares being offered hereby involve a
high degree of risk and immediate and
substantial dilution to the purchasers in
the Offerings. See "Risk Factors."
Proposed Nasdaq Symbol (4)........ Common Stock "IMMT".
(1) Includes (i) an aggregate of 611,250 shares of Common Stock subject to
issuance without further consideration to Pharm-Eco and members of the
Consortium upon completion of the Offerings and (ii) shares of Common
Stock to be issued upon completion of the Offerings to satisfy the
interest portion of Immtech's outstanding note payable to the State of
Illinois, which interest portion equals $281,470 currently (and such
amount will not change prior to completion of the Offerings) (based upon
the assumed per Share initial public offering price of $10.00, the number
of shares issued to the State of Illinois in satisfaction of Immtech's
obligation will be 28,147 shares of Common Stock).
(2) Excludes (i) an aggregate of 975,000 shares of Common Stock subject to
purchase and issuance at a price of $.10 per share pursuant to exercise of
outstanding warrants held by RADE Management Corporation ("RADE"); (ii)
outstanding warrants to acquire an aggregate of 850,000 shares of Common
Stock with an exercise price equal to the weighted average market price of
the Company's Common Stock during the first 20 days of trading on any
stock exchange or in any over-the-counter market, which warrants are
exercisable upon reaching certain scientific milestones and are held by
Pharm-Eco and members of the Consortium; (iii) an aggregate of 150,000
shares of Common Stock subject to issuance without further consideration
to Pharm-Eco and members of the Consortium upon the filing by Immtech of
an NDA or an ANDA with the FDA with respect to any product; (iv) an
aggregate of 91,400 shares of Common Stock subject to purchase and
issuance pursuant to exercise of outstanding warrants held by former
holders of the Company's Senior Subordinated Debentures, which warrants
carry an exercise price of 1/2 of the initial public offering price per
Share ($5.00 per Share assuming the initial public offering price is
$10.00 per Share) and are exercisable upon completion of the Offerings
until August 31, 1999; (v) an aggregate of 498,636 shares of Common Stock
subject to purchase and issuance pursuant to exercise of outstanding
options held by certain employees and consultants to the Company, which
options carry a weighted average exercise price of $0.83 per share; (vi)
an aggregate of 75,000 shares of Common Stock subject to purchase and
issuance at a price of $.10 per share pursuant to exercise of outstanding
warrants held by NCHK; (vii) up to 150,000 Shares issuable upon the
possible exercise by the Underwriters of the Over-allotment Option; and
(viii) up to 100,000 Shares issuable upon exercise of the Underwriters'
Warrants.
(3) Assuming an initial public offering price of $10.00 per Share.
(4) Assumes that the Common Stock offered in the Offerings will be eligible
for NASDAQ-SmallCap Market listing and that a viable trading market
therefor will develop, of which there can be no assurance.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Information
The following table sets forth summary financial data derived from the financial
statements of the Company. The data should be read in conjunction with the
financial statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
Nine Month
Periods Ended
Years Ended March 31, December 31,
------------------------------------------------ -------------------
1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 260,503 $ 335,000 $ 15,000 $ 19,552 $ -- $ 214,252
Loss from operations (1,353,169) (621,648) (1,062,350) (901,782) (367,438) (2,922,818)
Loss before extraordinary
item (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (2,984,856)
Extraordinary gain on
extinguishment of debts 1,427,765
Net loss (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (1,557,091)
Conversion of redeemable
preferred stock 3,713,334
Redeemable preferred stock
dividends net of
premium amortization (229,465) (246,324) (267,980) (331,435) (226,225) (137,689)
Net (loss) income
attributable to common
stockholders (1,661,677) (1,005,962) (1,618,543) (1,477,132) (774,729) 2,018,554
Net (loss) income per
common share (2.57) (1.52) (2.44) (2.18) (1.15) 1.07
Shares used in computing
net (loss) income per
share attributable
to common stockholders 646,381 660,833 662,975 676,471 675,498 1,887,222
</TABLE>
December 31, 1998
-------------------------------
Pro Forma
Actual As Adjusted(1)
------------- ---------------
Balance Sheet Data:
Working capital (deficiency) $ (606,677) $7,824,793
Total assets 369,059 8,519,059
Long-term debt due after one year -- --
Common Stockholders' investment
(deficiency in assets) (340,239) 8,091,231
- ------------------
(1) Reflects the sale of 1,000,000 Shares offered by the Company at an
offering price of $10.00 per Share (after deducting estimated cash
offering expenses) and includes the issuance of the shares referred to in
items (i) and (ii) of Footnote 1 to the Capitalization Table. See "Use of
Proceeds" and "Capitalization."
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Shares offered hereby. This Prospectus
contains forward-looking statements. Such forward-looking statements include,
but are not limited to, the Company's expectations regarding its future
financial condition and operating results, product development, business and
growth strategy, market conditions and competitive environment. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
in the following risk factors and elsewhere in this Prospectus.
Development Stage Company; No Assurance of Successful Product Development.
The Company is at an early stage of clinical development activities required for
drug approval and commercialization. Since formation in October 1984, the
Company has engaged in organizational and start-up activities, including
developing the research programs described in this Prospectus, recruiting
outside directors, scientific advisors and key scientists, making arrangements
for laboratory facilities and office space and negotiating and consummating
technology licensing agreements. The Company has generated no revenue from
product sales. The Company does not have any therapeutic products currently
available for sale, and none are expected to be commercially available for
several years, if at all. There can be no assurance that the Company's continued
research will lead to the development of commercially viable products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
History of Losses and Accumulated Deficits; Future Profitability
Uncertain. The Company has experienced significant operating losses since its
inception in 1984 and expects to incur operating losses for at least the next
several years as the Company expands its research and development and clinical
trial efforts. As of December 31, 1998, the Company had an accumulated deficit
of $11,243,892.
"Going Concern" Qualification. The report, dated August 29, 1998, provided
by the Company's independent auditors on the Company's balance sheet as of March
31, 1997 and 1998, and the related statements of operations, common stockholder
investment (deficiency in assets) and cash flows for each of the three years in
the period ended March 31, 1998, indicates that the Company is a development
stage enterprise and the deficiency in working capital as of March 31, 1998 and
the Company's operating losses since inception raise substantial doubt about the
Company's ability to continue as a going concern. Although management of the
Company believes that the proceeds from the Offerings will provide the Company
with working capital in order to meet its cash requirements for approximately
the next 20 months, the Company's ability to continue to operate will ultimately
depend upon the Company attaining profitability and being able to operate
profitably on a consistent basis, which will not occur for some time and may
never occur. In such a situation, the Company will not be able to continue as a
going concern.
Need for Substantial Additional Funds. The Company's operations to date
have consumed substantial amounts of cash. The negative cash flow from
operations is expected to continue and to accelerate in the foreseeable future.
The Company will require substantial funds to conduct research and development,
preclinical and clinical testing and to manufacture (or have manufactured) and
market (or have marketed) its product candidates. The Company estimates that its
current cash resources and the net proceeds of the Offerings, not including any
proceeds from any grant the Company may receive, will be sufficient to meet its
operating and capital requirements for 20 months following the closing of the
Offerings. However, the Company's cash requirements may vary materially from
those now planned because of results of research and development, results of
preclinical and clinical testing, responses to the Company's grant requests,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, the FDA regulatory process and other factors. The net
proceeds of the Offerings are not expected to be sufficient to fund the
Company's operations through the commercialization of one or more products
yielding sufficient revenues to support the Company's operations; therefore, the
Company is likely to need to raise additional funds. The Company may seek to
satisfy its future funding requirements through public or private offerings of
securities, by collaborative or other arrangements with major pharmaceutical
companies or from other sources. Additional financing may not be available when
needed or be available on terms acceptable to the Company. If adequate financing
is not available, the Company may not be able to continue as a going concern, or
may be required to delay, scale back or eliminate certain of its research and
development programs, to relinquish rights to certain of its technologies or
product candidates, to forego desired opportunities, or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop itself. To the extent the Company raises additional capital by
issuing equity securities, ownership dilution to the investors in the Offerings
will result. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's research and development plans are dependent upon the
availability of the capital to be raised in the Offering and may depend on the
availability of debt financing. There can be no assurance, however, that such
debt financing will be available or that the funds to be raised in the Offering
in combination with such debt financing will be sufficient to enable the Company
to complete its research and development efforts and successfully introduce
products into the marketplace. In connection
9
<PAGE>
with any such debt financing, the Company may be required to pledge its assets
to a lender, may be restricted in its ability to incur additional obligations or
to make capital expenditures, and/or may be required to abide by certain
financial covenants. Moreover, if the Company defaults on any of its obligations
with respect to any such debt financing, the lender could declare its loan to
become immediately due and payable and subject the Company's assets to
foreclosure.
Early Stage of Experiments; Limited Human Data. The Company's tests of
rmCRP and its pharmaceutical products to date have been conducted primarily in
in vitro and in vivo preclinical animal models. Preclinical in vitro and in vivo
studies do not necessarily predict effectiveness in humans, and there can be no
assurance that the results achieved in the preclinical in vitro and in vivo
animal studies or in the limited human clinical studies conducted to date will
be achieved in more extensive testing of rmCRP in humans, nor can there be any
assurance that rmCRP will not result in adverse side effects when administered
for extended periods of time in humans. Substantial additional research and
development is necessary in order for the Company to develop and obtain
regulatory approval for its pharmaceutical and biological products, and there
can be no assurance that the Company's research and development will lead to
development of products that are commercially viable. In addition to further
research and development, the Company's products will require clinical testing,
regulatory approval and development of marketing and distribution channels, all
of which are expected to require substantial additional investment prior to
commercialization. There can be no assurance that the Company's products will be
successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable costs, be eligible for third party reimbursement from
governmental or private insurers, be successfully marketed or achieve market
acceptance.
Uncertainties Related to Clinical Trials. To obtain required regulatory
approvals for commercial sale of its products, the Company must demonstrate
through clinical trials that such products are safe and efficacious for use in
each target indication. The Company has no experience in conducting clinical
trials in the United States. None of the products under development by the
Company has received regulatory approval for any stage of clinical trials in
humans in the United States. There can be no assurance that such regulatory
approval will be received or that necessary clinical trials will commence.
The Company may find, at any stage of its research and development, that
products which appeared promising in preclinical studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale clinical trials and
do not receive regulatory approvals. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in later
clinical trials and large-scale testing. Companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in various stages of
clinical trials, even after promising results had been obtained in earlier
trials. Completion of the Company's clinical trials may be delayed by many
factors, including slower than anticipated patient enrollment, difficulty in
securing sufficient supplies of clinical trial materials or adverse events
occurring during clinical trials. Completion of testing, studies and trials may
take several years, and the length of time varies substantially with the type,
complexity, novelty and intended use of the product. Delays or rejections may be
based upon many factors, including changes in regulatory policy during the
period of product development. No assurance can be given that any of the
Company's development programs will be successfully completed, that any
Investigational New Drug application ("IND") will become effective or that
additional clinical trials will be allowed by the FDA or other regulatory
authorities or that clinical trials will commence as planned. There have been
delays in the Company's testing and development schedules to date and there can
be no assurance that the Company's expected testing and development schedules
will be met. See "Business."
Conflicts of Interests. Criticare Systems, Inc. ("Criticare"), the largest
stockholder of the Company, owns 33.5% of the outstanding shares of Common Stock
of the Company. The former President of Criticare, Gerhard J. Von der Ruhr,
served as Chairman of the Company's Board of Directors until his resignation in
March 1999. The current President of Criticare, Emil Soika, was appointed to the
Company's Board of Directors as of March 29, 1999. The Company and Criticare
have entered into various transactions over the course of the Company's
existence, most recently relating to an agreement pursuant to which, in return
for Criticare agreeing to pay $150,000 to the Company, the Company issued 86,207
shares of Common Stock to Criticare, granted Criticare an option to license the
Company's patents and know-how relating to rmCRP for applications in treating
Sepsis, and assigned its rights to certain diagnostic products relating to
diabetes and alcoholism. The Company believes that the foregoing transactions
were in its best interests and were on terms no less favorable to the Company
than could be obtained from unaffiliated third parties and were in connection
with bona fide business purposes of the Company. See "Certain Transactions."
Limited Manufacturing Capability. The Company's ability to conduct
clinical trials and its ability to commercialize its products will depend in
part upon its ability to manufacture its products either directly or through
third parties at a competitive cost and in accordance with FDA and other
regulatory requirements. The Company currently lacks the facilities and
personnel to manufacture products in accordance with Good Manufacturing
Practices as prescribed by the FDA or to produce an adequate supply of compounds
to meet future requirements for additional clinical trials and
commercialization. There can be no assurance that the Company will be able to
acquire such resources at reasonable costs if it develops commercially viable
products. See "Business Manufacturing."
10
<PAGE>
Dependence on Third Party Relationships. The Company follows a business
strategy of utilizing the expertise and resources of third parties in a number
of areas, including the manufacture of pharmaceuticals and therapeutics, the
conduct of preclinical and clinical trials, and the development and execution of
its corporate strategies. This strategy creates risks to the Company by placing
critical aspects of the Company's business in the hands of third parties whom
the Company may not be able to control. If these third parties do not perform in
a timely and satisfactory manner, the Company may incur additional costs and
lose time in the conduct of its development and clinical programs as it seeks
alternate sources of such products and services, if available. Such costs and
delays may have a material adverse effect on the Company. The Company has formed
a joint venture corporation with Franklin Research Group ("Franklin") by the
name of NextEra Therapeutics, Inc. The Company has also entered into agreements
to secure services and resources from the following additional third parties:
the Consortium, Pharm-Eco and RADE. See "Business - Collaborative Arrangements -
Formation of NextEra Therapeutics, Inc." and "Management and Key Specific
Personnel - Consulting Arrangements."
The Company may seek additional third party relationships in certain
areas, particularly in situations in which the Company believes that the
clinical testing, marketing, manufacturing and other resources of a
pharmaceutical company collaborator will enable the Company to develop
particular products or geographic markets which are otherwise beyond the
Company's resources and/or capabilities. There is no assurance that the Company
will be able to obtain any such collaboration, or any other research and
development, manufacturing, or clinical trial agreement. The inability of the
Company to obtain and maintain satisfactory relationships with third parties may
have a material adverse effect on the Company. See "Business - Collaborative
Arrangements."
Uncertain Ability to Protect Patents and Proprietary Information. The
pharmaceutical and biotechnology fields are characterized by a large number of
patent filings, and a substantial number of patents have already been issued to
other pharmaceutical and biotechnology companies. Third parties may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to those of the Company. The Company may not be aware of all of the
patents potentially adverse to the Company's interests that may have been issued
to others. No assurance can be given that patents do not exist, have not been
filed, or could not be filed or issued, which contain claims relating to the
Company's technology, products or processes. If patents have been or are issued
to others containing preclusive or conflicting claims, the Company may be
required to obtain licenses to one or more of such patents or to develop or
obtain alternate technology. There can be no assurance that the licenses that
might be required for the Company's processes or products would be available on
commercially acceptable terms, or at all.
Because of the substantial length of time and expense associated with
bringing new products to the marketplace through the development and regulatory
approval process, the biotechnology industry places considerable importance on
patent and trade secret protection for new technologies, products and processes.
Since patent applications in the United States are maintained in secrecy until
patents are issued and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it (or any licensor) was the first to make the inventions covered
by pending patent applications or that it (or any licensor) was the first to
file patent applications for such inventions. The patent positions of vaccine
and biotechnology companies can be highly uncertain and involve complex legal
and factual questions, and therefore the breadth of claims allowed in vaccine
and biotechnology patents or their enforceability, cannot be predicted. There
can be no assurance that any patents under pending patent applications or any
further patent applications will be issued. Furthermore, there can be no
assurance that the scope of any patent protection will exclude competitors or
provide competitive advantages to the Company, that any of the Company's patents
that have been issued or may be issued will be held valid if subsequently
challenged or that others, including competitors or current or former employers
of the Company's employees, advisors and consultants, will not claim rights in
or ownership to the patents and other proprietary rights held by the Company.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise obtain access to
the Company's proprietary information or that others may not be issued patents
that may require licensing and the payment of significant fees or royalties by
the Company.
The Company currently licenses several patents and patent applications and
other technologies from third parties that are integral to the Company's
products and business. The Company's breach of any existing license agreement or
the failure to obtain a license to technology required to commercialize its
product candidates may have a material adverse effect on the Company. See
"Business - Patents and Licenses."
The biotechnology industry has experienced extensive litigation regarding
patent and other intellectual property rights. The Company could incur
substantial costs in defending itself in suits that may be brought against the
Company claiming infringement of the rights of others or in asserting the
Company's patent rights in a suit against another party. The Company may also be
required to participate in interference proceedings declared by the United
States Patent and Trademark Office for the purpose of determining the priority
of inventions in connection with the patent applications of the Company or other
parties.
11
<PAGE>
Adverse determinations in litigation or interference proceedings could require
the Company to seek licenses (which may not be available on commercially
reasonable terms) or subject the Company to significant liabilities to third
parties, and could therefore have a material adverse effect on the Company. Even
if the Company prevails in an interference proceeding or a lawsuit, substantial
resources of the Company, including the time and attention of its officers, will
be required.
The Company also relies on trade secrets, know-how and technological
advancement to maintain its competitive position. Although the Company uses
confidentiality agreements and employee proprietary information and invention
assignment agreements to protect its trade secrets and other unpatented
know-how, these agreements may be breached by the other party thereto or may
otherwise be of limited effectiveness or enforceability.
Competition; Possible Obsolescence Due to Alternative Technologies. The
biopharmaceutical field is characterized by extensive research efforts and rapid
technological progress. Competition from other biotechnology companies,
pharmaceutical companies and research and academic institutions is intense.
Other companies are engaged in research and product development based on the
acute phase response of the immune system; adaptive immune response and
antimicrobial compounds. In addition, new developments in molecular cell
biology, molecular pharmacology, recombinant-DNA technology and other
pharmaceutical processes are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's programs or products
noncompetitive or obsolete.
No Assurance of FDA Approval; Government Regulation. All new drugs and
biologics, including the Company's product candidates, are subject to extensive
and rigorous regulation by the federal government, principally the FDA under the
Federal Food, Drug and Cosmetic Act and other laws including, in the case of
biologics, the Public Health Services Act, and by state and local governments.
Such regulations govern, among other things, the development, testing,
manufacture, labeling, storage, premarket clearance or approval, advertising,
promotion, sale and distribution of such products. If drug products are marketed
abroad, they are subject to extensive regulation by foreign governments. Failure
to comply with applicable regulatory requirements may subject the Company to
administrative or judicially imposed sanctions such as civil penalties, criminal
prosecution, injunctions, product seizure or detention, product recalls, total
or partial suspension of production, and FDA refusal to approve pending
applications.
The Company has not received regulatory approval in the United States or
any foreign jurisdiction for the commercial sale of any of its products. The
process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and varies substantially based upon
the type, complexity and novelty of the products involved and the indications
being studied. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's product candidates will
be cleared for marketing by the FDA. The Company does not currently have
sufficient resources to complete the required regulatory review process. The
failure of the Company to receive FDA approval for its product candidates would
preclude the Company from marketing and selling its products in the United
States. Therefore, the failure to receive FDA approval would have a material
adverse effect on the Company. Even if regulatory approval of a product is
granted, there can be no assurance that the Company will be able to obtain the
labeling claims necessary or desirable for the promotion of such product. FDA
regulations prohibit the marketing or promotion of a drug for unapproved
indications. Furthermore, regulatory marketing approval may entail ongoing
requirements for postmarketing studies. If regulatory approval is obtained, the
Company will be subject to ongoing FDA obligations and continued regulatory
review. In particular, the Company or its third party manufacturers will be
required to adhere to regulations setting forth GMPs, which require that the
Company or third party manufacturers manufacture products and maintain records
in a prescribed manner with respect to manufacturing, testing and quality
control activities. Further, the Company or its third party manufacturer must
pass a preapproval inspection of its manufacturing facilities by the FDA before
obtaining marketing approval. Failure to comply with applicable regulatory
requirements may result in penalties such as restrictions on a product's
marketing or withdrawal of the product from the market. In addition,
identification of certain side effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product.
Prior to the submission of an application for FDA approval, drugs
developed by the Company must undergo rigorous preclinical and clinical testing
which may take several years and the expenditure of substantial resources.
Before commencing clinical trials in humans, the Company must submit to the FDA
and receive clearance of an IND. There can be no assurance that submission of an
IND for future clinical testing of any product under development or other future
products of the Company would result in FDA permission to commence clinical
trials or that the Company will be able to obtain the necessary approvals for
future clinical testing in any foreign jurisdiction. Further, there can be no
assurance that if such testing of products under development is completed, any
such drug compounds will be accepted for formal review by the FDA or any foreign
regulatory body, or approved by the FDA for marketing in the United States or by
any such foreign regulatory bodies for marketing in foreign jurisdictions.
12
<PAGE>
Future federal, state, local or foreign legislation or administrative acts could
also prevent or delay regulatory approval of the Company's products. See
"Business - Government Regulation."
Dependence on Key Personnel. The Company's business depends to a
significant degree on the continuing contributions of its key management,
scientific and technical personnel. There can be no assurance that the loss of
certain members of management and scientists would not prevent the Company from
executing its business plan. The Company has no key man life insurance policy on
any of its executives.
Uncertain Availability of Health Care Reimbursement; Health Care Reform.
The Company's ability to commercialize its product candidates will depend in
part on the extent to which reimbursement for the costs of such product will be
available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of third-party insurance reimbursement coverage enabling the
Company to establish and maintain price levels sufficient for realization of a
return on its investment in developing vaccines and biological products.
Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for
new therapeutic products approved for marketing by the FDA and by refusing, in
some cases, to provide any coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for uses of the Company's products, the market acceptance of these
products would be adversely affected.
Health care reform proposals have been introduced in Congress and in
various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.
Risk of Product Liability, Uncertainty of Availability of Product
Liability Insurance. The Company's business exposes it to substantial product
liability risks. The Company plans to obtain product liability insurance
covering the sale of its products prior to their commercial introduction;
however, there can be no assurance that the Company will be able to obtain or
maintain such insurance on acceptable terms or that any insurance obtained will
provide adequate coverage against potential liabilities. Claims or losses in
excess of any liability insurance coverage now carried or subsequently obtained
by the Company could have a material adverse effect on the Company.
Disclosure Regarding Acquisitions or Business Combinations. Although the
Company has no current intentions to acquire other businesses or merge with or
into other entities, the trend toward consolidating business operations, seeking
economies of scale, diversifying product offerings and pursuing operating
synergies is one that characterizes all industries currently and the
biopharmaceutical industry is no exception. If the Company decides to focus on
these benefits, it may decide to pursue an acquisition of another entity or some
other form of business combination. If the Company does decide to pursue a
transaction of this type, except as otherwise required by law, rules or
regulations, the Company currently does not intend to provide stockholders with
information concerning an acquisition or merger candidate and its business prior
to consummation of the transaction.
The Company has authorized capital of 30,000,000 shares of common stock
and 5,000,000 shares of preferred stock, of which 4,884,914 shares of common
stock will be outstanding upon completion of this Offering. The Board of
Directors of the Company has broad discretion as to whether to issue shares of
the Company's authorized but unissued share of capital stock in connection with
a merger or acquisition. Any such issuance of shares of capital stock would
dilute the interests of the Company's stockholders.
Potential Adverse Effect of Shares Eligible for Future Sale. Sales of
Common Stock (including shares issued upon the exercise of outstanding options)
in the public market after this Offering could materially and adversely affect
the market price of the Securities. Such sales also might make it more difficult
for the Company to sell equity securities or equity-related securities in the
future at a time and price that the Company deems appropriate.
Upon the completion of the Offering, and including the issuance of 611,250
shares of Common Stock to Pharm-Eco and Members of the Consortium and the
issuance of 28,147 shares of Common Stock to the State of Illinois (assuming an
initial public offering price of $10.00 per share), the Company will have
4,884,914 shares of Common Stock outstanding (not including 2,740,036 shares of
Common Stock subject to outstanding options or warrants). Of the shares to be
outstanding, the 1,000,000 shares of Common Stock to be distributed by the
Company will be freely tradeable without restriction. All of the remaining
3,884,914 shares will be restricted securities within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to Rule 144,
2,670,517 of such restricted securities will be eligible for resale upon the
effective date (the "Effective Date") of the Registration Statement of which
this Prospectus forms a part. The holders of 1,904,635 of such 2,670,517 shares
to become
13
<PAGE>
eligible for sale on the Effective Date have agreed not to sell any of such
shares for 1 year after the Effective Date, 45,813 shares will be eligible for
sale less than 90 days from the Effective Date, and 148,522 shares will be
eligible for sale between 90 to 180 days from the Effective Date. In addition to
the 2,670,517 shares previously mentioned, 575,000 shares will be eligible for
resale in July 1999 and 639,397 shares will be eligible for resale one year
after the Effective Date. The Company's officers, directors, certain
consultants, including RADE, and those shareholders owning 5% or more of the
shares outstanding, have further agreed not to sell any of their Shares
(representing 1,437,543 of the 1,904,635 Shares subject to "lock-up" agreements
and referred to above) and any of the 975,000 shares issuable upon exercise of
options and warrants held by them, until the market price for the Company's
Common Stock, adjusted for splits and like transactions, closes at or above 200%
of the initial public offering price per share for a period of 20 consecutive
trading days.
The Company does not anticipate that an active trading market for the
Common Stock will develop outside the United States. Therefore, any resales of
Common Stock will likely occur on the Nasdaq SmallCap Market or the Boston Stock
Exchange. See "Description of Securities" and "Shares Eligible for Future Sale."
Immediate Substantial Dilution. Purchasers of Shares in the Offerings will
experience immediate and substantial dilution of $8.45 (85%) per share, between
the pro forma net tangible book value of the Shares and the public offering
price of $10.00 per share. See "Dilution."
Potential Adverse Effect of Underwriters' Warrants. At the consummation of
the Offering, the Company will sell to the Underwriters for nominal
consideration the Underwriters' Warrants to purchase up to 100,000 shares of
Common Stock. The Underwriters' Warrants will be exercisable for a period of
four years commencing one year after the effective date of this Offering, at an
exercise price equal to 160% of the initial public offering price. For the term
of the Underwriters' Warrants, the holders thereof will have, at nominal cost,
the opportunity to profit from a rise in the market price of the Securities
without assuming the risk of ownership. As long as the Underwriters' Warrants
remain unexercised, the Company's ability to obtain additional capital might be
adversely affected. Moreover, the Underwriters may be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain any needed capital through a new offering of its securities on
terms more favorable than those provided by the Underwriters' Warrants. See
"Underwriting."
Potential Adverse Effect of Substantial Shares of Common Stock Reserved.
Upon completion of the Offerings there will be reserved a total of 2,740,036
shares of Common Stock for issuance as follows: (i) 100,000 shares for issuance
upon exercise of the Underwriter's Warrants; (ii) 498,636 shares for issuance
upon exercise of stock options granted to employees of or consultants to the
Company; and (iii) 2,141,400 shares for issuance upon the exercise of other
outstanding options and warrants. The exercise prices of the foregoing options
and warrants are substantially below the offering price of the Shares offered
hereby. The existence of the Underwriter's Warrants and any other options or
warrants may adversely affect the Company's ability to consummate future equity
financings. Further, the holders of such warrants and options may exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. To the extent any such options
and warrants are exercised, the interests of the Company's stockholders may be
diluted.
Potential Adverse Effect of Authorized But Unissued Shares. The Company
has authorized capital stock of 30,000,000 shares of common stock and 5,000,000
shares of preferred stock, of which 4,884,914 shares of common stock will be
outstanding upon completion of this Offering. The Board of Directors of the
Company has broad discretion as to whether to issue shares of the Company's
authorized but unissued shares of capital stock to employees, management,
directors, promoters or their affiliates and associates for service rendered,
and, in the case of preferred shares, the preferential term of such shares. The
Company has no current plans to issue any shares of capital stock, except as
disclosed in this Prospectus. Any future issuance of shares of the Company's
authorized but unissued capital stock or of rights to acquire its capital stock
will dilute the interests of the Company's stockholders.
Absence of Dividends. The Company has never declared or paid dividends on
its Common Stock and does not intend to pay any dividends in the foreseeable
future. See "Dividend Policy."
Arbitrary Determination of Offering Price; No Public Market for the
Securities. The initial public offering price of the Shares has been determined
arbitrarily by negotiations between the Company and the Underwriters. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors deemed relevant.
Therefore, the public offering price of the Shares do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. Prior to the Offerings, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop in the Common Stock after the Offerings, or, if developed,
be sustained. See "Underwriting."
Price Volatility. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market
prices of the common stock of many publicly traded pharmaceutical or
biotechnology companies have in the past been, and can in the future be expected
to be,
14
<PAGE>
especially volatile. Announcements of technological innovations or new products
by the Company or its competitors, developments or disputes concerning patents
or proprietary rights, publicity regarding actual or potential clinical trial
results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and foreign
countries, delays in the Company's testing and development schedules, public
concern as to the safety of vaccines or biological products and economic and
other external factors, as well period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Common Stock and Warrants. The realization of any of the risks described in
these "Risk Factors" could have a significant and adverse impact on such market
prices.
International Underwriters' Inability to Influence the Market. Neither of
the International Underwriters is authorized to make a market in securities
listed on the NASDAQ SmallCap Market. There can be no assurance that the
International Underwriters' inability to participate directly in the United
States securities markets will not adversely affect the development of a trading
market for and the liquidity of the Common Stock of the Company. Therefore,
purchasers of the Common Stock offered hereby may suffer a lack of liquidity in
their investment or a material diminution in the value of their investment. The
Company does not intend to list the Common Stock on any stock exchanges outside
the United States. Therefore, the Company does not expect an active trading
market to develop outside the United States.
U.S. Underwriter's Influence on the Market. A significant portion of the
Common Stock offered hereby may be sold to customers of the U.S. Underwriter and
customers of the International Underwriters. In light of the lack of
participation of the International Underwriters in any market which may develop
for the Common Stock, if the U.S. Underwriter elects to participate, it may
exert substantial influence on any market which may develop for the Common
Stock. A determination by the U.S. Underwriter not to participate in the market
for the Common Stock or to stop participating in such market may adversely
effect the price and liquidity of the Common Stock.
Underwriters' Limited Underwriting Experience. The International
Underwriters have been actively engaged in the securities brokerage and
investment banking business since 1994, with respect to The New China Hong Kong
Securities Ltd., and since 1996 with respect to China Everbright Securities
(H.K.) Ltd. However, while the International Underwriters have engaged in
numerous underwriting activities in Asia, each has never underwritten an
offering of securities by a U.S.-based issuer. There can be no assurance that
the International Underwriters' limited experience as an underwriter of public
offerings by U.S. issuers will not adversely affect the proposed public offering
of the Shares, the subsequent development of a trading market, if any, or the
market for and liquidity of the Company's securities. Therefore, purchasers of
the securities offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment.
Management's Broad Discretion in Use of Proceeds. Although the Company
intends to apply the net proceeds of the Offerings in the manner described under
"Use of Proceeds," it has broad discretion within such proposed uses as to the
precise allocation of the net proceeds, the timing of expenditures and other
aspects of the use thereof. The Company reserves the right to reallocate the net
proceeds of the Offerings among the various categories set forth under "Use of
Proceeds" as it, in its sole discretion, deems necessary or advisable. See "Use
of Proceeds."
NASDAQ Stock Market; Boston Stock Exchange. Although the Company has
applied for listing of the Common Stock on the Nasdaq SmallCap Market and
intends to make application to list the Common Stock on the Boston Stock
Exchange, there can be no assurance that such applications will be approved or
that a trading market for the Common Stock will develop or, if developed, will
be sustained. Furthermore, there can be no assurance that the securities
purchased by the public hereunder may be resold at their original offering price
or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3.0 million in total assets,
$2.0 million in tangible assets, $1.5 million "public float," and a minimum bid
price for its securities of $2.00 per share. For continued listing on the Boston
Stock Exchange, a company must maintain a $500,000 market value of the public
float, $1 million in total assets and $500,000 in stockholders' equity. The
failure to meet these maintenance criteria in the future may result in the
discontinuance of the listing of the Common Stock on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4.0 million in net tangible
assets, 1,000,000 shares in the "public float," $5.0 million "public float," and
a minimum bid price for its securities of $4.00 per share. For continued listing
on the Nasdaq SmallCap Market, a company must maintain a $200,000 market value
of the public float and $2.0 million in net tangible assets. In addition,
continued inclusion requires two marketmakers and a minimum bid of $1.00 per
share. The failure to meet these maintenance criteria in the future may result
in the discontinuance of the listing of the Common Stock on the Nasdaq SmallCap
Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Boston Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or, if then available, "Electronic
Bulletin Board" administered by the National Association of Securities Dealers,
Inc. (the "NASD"). In such an event, the market
15
<PAGE>
price of the Common Stock may be adversely impacted. As a result, an investor
may find it difficult to dispose of or to obtain accurate quotations as to the
market value of the Common Stock.
Limitation of Liability and Indemnification. The Company's Certificate of
Incorporation limits, to the maximum extent permitted by the Delaware General
Corporations Law ("Delaware Law"), the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors. The
Company's Bylaws provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its officers and directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in Delaware Law.
The indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware Law does
not permit a corporation to eliminate a director's duty of care, and the
provisions of the Company's Certificate of Incorporation have no effect on the
availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care. See "Management."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,000,000 Shares offered in the Offerings (after deducting estimated offering
expenses payable by the Company) are estimated to be approximately $8,150,000
based on an assumed initial public offering price of $10.00 per Share.
The Company intends to use the net proceeds from the offering in the approximate
amounts and in the order of priority shown below for the purposes listed:
<TABLE>
<CAPTION>
Anticipated Use Approximate Amount Percent of Total
--------------- ------------------ ----------------
<S> <C> <C>
Arrearages in research support(1) ................... $ 150,000 1.84%
Debt elimination(2) ................................. $ 100,000 1.23%
Clinical and pre-clinical studies ................... 4,744,000 58.21%
Research and development generally .................. 1,376,000 16.88%
Patent protection ................................... 450,000 5.52%
Marketing ........................................... 375,000 4.60%
Working capital and general corporate purposes ...... 955,000 11.72%
---------- ------
TOTAL ....................................... $8,150,000 100.00%
========== ======
</TABLE>
- ---------------
(1) Approximately $150,000 will be used to pay arrearages in research support
due pursuant to the Consortium Agreement, as amended.
(2) The Company intends to use $100,000 of the net proceeds to repay principal
amounts due the State of Illinois, which amount is due pursuant to an
unsecured promissory note of the Company, dated August 8, 1996, which
matures upon completion of an initial public offering. The promissory note
has accrued $281,470 in interest, which interest is payable at the option
of the Company in shares of the Company's Common Stock upon completion of
an initial public offering. Therefore, 28,147 shares of Common Stock will
be issued to the State of Illinois upon completion of the Offerings
(assuming an initial public offering price of $10.00 per Share) as
consideration for interest accrued under the obligation.
The amount and timing of expenditures of the net proceeds of the Offerings
cannot be precisely determined, and will depend on numerous factors, including
the status of the Company's product development efforts, the results of clinical
trials and the regulatory approval process. Pending such uses, the Company plans
to invest the net proceeds from the Offerings in short-term, investment-grade,
interest-bearing securities.
The Company estimates that its current cash resources and the net proceeds
of the Offerings, not including any proceeds from any grant the Company may
receive, will be sufficient to meet its operating and capital requirements for
20 months following the closing of the Offerings. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of preclinical and clinical testing, responses
to the Company's grant requests, relationships with possible strategic partners,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the FDA regulatory process and
other factors. Because of these contingencies, there can be no assurance that
the net proceeds of the Offerings will satisfy the Company's requirements for
any particular period of time. The Company anticipates that additional funding
will be required after the use of the net proceeds of the Offerings. No
assurance can be given that such additional financing will be available when
needed on terms acceptable to the Company, if at all. See "Risk Factors - Need
for Substantial Additional Funds."
Proceeds, if any, derived from the exercise of the Underwriters' Warrants
will be added to the Company's working capital.
Although the Company intends to apply the net proceeds of the Offerings in
the manner described herein, it has broad discretion within such proposed uses
as to the precise allocation of the net proceeds, the timing of expenditures and
other aspects of the use thereof. The Company reserves the right to reallocate
the net proceeds of the Offerings among the various categories set forth in this
section as it, in its sole discretion, deems necessary or advisable. Although
the Company does not currently anticipate any material changes to the
allocations set forth, business requirements and market conditions that are not
now able to be anticipated may require that proceeds be allocated in a different
manner. For example, if an acquisition candidate were to become known to the
Company and as analyses of the acquisition indicated that the transaction would
be a benefit to the Company and its stockholders, the Company may pursue such a
transaction and may be required to re-allocate proceeds from this Offering in
order to complete the transaction.
17
<PAGE>
DIVIDEND POLICY
The Company has never declared nor paid dividends on its Common Stock and
does not intend to pay any dividends in the foreseeable future.
DILUTION
The net tangible deficit (i.e., net tangible assets less aggregate
liabilities) of the Company as of December 31, 1998 was $(569,880), or $(0.15)
per share of Common Stock, determined by dividing the net tangible deficit of
the Company by the number of shares of Common Stock outstanding as of such date.
After giving effect to the receipt of the net proceeds of the sale of 1,000,000
Shares offered in the Offerings at an assumed initial public offering price of
$10.00 per Share, the pro forma net tangible book value of the Company on
December 31, 1998 would have been $7,580,120, or $1.55 per share. This
represents an immediate increase in pro forma net tangible book value of $1.70
per share to existing stockholders and an immediate dilution of $8.45 per share
to new investors. The following table, which does not contemplate the exercise
of the Warrants, the Underwriter's Warrants or other warrants or options to
purchase shares of the Company's Common Stock (See "Risk Factors - Potential
Adverse Effect of Substantial Shares of Common Stock Reserved"), illustrates the
per share dilution:
Assumed initial public offering price per share $10.00
Net tangible deficit per share $(0.15)
Increase per share attributable to new stockholders 1.70
------
Pro forma net tangible book value per share after the Offering 1.55
-----
Dilution per share to new stockholders $8.45
=====
The following table summarizes, as of December 31, 1998, the difference
between the number of shares of Common Stock purchased from the Company, the
total cash consideration paid and the average price per share paid by existing
stockholders of Common Stock and by the new investors purchasing shares in this
Offering, assuming the sale of the 1,000,000 Shares offered hereby at an assumed
initial public offering price of $10.00 per Share and before any deduction of
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
Number Of Total Cash
Shares Purchased Consideration Average
--------------------- ----------------------- Price
Number Percent Amount Percent Per share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,884,914 79.5% $ 6,815,892 43.0% $ 1.75
New investors 1,000,000 20.5% 10,000,000 57.0% $10.00
--------- ----------- ----- ------
Total 4,884,914 100.0% $16,815,892 100.0%
========= ====== =========== =====
</TABLE>
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, (i) the actual
capitalization of the Company and (ii) the pro forma capitalization of the
Company giving effect to the receipt of the estimated net proceeds from the sale
of the 1,000,000 Shares offered hereby at an assumed initial public offering
price of $10.00 per Share. This table should be read in conjunction with the
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus. See "Description of Securities," "Use of Proceeds" and "Certain
Transactions."
<TABLE>
<CAPTION>
Pro forma
As Adjusted
for the
Offerings
Actual Hereby
------ ------
<S> <C> <C>
Current portion of long-term debt,
including accrued interest $ 391,470 $ 10,000
------------ ------------
Preferred Stock
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized, 0 shares
issued and outstanding as of
December 31, 1998 -0- -0-
------------ ------------
Total preferred stock -0- -0-
------------ ------------
Common Stockholders Investment (deficiency in assets)
Common Stock, par value $0.01 per share,
30,000,000 shares authorized,
3,245,517 shares issued and
outstanding as of December 31,
1998 after giving pro forma effect
to the Second Reverse Stock Split (1)(3);
30,000,000 shares authorized,
4,884,914 shares issued and
outstanding as of December 31,
1998 after giving pro forma
effect to the Second Reverse
Stock Split and the Offerings(2)(3) 32,455 48,849
Additional paid-in capital 10,871,198 25,398,774
Deficit accumulated during the development stage(4) (11,243,892) (17,356,392)
------------ ------------
Total common stockholders' investment
(deficiency in assets) $ (340,239) $ 8,091,231
============ ============
</TABLE>
- -------------------
(1) Excludes (i) an aggregate of 611,250 shares of Common Stock subject to
issuance without further consideration to Pharm-Eco and members of the
Consortium upon completion of the Offerings and (ii) shares of Common
Stock to be issued upon completion of the Offerings to satisfy the
interest portion of Immtech's outstanding note payable to the State of
Illinois, which interest portion equals $281,470 currently (and such
amount will not change prior to completion of the Offerings) (based upon
the assumed per Share initial public offering price of $10.00, the number
of shares issued to the State of Illinois in satisfaction of Immtech's
obligation will be 28,147 shares of Common Stock).
(2) Includes the shares referred to in items (i) and (ii) of Footnote (1).
(3) Excludes (i) an aggregate of 975,000 shares of Common Stock subject to
purchase and issuance at a price of $.10 per share pursuant to exercise of
outstanding warrants held by RADE Management Corporation ("RADE"); (ii)
outstanding warrants to acquire an aggregate of 850,000 shares of Common
Stock with an exercise price equal to the weighted average market price of
the Company's Common Stock during the first 20 days of trading on any
stock exchange or in any over-the-counter market, which warrants are
exercisable upon reaching certain scientific milestones and are held by
Pharm-Eco and members of the Consortium; (iii) an aggregate of 150,000
shares of Common Stock subject to issuance without further consideration
to Pharm-Eco and members of the Consortium upon the filing by Immtech of
an NDA or an ANDA with the
19
<PAGE>
FDA with respect to any product; (iv) an aggregate of 91,400 shares of
Common Stock subject to purchase and issuance pursuant to exercise of
outstanding warrants held by former holders of the Company's Senior
Subordinated Debentures, which warrants carry an exercise price of 1/2 of
the initial public offering price per Share ($5.00 per Share assuming the
initial public offering price is $10.00 per Share) and are exercisable
upon completion of the Offerings until August 31, 1999; (v) an aggregate
of 498,636 shares of Common Stock subject to purchase and issuance
pursuant to exercise of outstanding options held by certain employees and
consultants to the Company, which options carry a weighted average
exercise price of $0.83 per share; (vi) an aggregate of 75,000 shares of
Common Stock subject to purchase and issuance at a price of $.10 per share
pursuant to exercise of outstanding warrants held by NCHK; (vii) up to
150,000 Shares issuable upon the possible exercise by the Underwriters of
the Over-allotment Option; and (viii) up to 100,000 Shares issuable upon
exercise of the Underwriters' Warrants.
(4) Pro Forma as adjusted for the Offerings column includes $6,112,500
adjustment to accumulated deficit for issuance of 611,250 shares for
technology expensed as research and development.
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended March 31,
1996, 1997 and 1998 and the balance sheet data as of March 31, 1997 and 1998 are
derived from the financial statements audited by Deloitte & Touche LLP included
elsewhere in this Prospectus. The statement of operations data set forth below
for the year ended March 31, 1995 and the balance sheet data at March 31, 1995
and 1996 are derived from audited financial statements which are not included in
this Prospectus. The results of operations for the nine month periods ended
December 31, 1997 and 1998 are not necessarily indicative of the results for
either fiscal year and include all normal recurring adjustments. Historical
results are not necessarily indicative of future results. The data set forth
below should be read in conjunction with the financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
-------------------------------------------------------- --------------------------
1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $ 260,503 $ 335,000 $ 15,000 $ 19,552 -- $ 214,252
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Research and development 996,486 737,805 478,871 $ 312,366 $ 155,647 540,201
General and
administrative 429,042 218,843 532,642 534,984 211,791 2,596,869
Cancelled offering costs 188,144 65,837 73,984
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 1,613,672 956,648 1,077,350 921,334 367,438 3,137,070
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (1,353,169) (621,648) (1,062,350) (901,782) (367,438) (2,922,818)
----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense (98,984) (135,468) (281,710) (241,767) (181,012) (67,543)
Miscellaneous (expense)
income - net 19,941 (2,522) (6,503) (2,148) (54) 5,505
----------- ----------- ----------- ----------- ----------- -----------
Other expense - net (79,043) (137,990) (288,213) (243,915) (181,066) (62,038)
----------- ----------- ----------- ----------- ----------- -----------
Loss before
extraordinary item (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (2,984,856)
Extraordinary gain on
extinguishment of debt 1,427,765
----------- ----------- ----------- ----------- ----------- -----------
Net loss (1,432,212) (759,638) (1,350,563) (1,145,697) (548,504) (1,557,091)
Conversion of redeemable
preferred stock 3,713,334
Redeemable preferred stock
dividends net of premium
amortization (229,465) (246,324) (267,980) (331,435) (226,225) (137,689)
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income
attributable to common
stockholders $(1,661,677) $(1,005,962) $(1,618,543) $(1,477,132) $ (774,729) $ 2,018,554
=========== =========== =========== =========== =========== ===========
Net loss per
common share
attributable to common
stockholders:
Loss before
extraordinary gain $ (2.22) $ (1.15) $ (2.04) $ (1.69) $ (0.81) $ (1.58)
Extraordinary Gain 0.76
----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (2.22) $ (1.15) $ (2.04) $ (1.69) $ (0.81) $ (0.82)
Redeemable preferred
stock conversion,
premium amortization
and dividends (0.35) (0.37) (0.40) (0.49) (0.34) 1.89
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income per
share attributable to
common stockholders $ (2.57) $ (1.52) $ (2.44) $ (2.18) $ (1.15) $ 1.07
=========== =========== =========== =========== =========== ===========
Shares used in computing
net (loss) income per
share attributable to
common stockholders 646,381 660,833 662,975 676,471 675,498 1,887,222
Balance Sheet Data:
Working capital
(deficiency) (1,053,991) (1,763,833) (3,045,867) (3,638,865) (3,562,107) (606,677)
Total assets 154,558 117,532 189,394 70,771 78,619 369,059
Accrued interest 29,679 70,787 454,684 663,013 634,842 281,470
Stockholder advances -- 311,500 770,000 985,172 920,214 --
Notes payable 769,709 966,419 1,572,969 1,576,450 1,584,585 110,000
Long-term debt due after
one year 383,488 383,488 -- -- -- --
Redeemable preferred stock 4,344,156 4,590,480 5,108,460 5,439,895 5,334,684 --
Common stockholders'
investment (deficiency
in assets) (5,635,441) (6,633,903) (8,058,145) (9,021,623) (8,832,874) (340,239)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. This
discussion contains forward-looking statements and such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include, but are not limited to, the factors discussed below and in
the "Business Section," as well as those discussed elsewhere in this document.
See "Risk Factors."
OVERVIEW
Immtech, a development stage enterprise, is a biopharmaceutical company
focused on the discovery and commercialization of therapeutics for the treatment
of patients afflicted with opportunistic infectious diseases, cancer or
compromised immune systems. The Company has two independent programs for
developing drugs. The first is based on a technology for the design of a new
class of pharmaceutical compounds commonly referred to as dications. The Company
believes that pharmaceutical dications can be designed to inhibit the growth of
a wide variety of infectious organisms which cause fungal, protozoan parasitic,
bacterial and viral diseases. The second is based on biological proteins that
work in conjunction with the body's immune system. These biological proteins are
derivatives of C-Reactive Protein ("CRP"), which occurs naturally in the body
and which the Company believes can be used to control the structural environment
around cancerous tumors and to reprogram cancerous cells to stop growing
uncontrollably and revert to normal cell behavior.
With the exception of research agreements and past development funding
from Centocor, Sigma-Aldrich and certain research grants, the Company has not
generated any revenue from operations. For the period from inception to December
31, 1998, the Company incurred a cumulative net loss of $11,243,892. The Company
has incurred additional losses since such date and expects to incur additional
operating losses for the foreseeable future. The Company expects that its
revenue sources for at least the next several years will be limited to research
grants from Small Business Technology Transfer Program Grants ("STTR") and
payments from other collaborators under arrangements that may be entered into in
the future. The timing and amounts of such revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
results of operations for any period may be unrelated to the results of
operations for any other period. See "Business."
RESULTS OF OPERATIONS
All amounts contained in this section have been rounded to the nearest
five hundred dollars.
Nine Month Periods Ended December 31, 1998 and 1997.
Revenues under the Small Business Technology Transfer ("STTR") Program
from the National Institutes of Health accounted for $103,500 in the nine month
period ended December 31, 1998. Additional revenue sources were a grant from
Franklin Research Group (co-founder of NextEra Therapeutics, Inc.) of $50,000, a
payment of $15,500 for technology sold to Criticare and research payments of
$45,000 from Sigma-Aldrich. There was no revenue in the nine month period ended
December 31, 1997.
Research and development expenses were $540,000 and $155,500 in the nine
month periods ended December 31, 1998 and December 31, 1997, respectively. The
increase is primarily due to contractual payments to UNC of $300,000.
General and Administrative expenses increased 1,126.4% from approximately
$212,000 in the nine month period ended December 31, 1997 to $2,600,000 in the
nine month period ended December 31, 1998, as a result of patent expenses
incurred in 1998 and of $2,220,000 of expense related to issuance of the RADE
Warrants for consulting services. Interest expense decreased 62.7% from $181,000
in the nine month period ended December 31, 1997 to $67,500 in the nine month
period ended December 31, 1998. This is due to the Senior Subordinated Debt
discount and issuance costs becoming fully amortized in 1997 and the conversion
of debt to stock in July 1998.
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Redeemable preferred stock dividends net of premium amortization decreased
39.2% from $226,000 for the nine months ended December 31, 1997 to $137,500 for
the nine months ended December 31, 1998. This is due to the conversion of the
preferred A and B to common stock in July 1998.
Years Ended March 31, 1998, 1997, and 1996.
Revenues under collaborative research and development agreements were
approximately $15,000 and $335,000 in the years ended March 31, 1997 and 1996,
respectively. In 1998, there were grant revenues of approximately $19,500 from
an STTR Program from the National Institutes of Health.
Research and development expenses decreased by 35.0% from approximately
$738,000 in 1996 to $479,000 in 1997 and decreased by 34.8% to approximately
$312,500 in 1998, due primarily to the completion of the biological platform
Phase I clinical trials in Germany in 1996, the internal shift from the
biological to the pharmaceutical focus and the corresponding shift from basic
research to clinical support.
General and administrative expenses increased by 0.5% in 1998 to
approximately $535,000 from $532,500 in 1997 and increased by 143.2% in 1997
from $219,000 in 1996. The 1997 increase resulted primarily from patent costs
related to the pharmaceutical platform technology. Interest expense increased
107.7% from $135,500 in 1996 to $282,500 in 1997, and decreased 14.0% to
$242,000 in 1998. The 1997 increase is due to the Company completing a Senior
Subordinated Debt issue in August 1996. Cancelled offering costs were
approximately $66,000 in 1997 and $74,000 in 1998. Both amounts relate to a
cancelled offering of the Company's preferred stock.
Redeemable preferred stock dividends net of premium amortization increased
8.8% from $246,500 in 1996 to $268,000 in 1997 and 23.7% to $331,500 in 1998.
The premium was fully amortized on the Series A Preferred as of December 1997.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1998, the Company financed its
operations from (i) the net proceeds of private placements of debt and equity
securities and cash contributed from stockholders, which in the aggregate,
raised approximately $11,000,000, (ii) payments from research agreements and
Small Business Innovation Research ("SBIR") grants and STTR Program grants of
approximately $1,900,000, and (iii) use of stock, options and warrants in lieu
of cash compensation.
In July 1998, the Company completed a private placement equity offering of
$1,000,000. As a condition to this investment, the Company completed the
Recapitalization effective July 24, 1998.
The Company intends to use $100,000 of the net proceeds of the Offerings
to repay amounts due to the State of Illinois. Substantially all of the
remaining net proceeds of the Offerings, $8,050,000, will be used to fund the
Company's research and development efforts, including clinical and preclinical
studies. Any net proceeds not applied to the Company's research and development
efforts will be used for working capital and general corporate purposes,
including hiring up to 10 additional employees. The amount and timing of
expenditures of the net proceeds of the Offerings cannot be precisely
determined, and will depend on numerous factors, including the status of the
Company's product development efforts, the results of clinical trials and the
regulatory approval process. The Company may also use a portion of the net
proceeds to acquire complementary businesses, products or technologies, although
the Company has no agreements and is not involved in any negotiations with
respect to any such transaction. See "Risk Factors - Management's Broad
Discretion in Use of Proceeds." Pending such uses, the Company plans to invest
the net proceeds from the Offerings in short-term, investment-grade,
interest-bearing securities. See "Use of Proceeds."
The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, expenses
associated with the efforts of the Consortium and general and administrative
expenses. Over the next several years, the Company expects to incur substantial
additional research and development costs, including costs related to
early-stage research in preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for expanded research capacity, various equipment
needs and facility improvements or relocation.
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At December 31, 1998, the Company was a party to sponsored research
agreements with UNC which, upon completion of this financing, require it to fund
an aggregate of approximately $100,000 per quarter through the third anniversary
of the completion of this offering.
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $7,405,000, which expire from 2003 through 2013.
At December 31, 1998, the Company had available for federal income tax purposes
approximately $7,349,000 of alternative minimum tax net operating loss
carryforwards which expire from 2003 through 2013. The Company also has
approximately $5,303,000 of state net operating loss carryforwards available as
of June 30, 1998, which expire from 2009 through 2013, available to offset
certain future state taxable income for Illinois state tax purposes. Because of
"change of ownership" provisions of the Tax Reform Act of 1986, approximately
$2,352,000 and $250,000 of the Company's net operating loss carryforwards for
federal and State of Illinois purposes, respectively, are subject to an annual
limitation regarding utilization against taxable income in future periods. The
Company is considering various equity financing alternatives. Such changes may
result in a change of ownership and significantly restrict the utilization of
the Company's net operating loss carryforwards and federal tax credit
carryforwards.
The Company believes its existing resources, subject to the completion of
the Offerings but not including proceeds from any grant the Company may receive,
to be sufficient to meet the Company's planned expenditures for 20 months
following the Offerings, although there can be no assurance the Company will not
require additional funds. The Company's working capital requirements will depend
upon numerous factors, including the progress of the Company's research and
development programs (which may vary as product candidates are added or
abandoned), preclinical testing and clinical trials, achievement of regulatory
milestones, the Company's corporate partners fulfilling their obligations to the
Company, the timing and cost of seeking regulatory approvals, the level of
resources that the Company devotes to the development of manufacturing, the
ability of the Company to maintain existing and establish new collaborative
arrangements with other companies to provide funding to the Company to support
these activities and other factors. In any event, the Company will require
substantial funds in addition to the present existing working capital to develop
its product candidates and otherwise to meet its business objectives.
YEAR 2000
Business interruptions resulting from technology problems arising out of
the Year 2000 may adversely affect companies in various industries. The Company
currently anticipates that it will still be in the process of conducting
clinical trials or otherwise developing its initial products at the onset of the
Year 2000. Consequently, it is not likely that the Company will be engaged in
time sensitive activities likely to be materially disrupted by the Year 2000
problems. Nevertheless, the Company recently assessed both its information
technology systems and other systems to determine the likelihood of a Year 2000
disruption. Based on such assessment the Company determined that its accounting
system will need to be modified, which can be accomplished by purchasing "off
the shelf" software that is Year 2000 compliant at a cost which is not material
to the Company's operations.
The Company intends to assess the Year 2000 vulnerability of its business
partners in mid 1999 to determine which, if any, relationships require
corrective action. Though the Company does not anticipate any material
disruptions to its operations from Year 2000 problems, there can be no assurance
such problems will not arise.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements are required to be adopted
in fiscal 1999. In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post Retirement Benefits." This Statement is required
to be adopted in fiscal 1999. In 1998, the FASB also issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is required to be adopted in fiscal 2000. The Company is currently in the
process of evaluating the impact of adopting these new statements.
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BUSINESS
THE COMPANY
Immtech is a biopharmaceutical company focused on the discovery and
commercialization of therapeutics for the treatment of patients afflicted with
opportunistic diseases, cancer or compromised immune systems. Through its
independent efforts and in cooperation with a group of universities led by the
University of North Carolina at Chapel Hill ("UNC") and including Auburn, Duke
and Georgia State Universities (the "Consortium"), the Company has developed and
licensed a pipeline of biological and pharmaceutical compounds ready for Phase I
and Phase II human trials. To date, the Consortium has accumulated a library of
over 800 compounds which are being tested in laboratories around the world.
Additional compounds are being screened in various laboratory and animal models
for future development to which the Company will have exclusive licensing rights
for use as antimicrobial agents. The Consortium is sponsored by a large National
Cooperative Drug Development Grant ("NCDDG") awarded by the National Institutes
of Health ("NIH") to develop platform technologies for new drugs; the focus is
on treating emerging diseases.
The Company has two independent programs for developing drugs. The first
is based on a technology for the design of a new class of pharmaceutical
compounds commonly referred to as dications. The Company believes that
pharmaceutical dications can be designed to inhibit the growth of a wide variety
of infectious organisms. The second is based on biological proteins that work in
conjunction with the body's immune system. These biological proteins are
derivatives of C-Reactive Protein ("CRP"), which occurs naturally in the body
and which the Company believes can be used to control the structural environment
around cancerous tumors and to reprogram cancerous cells to stop growing
uncontrollably and revert to normal cell behavior.
Pharmaceuticals - Dications
The discovery of the Company's pharmaceutical platform technology for
dications was the result of a research program focused on understanding
Pentamidine (a drug marketed by Fujisawa), an extremely toxic but effective drug
for the treatment of Pneumocystis carinii pneumonia ("PCP"), a form of pneumonia
common in patients with compromised immune systems. Researchers at UNC
discovered that most of Pentamidine's toxicity was caused by certain metabolites
formed as the drug breaks down within the body's circulatory system. This led to
the design of new compounds with more stable molecular structures which do not
break down into toxic substances. These newly designed compounds proved to be
significantly less toxic and more effective in treating PCP than Pentamidine.
The methodology used by these researchers to develop these new compounds evolved
into the Company's platform technology for designing dicationic compounds. The
Company intends to use this technology to design pharmaceutical compounds to
treat a wide variety of infectious diseases.
Dicationic compounds have two positively charged ends held together by a
neutrally charged chemical linker group. The unique structure of the compounds
with positive charges on the ends (shaped like molecular barbells) allows them
to bind to the negatively charged surface in the minor groove of the organism's
DNA (like a band-aid), preventing life-sustaining enzymes from attaching to the
DNA's active sites. Once a site is occupied by one of the Company's compounds,
the necessary enzyme cannot bind to the DNA, preventing the organism from
dividing, stopping the spread of the related disease by inhibiting or killing
the growth of the target organism. This will accelerate the body's return to
normal health.
UNC has developed a unique and rapid method for identifying drug
candidates for specific micro-organisms. The first step in this drug discovery
process is to map and analyze the genetic sequences of the DNA of infectious
microbes, specifically studying the structure of the minor grooves which run the
length of the double-stranded, helical DNA. The minor groove forms a deep pocket
with negative charges dispersed at regular intervals. Certain pockets define the
binding region for enzymes which control cell division and survival.
A second step in the discovery process identifies the location of sites
where the enzymes that control microbe cell division bind in the minor groove of
DNA. The Company's researchers then use rational computer modeling and empirical
drug design to develop compounds that can block the active enzyme sites. To
select target compounds, the researchers initially examine the current library
of 800 dicationic compounds that have already been made and analyzed, looking
for structures fitting the active site in the minor groove. Once the appropriate
compound is identified, a series of laboratory and animal tests are run on the
compound to assess its efficacy and safety.
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The Company has two drugs that are ready to begin human clinical trials.
The first compound, DAP-092, is for the treatment of Cryptosporidium parvum, a
common enteric parasite that causes severe diarrhea and wasting. The second
compound, DB-289, is for the treatment of PCP. These two drugs are ideally
suited to demonstrate the power of the dication technology platform. DAP-092 was
developed to treat a parasite that is found only in the gut. Because of its
positive charges DAP-092 cannot cross the digestive membranes and stays in the
digestive tract where it is needed. On the other hand, DB-289 which works in the
circulatory system, was developed with a proprietary (patented) method of
temporarily neutralizing the positive charges which allows it to readily pass
through the digestive membranes into the circulatory system where the dications
become activated for treatment of diseases.
DAP - 092 As A Therapy for Cryptosporidiosis
DAP-092 is derived from the pharmaceutical technology platform and was
designed to block key enzymes from binding to the minor groove of the
Cryptosporidium parvum parasite's DNA, thus inhibiting or killing the growth of
the organism. Dicationic compounds with strong positive charges generally cannot
pass through the membranes which separate the digestive tract from the
circulatory system. DAP-092 is unique because it will work directly in the
gastro-intestinal tract (gut) and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side effects. The Company has
specifically targeted Cryptosporidium in an effort to take advantage of the
fast-track FDA approval process often afforded to drugs which cure diseases for
which there is no acceptable treatment.
The prevalence of Cryptosporidium parvum in the general population has
been reported by Dr. Ron Fayer, in his textbook, "Cryptosporidium and
Cryptosporidiosis", CRC Press, 288 pp, 1979, by assessing the number of
individuals in each country with antibodies to Cryptosporidium. The number of
individuals exposed to Cryptosporidium varies from 30% to 35% in the industrial
world (including the United States) to 50% to 65% in some countries in Central
and South America where sanitation is poor. Although in the past several years
there has been a drop in the incidence of Cryptosporidium in HIV positive
patients in the United States (due to new protease drugs), the prevalence in the
general population remains unchanged. In other parts of the world where
sanitation and hygiene are extremely poor (including parts of Africa where AIDS
is endemic) it is anticipated that diarrhea and wasting caused by
Cryptosporidium are increasing. The Company estimates from incidence reports and
prevalence data of the general population the worldwide market potential for
DAP-092 to be approximately $100 million per annum.
The Company's DAP-092 pharmaceutical product has demonstrated efficacy in
animal tests against Cryptosporidium parvum, a parasite that causes a
debilitating diarrhea and wasting syndrome that affects cancer patients, AIDS
patients and a growing number of pediatric patients worldwide, which can lead to
death in severe cases. There is no drug currently approved for its treatment.
DAP-092 has been tested in several animal models infected with
Cryptosporidium parvum. In the data from the neonatal mouse model shown in the
table below, as higher doses of orally administered DAP-092 were given to the
mice, a significant reduction in the organisms were observed. At a dose of 4.7
mg/kg, there was approximately a 90% reduction in the number of organisms
measured in the stools of the mice. At doses five-time the effective dose no
toxicity or side effects were observed in animal models.
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Activity of DAP-092 Against Cryptosporidium parvum
Neonatal Mouse Model of Infection
[GRAPHIC OMITTED]
The activity of DAP-092 was compared to saline control.
DB-289 As a Therapy for PCP and Other Diseases
DB-289 was specifically developed to be a substitute for Pentamidine.
However, unlike Pentamidine, which is administered in a cost intensive hospital
setting, DB-289 can be self-administered orally by the patient outside the
hospital, making it a much more cost effective treatment. In immuno-compromised
individuals infected with PCP, the lungs are often filled with mucus and other
fluids, resulting in compromised air passages causing potentially
life-threatening pulmonary disease. Since up to 40% of immuno-compromised
patients become intolerant of Trimethoprim-Sulfamethoxazole ("TMP/SMX"), the
current drug of choice for PCP, physicians then prescribe Pentamidine as the
second-line alternative. Because it is a dication and cannot pass through the
digestive tract to enter the bloodstream, Pentamidine can be administered only
intravenously or via inhalation therapy. In addition, because it is highly toxic
and has a narrow therapeutic window, Pentamidine is given only under constant
medical supervision. The Company's scientists believe that DB-289 will prove to
be a superior treatment than Pentamidine, and a substitute for TMP/SMX in
patients sensitive to sulphur-based drugs.
DB-289 has been studied extensively in animal model systems of
Pneumocystis carinii. UNC developed the standard laboratory animal model for
evaluating the efficacy of new drugs for the treatment of PCP. The laboratory
results from the immune suppressed rat model shows that DB-289 is a very
effective oral drug for the treatment of PCP. The data in the chart shows that
as the dose increases, the number of cysts observed in the lungs of the mice is
reduced. In the high dose groups (greater than 2.4 mg/kg), PCP was not found in
the lung tissues of the rats during histology examinations.
Activity of DB-289 Against
Pneumocystis carinii Pneumonia (PCP)
[GRAPHIC OMITTED]
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DB-289 is an analog of Pentamidine, in which the charges have been
temporarily neutralized to enable DB-289 to cross the digestive membranes. Also,
DB-289 was designed with a more stable linker structure which results in
breakdown products that are far less toxic than those resulting from the
breakdown of Pentamidine. Once DB-289 enters the bloodstream, naturally
occurring enzymes remove the neutralizing groups that mask the positive charges,
thereby exposing the active drug. Because of this masking technology, DB-289 can
be taken orally. In addition, because of its reduced toxicity, DB-289 requires
less medical supervision than Pentamidine. Consequently, the Company believes
DB-289 will replace Pentamidine as the second line therapy for PCP and capture a
significant portion of the TMP/SMX market given the potential for serious
allergic reactions to sulfur based drugs. Although Pneumocystis carinii
pneumonia remains the most common opportunistic infection in HIV/AIDS patients,
the number of annual cases has decreased with the use of protease inhibitor
drugs. The Company estimates that the current market for treating PCP is over
$100 million annually, plus the uses of DP-289 for treating tropical diseases
such as Lieshmania and Trypanosomiasis (see paragraph below) with a potential
market for the drug of over $200 million annually.
The Company's Pipeline of Dication Pharmaceuticals
In addition to treating PCP, Company scientists have shown through animal
studies that dication compound DB-289 is active against Leishmania mexicana
amazonesis, an organism that causes ulcerating skin lesions, Leishmania denovni,
an organism that causes a potentially fatal visceral disease, and against
Trypanosoma brucei rhodesiense, a parasite that causes slow deterioration of
organs, tissues, and the central nervous system, which is fatal if untreated. In
May 1998, the Company received a Small Business Technology Transfer Grant
("STTR") to study dication compounds as a treatment for various tropical
diseases. The Company has been contacted by the Center for Disease Control
("CDC") about the availability of dication compounds to treat a recent epidemic
of Trypanosomiasis (sleeping sickness) in the Sudan. The World Health
Organization (WHO) estimates that 55 million people in Central Africa are at
risk for Trypanosomiasis. In the last survey conducted by the WHO, they forecast
that there are 300,000 to 500,000 active cases of the disease, with an "epidemic
situation" in the Sudan, Angola, and the Democratic Republic of Congo. The
Company's scientists are also collaborating with experts from the Walter Reed
Army Institute for Medical Research, the Southern Research Institute and other
universities to expedite the development of compounds effective against
Trypanosomiasis, Leishmania, malaria and tuberculosis.
The Company has other dicationic compounds in the initial stages of
development directed at several large markets:
Fungal Infections. Fungi, especially the three most common forms - Candida
albicans, Cryptococcus neoformans and Aspergillosis fumigatus - cause major
health complications, particularly in patients with compromised immune systems.
A number of the Company's dicationic compounds have not only stopped the growth
of fungi in both in vitro and limited in vivo tests, but have actually killed
the fungi (fungicidal), thus being superior to Fluconazole, the most commonly
used anti-fungal drug, which only stops the growth of the organism
(fungistatic). Initial responses indicate that the Company's compounds are
effective in treating a broad spectrum of blood-based fungal infections.
Initial studies applying 30 of the Company's compounds against fungi have
been conducted by academicians and several large pharmaceutical companies. The
results have been encouraging and the pharmaceutical companies have committed to
conducting animal testing of certain of the Company's anti-fungal compounds. If
the initial animal studies are positive, the next step would be to conduct human
clinical trials.
Given that the fungicidal market is several billion dollars, the Company
may seek to develop its anti-fungal products independently if it raises
additional funding for a worldwide market. In the alternative, the Company will
look to a collaborative venture with a large pharmaceutical company for
additional funding.
Tuberculosis Mycobacterial Infections. Immuno-compromised patients are
increasingly developing infections from drug-resistant strains of tuberculosis.
Eighty percent of AIDS patients infected with drug-resistant Mycobacterial
tuberculosis die. Thus far, 19 of the Company's compounds have shown
effectiveness against these diseases in in vitro testing and have advanced into
animal tests to be performed under the auspices of the NIH at the Tuberculosis
Antimicrobial Acquisition and Coordinating Facility at the Southern Research
Institute.
A total of 70 of the Company's compounds were tested in vitro against
Mycobacterium avium organisms isolated from patients; 20 of these compounds were
up to 500 times more potent than Azithromycin, the drug currently used as the
standard for treating tuberculosis. Consequently, the Company will continue to
work with the NIH and collaborating laboratories, as well as several
pharmaceutical companies, to complete testing and advance these compounds into
clinical trials to treat the emerging, drug-resistant strains of tuberculosis.
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HIV. The Company has designed a class of dicationic compounds to treat
HIV. Based upon the initial results of the in vitro and animal studies conducted
at Auburn University, the Company intends to develop further modifications of
these compounds and is in discussions with a potential licensee, which will
provide the funds for further testing. These compounds represent a new class of
antiviral drugs. These drugs inhibit the integrase enzyme which the HIV virus
needs to "integrate" into human DNA in order for the virus to divide and
multiply.
Other Infections. Some of the Company's pharmaceutical compounds are
effective against Giardia lambia, an enteric protozoa that is one of the most
widespread causes of common diarrhea. Other compounds are effective against
chloroquine- and mefloquine-resistant strains of Plasmodium falciparum, the
organism that causes malaria. Company scientists have shown that certain
compounds are active against Leishmania mexicana amazonesis, an organism that
causes ulcerating skin lesions, Leishmania donovni, an organism that causes a
potentially fatal visceral disease, and against Trypanosoma brucei rhodesiense,
a parasite that causes slow deterioration of organs, tissues and the central
nervous system.
Cancer. In the past two years, the National Cancer Institute (NCI) has
tested over 500 of the Company's dication compounds for anti-cancer activity.
The NCI reported that a significant number of the compounds had potent and
select activity against many different types of cancer cells. The dication drugs
have shown anti-cancer activity using a similar mechanism of action as shown
with infectious organisms; (1) the drugs bind in the minor groove of the DNA of
the cancer cells, and (2) blocks specific enzymes that are critical to the
cell's DNA function. A certain number of the compounds show a third anti-cancer
mechanism which potentially represents a new class of chemotherapeutic compounds
that work as alkylating agents (drug that irreversibly transfer chemical groups
onto the DNA). Since dications preferentially bind to adenosine rich regions of
the DNA, these compounds are unique from currently used alkylating
chemotherapeutic agents that are known to preferentially alkylate guanine bases
of the DNA. The overall effect of the binding of the dication compounds to DNA
stops the progression of the disease and kills the cancer cell.
To date, the NCI has identified forty-seven of the Company's compounds
with impressive specificity and potency as anti-cancer agents. Eighteen of these
compounds were chosen by the NCI to advance into in vivo testing in mice. The
early results show that specific dication compounds have activity against
different cancer types and that most of the compounds tested had activity at low
doses. Dr. David Boykin, Regents Professor of Chemistry, Georgia State
University and the Company's lead scientific consultant in the discovery and
development of dication drugs for cancer, has applied for a $5 million NCI grant
to continue the development of dication and related compounds as anti-cancer
chemotherapeutic drugs. He will work with the company's scientists and other
scientists from a consortium of universities which include the University of
North Carolina at Chapel Hill and Auburn University.
The Company will pursue the clinical development of its pipeline compounds
for these clinical indications while conducting clinical trials to obtain FDA
approvals of DAP-092 for Cryptosporidiosis and DB-289 for PCP.
Biological Products - mCRP and rmCRP
The Company's biological program is focused on strengthening the innate or
natural immune system by (i) improving the structural environment around cells
and vascular tissue and (ii) reprogramming cancer cells to act normally. The
Company's current biological products are derivatives of CRP, a naturally
occurring element of the human immune system and an important component of the
body's immediate immune response. When triggered, the immune system coordinates
physiological, biochemical, hormonal and immunological reactions to injury or
infection. It is the body's primary defense against disease. The Company's
scientists discovered that, as part of the immune system's response to disease,
the blood protein CRP is modified by the body to form modified CRP. Modified CRP
("mCRP") forms lattice-like meshworks that strengthen tissues and
interconnective structures which work to increase their ability to resist
disease and improve the effectiveness of the immune system. Using monoclonal
antibodies, the Company's scientists found that mCRP occurs naturally in healthy
tissues surrounding blood vessels, in the structural tissues inside lymphatic
organs, and in cells having important secretory functions (e.g. ductal
epithelial cells, insulin-secreting islet cells of the pancreas). In contrast,
mCRP is either absent or present in greatly reduced quantities in cancerous
tissues such as those found in the lung, breast, or prostate. mCRP functions not
only as a barrier to the spread of disease, but as a scaffold to order,
organize, and optimize biochemical and immunological reactions. When this
"scaffold" is damaged or weakened, the immune response is compromised and unable
to resist diseases which it would otherwise overcome.
The term "cancer" includes many different types of uncontrolled growth of
otherwise normal cells. Rapidly dividing cancer cells produce enzymes which
attack and weaken surrounding tissues, allowing cancer cells to grow
unrestrained and become tumors. As cancer cells grow they may also metastasize,
that is, spread from the primary site to secondary sites within the body.
Unrestrained growth of cancerous cells may destroy surrounding organs or impair
physiological functions, often
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leading to death. The Company's scientists have discovered that when cancerous
cells come in contact with mCRP, cell behavior is markedly changed, abnormal
rapid growth ceases and the cell returns to normal activity. The Company's
biological program focuses on replacing mCRP in areas where deficient,
increasing barriers between cells to reduce the entry and propagation of
disease, and enhancing the body's immune reactions.
The Company's scientists believe that commercial quantities of a
recombinant (synthetic) form of mCRP ("rmCRP") could be used to treat HIV and
cancer patients because, as these scientists recently discovered, when human
cancer cells or HIV-infected lymphocytes come in contact with rmCRP, their cell
morphology is markedly changed and their metabolic activity increases. The cells
shift away from phases of DNA duplication to phases of enhanced functional
activity. The effects of such shifts could be strongly positive in the fight to
stop the growth and spread of disease.
o In cancer, when cells divide uncontrollably, the Company's scientists
believe that therapeutic application of rmCRP will stop DNA synthesis and
slow down the proliferation of cancer cells as it strengthens the immune
system to attack the defective cells.
o In viral infections such as HIV, viruses take over a cell and direct its
activities, merging the virus's genes with the DNA of the host cell. The
Company's scientists believe that therapeutic applications of rmCRP will
inhibit the synthesis of DNA by the host cell, thus preventing viral genes
from reproducing themselves.
Preclinical studies have shown that mCRP and rmCRP have the following
results when used against a number of different diseases:
o mCRP stopped tumor growth and lead to tumor cell death or necrosis, and
reduced the spread of metastatic lesions in mouse models of several common
adenocarcinomas
o mCRP and rmCRP prevented the HIV virus from infecting CD4+lymphocytes in
laboratory tests
o mCRP and rmCRP lowered both free virus and cell-associated virus
As an adjunct to standard chemotherapy regimens, injections of rmCRP also
enhanced the effectiveness and reduced the toxicity of a chemotherapeutic agent
in a mouse model of leukemia. In addition, rhesus monkeys infected with SIV (the
simian form of HIV), were able to safely tolerate injections of rmCRP, and rmCRP
treatments increased CD4+lymphocyte levels and platelet levels, and decreased
blood viral load.
A Phase I proof-of-principle human trial for mCRP was performed in 1994 in
Germany in three HIV-infected men. Each volunteer received seven intravenous
doses of mCRP over a two-week period. The injections were safely tolerated,
CD4+lymphocytes increased from 10 to 50 percent, platelet numbers and volume
increased notably, and blood viral load decreased within the four-week study
period. Thereafter, the Company developed rmCRP and in 1996, began to conduct a
larger scale clinical program in Germany by using a dose-escalation,
placebo-controlled protocol. Five groups of four HIV-infected men were treated
with 10 intravenous injections of rmCRP each over a 12-day period. All patients
safely completed therapy with no adverse effects noted; the drug was shown to be
nontoxic at high doses. At a dose of 2 mg/kg, patients receiving rmCRP showed
the same favorable immune, hematopoietic, and antiviral effects observed in the
Company's preclinical and initial human clinical trials; there was an increase
in CD4+ counts and platelets and a decrease in plasma HIV load.
TARGET MARKET
The market for the Company's products consists of those seeking to treat
cancer and HIV disease and the opportunistic infections associated with immune
suppressed patients. According to the Centers for Disease Control and Prevention
(CDC), cancer and infectious diseases rank second and third as causes of death
in the United States. In 1997, approximately 538,000 deaths (one of every four)
resulted from cancer. Over 1.2 million people are diagnosed with cancer every
year, and one of every four Americans now living will eventually develop cancer.
In 1997, the estimated cost to society to treat cancer patients was over $100
billion, more than $5 billion of it for drugs (both chemotherapeutic agents and
treatments for opportunistic infections).
The infectious disease market represents a major opportunity for Immtech.
Infectious diseases cause approximately 175,000 deaths in the United States
annually - 40 to 50 per cent from respiratory infections, and approximately 20
percent from opportunistic infections associated with HIV disease and AIDS. In
addition, 2 million people will contract infections this year during a hospital
stay, adding approximately 8 million days of extended hospital stay at an annual
cost of $4.5 billion.
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In 1997, worldwide sales of drugs to combat infectious disease were
approximately $26 billion, including $7 billion in the United States. Three
individual drugs each had sales of more than $1 billion. Most prominent
anti-infectives have targeted bacterial and fungal infections. However, there is
an acute need to develop new drugs to treat not only primary infections but
secondary or opportunistic infections as well. The emergence around the world of
drug-resistant strains of micro-organisms has contributed to this need, as has
the growing immuno-suppressed population created by disease (e.g., HIV) and the
use of immunosuppressive drugs (e.g., chemotherapeutic agents).
Worldwide sales of drugs used to treat opportunistic infections are
estimated at more than $1 billion annually and are growing at more than 20
percent per year. Cancer patients account for the largest number of
opportunistic infections (an estimated 500,000 patients in the United States and
1 billion worldwide). Of the approximately 200,000 AIDS patients in the United
States, one-fourth will develop opportunistic infections which become
life-threatening. Before 1987, opportunistic infections generally occurred as
single infections; today, 50 to 75 percent of AIDS patients develop multiple
opportunistic infections. The use of protease inhibitors as antiviral therapy in
HIV positive patients has reduced the number of opportunistic infections
reported in the U.S. The protease drugs are often used in combination therapy
made up of several different protease drugs in a cocktail. This cocktail therapy
is very expensive (requires a rigid protocol for taking the drug) and is only
used in patients that can afford the high cost of the drugs. Further, in recent
meetings at the NIH, it has been reported that protease resistant strains of the
HIV virus are developing in a significant number of patients. This trend
suggests that over the next five years there will be an increase in
opportunistic infections in the HIV patient population.
The CDC recently issued a warning that drug-resistant forms of
Mycobacterium tuberculosis ("TB") are becoming prominent opportunistic
infections. The estimated annual cost to eradicate TB, reported to be $36
million in 1987 and $540 million in 1992, is estimated to have reached $825
million in 1996. In the state of New York, 23% of TB patients show signs of
having drug-resistant strains. It is estimated that 80% of patients with
multi-drug resistant TB die.
Another emerging opportunistic infection, Cryptosporidium parvum, occurs
not only in AIDS patients but in patients with cancers and heart disease, and
occasionally in the general population. The outbreak of Cryptosporidium parvum
in Milwaukee in 1993 afflicted approximately 400,000 people and was fatal to
100. This potentially life-threatening ailment affects 2-5% of AIDS patients,
with greater prevalence outside the United States, where protease inhibitors
have reduced the incidence. To date, there is no approved drug to treat
Cryptosporidium parvum-associated diarrhea. Immtech aims to have the first drug
in clinical trials and approved for treatment of this condition, although there
can be no assurance this will occur.
COMPETITION
Competition in the biotherapeutic, biotechnology and biopharmaceutical
industries is intense. Factors such as scientific and technological
developments, the availability of patents, timely governmental approval for
testing, manufacturing and marketing, and the ability to commercialize products
in a timely fashion play a significant role in determining a company's ability
to effectively compete. Furthermore, these industries are subject to rapidly
evolving technology that could result in the obsolescence of any products
developed by the Company. The Company competes with many specialized
biopharmaceutical firms, as well as a growing number of large pharmaceutical
companies that are applying biotechnology to their operations. Many of these
companies have concentrated their efforts in the development of human
therapeutics, and developed or acquired internal biotechnology capabilities.
These companies, as well as academic institutions, governmental agencies and
other public and private organizations conducting research, also compete with
the Company in recruiting and retaining highly qualified scientific personnel
and consultants and may establish collaborative arrangements with competitors of
the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. The Company is relying on its collaborations
with the Consortium, Pharm-Eco, UNC and NextEra Therapeutics to enhance its
competitive edge by providing manufacturing, testing and commercialization
support.
The Company knows of other companies and institutions dedicated to the
development of therapeutics similar to those being developed by the Company,
including Eli-Lilly, Hoffman-LaRoche and Abbott Laboratories. Many of the
Company's competitors, existing or potential, have substantially greater
financial and technical resources and therefore may be in a better position to
develop, manufacture and market biopharmaceutical products. Many of these
competitors are also more experienced with regard to preclinical testing, human
clinical trials and obtaining regulatory approvals. The current or future
existence of competitive products may also adversely affect the marketability of
the Company's products.
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COLLABORATIVE ARRANGEMENTS
The Company intends to continue to conduct independent research and to
rely upon business-sponsored research programs, joint ventures and other forms
of collaborative programs for product development, manufacturing and marketing.
The Company considers its current collaborative relationships significant to the
successful development of its business and believes that it will enter into
arrangements in the future to develop, manufacture and market not only the
products on which it is currently focusing, but also those which it will seek to
commercialize.
Pharmaceutical Products-Dications
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by the Consortium pursuant to an Agreement, dated
January 15, 1997 (as amended, the "Consortium Agreement") among the Consortium,
Pharm-Eco and UNC on behalf of itself and the other academic institutions in the
Consortium. The Consortium Agreement commits each party to the agreement to
research, develop, finance the research and development of, manufacture and
market the technology and compounds owned by the Consortium and then licensed or
optioned to Pharm-Eco (the "Current Compounds") and licensed to the Company
pursuant to the Consortium Agreement, and all technology and compounds developed
by the Consortium after the date thereof through use of Immtech-sponsored
research funding or National Cooperative Drug Development grant funding made
available to the Consortium (the "Future Compounds" and, collectively with the
Current Compounds, the "Compounds"). The Consortium Agreement contemplates that
Immtech and Pharm-Eco, with respect to the Current Compounds, and Immtech and
UNC, with respect to Future Compounds, will enter into more comprehensive
license or assignments of the intellectual property rights held by Pharm-Eco and
the Consortium; and that Pharm-Eco and the Company will enter into an
arrangement relating to the manufacture of products derived from the Compounds.
Under the Consortium Agreement, Immtech has agreed to use its best efforts
to complete an initial public offering ("IPO") of shares of its Common Stock to
raise at least $10,000,000 or an alternative form of financing ("Alternative
Financing") to raise at least $4,000,0000 by April 15, 1999. Upon the closing of
the IPO or the Alternative Financing, Immtech will: (i) use the greater of (x)
33% of the net proceeds from the IPO or an Alternative Financing or (y)
$5,000,000, to develop the Compounds, (ii) issue an aggregate of 611,250 shares
of Common Stock to Pharm-Eco or persons designated by Pharm-Eco, which number
includes 137,500 shares to be issued to the Consortium, (iii) issue warrants to
purchase an aggregate of 850,000 shares of Common Stock to Pharm-Eco or persons
designated by Pharm-Eco with a ten-year term from the date of issuance, at an
exercise price equal to the weighted average market price of the Company's
Common Stock during the first 20 days of trading on any stock exchange or in any
over-the-counter market, which warrants are exercisable upon the occurrence of
certain events and subject to redemption by Immtech; and (iv) upon the filing by
Immtech of an NDA or ANDA with the FDA with respect to any product, issue an
aggregate of 150,000 shares of Common Stock collectively to Pharm-Eco or persons
designated by Pharm-Eco, which number of shares includes 100,000 shares of
Common Stock to be issued to the Consortium. In addition, Immtech will pay UNC
an aggregate royalty of 5% of net sales of Current Products and Future Products,
except that the Royalty Rate payable on any Compound developed at Duke
University will be determined by negotiation at the time such Compound is
developed. In the event that Immtech sublicenses its rights with respect to the
Compounds, Immtech will pay UNC, in addition to the royalty described above,
2.5% of all signing, milestone and other non-royalty payments made to Immtech
pursuant to the sublicense agreement and will pay to Pharm-Eco 2.5% of all
signing, milestone and other non-royalty payments made to Immtech pursuant to
the sublicense agreement.
Upon closing of this Offering: (a) Pharm-Eco will be entitled to designate
for appointment one representative to Immtech's Board of Directors, (b) UNC will
be entitled to designate one person as a non-voting observer of all meetings and
other proceedings of Immtech's Board of Directors, (c) Immtech will make
quarterly $100,000 Research Grants to UNC commencing on the final day of the
month during which the closing of this Offering occurs, and continuing every
three months thereafter until, at a minimum, the third anniversary of this
Offering and (d) Immtech will pay all costs to prosecute, maintain and defend
all patents and patent applications relating to any Compounds or products.
Upon raising $4,000,000, Pharm-Eco will grant Immtech a license to use the
Current Compounds only as antimicrobial agents and UNC will grant Immtech a
license to use the Future Compounds only as antimicrobial agents. The initial
$5,000,000 in funds raised by Immtech (including the initial $4,000,000
referenced above) will be applied to the advancement of dications. Once Immtech
has raised more than $10,000,000 both Pharm-Eco and UNC will grant an exclusive
worldwide license to use, manufacture, have manufactured, promote, sell,
distribute, or otherwise dispose of any products based directly or indirectly on
all of the Current Compounds and Future Compounds.
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In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for Immtech to fulfill its obligations under the Agreement, Immtech has
agreed to (i) provide financial support to Dr. Richard Tidwell's laboratory and
research covered by the agreement, (ii) pay fees and expenses charged UNC by
UNC's patent counsel during the period of the extension, (iii) pay arrearages of
approximately $150,000 in research support accrued prior to the date of the
First Amendment within 30 days of the closing of the IPO, (iv) replenish Dr.
Tidwell's UNC Department of Pathology & Laboratory Medicine trust fund of all
monies spent due to the delay in receipt of the Research Grants, currently
estimated at $150,000 and (v) provide each of UNC and Pharm-Eco with 25,000
shares of Common Stock of Immtech.
Formation of NextEra Therapeutics, Inc.
The Company has entered into a joint venture agreement with Franklin
Research Group ("Franklin"), pursuant to which the parties have formed a
corporation, NextEra Therapeutics, Inc. ("NextEra"), to develop therapeutic
products for treating cancer and related diseases. NextEra will focus initially
on the development of recombinant modified CRP ("rmCRP"). NextEra plans to fund
the development of rmCRP through Phase I, II and III clinical trials and early
commercialization.
The joint venture agreement, commits Franklin to invest a minimum of
$1,350,000 to fund the Phase I human clinical trials using rmCRP in return for
510,000 common shares of NextEra. Of the $1,350,000 minimum investment, NextEra
has received $436,000 and Franklin has secured an irrevocable letter of credit
in favor of NextEra for $600,000. Immtech will contribute its rmCRP technology,
including relevant patents and know-how, as well as the use of its current
laboratory facilities, for 330,000 common shares of NextEra. NextEra's
scientists are in the process of preparing drug substance and documents for a
safety study in 30-40 cancer patients to be carried out at Northwestern
University. The focus of the study is to evaluate the safety and early efficacy
of rmCRP in patients with different types of cancer.
At the conclusion of the Phase I trial, the data for safety and efficacy
will be evaluated and Franklin will have 90 days to decide to continue the
development of rmCRP in human Phase II and III clinical trials. If Franklin
decides to proceed, it will invest a minimum of an additional $6,500,000 for
which it will receive an additional 160,000 common shares of NextEra. If
Franklin decides not to proceed, Immtech can purchase majority control of
NextEra by buying stock at $1.00/share until enough shares are purchased for
majority control. In addition, if Franklin elects to proceed, at its option,
Immtech can invest $1,625,000 of the $6,500,000 required of Franklin after the
Phase I trial, in which event Franklin will receive only 40,000 of the 160,000
shares to which it otherwise would be entitled.
In addition to the shares of NextEra that are held by Immtech and
Franklin, 33,000 shares are held by Dr. Potempa, 100,000 shares will be reserved
for issuance to employees of the Company and Dr. Potempa has been granted an
option to purchase 30,000 shares.
NextEra will fund the operation of Immtech's primary facility, including
employees' salaries related to work on rmCRP and overhead associated with the
project. Currently, this includes all employees except the President and Chief
Financial Officer. In addition, NextEra will fund the maintenance and
prosecution of all patents that are part of the intellectual property
transferred to NextEra by Immtech.
Manufacturing Joint Venture
The Company has executed a letter of intent to form a manufacturing joint
venture with Pharm-Eco to produce GMP-quality dicationic drugs and products for
clinical testing and for early commercialization. Pharm-Eco is a full-service
drug synthesis and chemical services company that has synthesized numerous
compounds and advanced them into clinical testing. Pharm-Eco is known
internationally for providing high-quality contract manufacturing services to
NIH, the U.S. military, the federally-funded AIDS programs, and numerous large
pharmaceutical firms. Pharm-Eco has extensive experience in developing and
validating bulk pharmaceutical processes and in preparing Drug Master Files.
It is contemplated that the joint venture will reduce the cost and risk
associated with manufacturing the initial pharmaceutical products (DAP-092 and
DB-289). Once the commercial sale of products begins, Immtech and Pharm-Eco will
deduct their costs associated with making and marketing (including selling,
marketing, and regulatory support) products. The remaining margin, after the
costs have been subtracted, will be divided equally between the joint venture
partners. At such time when Immtech's sales reach $20 million for DAP-092 and
DB-289, Immtech can elect not to use the joint venture or Pharm-Eco for
manufacturing, whereupon Immtech would be required to pay a royalty to Pharm-Eco
of no more than 2% of sales.
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RESEARCH AND DEVELOPMENT
Pharmaceutical
The Company conducts independent research and development efforts and is
also a participant since 1997 in the Consortium organized by Dr. Richard R.
Tidwell of UNC. Many of the world's leading experts in opportunistic infections
are affiliated with members of the Consortium, including:
o Dr. James E. Hall of UNC (for Pneumocystis diseases)
o Dr. John Perfect of Duke University (for fungal diseases)
o Dr. Byron Blagburn of Auburn University (for parasitic diseases)
o Dr. Christine Dykstra of Auburn (for the molecular and biochemical
effects of dicationic compounds on DNA and for viral disease)
o Drs. Dave Wilson and Dave Boykin of Georgia State University (for the
chemical design, synthesis, and molecular characterization of novel
anti-infective drugs).
The National Institutes of Health (NIH) has awarded two National
Cooperative Drug Development Grants to the Consortium, which has developed a
library of 800 compounds that have been tested in vitro and in animals against
infectious disease agents.
The Company is aggressively seeking to commence human clinical trials with
well-defined, short-term clinical end points. DAP-092, DB-289 and rmCRP are
being produced under GMP conditions, and study protocols and regulatory
information are being compiled in anticipation of starting clinical trials by
1999.
The Company plans to conduct multiple clinical trials using dication
drugs. Specifically:
o DAP-092 will be given orally to patients afflicted with severe
diarrhea caused by the intestinal parasite Cryptosporidium parvum.
Final plans are in place for synthesis, final toxicology testing
prior to human use, adsorption, distribution, metabolism and
excretion analyses, formulation for administration, and regulatory
approvals. This study is intended to establish that DAP-092
reduces the duration of Cryptosporidium parvum-caused diarrhea,
the associated weight loss, and the number of Cryptosporidium
parvum organisms excreted in the stool.
o DB-289 entered into a Phase I/IIa trial as an orally active
prodrug formulation to treat PCP. DB-289 is designed to cross the
intestinal membrane to get into the bloodstream, where it is
activated by natural enzymes found in human cells. Once activated,
the drug kills the microbes causing the pneumonia, resulting in a
clearing of the airways. The Company is pursuing an A-IND (an
abbreviated IND for rapid FDA approval) for this human trial
because the Company's application will focus primarily on
enhancing the safety and delivery mechanics of a currently
approved drug. The Company will test its prodrug in PCP-infected
AIDS patients.
Biological
The Company has completed two human Phase I biological clinical trials of
its biological products. Biological trials conducted to date have had promising
results:
o In 1994, a proof-of-principle Phase I human clinical safety study
of mCRP, conducted in a limited number of HIV-positive patients in
Germany, established that mCRP can be safely injected
intravenously in multiple-injection protocols. During treatment,
CD4+ and CD8+ cell counts increased, HIV viral titers decreased,
platelet numbers increased, and platelet mass increased
significantly.
o In 1995-1996, the Company developed a recombinant form of mCRP
(rmCRP), which was tested in a follow-up human Phase I/IIa dose
escalation clinical trial, also in Germany. Consistent with the
initial trial in both safety and efficacy, rmCRP enhanced the
immune system (i.e., lymphocytes increased and viral load
decreased) and increased the number of circulating platelets.
The next step is to test rmCRP in a Phase I/IIa trial in cancer patients
with funds provided by Franklin. Initial studies will investigate the safety and
anti-cancer activity of rmCRP as a primary therapy. A cohort of 25 to 50 cancer
patients with
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various malignancies will be enrolled. The anti-cancer effects of rmCRP will be
monitored by changes in relative levels of blood markers of cancer, non-invasive
diagnostic imaging techniques, and biopsy evaluations.
MANUFACTURING
Pharmaceutical Products. The Company has executed a letter of intent to
form a manufacturing joint venture with Pharm-Eco to produce GMP-quality
dicationic drugs and prodrugs for the initial two compounds (DAP-092 and DP-289)
for clinical testing and early commercialization. See "Collaborative
Arrangements."
Biological Products. The Company has developed a recombinant form of the
protein rmCRP. Recombinant manufacturing involves the use of cloned genetic
material (DNA) to produce proteins in large quantities. The Company's scientists
have successfully cloned and expressed the gene from mCRP in Escherichia coli
("E. coli"). The Company has developed methods to isolate rmCRP from E. coli and
remove other cell debris produced in the fermentation process. The Company's
scientists have determined that the recombinant protein has the same
characteristics as the naturally occurring protein, which showed promising
safety and efficacy characteristic in the Company's initial human trial. The
Company is continuously documenting the safety and efficacy of recombinant mCRP
to expeditiously file an IND to conduct Phase I&IIa trials with the products.
The Company intends to execute a contract with a third party manufacturer
to manufacture rmCRP on a commercial scale. The recombinant mCRP has been
isolated and purified to completion, and the Company has completed development
of a formulation method that is suitable for sterile and ongoing clinical
trials. The Company expects that the third party manufacturer will make
sufficient quantities of rmCRP to satisfy requirements for Phase I & IIa
clinical trials.
PATENTS AND LICENSES
The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. Although the
Company aggressively pursues patent protection, obtaining patents for
biopharmaceutical products involves complex legal and factual questions and
consequently involves a high degree of uncertainty. The Company has a policy of
developing new forms of and uses for its products and then applying for a patent
on each newly developed product.
There can be no assurance that any particular patent will be granted or
that patents issued to the Company will provide the protection contemplated.
Patents can be challenged, invalidated or circumvented. It is also possible that
competitors will develop similar products simultaneously. The Company and the
Consortium have filed a total of 157 patent applications in the United States
and other countries worldwide.
The Company, by itself or jointly with others, has applied for 19 United
States patents, seven of which pertain to diagnostic or device products and 12
of which pertain to the lead biotherapeutic product, rmCRP. The 12 patent
applications for rmCRP cover its clinical uses for (1) treating cancer, viral
infections, bacterial infections, thrombocytopenia, and immune complex disease,
(2) diagnostic imaging of tissue based disease, (3) monoclonal antibodies which
specifically bind rmCRP and (4) the production and isolation of rmCRP. To date,
the Company has been issued 11 of the 12 United States patents for the uses of
mCRP. In total, the Company has filed 57 patent applications in the U.S. and in
various global markets on its biological products.
The Company has also obtained worldwide exclusive licensing rights to 100
additional patents filed domestically and globally for its pharmaceutical
products. The pharmaceutical patent applications cover compound structure and
uses for the treatment of infections caused by Pneumocystis carinii pneumonia,
Cryptosporidium parvum, Giardia lamblia, Leishmania mexicana amazonesis,
Trypanosoma brucei rhodesienes, various fungi, Plasmodium falciparum and HIV.
Also, patent applications cover the process for making prodrugs and the uses of
the Company's unique compounds to detect and quantify nucleic acids and
cytoskeleton elements. To date, 27 U.S. patents and 68 total patents have been
issued on the Company's pharmaceutical products.
Five of the 12 U.S. patents relating to mCRP products were filed jointly
with Northwestern University or Rush Medical School, and the Company retains
exclusive worldwide rights to use the technology covered by these patents
pursuant to license agreements. All of the Company's patents on its
pharmaceutical products have been filed jointly with the University of North
Carolina at Chapel Hill and the other academic institutions of the Consortium.
It should be noted that as of June 8, 1995, certain legislative changes
implementing the General Agreement on Trade and Tariffs resulted in changes to
United States patent laws that affect the length of patent protection. Whereas
the
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term for patent applications used to be for a period of seventeen years from the
date of grant, the new term of a United States patent commences on the date of
issuance and terminates twenty years from the earliest effective filing date of
the application. The time from filing to issuance of biotechnology patent
application is often more than three years; consequently, a twenty-year term
from the effective date of filing may result in a negative impact on the
Company's patent position by offering a substantially shortened term of
protection.
The Company's potential products may conflict with patents which have been
or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected products. If any such
actions are successful, in addition to any potential liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. If the
Company becomes involved in litigation, it could consume a substantial portion
of the Company's time and resources.
The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or technology, or that the Company
can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that trade
secrets and all inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
is subject to extensive regulation by United States and foreign governmental
authorities.
Products being developed by the Company may be regulated by the FDA as
drugs or biologics. New drugs are subject to regulation under the Federal Food,
Drug, and Cosmetic Act, and biological products, in addition to being subject to
certain provisions of that Act, are regulated under the Public Health Service
Act. The Company believes that drug products developed by it or its
collaborators will be regulated either as biological products or as new drugs.
Both statutes and the regulations promulgated thereunder govern, among other
things, the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and other promotional practices involving biologics or new
drugs. FDA approval or other clearances must be obtained before clinical
testing, and before manufacturing and marketing, of biologics and drugs.
Obtaining FDA approval has historically been a costly and time consuming
process. Generally, in order to gain FDA pre-market approval, a developer first
must conduct pre-clinical studies in the laboratory and in animal model systems
to gain preliminary information on an agent's efficacy and to identify any
safety problems. The results of these studies are submitted as a part of an
investigational new drug ("IND") application, which the FDA must review before
human clinical trials of an investigational drug can start. The IND application
includes a detailed description of the clinical investigations to be undertaken.
In order to commercialize any product, the Company or its collaborator
must sponsor and file an IND and be responsible for initiating and overseeing
the clinical studies to demonstrate the safety, efficacy and potency that are
necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required to
select qualified investigators (usually physicians within medical institutions)
to supervise the administration of the products, and ensure that the
investigations are conducted and monitored in accordance with FDA regulations,
including the general investigational plan and protocols contained in the IND.
Clinical trials are normally done in three phases, although the phases may
overlap. Phase I trials are concerned primarily with the safety and preliminary
effectiveness of the drug, involve fewer than 100 subjects, and may take from
six months to over one year. Phase II trials
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normally involve a few hundred patients and are designed primarily to
demonstrate effectiveness in treating or diagnosing the disease or condition for
which the drug is intended, although short-term side effects and risks in people
whose health is impaired may also be examined. Phase III trials are expanded
clinical trials with larger numbers of patients which are intended to evaluate
the overall benefit-risk relationship of the drug and to gather additional
information for proper dosage and labeling of the drug. Clinical trials
generally take two to five years to complete, but may take longer. The FDA
receives reports on the progress of each phase of clinical testing, and it may
require the modification, suspension, or termination of clinical trials if it
concludes that an unwarranted risk is presented to patients.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of
both a Product License Application ("PLA") and an Establishment License
Application before commercial marketing of the biologic. If the product is
classified as a new drug, the Company must file a New Drug Application ("NDA")
with the FDA and receive approval before commercial marketing of the drug. The
NDA or PLA must include detailed information about the drug and its manufacture
and the results of product development, preclinical studies and clinical trials.
The testing and approval processes require substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. NDAs and PLAs submitted to the FDA can take, on average, two to five years
to receive approval. If questions arise during the FDA review process, approval
can take more than five years. Notwithstanding the submission of relevant data,
the FDA may ultimately decide that the NDA or PLA does not satisfy its
regulatory criteria for approval and deny approval or require additional
clinical studies. In addition, the FDA may condition marketing approval on the
conduct of specific post-marketing studies to further evaluate safety and
effectiveness. Even if FDA regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions.
The Company also is subject to foreign regulatory requirements governing
human clinical trials and marketing approval for drugs with respect to marketing
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
EMPLOYEES
The Company currently has three employees, all of whom hold advanced
degrees. Through its collaborative agreement with the UNC Consortium,
approximately 25 researchers associated with institutions such as UNC, Auburn
University, Duke University and Georgia State University have worked to advance
the Company's products toward commercialization. The Company expects, upon
completion of this offering, to hire up to 10 employees primarily to focus on
clinical development activities and business opportunities. Among the employees
to be hired will be a physician to serve as the Company's Clinical Director to
coordinate and carry out human trials; several technical employees with
experience in preparing pharmaceutical products and recombinant proteins for
human trials; an expert in regulatory affairs to oversee clinical trials and
government filings; and a quality assurance coordinator to oversee and verify
compliance of good laboratory products (GLP) and data reporting. These employees
will be engaged directly in supporting the Company's clinical trial programs,
and in new product research and development activities.
FACILITIES
The Company's administrative offices and research laboratories are located
in Evanston, Illinois. The Company occupies approximately 2,500 square feet of
space under a lease which expires on November 30, 1999. As part of the joint
venture with Franklin, the Company's current facilities will also be occupied by
NextEra. The Company expects that it will obtain new administrative space, as
well as space for research and development activities. Management believes it
will be able to secure such space locally and at commercially reasonable rates.
LITIGATION
The Company is not presently involved in any litigation, nor is it aware
of any impending litigation.
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MANAGEMENT AND KEY SCIENTIFIC PERSONNEL
Executive Officers, Key Scientists, Consultants and Directors
The executive officers, key scientists, consultants and directors of the
Company are as follows:
Name Age Position
---- --- --------
T. Stephen Thompson 51 Director, President and Chief
Executive Officer
Lawrence A. Potempa, Ph.D. 46 Vice President-Research and Chief
Scientific Officer
Gary C. Parks 48 Treasurer, Secretary and Chief
Financial Officer
Byron E. Anderson, Ph.D. 56 Director
Emil Soika 61 Director
T. Stephen Thompson, President, Chief Executive Officer and Director. Mr.
Thompson has served as a Director since 1991. He joined Immtech in April 1991
from Amersham Corporation, where he was President and Chief Executive Officer.
He was responsible for Amersham Corporation's four North American divisions:
Life Sciences, Radiopharmaceuticals, Diagnostics, and Quality and Safety
Products. In addition, he had direct responsibility for the Clinical Reagent (in
vitro diagnostic) Division in the United Kingdom. He was employed by Amersham
Corporation from 1986 to 1991. Mr. Thompson has 20 years' experience in health
care with previous positions as President of a small diagnostic start-up,
General Manager of the Infectious Disease and Immunology Business Unit in the
Diagnostic Division of Abbott Laboratories from 1981 to 1986, and Group
Marketing Manager for the Hyland Division of Baxter International Inc. from 1978
to 1981. Mr. Thompson is a Director of Matritech, Inc. (Nasdaq: NMPS). Mr.
Thompson holds a B.S. from the University of Cincinnati and an M.B.A. from
Harvard University.
Lawrence A. Potempa, Ph.D., Vice President-Research and Chief Scientific
Officer. Dr. Potempa has over 10 years experience in the Biotechnology industry
and has successfully brought the Company's lead biological therapy into human
trials. Dr. Potempa has an appointment as an Adjunct Associate Professor of the
Department of Medicine at Northwestern University Medical School. Dr. Potempa
received his B.S. degree cum laude from Bradley University in 1973 and earned
his Ph.D. in biochemistry in 1977 at Northwestern University. He was an NIH
postdoctoral fellow in Immunology at Rush Medical College until 1981 and was an
Assistant Professor at Rush University in the Department of
Immunology/Microbiology until he joined Immtech in 1988. He has over 40
publications and is the lead inventor on 39 of the Company's patents. Dr.
Potempa is a member of the American Chemical Society and has received various
government grants and other awards for excellence.
Gary C. Parks, Treasurer, Secretary and Chief Financial Officer. Mr. Parks
joined Immtech in January 1994, having previously served at Smallbone, Inc. from
1989 until 1993, where he was Vice President, Finance. Mr. Parks was a Division
Controller with International Paper from 1986 to 1989. Prior to that, he was
Vice President, Finance of SerckBaker, Inc., a subsidiary of BTR plc, from 1982
to 1986 and a board member of SerckBaker de Venezuela. Mr. Parks holds a B.A.
from Principia College and an M.B.A. from the University of Michigan.
Emil Soika, Director. Mr. Soika has served as Director of the Company
since March 1999. Since November 1998, he has served as President of Criticare,
a developer and manufacturer of medical devices. From 1995 to November 1998, he
served as Vice President and General Manager of Spacelabs Medical, Inc., a
manufacturer of noninvasive medical diagnostic and monitoring equipment. From
1990 to 1994, he served as President and Chief Executive Officer of Block
Medical Inc. He has also held various positions with Baxter International, Inc.,
where he ultimately served as Division President and General Manager of the Auto
Syringe Division, directing international manufacturing and sales operations.
Mr. Soika holds a B.S.M.E. from Marquette University and an M.B.A. from
Northwestern University.
Byron E. Anderson, Ph.D., Director. Dr. Anderson was a founder of Immtech
and has served as a Director since 1984. He is presently a Professor at
Northwestern University Medical School in the Department of Cell, Molecular, and
Structural Biology. He is a member of the American Association of Immunologists,
the American Society of Molecular and Biological Chemists, the American
Association for Advancement of Science, and several other biological and medical
research societies. Dr. Anderson received his B.A. in Chemistry and Biology from
Kalamazoo College in 1963, and a Ph.D. from the University of Michigan. He was a
postdoctoral fellow of the Helen Hay Whitney Foundation, a Senior Investigator
of the Arthritis Foundation, and a NIH Research Career Development Awardee. His
research areas include peptide, protein and glycoprotein structure and function,
as well as immunopathology of autoimmune and cancer diseases.
38
<PAGE>
All directors hold office until the next annual meeting of the
stockholders of the Company and until their successors are duly elected and
qualified. Officers are elected to serve, subject to the discretion of the Board
of Directors (the "Board"), until their successors are appointed. There are no
family relationships among any directors or executive officers of the Company.
Pursuant to the Consortium Agreement, upon completion of this Offering
Pharm-Eco will have the right to nominate one individual for election to the
Company's Board of Directors. Pursuant to its agreement with the Company, upon
completion of this Offering RADE will have the right to nominate two individuals
for election to the Company's Board of Directors. As of the date hereof, neither
Pharm-Eco nor RADE has indicated whether it will exercise its right to nominate
someone for election to the Company's Board of Directors.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any such person.
Employment Agreements
The Company entered into an employment agreement with Mr. Thompson in 1992
pursuant to which the Company retained Mr. Thompson as its President and Chief
Executive Officer for an annual base salary of $150,000 (subject to annual
adjustment by the Board), plus reimbursement for related business expenses. The
agreement, which includes certain confidentiality and non-disclosure provisions,
also grants to Mr. Thompson the right to receive an annual bonus to be
established by the Board in an amount not to exceed 60% of Mr. Thompson's annual
base salary for the year and certain other fringe benefits. If the Company
breaches the agreement or Mr. Thompson is terminated by the Company without
cause, he is entitled to all payments which he would otherwise accrue over the
greater of nine months from the date of termination or the remaining term under
the agreement. Additionally, rights to all options granted to Mr. Thompson
pursuant to the agreement vest immediately upon his termination without cause or
a change of control of the Company. The term of Mr. Thompson's agreement expires
on May 11, 1999, subject to automatic renewal for successive one-year terms
unless terminated by either party upon 30 days notice. Except for $12,500 paid
to Mr. Thompson during the fiscal year ended March 31, 1998, Mr. Thompson has
waived any right to receive salary due under his employment agreement prior to
June 30, 1998. Beginning July 1, 1998 and continuing until the Company completes
the Offerings, Mr. Thompson has agreed to accept one-half of his annual salary
as full satisfaction of the Company's salary obligation under his employment
agreement. Upon completion of the Offerings, Mr. Thompson will be paid the full
amount of his salary under his employment agreement, but will not be paid
amounts previously waived.
NextEra has entered into a three year employment agreement with Dr.
Potempa, with an option on the part of NextEra to extend the agreement for an
additional two year period, whereby Dr. Potempa has been retained as the lead
scientist for an annual base salary of $120,000. The Agreement provides that Dr.
Potempa shall receive bonuses and salary increases as determined by NextEra's
CEO and/or Board of Directors. NextEra issued 33,333 shares to Dr. Potempa upon
the formation of NextEra. Additionally, Dr. Potempa will receive options to
purchase 30,000 shares of NextEra upon submission of an NDA relating to rmCRP to
a regulatory agency for product approval. These options shall vest immediately
if there is a change of control of NextEra. The employment agreement contains
confidentiality and non-disclosure provisions.
Summary Compensation Table. The following table sets forth certain
information for the year ended March 31, 1998 regarding the compensation of the
Company's Chief Executive Officer for the fiscal year ended March 31, 1998. None
of the Company's employees received a salary in excess of $100,000 during the
1996, 1997 and 1998 fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ --------------
Name And Principal Position Year Salary ($) Options/Sars(#)
--------------------------- ---- ---------- ---------------
<S> <C> <C> <C>
T. Stephen Thompson 1998 $12,500 0
President, Chief Executive Officer and Director
</TABLE>
39
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.
There were no stock option exercises during the year ended March 31, 1998. The
following table sets forth for each of the Named Executive Officers the number
and value of securities underlying unexercised options held at March 31, 1998:
AGGREGATE OPTION EXERCISES IN YEAR ENDED MARCH 31, 1998 AND
OPTION VALUES AT MARCH 31, 1998
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options At In-the Money Options at
March 31, 1998 (#) March 31, 1998($)(1)
------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
T. Stephen Thompson 60,332 -0- $561,812 $0.00
</TABLE>
- ------------------
(1) Based on a value of $10.00 per share, the assumed initial public offering
price, minus the per share exercise price, multiplied by the number of
shares underlying the option.
Consulting Arrangements
RADE Management Corporation ("RADE") has been engaged by the Company since
July 1998 to assist in various aspects of the Company's ongoing operations,
including analyzing the market potential of the Company's products, developing a
long term strategy for exploitation of the Company's products and assisting in
the negotiation of agreements with other parties which performed services for
the Company. Such services have been provided on behalf of RADE by Messrs. James
Ng, Eric Sorkin and Ms. Cecilia Chan. As compensation for the services which
RADE has provided, in July and October of 1998, the Company granted to RADE
warrants to purchase 225,000 shares of Common Stock and 750,000 shares of Common
Stock, respectively, exercisable at $0.10 per share, subject to certain vesting
conditions. In October 1998, in recognition of RADE's continued efforts, the
Company waived the conditions to vesting of the RADE warrants.
The Company may continue to consult with RADE from time to time after
completion of this Offering. The Company anticipates, however, that the net
proceeds of this Offering will be sufficient to enable the Company to hire
additional management personnel, eliminating the need to rely upon RADE to
supplement its management personnel.
RADE has agreed with and for the Representative not to sell any of their
Shares, warrants or underlying Shares for the twelve-month period (the "Initial
Twelve-Month Period") commencing on the date of this Prospectus. RADE further
has agreed with and for the Representative not to sell or transfer any of their
Shares unless the Share market price, adjusted for splits and like transactions,
closes at or above 200% of the initial public offering price per share for a
period of 20 consecutive trading days.
The Company has also agreed, for a period of one year from the date of the
Offerings, if so requested by RADE, to nominate and use its best efforts to
elect two designees of RADE as directors of the Company, or at RADE's option, as
non-voting advisers to the Company's Board of Directors. RADE has not yet
exercised its right to designate such persons.
The Company and Criticare have agreed to indemnify RADE against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments RADE may be required to make in respect thereof.
40
<PAGE>
CERTAIN TRANSACTIONS
Criticare, the largest shareholder in Immtech, agreed to the Private
Placement of Stock by New China Hong Kong Securities Limited (NCHK). In
connection with the Recapitalization and other related transactions, Criticare
obtained an option to license rmCRP as a therapy for treating sepsis. Sepsis is
a bacterial infection which quickly overwhelms the immune systems and can lead
to sudden death.
On June 25, 1998 Criticare agreed to pay Immtech $150,000 (which amount
Immtech chose to apply toward extinguishing outstanding indebtedness of Immtech
to a service vendor) in exchange for 86,207 shares of Common Stock and the
following additional consideration: (i) all of Immtech's right, title and
interest in the Patent #5,484,735, which is used in the development of a
hemoglobin A1c ("HbA1c") assay to minor diabetics for long term diet and glucose
control; (ii) all of Immtech's right, title and interest in the Patent
#5,702,904 which is used in the development of a carbohydrate deficient
transferrin ("CDT") blood to screen individuals who abuse alcohol over a
sustained period of time; (iii) all of Immtech's rights under the Sigma
Diagnostics, Inc. ("Sigma") Agreement dated as of March 23, 1998, including up
to $110,000 in license fees payable by Sigma upon Sigma's exercise of options to
license technology to conduct research and evaluation; (iv) all of Immtech's
rights with respect to the License agreements between Immtech and Northwestern
University dated as of March 10, 1998 and as of October 27, 1994, the former
license agreement involving certain patent rights and know-how relating to
Immunoassay Constructs to Quantitate Glucosylated-Hemoglobin and other
Glucosylated Serum Proteins (NU 8403) and the latter license agreement involving
certain inventions in the field of Immunoassay for Identifying Alcoholics and
Monitoring Alcohol Consumption (NU 9134); (v) an exclusive, royalty-free,
world-wide license under Patent 5,405,832 to Potempa, granted as of April 11,
1995 to utilize rmCRP for the treatment of sepsis, a life threatening disease
caused by bacteria that overwhelm the body's immune response; (vi) the right to
sue for past infringement with respect to all of the foregoing; and (vii) all
other rights reasonably required to make, use, sell and offer for sale products
based on or related to the assigned assets. Under the agreement, Criticare is
not assuming any other liabilities or obligations of any nature or kind,
including any of Immtech's liabilities for obligations to Northwestern
University under the Northwestern NU 8403 License and the Northwestern NU 9134
License occurring after the closing. Additionally for a period of three years
following closing, Immtech has agreed to make available to Criticare the
part-time services of Dr. Potempa to consult with and advise Criticare regarding
research, testing, FDA compliance and approval, manufacture and
commercialization of the products or applications covered by the above
referenced patents. In exchange for Dr. Potempa's services, Criticare will
reimburse Immtech for Immtech's out-of-pocket salary and employee benefit plan
expenses, pro rata, with respect to Dr. Potempa. For a period of five years from
the time of closing, Criticare shall have the option of purchasing supplies of
rmCRP from Immtech. Criticare also, may manufacture rmCRP. If Criticare does
decide to manufacture rmCRP, Immtech will provide all necessary know-how and
expertise to enable Criticare to manufacture the molecule in commercially viable
quantities. Criticare has until July of 1999 to raise a minimum of $500,000 to
fund the development of a sepsis product and begin clinical trials. If Criticare
is not successful in raising the funds, Immtech has a right to acquire the
technology at market value.
For a description of the transaction between Immtech and NextEra regarding
rmCRP, please see "Business - Collaborative Arrangements - Formation of NextEra
Therapeutics, Inc."
In November 1997, Criticare advanced $120,000 on behalf of the Company in
order to fulfill a patent payment obligation of the Company to UNC. T. Stephen
Thompson, CEO of Immtech, reimbursed Criticare for the advancement of funds by
purchasing 20,425 shares of Criticare common stock (calculated using the average
of the high and low quotation price for Criticare's common stock on the NASDAQ
on the day of reimbursement). Criticare and Mr. Thompson have released Immtech
from any obligation to repay either of them with respect to the patent payment.
In January 1998, in connection with the acquisition of a "public shell"
corporation that the Company was considering merging into, certain stockholders
of the Company, including T. Stephen Thompson, President and Chief Executive
Officer of the Company, made royalty payments to UNC on behalf of the Company in
the amount of $56,000. The payments were made on a voluntary basis in order to
preserve the Company's rights to the assets licensed from UNC pending completion
of the proposed merger between the Company and the "public shell" corporation.
Thereafter, the Board of Directors of the Company voted not to pursue the
proposed merger and the $56,000 advanced on behalf of the Company was deemed to
represent a contribution to the Company's additional paid-in capital.
41
<PAGE>
Criticare Systems, Inc. ("Criticare"), a shareholder, has advanced
$597,722 and $590,000 to the Company as of June 30, 1998 and 1997, respectively.
These advances plus accrued interest of $66,474 have been converted into an
aggregate of 145,843 shares of Common Stock. Other shareholders have converted
interest free advances of $387,450 as of June 30, 1998 into an aggregate of
196,824 shares of Common Stock.
The Company has on occasion retained several law firms to perform
services, including among others Walsh & Keating S.C., Wauwatosa, Wisconsin
("W&K"), Reinhart, Boerner, Van Deuren, Norris & Rieselbach, Milwaukee,
Wisconsin ("Reinhart, Boerner"), Brinks, Hofer, Gilson & Lione, Chicago,
Illinois ("Brinks, Hofer") and Winston & Strawn, Chicago, Illinois ("W&S").
Pursuant to conversion of outstanding notes payable by the Company, certain of
these law firms received cash payments of $203,450 and now hold shares of Common
Stock in the following amounts: W&K - 36,401 shares; Reinhart, Boerner - 10,454
shares; and W&S - 35,359 shares. In addition, certain partners in these law
firms beneficially own Common Stock in the following amounts: Gerald S. Walsh
(W&K) - 55,231 shares; David C. Keating (W&K) - 24,114; Robert Bellin (Reinhart,
Boerner) - 484 shares; and Richard Lione (Brinks, Hofer) - 30,717 shares and
warrants to purchase an additional 3,500 shares.
On July 24, 1998, all shares of Series A Preferred Stock, with a
liquidation preference of $2,780,324, were converted into 578,954 shares of
Common Stock, and all shares of Series B Preferred Stock, with a liquidation
preference of $2,797,260, were converted into 616,063 shares of Common Stock.
On July 24, 1998, Senior Subordinated Debt holders exchanged a principal
balance of $914,000 and accrued interest of $259,937 for 153,000 shares of
Common Stock.
The Company believes that the foregoing transactions were in its best
interests and were on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and were in connection with bona fide
business purposes of the Company. As a matter of policy, all future transactions
between the Company and any of its officers, directors or principal stockholders
will be approved by a majority of the independent and disinterested members of
the Board, will continue to be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties and will continue to be in
connection with bona fide business purposes of the Company.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of December 31, 1998
as adjusted to reflect the sale by the Company of the Shares offered hereby by
(i) each of the Company's Directors and Named Executive Officers, (ii) all
directors and executive officers as a group and (iii) each person known to be
the beneficial owner of more than 5% of the Shares. See "Risk Factors -
Concentration of Ownership."
<TABLE>
<CAPTION>
Number of
Shares of Common Percentage of Outstanding Shares
Stock of Common Stock
Beneficially --------------------------------
Name and Address Owned (1) Before Offering After Offering
---------------- --------- --------------- --------------
<S> <C> <C> <C>
T. Stephen Thompson 283,443(2) 7.28% 5.76%
c/o Immtech International, Inc.
1890 Maple Avenue
Suite 110
Evanston, IL 60201
Byron Anderson, Ph.D 109,322(3) 2.81% 2.22%
c/o Northwestern University
Medical School
303 East Chicago Avenue
Chicago, IL 60611
Gerhard J. Von der Ruhr 178,801(4) 4.57% 3.61%
c/o Criticare Systems, Inc.
20900 Swenson Drive
Waukesha, WI 53186
Criticare Systems, Inc.(4) 1,093,839 28.32% 22.37%
20925 Cross Road Circle
Waukesha, WI 53186
University of North Carolina 611,250(5) 15.85% 12.51%
at Chapel Hill/Pharm-Eco
Laboratories
c/o Office of Technology
Development
308 Bynum Hall
Chapel Hill, NC 27599
All directors and officers 693,848 16.90% 13.52%
as a group (5 persons)
</TABLE>
- --------------------------
(1) Unless otherwise indicated below, the persons in the above table have
sole voting and investment power with respect to all shares beneficially
owned by them, subject to applicable community property laws.
(2) Includes 246,510 shares of Common Stock, 800 warrants to purchase Common
Stock, and 36,133 shares of Common Stock issuable upon the exercise of
options as follows: option to purchase 8,872 shares of Common Stock at
$0.46 per share by March 21, 2006; option to purchase 13,066 shares of
Common Stock at $0.34 per share by November 27, 2001; and option to
purchase 14,195 shares of Common Stock at $1.74 per share by April 16,
2008.
(3) Includes 78,834 shares of Common Stock, and 30,488 shares of Common Stock
issuable upon the exercise of option as follows: option to purchase
21,777 shares of Common Stock at $0.59 per share by April 13, 2000;
option granted to Dr. Anderson's wife to purchase 8,711 shares at $0.34
per share by May 1, 2001.
(4) Criticare Systems, Inc. (Nasdaq: CXIM) designs, manufactures and markets
cost-effective patient monitoring systems and noninvasive sensors for a
wide range of hospitals and alternate health care environments throughout
the worlds.
(5) University of North Carolina at Chapel Hill ("Consortium") and Pharm-Eco
jointly own 611,250 shares of Common Stock once $4,000,000 has been
raised in the Offerings. At the time of an ANDA or NDA filing, 150,000
additional shares of Common Stock shall be issued. Additionally, upon
reaching certain milestones of development, the Consortium and Pharm-Eco
are entitled to warrants to purchase 850,000 shares of Common Stock at an
exercise price equal to the weighted average market price of the
Company's Common Stock during the first 20 days of trading on any stock
exchange or in any over-the-counter market.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"U.S. Underwriting Agreement") between the Company and Westport Resources
Investment Services, Inc., as Representative of the several U.S. Underwriters
named below, the Company has agreed to sell to the U.S. Underwriters and the
U.S. Underwriters, through the Representative, have severally but not jointly
agreed to purchase from the Company, on a firm commitment basis, the aggregate
number of Shares set forth opposite their respective names (exclusive of Shares
purchased pursuant to the Underwriters' Over-allotment Option).
Underwriter Number of Shares
----------- ----------------
Westport Resources Investment Services, Inc.
Total 300,000
The U.S. Underwriting Agreement provides that the obligations of the
several U.S. Underwriters thereunder are subject to approval of certain legal
matters by counsel and to various other conditions. The nature of the U.S.
Underwriters' obligations are such that they are committed to purchase all of
the Shares offered in the U.S. if any are purchased.
The Company has agreed to sell the Shares to the Underwriters at a 9.9%
discount from the offering price and to pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering price of the Shares sold pursuant to this Prospectus, including
any Shares sold to the Underwriters upon exercise of the Underwriters'
Over-Allotment Option. The non-accountable expense allowance of $50,000 has been
paid to the Representative to date. In addition to such expense allowance, the
Company has agreed to pay certain fees and expenses of the Representative's
counsel in connection with qualification of this offering under state securities
laws.
The Company has entered into a separate underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
international offering (the "International Underwriters") providing for the
concurrent offer and sale of 700,000 shares of Common Stock by the Company in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the International Offering, and vice versa. The Representatives of
the International Underwriters are The New China Hong Kong Securities Limited
and China Everbright Securities (H.K.), Ltd.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as part of the distribution of
the shares offered hereby, it will offer, sell or deliver the shares of Common
Stock, directly or indirectly, only in the United States of America (including
the States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction (the "United States") and to U.S.
persons, which term shall mean, for purposes of this paragraph: (a) any
individual who is a resident of the United States or (b) any corporation,
partnership or other entity organized in or under the laws of the United States
or any political subdivision thereof and whose office most directly involved
with the purchase is located in the United States. Each of the International
Underwriters has agreed pursuant to the Agreement Between that, as a part of the
distribution of the shares offered as a part of the International Offering, it
will (i) not, directly or indirectly, offer, sell or deliver shares of Common
Stock (a) in the United States or to any U.S. persons or (b) to any person whom
it believes intends to immediately reoffer, resell or deliver the shares in the
United States or to any U.S. persons, (ii) cause any dealer to whom it may sell
such shares at any concession to agree to observe a similar restriction, and
(iii) offer, sell or deliver shares of Common Stock only in those jurisdictions
which permit such offers, sales and delivery and, with respect to such
jurisdictions, only in accordance with the laws thereof. The International
Underwriters do not anticipate a trading market in the Company's shares of
Common Stock to develop outside of the United States. In order for the Company
to avail itself of an exception to the registration requirements of Hong Kong
Securities Laws, investors located in Hong Kong who purchase Shares in the
International Offering are prohibited from selling their shares in Hong Kong for
a period of 6 months following the initial purchase. Such investors would be
permitted to sell Shares at any time in the United States.
44
<PAGE>
The Company has granted the U.S. Underwriters an option exercisable for 45
days after the date of this Prospectus to purchase up to an aggregate of 45,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the underwriting discount, as set forth on
the cover page of this Prospectus. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 300,000 shares of Common Stock offered hereby. The U.S.
Underwriters may exercise such option only to cover over-allotments, in
connection with the sale of the 300,000 shares of Common Stock offered hereby.
The Company has granted the International Underwriters an option exercisable for
45 days to purchase up to an aggregate of 105,000 additional shares of Common
Stock, solely to cover over-allotments, if any, at the initial public offering
price less the underwriting discount, as set forth on the cover page of the
Prospectus.
The Company has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a price below the initial public offering price for a
period of one (1) year after the date of this Prospectus, except for the shares
of Common Stock offered in connection with the concurrent U.S. and International
Offerings.
Prior to the Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among the Company and the
Representative of the U.S. Underwriters and the Representatives of the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The U.S. Underwriters, through the Representative, have advised the
Company that they propose to offer the Shares at the public offering price set
forth on the cover page of this Prospectus and that the U.S. Underwriters may
utilize the services of certain dealers, including dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and certain
foreign dealers. The public offering price and the amount of the concessions and
reallowances, if any, provided for any broker-dealers involved in the
distribution of the securities offered hereby will not be changed until after
the initial public offering is completed.
Management of the Company may provide the Representative with a list of
persons who they believe may be interested in purchasing Shares being offered
hereunder. The Representative and the other U.S. Underwriters may sell a portion
of the Shares to such persons if such persons reside in a state where the Shares
can be sold and where the U.S. Underwriters or selected dealers are permitted to
sell the Shares.
The Company's officers and directors, the holders of the Company's 498,636
stock options (the "Option Holders"), the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representative not to sell any of their Shares, options,
warrants or underlying Shares for the twelve-month period (the "Initial
Twelve-Month Period") commencing on the date of this Prospectus. The Company's
officers and directors, the 5% Holders, Option Holders, Criticare and certain
consultants, including RADE, have further agreed with and for the Representative
not to sell or transfer any of their Shares unless the Share market price,
adjusted for splits and like transactions, closes at or above 200% of the
initial public offering price per share for a period of 20 consecutive trading
days.
In connection with this Offering, the Company has agreed to issue to the
Underwriters, for a purchase price of $0.01 per warrant, (the "Underwriters'
Warrants"), warrants to purchase common stock at a price equal to 160% of the
respective public offering price per share, for up to 100,000 Shares. The
Underwriters' Warrants contain anti-dilution provisions and are exercisable for
a period of four years commencing twelve months from the date of this
Prospectus. They are restricted from sale, transfer, assignment or hypothecation
for a period of twelve months from the date of this Prospectus except to
officers of the Underwriters or their successors, or to other Underwriters and
their officers. The holders of the Underwriters' Warrants will have no voting,
dividend or other rights as stockholders of the Company with respect to shares
of Common Stock underlying the Underwriters' Warrants until the Underwriters'
Warrants have been exercised. The Company has agreed, at its sole expense, to
include the Underwriters' Warrants and underlying shares in the Registration
Statement of which this Prospectus is a part and have granted certain
registration rights to the Underwriters.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
Common Stock, with a resulting dilution in the interest of other stockholders.
The holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company
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would be able to obtain needed capital by an offering of its unissued capital
shares on terms more favorable to the Company than those provided by the
Underwriters' Warrants. Such facts may adversely affect the terms upon which the
Company can obtain additional financing. Any profit realized by the Underwriters
upon the sale of the Underwriters' Warrants or shares of Common Stock issuable
upon the exercise of the Underwriters' Warrants may be deemed additional
underwriting compensation (see "Risk Factors - Potential Adverse Effect of
Underwriters' Warrants").
The U.S. Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
None of the Underwriters nor any of their controlling persons have any
material relationship with the Company, its promoters or their controlling
persons.
In connection with this offering, certain U.S. Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The U.S. Underwriters also may create a short position for the account
of the U.S. Underwriters by selling more Shares in connection with the offering
than they are committed to purchase from the Company, and in such case may cover
all or a portion of such short position by purchases in the market. The
Representative, on behalf of the U.S. Underwriters, may also cover all or a
portion of such short position by exercising the Over-Allotment Option. In
addition, the Representative, on behalf of the U.S. Underwriters, may impose
"penalty bids" under contractual arrangements with the U.S. Underwriters whereby
it may reclaim from a U.S. Underwriter (or dealer participating in the offering)
for the account of other U.S. Underwriters, the selling concession with respect
to Shares that are distributed in the offering but subsequently purchased for
the account of the U.S. Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at levels above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended, by reason of
misstatements of, or omissions to state, material facts in this Prospectus and
the Registration Statement of which it is a part.
This Underwriting section is a summary of all of the material terms of the
U.S. Underwriting Agreement and does not purport to be complete. A copy of the
U.S. Underwriting Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available at or from the
offices of the Securities and Exchange Commission for review (see "Additional
Information").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Determination Of Offering Price
Prior to this offering, there has been no public market for any of the
Company's securities. The initial offering price of the Shares has been
arbitrarily determined by negotiations between the Company and the
Representative. Among the factors considered in determining such prices are
prevailing market conditions generally, the Company's historical and prospective
operations and earnings, the history of the prospects for the industry in which
the Company operates, and market prices for securities of other companies
comparable to the Shares.
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DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock, $0.01 par value per share, of which 4,884,914 shares will be
issued and outstanding upon completion of this Offering, and 5,000,000 shares of
preferred stock, $0.01 par value per share, of which no shares are issued and
outstanding.
The following summary of the respective rights of the holders of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate of Incorporation and By-Laws, as amended to date, where
such rights are set forth in full, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
Common Stock
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock is entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefor, and, in the event of liquidation, dissolution or winding up of the
Company, to share pro rata in any distribution of the Company's assets after
payment or providing for the payment of all liabilities and the liquidation
preference of any outstanding Preferred Stock. Each holder of Common Stock is
entitled to one vote for each share held of record on the applicable record date
on all matters presented to a vote of stockholders, including the election of
directors. Holders of Common Stock have no cumulative voting rights or
pre-emptive rights to purchase or subscribe for any shares of Common Stock or
other securities of the Company in the event of any subsequent offering. The
shares of Common Stock have no conversion rights, are not subject to redemption
and are not subject to further calls or assessments. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby on behalf of the
Company will be when issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designations, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up of the Company.
There are no agreements for the issuance of Preferred Stock and the Board of
Directors has no present intent to issue any Preferred Stock. The existence of
authorized but unissued Preferred Stock may enable the Directors to render more
difficult or to discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise. The issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may have the effect of
delaying, deferring or preventing a change in control of the Company.
Underwriters' Warrants
The Company has authorized, in connection with the Underwriters' Warrants,
the issuance of 100,000 warrants to purchase Common Stock, and has reserved an
equal number of shares of Common Stock for issuance upon exercise of such
Underwriters' Warrants. See "Underwriting". The Underwriters' Warrants are not
redeemable and contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and the number of shares issuable
upon exercise thereof in certain events, such as stock dividends, distributions
and stock splits. In the event of any capital reorganization, reclassification,
conversion of the Common Stock or consolidation, merger or sale of all or
substantially all of the assets of the Company, the Underwriters' Warrants will
be exercisable for the number of shares of stock or other securities or property
of the Company, or of the corporation into which shares of Common Stock are
converted or resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, to which the shares of Common
Stock issuable upon exercise of such Underwriters' Warrants would have been
converted if such shares had been issued and outstanding at the time of the
change. The Company is not required to issue fractional securities, but will pay
the holder of the Underwriters' Warrant an amount in cash equal to such fraction
multiplied by the then current market value for the Common Stock. The holder of
an Underwriters' Warrant will not possess any rights as a stockholder of the
Company unless and until he exercises his Representative's Warrant. See
"Underwriting".
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Registration Rights Agreements
In connection with the issuance and sale by the Company of the Series A
Preferred Stock and the issuance of an option to purchase shares of Series B
Preferred Stock, which shares of Series A Preferred Stock and Series B Preferred
Stock were converted into Common Stock pursuant to the Recapitalization
(collectively, "Registrable Securities"), the Company entered into a
Registration Agreement with Marquette Venture Partners II, L.P. and the other
investors executing the Registration Agreement (the "Investors"). The
Registration Agreement gives the Investors or subsequent holders of Registrable
Securities which hold a majority of Registrable Securities the right to request
the Company to effect two long-form registrations and unlimited short-form
registrations of such securities under the Act ("Demand Registration"). In
addition, the Registration Agreement gives the Investors or subsequent holders
of Registrable Securities the right to have their securities included in
offerings of the Company's securities that are registered under the Act
("Piggyback Registration"). Securities to be registered pursuant to Piggyback
Registration need only be included, on a pro rata basis, to the extent the
managing underwriter advises the Company that the aggregate number of securities
which the selling stockholders seek to offer can be sold. The Company is
required to pay all expenses of the holders of securities in connection with
Demand Registration and Piggyback Registration other than underwriting discounts
and commissions.
Stockholders who formally held senior subordinated debentures have certain
registration rights pursuant to the Subscription Agreement between the Company
and the debenture holders (the "Subscription Agreement"). Pursuant to the
Subscription Agreement, upon an event of default (as defined in the Subscription
Agreement) by the Company (which has occurred), each such person generally is
entitled to have shares of Common Stock held by them included in any offering of
Common Stock proposed to be registered by the Company under the Securities Act.
Under the Statement of Rights and Warrants Certificate (the
"Certificate"), between the Company and holders thereof, upon the Warrant
holders furnishing certain information and agreeing to abide by certain terms as
identified in the Certificate, the Company shall register the shares underlying
the Warrants held by the Warrant holders under the Securities Act.
Pursuant to the Letter Agreement, dated June 26, 1998, between the Company
and Criticare, Criticare is entitled to reasonably request shares of Common
Stock of the Company held by it be registered under federal and state securities
laws. At the request of the Company and in connection with the Offering,
Criticare has agreed not to sell or transfer Immtech securities for a period of
1 year following the date of this Prospectus and until the 20-day average
trading price of Immtech shares exceeds 200% of the initial public offering
price.
The U.S. Underwriter has advised the Company that market conditions will
not permit the addition of any shares to be sold by selling stockholders to the
shares of Common Stock to be sold in the Offerings.
Transfer Agent, Registrar and Warrant Agent
The transfer agent and registrar for the Common Stock of the Company and
the Warrant Agent for the Warrants is Harris Trust and Savings Bank.
Certain Provisions of the Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law (the
"DGCL") prohibits a publicly held Delaware corporation from engaging in a broad
range of "business combinations with an "interested stockholder" (defined
generally as a person owing 15% or more of the corporation's outstanding voting
stock) for three years following the date such person became an interested
stockholder unless (i) before the person becomes an interested stockholder, the
transaction resulting in such person becoming an interested stockholder or the
business combination is approved by the board of directors of the corporation,
(ii) upon consummation of the transaction resulting in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares owned by directors
who are also officers of the corporation or shares held by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender offer or exchange
offer) or (iii) on or after such date on which such person became an interested
stockholder, the business combination is approved by the board of directors and
authorized at an annual or special meeting, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock excluding
shares owned by the interested stockholders. The restrictions of Section 203 do
not apply, among other reasons, if a corporation, by action of its stockholders,
adopts an amendment to its certificate of incorporation
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or bylaws expressly electing not to be governed by Section 203, provided that,
in addition to any other vote required by law, such amendment to the certificate
of incorporation or bylaws must be approved by the affirmative vote of a
majority of the shares entitled to vote. Moreover, an amendment so adopted is
not effective until twelve months after its adoption and does not apply to any
business combination between the corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption. The
Company's Certificate of Incorporation and Bylaws do not currently contain any
provisions electing not to be governed by Section 203 of the DGCL.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of the Common Stock. This could have
the effect of inhibiting changes in management and may also prevent temporary
fluctuations in the Common Stock that often result from takeover attempts.
Section 228 of the DGCL allows any action that is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to be
taken without a meeting with the written consent of holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the certificate of incorporation
of such corporation does not contain a provision to the contrary. The Company's
Certificate of Incorporation contains no such provision, and therefore
stockholders holding a majority of the voting power of the Common Stock will be
able to approve a broad range of corporate actions requiring stockholder
approval without the necessity of holding a meeting of stockholders.
Certain provisions of the Company's Bylaws may have the affect of
discouraging certain types of transactions that may involve an actual or
threatened change of control of the Company and encouraging any person who might
seek to acquire control of the Company to negotiate with the Company's Board of
Directors.
REPORTS TO STOCKHOLDERS
Stockholders of the Company will be furnished with annual reports
containing audited financial statements of the Company and such other interim
reports as the Company may determine.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of these Offerings, the Company will have 4,884,914 shares
of Common Stock outstanding, after giving effect to the issuance of 611,250
shares to Pharm-Eco and Members of the Consortium and 28,147 shares to the State
of Illinois (assuming an initial public offering price of $10 and not including
2,740,036 shares of Common Stock subject to outstanding options and warrants).
Of the shares to be outstanding, the 1,000,000 shares of Common Stock to be
distributed by the Company will be freely tradeable without restriction. All of
the remaining 3,884,914 shares will be restricted securities within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to
Rule 144, 2,670,517 of such restricted securities will be eligible for resale
upon the effective date (the "Effective Date") of the Registration Statement of
which this Prospectus forms a part. The holders of 1,904,635 of such 2,670,517
shares to become eligible for sale on the Effective Date have agreed not to sell
any of such shares for 1 year after the Effective Date, 45,813 shares will be
eligible for sale less than 90 days from the Effective Date, and 148,522 shares
will be eligible for sale between 90 to 180 days from the Effective Date. In
addition to the 2,670,517 shares previously mentioned, 575,000 shares will be
eligible for resale in July 1999 and 639,397 shares will be eligible for resale
one year after the Effective Date. The Company's officers, directors, certain
consultants, including RADE, and those shareholders owning 5% or more of the
shares outstanding, have further agreed not to sell any of their Shares
(representing 1,437,543 of the 1,904,635 Shares subject to "lock-up" agreements
and referred to above) and any of the 975,000 shares issuable upon exercise of
options and warrants held by them, until the market price for the Company's
Common Stock, adjusted for splits and like transactions, closes at or above 200%
of the initial public offering price per share for a period of 20 consecutive
trading days.
The Company's officers and directors, the holders of the Company's 498,636
stock options (the "Option Holders"), the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representative not to sell any of their Shares, options
or underlying Shares for the twelve-month period (the "Initial Twelve-Month
Period") commencing on the date of this Prospectus. The Company's officers and
directors, the 5% Holders, Option Holders, Criticare and certain consultants,
including RADE, have further agreed with and for the Representative not to sell
or transfer any of their Shares unless the Share market price, adjusted for
splits and like transactions, closes at or above 200% of the initial public
offering price per share for a period of 20 consecutive trading days.
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In general, under Rule 144 as recently amended, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one (1) year (including the contiguous holding period of any
prior owner except an affiliate) is entitled to sell in "broker's transactions"
or to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 48,000 shares immediately after the Offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain requirements as to manner of
sale, the filing of a notice and the availability of public information
concerning the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the three (3) months preceding a
sale and who has beneficially owned the shares proposed to be sold for at least
two (2) years (including the contiguous holding period of any prior owner except
an affiliate) would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits nonaffiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing ninety (90) days after the date of this Prospectus.
Prior to the Offering, there has been no market for the Common Stock or
the Warrants of the Company, and no predictions can be made of the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock and the Warrants of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the Warrants and the ability of the Company to raise equity capital in
the future.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Gardner, Carton & Douglas, Chicago, Illinois. Certain legal
matters will be passed upon for the U.S. Underwriter by Prifti Law Offices,
Lynnfield, Massachusetts.
EXPERTS
The financial statements as of March 31, 1997 and 1998 and for each of the
three years in the period ended March 31, 1998 included in this Prospectus and
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes an explanatory paragraph regarding
substantial doubt about the company's ability to continue as a going concern.)
Such financial statements have been included herein and elsewhere in the
Registration Statement based upon the report of such firm given upon their
authority as experts in accounting and auditing.
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GLOSSARY
As used in this Prospectus, the following terms have the meanings set
forth below.
Acute phase response The term used to describe a vast number of systemic
and metabolic changes occurring in the body
immediately after and within the first few days of
any event which threatens the integrity of healthy
tissues.
Adaptive immunity The capacity of the immune system to "learn" and
acquire specific protection against disease.
Adjunct therapy An ancillary treatment which is secondary to the
main treatment.
Adjuvant A substance which aids another substance in its
action.
Affinity The intrinsic attractiveness of one substance for
another.
AIDS Acquired immune deficiency syndrome.
ANDA Abbreviated new drug application.
Antibody An immunoglobulin molecule capable of specifically
combining with a known substance (antigen).
Antigen A substance recognized by (reacting with) an
antibody.
B-cell One of two major classes of lymphocytes. B-cells
differentiate into antibody producing cells (i.e.
"plasma" cells).
Bone marrow Hematopoietic tissue. The area of the body where
most of the cellular elements of the blood are
produced.
Candida albicans A common, yeast-like fungus, normally found in the
mouth, digestive tract. vagina, and on the skin of
healthy persons. Can cause infections of internal
organs.
Carcinoma A malignant tumor arising from epithelial tissues.
CD4+ cell A subset of T-cells which function as helper cells
in the immune response to disease. HIV primarily
infects CD4+ cells which, as the infection
proliferates, will kill CD4+ cells.
CD8+ cell A subset of T-cells which function as suppressor and
cytotoxic cells of the immune response.
CDT Carbohydrate Deficient Transferrin - An isomeric
form of the iron binding blood protein, Transferrin,
that occurs in greater amounts in people who
chronically consume excess alcohol.
Complement A set of proteins in the blood which are responsible
for many biological defense reactions of both innate
and adaptive immunity.
C-reactive protein (CRP) A human protein composed of five identical globular
subunits arranged in cyclic symmetry (i.e. a cyclic
pentamer). The level of this protein in blood
increases up to 1000-fold within 24 to 72 hours of
an acute phase response. Because of these changes,
CRP is known as the prototypic acute phase reactant.
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CRO Clinical Research Organization
Cryptococcus neoformans A yeast-like fungus that spreads through the lungs
to the brain, skin, bones and urinary tract.
Cryptosporidium parvum A parasite that is commonly found in the intestinal
tract of mammals that, in immune suppressed
individuals, can cause chronic, profuse, watery
diarrhea accompanied by fever, marked weight loss,
and enlarged lymph nodes.
Cytokines Biologically active compounds produced by one cell
and which affect the activities of other cells.
Cytoskeleton An intracellular matrix of many different proteins
which form a scaffolding and a communication network
within a cell and functions to dynamically organize
and coordinate cellular actions and activities.
DAP 092 The designation given to the Company's lead drug
molecule. Its chemical structure contains two
positive charges (cationic groups) that are
important in the antibiotic activity of the
molecule.
DB 289 The designation given to the Company's lead prodrug,
which can be administered orally.
Diabetes A chronic disease characterized by abnormal insulin
secretion from the pancreas. This causes problems in
the metabolism of glucose (sugar).
DMF Drug Master File; a reference document providing
detailed information about a drug in development.
DNA A type of molecule made up of polymerized
deoxyribonucleotides linked together by phosphate
bonds. The sequence of nucleotides in the polymer
contains the basic information of life.
Effector function The action which a cell or factor has been
programmed to complete.
Endotoxin A part of a bacteria which has potent immunological
and fever-producing effects.
Epitope A biochemical structure on the surface portion of a
biomolecule which is recognized by an antibody. The
term "determinant" is a synonym.
Extracellular matrix A combination of proteins, carbohydrates, cells and
factors which form a physical meshwork and which
defines tissue environment.
ex vivo Occurring outside the body.
FDA Food and Drug Administration.
Gene A distinctive hereditary unit defined by part of the
DNA sequence of nucleotides.
Germinal centers A collection of metabolically active lymphoblasts,
macrophages and plasma cells which appear within
lymphoid tissues following antigenic stimulation.
GLP Good Laboratory Practices.
GMP Good Manufacturing Practices.
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HbA1c Hemoglobin A1c - An adduct of the hemoglobin
molecule that is modified by a chemical reaction
with glucose (i.e. a "glycated"-hemoglobin)
molecule. Because diabetic patients generally have
large fluctuations in the number of glucose
molecules in their blood, they have a higher
relative amount of HbA1c which correlates with the
extent of their disease.
Helper T-cells A class of specific T-lymphocytes which are
necessary to "help" B-cells produce antibody and
effector T-cells to carry out their functions.
HIV Human immunodeficiency virus (the virus that causes
AIDS).
Immunity An active process performed by white blood cells and
their products which repels a foreign organism or
substance.
IND Investigational new drug application; a document
required by the FDA prior to performance of clinical
investigations on human subjects in the United
States.
Inflammation Redness, swelling and pain in a tissue resulting
from the infiltration of the tissue by foreign
substances and activated immune cells.
Innate immunity Natural (i.e. unlearned) immunity which provides
mechanical, chemical and biological barriers, and a
rapid and immediate protective response to any
insult to body tissues.
Interleukin A term applied to any of a group of peptide signals
that are produced by activated lymphocytes or
monocytes.
IRB Institutional (Internal) Review Board - a committee
of individuals deciding on the appropriateness of a
proposed experimental procedure or trial.
in vitro Occurring in a contained artificial test system
(i.e. in a test tube).
in vivo Occurring inside the body.
IV Intravenous.
Leismaniasis An infection caused by a protozoal parasite that
affects the skin and abdominal organisms, causing
ulcers or skin disorders that resemble leprosy.
Leukemia A form of cancer in which white blood cells
proliferate and distribute throughout the body
abnormally.
Leukocytes Circulating white blood cells.
Lymphatics Vessels of the immune system that drain interstitial
fluids, debris and leukocytes.
Lymphocytes White blood cells of the lymph series, capable of
recognizing and responding to antigens in a specific
manner.
Lymphoma A form of cancer in which the cells in lymph tissues
(e.g. lymph nodes and spleen) proliferate
uncontrollably.
Lymph tissues Body structures within which lymphatic circulation
drains and immunity occurs.
Macrophage A phagocytic white blood cell found in tissues and
in blood. When found in blood, it is called a
monocyte.
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Megakaryocyte A multinuclear giant cell of the bone marrow,
portions of which break off to form platelets.
Melanoma A form of cancer arising from skin cells.
Metastases Areas within the body where cancers spread and grow
distant from the site of the primary or original
cancer site.
modified-CRP (mCRP) A naturally occurring human protein with the same
genetic structure as CRP but which is structurally
changed so it is no longer a cyclic pentamer. mCRP
has biological, immunological and pharmacological
activities distinct from CRP.
Monoclonal antibody A homogenous population of antibodies which react
with one, specific epitope of an antigen.
Monocytes Phagocytic blood leukocytes, originating from the
bone marrow.
Mycobacterium avium A bacterial infection that can affect most internal
organs. It is associated with widely disseminated
disease which is manifest by non-specific symptoms
such as enlarged lymph nodes, weight loss and
diarrhea.
Mycobacterium tuberculosis A bacterial infection that is transmitted by
breathing in, or eating infected droplets, usually
affecting the lungs, although infection of other
organ systems can occur.
NCDDG National Cooperative Drug Development Grant
NDA New drug application. The application must be
approved by the FDA before a new drug can be
marketed in the United States.
Neoantigens Antigens arising as the result of a change in
structure of a molecule.
Neutrophil The most prominent white blood cell in the
circulation which functions to aggressively attack
foreign substances compromising the integrity of
body tissues.
Pentamidine An antiprotozoal drug having two positive charges
(i.e. "dications"), used to treat Pneumocystis
carinii pneumonia, Leismaniasis, and African
trypanosomiasis. The drug is very difficult to
deliver and is extremely toxic if not administered
properly.
Phase I Clinical testing time in which the safety and
pharmacological profile of a new drug is established
in humans.
Phase II Clinical testing time in which the effectiveness of
a new drug is established in humans. This includes
establishing the dose amount and frequency required
to achieve a therapeutic effect, the metabolic rate
of the administered drug, and the toxicity profile
in specific patient populations.
Phase III Clinical testing time involving extensive
multicenter, blinded testing in humans. This testing
establishes the significance of therapeutic
effectiveness and is a required step to gain FDA
approval to begin product marketing in the United
States.
P-IND Physician-sponsored investigation new drug
application.
Plasmodium falciparum A type of protozoa that causes the most severe form
of malaria.
PLA Product License Application. Equivalent to an NDA,
but for products defined as `biological products' by
the FDA (e.g. vaccines, antitoxins, blood products,
immune modulators, etc.)
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Platelet The smallest type of blood particle which plays a
major role in blood clotting.
Pneumocystis carinii
pneumonia (PCP) A type of lung infection found rarely in the general
population but presents in immune suppressed
patients. Approximately 80% of all AIDS patients get
PCP at some time during the course of the disease.
Prodrug A non-active precursor form of a drug. A chemical
modification of a prodrug is required to express the
active moiety.
recombinant mCRP (rmCRP) A molecule identical to mCRP, produced by genetic
engineering techniques.
RNA A group of molecules made up of polymerized
ribonucleotides linked together by phosphate bonds.
These molecules help translate the information
stored in DNA into physical effects.
Sepsis A severe bacterial infection involving the blood
stream.
Stem cell An undifferentiated cell from which various effector
cells are derived.
Systemic Affecting the whole body rather than a specific
part.
Syncytium Multinucleated protoplasmic mass, an aggregation of
several cells without any apparent cell outlines.
T-cell One of two major classes of lymphocytes. T-cells are
subdivided into cells which "help" various aspects
of immune function, and cells which "suppress"
various aspects of immune function, and directly
kill specific targets (cells) which threaten health.
Thrombocyte Another name for a platelet.
Thrombocytopenia A reduction in the number of platelet cells in the
blood, causing a tendency to bleed.
Topoisomerase An enzyme that makes reversible cuts in a double
helical DNA molecule for the purpose of removing
knots or unwinding excessive twists.
Trypanosomiasis An infection caused by a protozoal parasite and
transmitted usually by insect bites.
55
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND 1998 AND
DECEMBER 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1996,
1997 AND 1998, FOR THE NINE MONTH PERIODS ENDED DECEMBER 31,
1997 AND 1998 AND FOR THE PERIODS FROM OCTOBER 15, 1984
(DATE OF INCEPTION) TO MARCH 31, 1998 AND DECEMBER 31, 1998:
Balance Sheets F-2
Statements of Operations F-4
Statements of Common Stockholders' Investment (Deficiency in Assets) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Immtech International, Inc.
(A Development Stage Enterprise):
We have audited the accompanying balance sheets of Immtech International, Inc.
(a development stage enterprise) (the "Company") as of March 31, 1997 and 1998,
and the related statements of operations, common stockholders' investment
(deficiency in assets), and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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, such financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 1997 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in the discovery and development of biopharmaceutical
products. As discussed in Note 1 to the financial statements, the deficiency in
working capital as of March 31, 1998 and the Company's operating losses since
inception raise substantial doubt about its ability to continue as a going
concern. In addition, management of the Company expects the Company to incur
significant losses during the next several years. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
August 29, 1998
F-1
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
-------------------- December 31,
ASSETS 1997 1998 1998
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 78,510 $ 92,487
Prepaid expenses and supplies 14,702 $ 13,634 10,134
--------- -------- ---------
Total current assets 93,212 13,634 102,621
--------- -------- ---------
PROPERTY AND EQUIPMENT (Notes 1 and 3):
Furniture and equipment 296,042 296,042 296,042
Leasehold improvements 17,205 17,205 17,205
--------- -------- ---------
Total - at cost 313,247 313,247 313,247
Less accumulated depreciation and amortization 228,991 256,110 276,450
--------- -------- ---------
Property and equipment - net 84,256 57,137 36,797
OTHER ASSETS (Note 1):
Debt issuance costs - net 11,926
Deferred offering costs 229,641
--------- -------- ---------
TOTAL $ 189,394 $ 70,771 $ 369,059
========= ======== =========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------- December 31,
LIABILITIES AND COMMON STOCKHOLDERS' 1997 1998 1998
INVESTMENT (DEFICIENCY IN ASSETS) (unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 5) $ 208,274 $ 395,736 $ 222,406
Accrued interest (Notes 2, 4 and 5) 454,684 663,013 281,470
Other accrued liabilities 133,152 32,128 95,422
Advances from stockholders (Notes 2 and 4) 770,000 985,172
Notes payable (Notes 2 and 5) 1,572,969 1,576,450 110,000
------------ ------------ ------------
Total current liabilities 3,139,079 3,652,499 709,298
------------ ------------ ------------
REDEEMABLE PREFERRED STOCK (Notes 2 and 6):
Series A redeemable, par value $0.01 per share,
1,794,550 shares authorized and issued,
aggregate liquidation preference of $2,505,791 and
$2,711,171 as of March 31, 1997 and 1998,
respectively, converted to 578,954 shares of common
stock on July 24, 1998 2,586,967 2,711,171
Series B redeemable, par value $0.01 per share,
1,600,000 shares authorized and issued,
aggregate liquidation preference of $2,521,493 and
$2,728,724 as of March 31, 1997 and 1998,
respectively, converted to 616,063 shares of common
stock on July 24, 1998 2,521,493 2,728,724
------------ ------------
Total redeemable preferred stock 5,108,460 5,439,895
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 3, 5, 10 and 12)
COMMON STOCKHOLDERS' INVESTMENT
(DEFICIENCY IN ASSETS) (Notes 2, 4, 5, 6, 8, 11 and 12):
Preferred stock, par value $.01 per share,
5,000,000 shares authorized and unissued
Common stock, par value $0.01 per share, 30,000,000
shares authorized, 675,498, 743,665 and 3,245,517
shares issued and outstanding as of March 31, 1997
and 1998 and December 31, 1998, respectively 6,755 7,437 32,455
Additional paid-in capital 3,720,414 4,233,386 10,871,198
Deficit accumulated during the developmental stage (11,785,314) (13,262,446) (11,243,892)
------------ ------------ ------------
Total common stockholders' investment
(deficiency in assets) (8,058,145) (9,021,623) (340,239)
------------ ------------ ------------
TOTAL $ 189,394 $ 70,771 $ 369,059
============ ============ ============
</TABLE>
F-3
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
-------------------------------------------- to March 31,
1996 1997 1998 1998
<S> <C> <C> <C> <C>
REVENUES (Notes 1, 11 and 12) $ 335,000 $ 15,000 $ 19,552 $ 1,721,121
------------ ------------ ------------ ------------
EXPENSES:
Research and development (Notes 1, 8 and 12) 737,805 478,871 312,366 6,854,445
General and administrative (Notes 8 and 11) 218,843 532,642 534,984 5,347,696
Cancelled offering costs 65,837 73,984 584,707
------------ ------------ ------------ ------------
Total expenses 956,648 1,077,350 921,334 12,786,848
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (621,648) (1,062,350) (901,782) (11,065,727)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (135,468) (281,710) (241,767) (1,061,959)
Miscellaneous (expense) income - net (2,522) (6,503) (2,148) 70,986
------------ ------------ ------------ ------------
Other expense - net (137,990) (288,213) (243,915) (990,973)
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (759,638) (1,350,563) (1,145,697) (12,056,700)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (Notes 2, 4 and 5)
------------ ------------ ------------ ------------
NET LOSS (759,638) (1,350,563) (1,145,697) (12,056,700)
CONVERSION OF REDEEMABLE PREFERRED STOCK (Notes 2 and 6)
REDEEMABLE PREFERRED STOCK PREMIUM AMORTIZATION (Note 6) 89,435 100,145 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 6) (335,759) (368,125) (413,131) (1,645,865)
------------ ------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,005,962) $ (1,618,543) $ (1,477,132) $(13,262,446)
============ ============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (1.15) $ (2.04) $ (1.69)
Extraordinary gain
------------ ------------ ------------
Net loss (1.15) (2.04) (1.69)
Redeemable preferred stock conversion, premium
amortization and dividends (0.37) (0.40) (0.49)
------------ ------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (1.52) $ (2.44) $ (2.18)
============ ============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 660,833 662,975 676,471
============ ============ ============
<CAPTION>
October 15,
Nine Month Periods 1984
Ended December 31, (Inception) to
---------------------------- December 31,
1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES (Notes 1, 11 and 12) $ 214,252 $ 1,935,373
------------ ------------
EXPENSES:
Research and development (Notes 1, 8 and 12) $ 155,647 540,201 7,394,646
General and administrative (Notes 8 and 11) 211,791 2,596,869 7,944,565
Cancelled offering costs 584,707
------------ ------------ ------------
Total expenses 367,438 3,137,070 15,923,918
------------ ------------ ------------
LOSS FROM OPERATIONS (367,438) (2,922,818) (13,988,545)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (181,012) (67,543) (1,129,502)
Miscellaneous (expense) income - net (54) 5,505 76,491
------------ ------------ ------------
Other expense - net (181,066) (62,038) (1,053,011)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (548,504) (2,984,856) (15,041,556)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (Notes 2, 4 and 5) 1,427,765 1,427,765
------------ ------------ ------------
NET LOSS (548,504) (1,557,091) (13,613,791)
CONVERSION OF REDEEMABLE PREFERRED STOCK (Notes 2 and 6) 3,713,334 3,713,334
REDEEMABLE PREFERRED STOCK PREMIUM AMORTIZATION (Note 6) 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 6) (307,921) (137,689) (1,783,554)
------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (774,729) $ 2,018,554 $(11,243,892)
============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (0.81) $ (1.58)
Extraordinary gain 0.76
------------ ------------
Net loss (0.81) (0.82)
Redeemable preferred stock conversion, premium
amortization and dividends (0.34) 1.89
------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (1.15) $ 1.07
============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 675,498 1,887,222
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Deficit Common
Common Accumulated Stockholders'
Shares Issued Common Additional During the Equity
and Stock Paid-in Development (Deficiency in
Outstanding Amount Capital Stage Assets)
<S> <C> <C> <C> <C> <C>
October 15, 1984 (inception)
Issuance of common stock to founders 113,243 $ 1,132 $ 24,868 $ 26,000
--------- -------- ------------ ----------
Balance, March 31, 1985 113,243 1,132 24,868 26,000
Issuance of common stock 85,368 854 269,486 270,340
Net loss $ (209,569) (209,569)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1986 198,611 1,986 294,354 (209,569) 86,771
Issuance of common stock 42,901 429 285,987 286,416
Net loss (47,486) (47,486)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1987 241,512 2,415 580,341 (257,055) 325,701
Issuance of common stock 4,210 42 28,959 29,001
Net loss (294,416) (294,416)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1988 245,722 2,457 609,300 (551,471) 60,286
Issuance of common stock 62,792 628 569,372 570,000
Provision for compensation 489,975 489,975
Net loss (986,746) (986,746)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1989 308,514 3,085 1,668,647 (1,538,217) 133,515
Issuance of common stock 16,478 165 171,059 171,224
Provision for compensation 320,980 320,980
Net loss (850,935) (850,935)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1990 324,992 3,250 2,160,686 (2,389,152) (225,216)
Issuance of common stock 218 2 1,183 1,185
Provision for compensation 6,400 6,400
Net loss (163,693) (163,693)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1991 325,210 3,252 2,168,269 (2,552,845) (381,324)
Issuance of common stock 18,119 181 85,774 85,955
Provision for compensation 864,496 864,496
Issuance of stock options in exchange
for cancellation of indebtedness 57,917 57,917
Net loss (1,479,782) (1,479,782)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1992 343,329 3,433 3,176,456 (4,032,627) (852,738)
Issuance of common stock 195,790 1,958 66,839 68,797
Provision for compensation 191,502 191,502
Net loss (1,220,079) (1,220,079)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1993 539,119 5,391 3,434,797 (5,252,706) (1,812,518)
Issuance of common stock 107,262 1,073 40,602 41,675
Provision for compensation 43,505 43,505
Net loss (2,246,426) (2,246,426)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1994 646,381 6,464 3,518,904 (7,499,132) (3,973,764)
Net loss (1,661,677) (1,661,677)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1995 646,381 6,464 3,518,904 (9,160,809) (5,635,441)
Issuance of common stock for compensation 16,131 161 7,339 7,500
Net loss (1,005,962) (1,005,962)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1996 662,512 6,625 3,526,243 (10,166,771) (6,633,903)
Issuance of common stock 12,986 130 5,908 6,038
Provision for compensation - employees 45,086 45,086
Provision for compensation - non-employees 62,343 62,343
Issuance of warrants to purchase common stock 80,834 80,834
Net loss (1,618,543) (1,618,543)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1997 675,498 6,755 3,720,414 (11,785,314) (8,058,145)
Issuance of common stock 68,167 682 28,862 29,544
Provision for compensation - employees 50,680 50,680
Provision for compensation - non-employees 201,696 201,696
Contributed capital - common stockholders
(Note 11) 231,734 231,734
Net loss (1,477,132) (1,477,132)
--------- -------- ------------ ------------- ----------
Balance, March 31, 1998 743,665 7,437 4,233,386 (13,262,446) (9,021,623)
Issuance of common stock (unaudited) 701,857 7,018 971,472 978,490
Compensation - non-employees (unaudited) 2,300,000 2,300,000
Conversion of redeemable preferred stock to
common stock (Note 6) (unaudited) 1,195,017 11,950 1,852,300 1,864,250
Conversion of debt to common stock
(Notes 4 and 5) (unaudited) 424,222 4,242 657,555 661,797
Conversion of Criticare debt to common stock
(Notes 4 and 5) (unaudited) 180,756 1,808 856,485 858,293
Net income (unaudited) 2,018,554 2,018,554
--------- -------- ------------ ------------- ----------
Balance, December 31, 1998 (unaudited) 3,245,517 $ 32,455 $ 10,871,198 $ (11,243,892) $ (340,239)
========= ======== ============ ============= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------
1996 1997 1998
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(759,638) $ (1,350,563) $ (1,145,697)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 42,296 36,814 27,119
Amortization of debt discount 62,218 18,616
Amortization of debt issuance costs 41,743 11,926
Compensation recorded related to issuance of common
stock or common stock options 7,500 107,429 252,376
Extraordinary gain on extinguishment of debt
Changes in operating assets and liabilities:
Prepaid expenses and supplies (5,270) (1,068) 1,068
Deferred revenue 15,000 (15,000)
Accounts payable 150,794 (205,487) 187,462
Other accrued liabilities 41,108 103,152 (101,024)
Accrued interest 124,360 169,726 208,329
--------- ------------ ------------
Net cash used in operating activities (383,850) (1,051,036) (539,825)
--------- ------------ ------------
INVESTING ACTIVITIES - Purchases of property and equipment (17,172)
------------
Net cash used in investing activities (17,172)
------------
FINANCING ACTIVITIES:
Advances from stockholders 311,500 458,500 215,172
Proceeds from the issuance of senior subordinated debt 525,000
Proceeds from the issuance of notes payable 72,350
Payments on notes payable (39,151) (3,500)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt
Proceeds from the issuance of common stock 6,038 17,909
Additional capital contributed by stockholders 231,734
Proceeds from the issuance of Preferred Stock - Series A
Proceeds from the issuance of Preferred Stock - Series B 250,000
Deferred offering costs
--------- ------------ ------------
Cash provided by financing activities 383,850 1,146,718 461,315
--------- ------------ ------------
NET (DECREASE) INCREASE IN CASH 0 78,510 (78,510)
CASH, BEGINNING OF PERIOD 0 0 78,510
--------- ------------ ------------
CASH, END OF PERIOD $ 0 $ 78,510 $ 0
========= ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 9)
<CAPTION>
October 15, October 15,
1984 Nine Month Periods 1984
(Inception) Ended December 31, Inception to
to March 31, --------------------------- December 31,
1998 1997 1998 1998
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (12,056,700) $ (548,504) $ (1,557,091) $ (13,613,791)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 287,790 20,339 20,340 308,130
Amortization of debt discount 80,834 18,616 80,834
Amortization of debt issuance costs 53,669 11,926 53,669
Compensation recorded related to issuance of common
stock or common stock options 2,462,963 2,300,000 4,762,963
Extraordinary gain on extinguishment of debt (1,427,765) (1,427,765)
Changes in operating assets and liabilities:
Prepaid expenses and supplies (13,634) 3,500 (10,134)
Deferred revenue
Accounts payable 395,736 95,759 155,810 551,546
Other accrued liabilities 32,128 (3,518) 63,294 95,422
Accrued interest 663,013 180,158 663,013
------------- ---------- ------------ -------------
Net cash used in operating activities (8,094,201) (225,224) (441,912) (8,536,113)
------------- ---------- ------------ -------------
INVESTING ACTIVITIES - Purchases of property and equipment (318,403) (318,403)
------------- -------------
Net cash used in investing activities (318,403) (318,403)
------------- -------------
FINANCING ACTIVITIES:
Advances from stockholders 985,172 150,214 985,172
Proceeds from the issuance of senior subordinated debt 525,000 525,000
Proceeds from the issuance of notes payable 2,120,194 2,120,194
Payments on notes payable (97,119) (3,500) (11,000) (108,119)
Payments for debt issuance costs (53,669) (53,669)
Payments for extinguishment of debt (203,450) (203,450)
Proceeds from the issuance of common stock 1,371,292 978,490 2,349,782
Additional capital contributed by stockholders 231,734 231,734
Proceeds from the issuance of Preferred Stock - Series A 1,330,000 1,330,000
Proceeds from the issuance of Preferred Stock - Series B 2,000,000 2,000,000
Deferred offering costs (229,641) (229,641)
------------- ---------- ------------ -------------
Cash provided by financing activities 8,412,604 146,714 534,399 8,947,063
------------- ---------- ------------ -------------
NET (DECREASE) INCREASE IN CASH 0 (78,510) 92,487 92,487
CASH, BEGINNING OF PERIOD 0 78,510 0 0
------------- ---------- ------------ -------------
CASH, END OF PERIOD $ 0 $ 0 $ 92,487 $ 92,487
============= ========== ============ =============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 9)
</TABLE>
See notes to financial statements.
F-6
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE NINE MONTH PERIODS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (the "Company") is a
biopharmaceutical company focusing on the discovery and development of
therapeutic products for the treatment of opportunistic diseases and
cancer in patients with compromised immune responses. The Company has two
separate platform technologies for developing drugs, one based on
developing a new class of molecules as pharmaceuticals and a second for
developing a series of biological proteins that work in conjunction with
the immune system.
The Company was incorporated in 1984. The Company is in the development
stage and has directed its efforts toward research and development, hiring
scientific and management personnel, arranging for facilities and
conducting clinical trials. The Company has no products currently
available for sale, and none are expected to be commercially available for
several years.
Basis of Presentation - The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.
Since inception, the Company has incurred accumulated losses of
approximately $11,244,000. Management expects the Company to continue to
incur significant losses during the next several years. In addition, as of
March 31, 1998 and December 31, 1998, the Company's current liabilities
exceeded its current assets by approximately $3,639,000 and $607,000,
respectively, and the Company had a common stockholders' deficiency of
approximately $9,022,000 and $340,000, respectively. In addition, the
Company has various research and development agreements with various
entities that are thinly capitalized and are dependent upon their ability
to raise additional funds to continue their research and development
activities. These factors, among others, indicate that the Company may be
unable to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and ultimately, to obtain profitable operations. As discussed
in Note 2, as of July 24, 1998, the Company completed a recapitalization.
Management's plans for the forthcoming year include continuing their
efforts to obtain additional equity financing and research grants, and
enter into various research and development agreements with other entities
(see Notes 3 and 12).
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method (see Note 3).
Property and Equipment - Equipment and leasehold improvements are recorded
at cost and depreciation and amortization are provided using accelerated
methods. Assets are depreciated over five to seven years.
F-7
<PAGE>
Debt Issuance Costs and Debt Discounts - Costs incurred in connection with
the issuance of the senior subordinated notes during the year ended March
31, 1997, were deferred and amortized over the original life of these
notes using the interest method. Amortization of approximately $42,000 and
$12,000 was charged to operations for the years ended March 31, 1997 and
1998, respectively, and $12,000 and $0 for the nine month periods ended
December 31, 1997 and 1998, respectively, as additional interest expense.
Discounts related to the issuance of debt are amortized and charged to
operations using the interest method.
Deferred Offering Costs - Costs incurred with respect to a common stock
offering in process have been deferred pending the completion of the
offering.
Revenue Recognition - Revenue under grants and research and development
agreements is recognized based on the Company's estimates of the stage of
completion under the terms of the respective agreements.
Research and Development Costs - All research and development costs are
charged to operations as incurred.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income.
Net Loss Per Share - Net loss per share is calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." Diluted net loss per share was the same as the basic loss per
share as the stock options and warrants were antidilutive for the years
ended March 31, 1996, 1997 and 1998 and the nine month periods ended
December 31, 1997 and 1998.
Fair Value Information - Due to the uncertainties previously discussed in
Note 1, management has determined that it is not practicable to estimate
the fair value of the Company's financial instruments (notes payable and
preferred stock).
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Approved Accounting Standards Not Yet Adopted - In 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." These statements are required to be
adopted in fiscal 1999. In 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
statement is required to be adopted in fiscal 1999. In 1998, the FASB also
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement is required to be adopted in fiscal 2000. The
Company is currently in the process of evaluating the impact of adopting
these new statements.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
F-8
<PAGE>
2. RECAPITALIZATION, PRIVATE PLACEMENT AND STOCK SPLITS
On July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization) pursuant to
which: (i) the Company effected a .645260-for-1 reverse stock split of all
of the shares of common stock issued and outstanding immediately prior to
the Effective Date, resulting in the reduction in the number of issued and
outstanding shares of common stock from 2,305,166 to 1,487,431 (the "First
Reverse Stock Split"); (ii) the Company's debtholders converted
approximately $3,151,000 in stockholder advances, notes payable and
related accrued interest and accounts payable outstanding immediately
prior to the Effective Date into 1,209,962 shares of common stock (after
giving effect to the First Reverse Stock Split) and approximately $203,000
in cash; (iii) the Company's Series A Preferred stockholders converted
1,794,550 shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Date into 1,157,931 shares of common
stock (after giving effect to the First Reverse Stock Split); (iv) the
Company's Series B Preferred stockholders converted 1,600,000 shares of
Series B Preferred Stock issued and outstanding immediately prior to the
Effective Date into 1,232,133 shares of common stock (after giving effect
to the First Reverse Stock Split); (v) the Company converted options
outstanding immediately prior to the Effective Date and held by employees
of or consultants to the Company to purchase an aggregate of 1,716,815
shares of common stock into options to purchase 1,107,792 shares of common
stock (after giving effect to the First Reverse Stock Split); and (vi) the
total number of authorized shares was increased to 35,000,000, consisting
of 30,000,000 shares of common stock and 5,000,000 shares of preferred
stock, .01 par value.
On January 25, 1999, the Company effected a .5-for-1 reverse stock split
of all of the shares of common stock issued and outstanding as of February
5, 1999, resulting in a reduction in the number of issued and outstanding
shares from 6,491,135 to 3,245,517 (the "Second Reverse Stock Split").
All other share and per share information included in the accompanying
financial statements has been restated to reflect the First Reverse Stock
Split and the Second Reverse Stock Split.
Contemporaneously with the completion of the Recapitalization, the Company
issued and sold 575,000 shares of common stock for $1.74 per share, or
aggregate consideration to the Company of $1,000,000 to certain accredited
investors. For services and expenses involved with this Recapitalization,
the placement agent New China Hong Kong Securities Limited ("NCHK")
received $50,000 and warrants to purchase 75,000 shares of the Company's
common stock at $.10 per share. For advisory services in this transaction,
RADE Management Corporation ("RADE") received warrants to purchase 225,000
shares of the Company's common stock at $.10 per share. The warrants
expire July 29, 2004.
3. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") and certain other parties, formed NextEra Therapeutics, Inc.
("NextEra") to develop therapeutic products for treating cancer and
related diseases. NextEra's initial focus will be on the manufacturing and
clinical development of recombinant modified CRP ("rmCRP"). NextEra
intends to fund rmCRP through the clinical Phases I, II, and III and early
commercialization.
On September 29, 1998, the Company and Franklin entered into a Research
and Funding Agreement with NextEra in which Franklin agreed to advance a
minimum of $1,350,000 to NextEra to fund the scale-up of manufacturing and
Phase I clinical trials. On September 29, 1998, the Company contributed
its rmCRP technology, including relevant patents and know-how, as well as
use of its current laboratory facilities for 330,000 common shares of
NextEra. NextEra's scientists are in the process of preparing drug
substance and documents for a Phase I safety study in 30 to 40 cancer
patient to be carried out at Northwestern
F-9
<PAGE>
University. The focus of the study is to evaluate the safety and early
efficacy of rmCRP in patients with different types of cancer. If Franklin
fails to make their investment in NextEra, the Company can purchase the
shares owned by Franklin at 90% of their investment in exchange for the
Company's common stock (if the Company's common stock is publicly traded),
or cash.
The Company and Franklin estimate that it will take approximately 18
months to complete the initial Phase I clinical trial. At the conclusion
of the trial, the data for safety and efficacy will be evaluated and
Franklin will have 90 days to decide whether to continue the development
of rmCRP in human Phase II and III clinical trials. If Franklin decides to
proceed, it has to invest a minimum of an additional $6,500,000 for which
Franklin will receive an additional 160,000 common shares of NextEra. In
addition, if Franklin elects to proceed, at its option, the Company shall
have the right to provide $1,625,000 of the additional investment of
$6,500,000 in return for 40,000 of the 160,000 common shares Franklin
would receive. At such time the Company will assign its laboratory
facilities to NextEra. If Franklin decides not to proceed, the Company can
purchase majority control of NextEra by buying NextEra common stock at
$1.00 per share until enough shares are purchased for majority control.
The lead scientist of NextEra, who is also a director of NextEra and the
Company, received 33,333 shares of NextEra common stock at the formation
of NextEra and will receive options to purchase 30,000 additional common
shares that will vest upon submission of a new drug application for a
product based on rmCRP. NextEra has also reserved 100,000 shares of common
stock for issuance as stock options for employees and consultants.
The Board of Directors of NextEra consists of two directors appointed by
the Company and five by Franklin. Unanimous approval of the Board is
required for issuance of stock to employees, mergers, sales or disposition
of substantially all assets, or liquidation of NextEra. The Company's
President is an officer and director of NextEra, and the Company's Chief
Financial Officer is also NextEra's Chief Financial Officer. In addition,
the principal stockholder in RADE is also a director of NextEra.
The Company has, on the fifth anniversary of the formation of NextEra, a
"put" option of NextEra stock. The exercise of the put will cause NextEra
to purchase the stock owned by Immtech at an appraised value, or at $5.00
per share, whichever is lower.
NextEra has agreed to fund the operation of the Company's primary
facility, including employees' salaries related to work on rmCRP, rent and
overhead associated with the project. Currently, this includes all of the
Company's employees except the President and Chief Financial Officer. In
addition, NextEra has agreed to fund the maintenance and prosecution of
all patents that are part of the intellectual property transferred to
NextEra by the Company.
NextEra has incurred accumulated losses of approximately $265,000 since
inception (July 8, 1998) through December 31, 1998. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of December 31, 1998, NextEra's current liabilities exceeded
its current assets by approximately $269,000 and NextEra had a
stockholders' deficiency of approximately $265,000.
NextEra's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. NextEra's
financial plans for the forthcoming year include the continuing efforts to
obtain additional equity financing.
As of December 31, 1998, the Company owned approximately 49% of the issued
and outstanding shares of NextEra common stock.
F-10
<PAGE>
The following is a summary of the Company's investment in NextEra as of
December 31, 1998:
Investment in NextEra:
Common stock $ 2
Less investment losses recognized 2
---
Net investment $ 0
===
The Company has recognized an equity loss in NextEra to the extent of the
basis of its original investment. Recognition of any investment income on
the equity method by the Company for its investment in NextEra will occur
only after NextEra has earnings in excess of previously unrecognized
equity losses.
The following is summarized financial information for NextEra as of
December 31, 1998 and for the period from inception (July 8, 1998) through
December 31, 1998:
Current assets $ 80,000
Noncurrent assets 4,000
Current liabilities:
Advances from Franklin 336,000
Other 13,000
Stockholders' equity (deficit) (265,000)
Revenues --
Net loss (265,000)
4. ADVANCES FROM STOCKHOLDERS
Criticare Systems, Inc. ("Criticare"), a significant stockholder who, as
of March 31, 1998, owned 1,000,000 shares of Series A Preferred Stock,
1,200,000 shares of Series B Preferred Stock and 112,501 shares of common
stock, had advanced $590,000 and $597,722 to the Company as of March 31,
1997 and 1998, respectively. Interest on the advances accrued at a rate of
5%. The advances were payable on demand. On July 24, 1998, Criticare
exchanged $597,722 of advances and $68,368 of accrued interest for 145,353
shares of common stock (see Note 2). The carrying value of the outstanding
Criticare indebtedness under the advances in excess of the estimated fair
market value of the shares of common stock and cash exchanged was
accounted for as additional paid-in capital. As of December 31, 1998,
Criticare owned 1,087,939 shares (33.5%) of the Company's outstanding
common stock.
Certain other stockholders had advanced funds to the Company aggregating
$180,000 and $387,450 as of March 31, 1997 and 1998, respectively. The
advances were non-interest bearing and payable on demand. On July 24,
1998, the other shareholders exchanged $387,450 of advances for 196,824
shares of common stock (see Note 2). The Company recognized an
extraordinary gain on the extinguishment of debt of $80,404 for the
outstanding indebtedness under the advances in excess of the estimated
fair market value of the 196,824 shares of common stock ($307,046). As of
December 31, 1998, none of the other stockholders individually owned more
than 7.6% of the Company's outstanding common stock.
F-11
<PAGE>
5. NOTES PAYABLE
Notes payable consist of the following:
March 31,
------------------ December 31,
1997 1998 1998
State of Illinois, payment due upon
closure of initial public offering, 0%
interest as of March 31, 1997 and 1998 $100,000 $100,000 $100,000
and December 31, 1998, unsecured
Northwestern University, payable in
monthly installments of $3,500 through
October, 1997, 0% interest as of
March 31, 1997 and 1998 and December
31, 1998, unsecured 24,500 21,000 10,000
Criticare term note, due December 31, 1997,
8.5% interest, unsecured, together
with accrued interest of $27,201,
was exchanged for 25,526 shares of
common stock on July 24, 1998 89,777 89,777
Senior subordinated notes - Criticare,
due May 31, 1997, 15% interest,
unsecured, net of unamortized discount
of $1,202 and $0 as of March 31, 1997
and 1998, respectively, together with
accrued interest of $16,225, were
exchanged for 9,876 shares of common
stock on July 24, 1998 57,798 59,000
Senior subordinated notes - other, due
May 31, 1997, 15% interest, unsecured,
net of unamortized discount of $17,414
and $0 as of March 31, 1997 and 1998,
respectively, together with accrued
interest of $243,712, were exchanged for
143,128 shares of common stock on July
24, 1998 837,586 855,000
Walsh & Keating, S.C. term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued
interest of $25,149, was exchanged for
36,401 shares of common stock and
$28,907 on July 24, 1998 $167,139 $167,139
Partners of Walsh & Keating, S.C. term
note, due December 31, 1997, 8.5%
interest, unsecured, together with
accrued interest of $1,605, was
exchanged for 2,062 shares of common
stock and $1,637 on July 24, 1998 22,301 10,666
F-12
<PAGE>
March 31,
------------------ December 31,
1997 1998 1998
Winston & Strawn term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued
interest of $30,428, was exchanged for
35,359 shares of common stock and
$17,679 on July 24, 1998 153,744 153,744
Brinks, Hofer, Gilson & Lione term
note, due December 31, 1997, 8.5%
interest, unsecured, together with
accrued interest of $36,396 and
accounts payable of $204,327, was
exchanged for $150,000 on July 24, 1998 120,124 120,124
---------- ---------- --------
Total notes payable 1,572,969 1,576,450 $110,000
Less current portion 1,576,450 1,572,969 110,000
---------- ---------- --------
Long-term debt $ 0 $ 0 $ 0
========== ========== ========
Interest on the State of Illinois loan stopped accruing during the year
ended March 31, 1996, when the maximum interest from this loan of $281,470
was reached. The interest rate on this loan was 25% prior to when it
stopped accruing interest. Interest on the Northwestern University loan
stopped accruing during the year ended March 31, 1997, when this loan was
restructured to provide Northwestern University with higher monthly
payments in exchange for no further interest accrual. Before this loan was
restructured, the interest rate was 8.12%.
On July 24, 1998, the senior subordinated notes, the Criticare term note,
the Walsh & Keating related term notes, the Winston & Strawn term note and
the Brinks, Hofer, Gilson & Lione term note, together with related accrued
interest and accounts payable, were exchanged for shares of common stock
and cash (see Note 2). The Company did not have sufficient funds to pay
such notes on the original maturity dates indicated and, accordingly, all
such notes were in default as of March 31, 1998. In addition, on July 24,
1998, certain other trade creditors exchanged $57,270 of accounts payable
for 20,908 shares of common stock and $5,227 cash.
The carrying value of the outstanding Criticare indebtedness under the
term note and senior subordinated notes in excess of the estimated fair
market value of the shares of common stock and cash exchanged was
accounted for as additional paid-in capital, as Criticare is a significant
stockholder. The Company recognized an extraordinary gain on the
extinguishment of debt of $1,347,361 for the outstanding aggregate
indebtedness under the other term notes and subordinated notes
($1,306,673), related accrued interest ($337,290) and accounts payable
($261,597) in excess of the estimated fair market value of the shares of
common stock ($354,749) and cash ($203,450) exchanged. As of December 31,
1998, none of these debt holders individually owned more than 7.6% of the
Company's outstanding common stock.
During the year ended March 31, 1997, approximately $389,000 of notes
payable were exchanged, in $1,000 increments, for an equal amount of
senior subordinated debt and a detachable warrant to purchase 100 shares
of the common stock of the Company. Also during fiscal 1997, the Company
sold for $525,000, senior subordinated notes in increments of $1,000, each
with a warrant to purchase 100 shares of the Company's common stock. The
holders of these warrants would be entitled to purchase a share of common
stock, in the event the Company participates in an initial public
offering, at a price equivalent to one-
F-13
<PAGE>
half the price in the initial public offering. As of March 31, 1997 and
1998 and December 31, 1998, there were warrants outstanding to purchase
91,400 shares of common stock at a price equivalent to one-half the price
of the initial public offering. These warrants expire August 29, 1999.
The discount on the senior subordinated notes resulted from the allocation
of the proceeds from the issuance of the senior subordinated notes to the
debt and related stock warrants at their estimated fair value. The
estimated fair value of these warrants was $.90 per warrant at the date
the warrants were granted, resulting in a discount of $80,834. This
discount was amortized using the interest method over the original life of
the senior subordinated notes.
6. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock outstanding as of March 31, 1998 and 1997
consisted of Series A and Series B. On July 24, 1998, the Series A and B
Preferred stockholders exchanged their preferred shares for an aggregate
1,195,017 shares of common stock (see Note 2). The holders of the Series A
and Series B Preferred Stock had cumulative dividend preferences at the
rate of 8% per annum, compounded daily, of the liquidation value thereof,
plus accumulated and unpaid dividends thereon, in preference to any
dividend on common stock, payable when and if declared by the Board of
Directors. Dividends accrued whether or not they had been declared and
whether or not there were profits, surplus or other funds of the Company
legally available for the payment of dividends. In the event the Company
declared a dividend or distribution on the common stock, the holders of
the preferred stock and the holders of the common stock would have shared
pro rata in such dividend or distribution.
The holders of the Series A and Series B Preferred Stock had the right to
convert each share at any time, into one share of common stock. The
holders of the preferred stock had the right to vote with the holders of
the common stock. The holders had voting rights equivalent to the number
of shares of common stock issuable upon conversion.
The difference between the initial estimated fair value of the Series A
Preferred Stock and the aggregate redemption value was amortized by a
credit to retained earnings (deficit accumulated during the developmental
stage) and a debit to the carrying value of the redeemable preferred stock
during the period from issuance to December 21, 1997 using the interest
method.
At any time on or after December 21, 1997, a holder of Series A and B
Preferred Stock could have required the Company to redeem all or part of
the holder's shares at the liquidation value plus all accrued but unpaid
dividends thereon. The Company was required to redeem such shares in a
series of eight equal quarterly redemptions commencing on the last day of
the calendar quarter occurring at least 30 days following the Company's
receipt of the holder's redemption notice. The aggregate future annual
redemption requirements of the liquidation value plus accrued unpaid
dividends as of March 31, 1998 was $5,439,895.
The Series A and Series B Preferred Stock had redemption (carrying) values
of $2,780,324 and $2,797,260, respectively, as of July 24, 1998. The
Series A and Series B Preferred stockholders received 578,954 and 616,063
shares of common stock, respectfully, for their shares of the preferred
stock. The difference between the carrying value of the Series A and
Series B Preferred Stock and the estimated fair value of the common shares
exchanged of $1,877,138 and $1,836,196, respectively, was credited to
deficit accumulated during the development stage.
F-14
<PAGE>
7. INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach which generally requires the recognition of deferred income tax
assets and liabilities based on the expected future income tax
consequences of events that have previously been recognized in the
Company's financial statements or tax returns. In addition, a valuation
allowance is recognized if it is more likely than not that some or all of
the deferred income tax asset will not be realized. A valuation allowance
is used to offset the related net deferred income tax assets due to
uncertainties of realizing the benefits of certain net operating losses
and tax credit carryforwards.
The Company has no significant deferred income tax liabilities.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
March 31,
----------------------------------------- December 31,
1996 1997 1998 1998
<S> <C> <C> <C> <C>
Deferred income tax assets:
Federal net operating loss carryforwards $ 2,049,000 $ 2,467,000 $ 2,770,000 $ 2,518,000
State net operating loss carryforwards 188,400 247,300 290,000 255,000
Federal tax credit carryforwards 80,000 86,400 89,100 89,100
----------- ----------- ----------- -----------
Total deferred income tax assets 2,317,400 2,800,700 3,149,100 2,862,100
----------- ----------- ----------- -----------
Valuation allowance (2,317,400) (2,800,700) (3,149,100) (2,862,100)
----------- ----------- ----------- -----------
Net deferred income taxes recognized
in the balance sheets $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
</TABLE>
At March 31, 1998, the Company had federal net operating loss
carryforwards of approximately $8,148,000, which expire from 2001 through
2013. At March 31, 1998, the Company had available for federal income tax
purposes approximately $8,092,000 of alternative minimum tax net operating
loss carryforwards which expire from 2001 through 2013. The Company also
has approximately $6,046,000 of state net operating loss carryforwards,
which expire from 2008 through 2013, available to offset certain future
state taxable income for Illinois State tax purposes. At December 31,
1998, the Company had federal net operating loss carryforwards of
approximately $7,405,000, which expire from 2003 through 2013. At December
31, 1998, the Company had available for federal income tax purposes
approximately $7,349,000 of alternative minimum tax net operating loss
carryforwards which expire from 2003 through 2013. The Company also has
approximately $5,303,000 of state net operating loss carryforwards
available as of December 31, 1998, which expire from 2009 through 2013,
available to offset certain future state taxable income for Illinois state
tax purposes. Because of "change of ownership" provisions of the Tax
Reform Act of 1986, approximately $2,352,000 and $250,000 of the Company's
net operating loss carryforwards for federal and State of Illinois
purposes, respectively, are subject to an annual limitation regarding
utilization against taxable income in future periods. The Company is
considering various equity financing alternatives. Such changes may result
in a change of ownership and significantly restrict the utilization of the
Company's net operating loss carryforwards and federal tax credit
carryforwards.
F-15
<PAGE>
The income tax provision consists of the following:
Nine
Month Periods
Years Ended Ended
March 31, December 31,
------------------- -------------
1996 1997 1998 1997 1998
Current:
Federal $ 0 $ 0 $ 0 $ 0 $ 0
State 0 0 0 0 0
--- --- --- --- ---
Total income tax provision $ 0 $ 0 $ 0 $ 0 $ 0
=== === === === ===
A reconciliation of the provision for income taxes(benefit) at the federal
statutory income tax rate to the effective income tax rate follows
<TABLE>
<CAPTION>
Nine Month
Years Ended Periods Ended
March 31, December 31,
------------------------ ----------------
1996 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Federal statutory income tax rate (34.0)% (34.0)% (34.0)% (34.0)% (34.0)%
State statutory income tax rate (4.8) (4.8) (4.8) (4.8) (4.8)
Non-deductible compensation 7.5 50.2
Benefit of federal and state net operating
loss carryforwards not (recognized) 38.8 38.8 31.3 38.8 (11.4)
---- ---- ---- ---- ----
Effective income tax rate 0% 0% 0% 0% 0%
==== ==== ==== ==== ====
</TABLE>
8. STOCK OPTIONS, WARRANTS AND COMMON STOCK
The Company has granted common stock options to individuals who have
contributed to the Company. The options contain various provisions
regarding vesting periods, expiration dates, stockholder approval
requirements and contingencies on the approval of an increase in the stock
option pool by the Board of Directors. The options vest in periods ranging
from 0 to 4 years and generally expire in ten years. As of March 31, 1998
and December 31, 1998, 480,030 and 498,636 granted options are
outstanding, respectively. As of March 31, 1998 and December 31, 1998,
there were 2,581 employee stock options available for grant.
During the years ended March 31, 1997 and 1998 and the nine month period
ended December 31, 1998, the Company issued stock options to nonemployees
for services rendered to the Company. For the year ended March 31, 1997,
29,036 options were issued and expense of approximately $62,000 was
recorded. For the year ended March 31, 1998, 99,141 options were issued
and expense of approximately $202,000 was recorded. For the nine month
period ended December 31, 1998, 87,109 options were issued and expense of
$80,000 was recorded. The expense was determined based on the estimated
fair value of the options issued.
F-16
<PAGE>
The activity during the years ended March 31, 1996, 1997 and 1998 and the
nine months ended December 31, 1998 for the Company's stock options is
summarized as follows:
Weighted
Number of Stock Options Average
Shares Price Range Exercise Price
Outstanding at April 1, 1995 420,292 $0.31-6.88 $ 0.68
Granted 56,138 0.31-0.31 0.31
------ ---------- ----------
Outstanding at March 31, 1996 476,430 0.31-6.88 0.68
Granted 68,397 0.46-0.46 0.46
Exercised (12,986) 0.46-0.46 0.46
Expired (565) 0.46-0.46 0.46
---------- ---------- ----------
Outstanding at March 31, 1997 531,276 0.31-6.88 0.84
Granted 144,955 0.59-1.74 1.02
Exercised (68,217) 0.34-0.59 0.44
Expired (127,984) 0.34-6.88 1.48
---------- ---------- ----------
Outstanding at March 31, 1998 480,030 0.31-1.74 0.59
Granted 87,109 1.74-1.74 1.74
Exercised (40,650) 0.31-0.34 0.33
Expired (27,853) 0.31-0.34 0.33
---------- ---------- ----------
Outstanding at December 31, 1998 498,636 $0.31-1.74 $ 0.83
========== ========== ==========
Exercisable at March 31, 1998 478,685 $0.31-1.74 $ 0.59
========== ========== ==========
Exercisable at December 31, 1998 439,487 $0.31-1.74 $ 0.71
========== ========== ==========
The following table summarizes information about stock options outstanding
as of March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted
Average Weighted Shares Weighted
Shares Remaining Average Exercisable Average
Range of Outstanding at Contractual Exercise at Exercise
Exercise Prices March 31, 1998 Life-Years Price March 31, 1998 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.45 175,567 2.83 $ 0.34 175,567 $ 0.34
0.46 to 0.59 248,970 4.61 0.52 247,625 0.52
1.74 55,493 10.00 1.74 55,493 1.74
-------- --------
480,030 4.58 $ 0.59 478,685 $ 0.59
======== ========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life-Years Price 1998 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.45 111,437 2.37 $ 0.33 111,437 $ 0.33
0.46 to 0.59 244,600 3.88 0.53 244,600 0.53
1.74 142,599 9.32 1.74 83,450 1.74
-------- -------
498,636 5.10 $ 0.83 439,487 $ 0.71
======== ========
</TABLE>
F-17
<PAGE>
The following table summarizes information about common stock warrants
outstanding (see Note 5) as of March 31, 1998:
Warrants Expiration
Exercise Price Outstanding Date
-------------- ----------- ----
50% of initial public offering
price per share (see Note 5) 91,400 August 29, 1999
On October 12, 1998, RADE received warrants to purchase 750,000 shares of
the Company's common stock at $.10 per share. The warrants were issued as
compensation for management consulting, market analysis and strategic
advisory services performed during July through December 1998. The Company
recorded a general and administrative expense of $2,220,000 during the
nine month period ended December 31, 1998 based upon the estimated fair
value of the options issued. The warrants expire October 12, 2004.
The following table summarizes information about common stock warrants
outstanding as of December 31, 1998:
Warrants Expiration
Exercise Price Outstanding Date
-------------- ----------- ----
50% of initial public offering
price per share (see Note 5) 91,400 August 29, 1999
$.10 per share (see Note 2) 300,000 July 29, 2004
$.10 per share 750,000 October 12, 2004
---------
1,141,400
=========
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its employee stock
option plans. For the year ended March 31, 1997, the Company issued 39,361
options to employees and recognized expense of $45,814 related to those
options. For the year ended March 31, 1998, the Company issued 45,814
options to employees and recognized expense of $50,680 related to those
options. The expense was calculated as the difference between the option
exercise price and the estimated fair value of the Company's stock as of
the date the option was granted. If the Company had recognized
compensation expense for the options granted during the years ended March
31, 1997 and 1998 and the nine month periods ended December 31, 1997 and
1998, consistent with the method prescribed by SFAS No. 123, net loss and
net loss per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
------------------------------- ----------------------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net (loss) income attributable to common
stockholders - as reported $ (1,618,543) $ (1,477,132) $ (774,729) $ 2,018,554
Net (loss) income attributable to common
stockholders - pro forma $ (1,623,641) $ (1,503,470) $ (778,942) $ 2,015,899
Net (loss) income per share attributable to
common stockholders - as reported $ (2.44) $ (2.18) $ (1.15) $ 1.07
Net (loss) income per share attributable to
common stockholders - pro forma $ (2.44) $ (2.22) $ (1.15) $ 1.07
</TABLE>
The fair value of stock options used to compute pro forma net loss
(income) and net loss (income) per share is the estimated present value at
the grant date using the Black-Scholes option-pricing model. The
assumptions used to estimate compensation cost were expected volatility of
27.5%, risk-free interest rate of 5.4% and expected
F-18
<PAGE>
option lives of 4.5 years. The pro forma effect on net loss (income) for
1997 and 1998 is not representative of the pro forma effect in future
years because it does not take into consideration pro forma compensation
cost related to grants made prior to 1997.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not pay any income taxes during the years ended 1996, 1997
or 1998 or in the nine month periods ended December 31, 1997 and 1998. The
Company paid $0, $8,023 and $0 in interest during 1996, 1997 and 1998,
respectively, and no interest during the nine month periods ended December
31, 1997 and 1998, respectively.
Non-Cash Financing Activities:
During the years ended March 31, 1996, 1997 and 1998, the Company
increased the carrying value of the Series A and B Preferred Stock by
amounts representing the value of dividends not currently declared or
paid, but which are payable under mandatory redemption features. The
Company has also recorded Series A Preferred Stock premium amortization on
the securities. Also, during the years ended March 31, 1996, 1997 and
1998, and the nine month period ended December 31, 1998, the Company
issued common stock or options as compensation for services. Finally,
during the year ended March 31, 1998, the Company issued common stock for
a note payable payment. The amounts of these transactions were as follows:
<TABLE>
<CAPTION>
Nine Month Periods
Years Ended March 31, Ended December 31,
--------------------------------------- -------------------------
1996 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Preferred stock dividends accrued $ 335,759 $ 368,125 $ 413,131 $ 307,921 $ 137,689
Preferred stock premium amortization (89,435) (100,145) (81,696) (81,696)
Conversion of preferred stock to common stock 5,577,584
Conversion of debt, accrued interest and accounts
payable to common stock 1,702,110
Conversion of Criticare debt to common stock 858,293
Conversion of Stockholder advances to common stock 387,450
Issuance of common stock or stock options
as compensation for services 7,500 107,429 252,376 2,300,000
Common stock issued for note payable payment (11,635)
</TABLE>
During August 1996, the Company exchanged certain notes payable and
accrued interest on such notes for senior subordinated notes with a face
value of $389,000.
10. COMMITMENTS
The Company leases office space under an operating lease which requires
monthly lease payments of $4,100 through November 1999. Total rental
expense was approximately $58,000, $57,000 and $50,000 for the years ended
March 31, 1996, 1997 and 1998, respectively, and $36,000 and $4,000 for
the nine month periods ended December 31, 1997 and 1998, respectively. As
discussed in Note 3, NextEra agreed to pay the Company's obligation under
the operating lease effective May 1, 1998. NextEra made approximately
$32,000 of lease payments during the nine month period ended December 31,
1998.
F-19
<PAGE>
11. RELATED PARTY TRANSACTIONS
During the year ending March 31, 1998, the following payments for various
Company expenses were made on behalf of the Company by related parties:
approximately $146,000 from Criticare; approximately $56,000 from an
investment fund whose directors are also directors of the Company; and
approximately $30,000 from certain officers and directors of the Company.
These payments were recorded as expenses and additional paid-in capital in
the Company's financial statements for the year ended March 31, 1998.
There were no such payments for the years ended March 31, 1996 and 1997 or
for the nine month periods ended December 31, 1997 and 1998.
Transactions with Criticare Systems, Inc.
Criticare agreed to the private placement of stock by NCHK and the
spin-off of shares of the Company owned by Criticare. In exchange,
Criticare obtained an option to license rmCRP as a therapy for treating
sepsis. Sepsis is a bacterial infection which quickly overwhelms the
immune systems and can lead to sudden death.
Criticare's option includes patents and know-how developed by the Company.
NextEra has licensed the rights for producing rmCRP back to the Company
for use with sepsis applications. Criticare has twelve months from the
date of the closing on the private placement by NCHK to raise a minimum of
$500,00 to fund both the development of the sepsis technology and the
initiation of clinical trials. If Criticare or its assignee is unable to
raise the funds, the Company can acquire the sepsis technology from
Criticare at market price, determine by negotiations between the two
parties or an agreed third party if an agreement on price cannot be
reached. The Company is required to pay the cost of maintaining and
prosecuting the patents until the initial financing is completed by
Criticare or its assignee.
On July 2, 1998, the Company transferred to Criticare certain of its
intangible assets and 86,207 shares of the Company's common stock for
$150,000. These assets include rights to the Company's diagnostic products
for measuring hemoglobin A1c. in diabetic patients and Carbohydrate
Deficient Transferrin ("CDT") as a marker in the blood for long-term
alcohol abuse, as well as patents that have been issued for both
technologies and exclusive worldwide rights from Northwestern University
to develop and sell the products, which now inure to the benefit of
Criticare. Criticare will be responsible for the maintenance and
prosecution of the patents for both technologies. The shares issued were
assigned a value of $134,483 and the remainder ($15,517) was recorded as
revenue.
12. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has various collaborative research agreements with commercial
enterprises. Under the terms of these arrangements, the Company has agreed
to perform best efforts research and development and, in exchange, the
Company may receive advanced cash funding and may also earn additional
fees for the attainment of certain milestones. The Company may receive
royalties on the sales of such products. The other parties generally
receive exclusive marketing and distribution rights for certain products
for set time periods in specific geographic areas.
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by a consortium of universities including
The University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (the "Consortium") pursuant
to an agreement, dated January 15, 1997 (as amended in May 1998, the
"Consortium Agreement") among the Consortium, Pharm-Eco Laboratories, Inc.
("Pharm-Eco"), and on behalf of itself and the other academic institutions
in the Consortium. The Consortium Agreement commits each party to the
agreement to research, develop, finance the research and development of,
manufacture and market the technology and compounds owned by
F-20
<PAGE>
the Consortium and then licensed or optioned to Pharm-Eco (the "Current
Compounds") and licensed to the Company pursuant to the Consortium
Agreement, and all technology and compounds developed by the Consortium
after the date thereof through use of Company-sponsored research funding
or National Cooperative Drug Development grant funding made available to
the Consortium (the "Future Compounds" and, collectively with the Current
Compounds, the "Compounds"). The Consortium Agreement contemplates that
the Company and Pharm-Eco, with respect to the Current Compounds, and the
Company and Pharm-Eco, with respect to the Current Compounds, and the
Company and UNC, with respect to Future Compounds, will enter into more
comprehensive license or assignments of the intellectual property rights
held by Pharm-Eco and the Consortium; and that Pharm-Eco and the Company
will enter into an arrangement relating to the manufacture of products
derived from the Compounds.
Under the Consortium Agreement, the Company has agreed to use its best
efforts to complete an initial public offering ("IPO") of shares of its
common stock to raise at least $10,000,000 or an alternative form of
financing ("Alternative Financing") to raise at least $4,000,000 by
February 28, 1999. Upon the closing of the IPO or the Alternative
Financing, the Company will: (i) use the greater of (x) 33% of the net
proceeds from the IPO or an Alternative Financing or (y) $5,000,000, to
develop the Compounds; (ii) issue an aggregate of 611,250 shares of common
stock to Pharm-Eco or persons designated by Pharm-Eco, which number
includes 137,500 shares to be issued to the Consortium. The Company
anticipates recording as research and development costs the estimated fair
value of the 611,250 shares upon completion of the IPO; (iii) issue
warrants to purchase an aggregate of 850,000 shares of common stock to
Pharm-Eco or persons designated by Pharm-Eco with a ten-year term from the
date of issuance, at an exercise price equal to the weighted average
market price of the Company's common stock during the first 20 days of
trading on any stock exchange or in any over-the-counter market, which
warrants are exercisable upon the occurrence of certain events and subject
to redemption by the Company; and (iv) agree to issue an aggregate of
150,000 shares of common stock collectively to Pharm-Eco or persons
designated by Pharm-Eco, which number of shares includes 100,000 shares of
common stock to be issued to the Consortium, upon the filing by the
Company of a new drug application or an abbreviated new drug application
with the Food and Drug Administration with respect to any product. In
addition, the Company will pay UNC an aggregate royalty of 5% of net sales
of Current Products and Future Products, except that the royalty rate
payable on any Compound developed at Duke University will be determined by
negotiation at the time such Compound is developed. In the event that the
Company sublicenses its rights with respect to the Compounds, the Company
will pay UNC, in addition to the royalty described above, 2.5% of all
signing, milestone and other non-royalty payments made to the Company
pursuant to the sublicense agreement and will pay to Pharm-Eco 2.5% of all
signing, milestone and other nonroyalty payments made to the Company
pursuant to the sublicense agreement.
Upon closing of this Offering: (a) Pharm-Eco will be entitled to designate
for appointment one representative to the Company's Board of Directors,
(b) UNC will be entitled to designate one person as a non-voting observer
of all meetings and other proceedings of the Company's Board of Directors,
(c) the Company will make quarterly $100,000 research grants to UNC
commencing on the final day of the month during which the closing of the
offering occurs, and continuing every three months thereafter until, at a
minimum, the third anniversary of the offering and (d) the Company will
pay all costs to prosecute, maintain and defend all patents and patent
applications relating to any Compounds or products.
Upon raising $4,000,000, Pharm-Eco will grant the Company a license to use
the Current Compounds only as antimicrobial agents and UNC will grant the
Company a license to use the Future Compounds only as antimicrobial
agents. The initial $5,000,000 in funds raised by the Company (including
the initial $4,000,000 referenced above) will be applied to the
advancement of dications. Once the Company has raised more than
$10,000,000 both Pharm-Eco and UNC will grant an exclusive worldwide
license to use,
F-21
<PAGE>
manufacture, have manufactured, promote, sell, distribute, or otherwise
dispose of any products based directly or indirectly on all of the Current
Compounds and Future Compounds.
In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for the Company to fulfill its obligations under the Consortium
Agreement, the Company has agreed to (i) provide financial support to Dr.
Richard Tidwell's laboratory and research covered by the agreement, (ii)
pay fees and expenses charged UNC by UNC's patent counsel during the
period of the extension, (iii) pay arrearages in research support accrued
prior to the date of the First Amendment within 30 days of the closing of
the IPO, (iv) replenish Dr. Tidwell's UNC Department of Pathology &
Laboratory Medicine trust fund of all monies spent due to the delay in
receipt of the research grants, currently estimated at $150,000 and (v)
provide each of UNC and Pharm-Eco with 25,000 shares of common stock of
the Company (included in the aforementioned 611,250 shares).
During the years ended March 31, 1997 and 1998 and the nine month period
ended December 31, 1998, the Company made payments to UNC of $100,000,
$100,000 and $300,000, respectively. Such payments were expensed as
research and development costs.
The Company entered into an agreement with Pharm-Eco to use reasonable
efforts to form a joint venture to produce Good Manufacturing
Practices-quality dicationic drugs and products for clinical testing and
for early commercialization. The proposed joint venture would manufacture
the initial pharmaceutical products (DAP-092 and DB-289). Once the
commercial sale of products begins, the Company and Pharm-Eco would deduct
their costs associated with making and marketing (including selling,
marketing, and regulatory support) products. The remaining margin, after
the costs have been subtracted, would be divided equally between the
parties. At such time when the Company's sales reach $20 million for
DAP-092 and DB-289, the Company could elect not to use Pharm-Eco for
manufacturing, whereupon the Company would be required to pay a royalty to
Pharm-Eco of no more than 2% of sales.
In February 1998, the Company received a Small Business Technology
Transfer Research Grant for approximately $97,000 from the National
Institutes of Health ("NIH") to develop simple, immune-based assays to
measure drug presence and concentration in blood. During the year ended
March 31, 1998, the Company recognized revenue of approximately $20,000
from this grant and expensed payments to the Consortium in the amount of
approximately $15,000 for their research. During the nine month period
ended December 31, 1998, the Company recognized revenue of approximately
$40,000 from this grant and expensed payments to the Consortium in the
amount of approximately $33,000 for their research. Another Small Business
Technology Transfer Research Grant for $100,000 was awarded to the Company
in May 1998 from the NIH to study the applicability and effectiveness of
using prodrug compounds as an oral treatment for tropical diseases such as
trypanosomiasis, leishmaniasis and malaria. During the nine month period
ended December 31, 1998, the Company recognized revenue of approximately
$64,000 from this grant and expensed payments to the Consortium in the
amount of approximately $16,000 for their research.
In March 1998, the Company entered into an option and worldwide exclusive
license agreement with Sigma Diagnostics, Inc. ("Sigma") for hemoglobin
Alc technology which the Company had the right to. The option part of the
agreement allows Sigma to evaluate the technology for potential
manufacturing and use on instrumentation developed by Sigma. The option
agreement includes a series of payments as specific research milestones
are met. The first two milestones were completed and payments by Sigma of
$20,000 and $25,000 were received by the Company in March 1998 and June
1998, respectively. The remaining milestone and license payments (which
have not been paid) are for $110,000 and will be paid to Criticare, which
acquired the Company's rights to future payments from Sigma, as further
described in Note 11. In addition, if a license is purchased by Sigma and
sales are made through commercial sales, Criticare will receive annual
royalty payments. The Company will receive no ongoing revenues nor will it
have any further obligations to Sigma.
F-22
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to its date.
------------
TABLE OF CONTENTS
Page
----
Available Information............ 2
Prospectus Summary............... 3
Summary Financial Information.... 8
Risk Factors..................... 9
Use of Proceeds.................. 17
Dividend Policy.................. 18
Dilution......................... 18
Capitalization................... 19
Selected Financial Data.......... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 22
Business......................... 25
Management and Key Scientific
Personnel..................... 38
Certain Transactions............. 41
Principal Stockholders........... 43
Underwriting..................... 44
Description of Securities........ 47
Reports to Stockholders.......... 49
Shares Eligible for Future Sale.. 49
Legal Matters.................... 50
Experts.......................... 50
Glossary......................... 51
Index to Financial Statements.... F-1
------------
Until _________, 1999 ([___] days after the date of this Prospectus), all
dealers effecting transactions in the Registered Securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.]
================================================================================
================================================================================
1,000,000 Shares
[LOGO]
IMMTECH
INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
WESTPORT RESOURCES
[LOGO]-------------------------
INVESTMENT SERVICES, INC.
, 1999
================================================================================
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 30, 1999
P R O S P E C T U S
1,000,000 Shares
[LOGO] IMMTECH INTERNATIONAL, INC.
Common Stock
------------
Immtech International, Inc. (the "Company" or "Immtech") is offering to
the public 1,000,000 shares (the "Shares") of Common Stock, $0.01 par value (the
"Common Stock"), of which 300,000 shares are being offered hereby in the United
States (the "U.S. Offering") and 700,000 shares are being offered in a
concurrent international offering outside the United States (the "International
Offering" and together with the U.S. Offering, the "Offering" or the
"Offerings"). The initial public offering price and the aggregate underwriting
discount per share and non-accountable expense allowance will be identical for
both offerings. See "Underwriting." It is currently estimated that the initial
public offering price will be between $9.00 and $11.00 per Share. For
information regarding the factors considered in determining the initial public
offering price of the Common Stock, see "Risk Factors" and "Underwriting". Prior
to the Offerings there has been no market for the Common Stock and there can be
no assurance that a trading market will develop after the Offerings with respect
to the Common Stock. Application has been made for the Common Stock to be
approved for quotation on the Nasdaq SmallCap Market under the symbol "IMMT."
The Company has applied to list the Common Stock on the Boston Stock Exchange.
See "Risk Factors - Arbitrary Determination of Offering Price; No Public Market
for the Shares."
The Securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 9 for a discussion of certain matters that should be
considered by prospective purchasers of the securities offered hereby.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions(1) Stockholders(1)(2)
- --------------------------------------------------------------------------------
Per Share.................. $ $ $
- --------------------------------------------------------------------------------
Total (3) ................. $ $ $
================================================================================
(1) In addition, the Company has agreed to the following: (i) it will pay
Westport Resources Investment Services, Inc. (the "U.S. Underwriter") and
The New China Hong Kong Securities Ltd. and China Everbright Securities
(H.K.), Ltd. (the "International Underwriters" and together with the U.S.
Underwriter, the "Underwriters") a 3% non-accountable expense allowance;
(ii) it will issue to the Underwriters, upon the closing of this offering,
warrants (the "Underwriters' Warrants") to purchase up to 100,000 Shares,
which Underwriters' Warrants are exercisable for a period of four years,
commencing twelve months from the date of this Prospectus, at 160% of the
initial public offering price; (iii) it will pay to the Underwriters
certain other items of compensation; and (iv) the Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act") (see "Underwriting").
(2) Before deducting expenses of the offering payable by the Company estimated
at $860,000, including the non-accountable expense allowance payable to
the Underwriters (see "Underwriting").
(3) The Company has granted the U.S. Underwriter an option for 45 days to
purchase up to an additional 45,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments (the "U.S. Over-Allotment Option"). Additionally, the
Company has granted an over-allotment option with respect to an additional
105,000 shares as part of the International Offering (the "International
Over-Allotment Option" and collectively with the U.S. Over-Allotment
Option, the "Over-Allotment Option"). If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Company (before deducting estimated expenses) will be
$__________, $__________ and $____________, respectively. See
"Underwriting."
------------
The Shares offered by this Prospectus are being offered by the
International Underwriters on a firm commitment basis. The International
Underwriters reserve the right to reject any order in whole or in part and to
withdraw, cancel or modify the offer without notice in accordance with
applicable state law. It is expected that certificates for the shares of Common
Stock will be available for delivery on or about __________, 1999 at [the
offices of the U.S. Underwriter at 315 Post Road West, Westport, Connecticut
06880].
[LOGO] THE NEW CHINA HONG KONG SECURITIES LTD.
CHINA EVERBRIGHT SECURITIES (H.K.), LTD
The date of this Prospectus is _____________, 1999
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH OTHERWISE MIGHT PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
AVAILABLE INFORMATION
[Please refer to text from United States Prospectus]
PROSPECTUS SUMMARY
[Please refer to text from United States Prospectus]
SUMMARY FINANCIAL INFORMATION
[Please refer to text from United States Prospectus]
RISK FACTORS
[Please refer to text from United States Prospectus]
USE OF PROCEEDS
[Please refer to text from United States Prospectus]
DIVIDEND POLICY
[Please refer to text from United States Prospectus]
DILUTION
[Please refer to text from United States Prospectus]
CAPITALIZATION
[Please refer to text from United States Prospectus]
SELECTED FINANCIAL DATA
[Please refer to text from United States Prospectus]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
[Please refer to text from United States Prospectus]
BUSINESS
[Please refer to text from United States Prospectus]
MANAGEMENT AND KEY SCIENTIFIC PERSONNEL [Please refer to
text from United States Prospectus]
CERTAIN TRANSACTIONS
[Please refer to text from United States Prospectus]
PRINCIPAL STOCKHOLDERS
[Please refer to text from United States Prospectus]
2
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain U.S. federal income tax
consequences of the ownership and disposition of Common Stock by a person that,
for U.S. federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust (a
"non-U.S. holder"). An individual may be deemed to be a resident alien (as
opposed to a non-resident alien) by virtue of being a lawful permanent resident
at anytime during the year, or being present in the United States on at least 31
days in the calendar year and for an aggregate of 183 days during a three-year
period ending in the current calendar year (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to U.S. federal tax as if they were
U.S. citizens and residents.
This discussion does not consider specific facts and circumstances that
may be relevant to a particular holder's tax position and does not deal with
U.S. state and local or non-U.S. tax consequences. Furthermore, the following
discussion is based on provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code") and administrative and judicial interpretations as of the
date hereof, all of which are subject to change. Each prospective holder is
urged to consult a tax advisor with respect to the US. federal tax consequences
of holding and disposing of Common Stock as well as any tax consequences that
may arise under the laws of any U.S. state, municipality or other tax
jurisdiction.
Dividends. Dividends paid to a non-U.S. holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States. Dividends that are effectively connected with such
holder's conduct of a trade or business in the United States are subject to tax
at rates applicable to U.S. citizens, resident aliens and domestic U.S.
corporations, and are not generally subject to withholding. Any such effectively
connected dividends received by a non-U.S. corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Under current U.S. Treasury Regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such foreign
country for purposes of the withholding discussed above and under current
interpretation of U.S. Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. Under new U.S. Treasury Regulations,
effective January 1, 2000, however, a non-U.S. holder of Common Stock who wishes
to claim the benefit of an applicable treaty rate would be required to file Form
W-8 (Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding) with the Company or its agent. Such forms would be required to
contain the holder's name, address, and other pertinent information, to be
certified by the holder under penalties of perjury. A properly executed Form W-8
will be valid for the period running from the date the certificate is signed
until the last day of the third succeeding calendar year. Because the Common
Stock will be publicly traded, it will not be necessary to include a taxpayer
identification number ("TIN") for a non-U.S. holder on the Form W-8. However, if
a Form W-8 is furnished with a TIN, it will remain valid until a change in
circumstances makes any information on the certificate no longer correct (in
lieu of the three-year period described above).
The current regulations require a separate Form W-8 or other appropriate
documentation from each non-U.S. holder of Common Stock to establish the
holder's foreign status and treaty eligibility. Under the new regulations, a
foreign intermediary, such as a financial institution, that receives payments as
nominee on behalf of several non-U.S. holders, may enter into a withholding
agreement with the Internal Revenue Service to obtain "qualified intermediary"
status. Under this type of agreement, the qualified intermediary will be
permitted to furnish an intermediary withholding certificate certifying on
behalf of the non-U.S. holders for which it receives payments. The qualified
intermediary generally will be required to obtain Form W-8 withholding
certificates or other appropriate documentation from the non-U.S. holders, but
will not be required to attach such documentation to the intermediary
withholding certificate.
Under the new regulations, a payment made to a foreign partnership will
generally be treated as a payment made to the partners rather than to the
partnership, unless the partnership qualifies as a "withholding foreign
partnership" by entering into an agreement with the Internal Revenue Service
agreeing, among other things, to be responsible for all withholding and
reporting obligations. In the absence of such an agreement, withholding will be
required on dividends paid to the foreign partnerships that are not effectively
connected with the conduct by the partnership of a trade or business in the
United States. However, a reduced rate of withholding based on a treaty may be
obtained if the partnership provides information on the distributive share of
each partner and furnishes a Form W-8 certificate from each partner that claims
reduced withholding for its distributive share.
3
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.
Gain on Disposition of Common Stock. A non-U.S. holder generally will not
be subject to U.S. federal income tax in respect of gain recognized on a
disposition of Common Stock unless (i) the gain is effectively connected with a
trade or business of the non-U.S. holder in the United States, (ii) in the case
of a non-U.S. holder who is an individual and holds the Common Stock as capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale and either (a) such individual's "tax home" for U.S.
federal income tax purposes is in the United States, or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iii) the Company is or has been a "U.S.
real property holding corporation" for federal income tax purposes and the
non-U.S. holder held, directly or indirectly at any time during the five-year
period ending on the date of disposition, more than 5% of the Common Stock. The
Company is not and does not anticipate becoming a "U.S. real property holding
corporation" for U.S. federal income tax purposes.
Federal Estate Taxes. Common Stock held by a non-U.S. holder at the time
of death will be included in such holder's gross estate for U.S. federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. U.S. information reporting
requirements (other than reporting of dividend payments for purposes of the
withholding tax discussed above) and backup withholding generally will not apply
to dividends on Common Stock paid to non-U.S. holders that are either subject to
the 30% withholding tax, or that are not so subject because an applicable income
tax treaty reduces or eliminates such withholding. Under current U.S. Treasury
Regulations, the payor of the dividends may generally rely on a payee's address
outside the United States in determining the exemption from information
reporting and backup withholding. Under the new Treasury Regulations that are
effective January 1, 2000, dividends will continue to be exempt from information
reporting and backup withholding, provided documentation exists establishing the
payee's status as a foreign person. Mere reliance upon a foreign address will no
longer be sufficient. For this purpose, documentation furnished to establish the
payee's eligibility for reduced withholding under an income tax treaty (Form
W-8) may also be used to support the exemption from information reporting and
backup withholding.
Under current Treasury Regulations, payment on the sale, exchange or other
disposition of Common Stock made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker is
a United States person, a controlled foreign corporation for United States tax
purposes, or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) will be required
unless the broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain other conditions are met or the
beneficial owner otherwise establishes an exemption. Under the new Treasury
Regulations, effective January 1, 2000, backup withholding may apply to any
reportable payment for which the broker has actual knowledge that the payee is a
United States person. Payments to or through the United States office of a
broker will be subject to backup withholding and information reporting unless
the holder certifies, under penalties of perjury, that it is not a United States
person or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification
for an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable. Any amounts withheld
under the backup withholding rules from a payment to a beneficial owner would be
allowed as a refund or a credit against such beneficial owner's United States
Federal income tax provided the required information is furnished to the
Internal Revenue Service.
4
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"International Underwriting Agreement") among the Company, on the one hand, and
The New China Hong Kong Securities Ltd. and China Everbright Securities (H.K.),
Ltd., on the other hand, as Representatives of the several Underwriters named
below, the Company has agreed to sell to the International Underwriters and the
International Underwriters, through the Representatives, have severally but not
jointly agreed to purchase from the Company, on a firm commitment basis, the
aggregate number of Shares set forth opposite their respective names (exclusive
of Shares purchased pursuant to the Underwriters' Over-allotment Option).
Underwriter Number of Shares
The New China Hong Kong Securities Ltd.
China Everbright Securities (H.K.),
Ltd.
Total 700,000
The International Underwriting Agreement provides that the obligations of
the several International Underwriters thereunder are subject to approval of
certain legal matters by counsel and to various other conditions. The nature of
the International Underwriters' obligations are such that they are committed to
purchase all of the Shares offered outside the U.S. if any are purchased.
The Company has agreed to sell the Shares to the Underwriters at a 9.9%
discount from the offering price and to pay to the Representatives a
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering price of the Shares sold pursuant to this Prospectus, including
any Shares sold to the Underwriters upon exercise of the Underwriters'
Over-Allotment Option. The non-accountable expense allowance of $50,000 has been
paid to the U.S. Underwriter to date. In addition to such expense allowance, the
Company has agreed to pay certain fees and expenses of the U.S. Underwriter's
counsel in connection with qualification of the U.S. Offering under state
securities laws.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 300,000 shares of
Common Stock by the Company in an offering in the United States. The offering
price and aggregate underwriting discounts and commissions per share for the two
offerings are identical. The closing of the offering made hereby is a condition
to the closing of the U.S. Offering, and vice versa. The Representative of the
U.S. Underwriters is Westport Resources Investment Services, Inc.
Pursuant to an Agreement between the International and U.S. Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
International Underwriters named herein has agreed that, as part of the
distribution of the shares offered hereby, it will (i) not, directly or
indirectly, offer, sell or deliver the shares offered hereby and other shares of
Common Stock (a) in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction (the "United States") or to any U.S. person as defined
below, or (b) to any person whom it believes, intends to immediately reoffer,
resell or deliver such shares in the United States or to any U.S. Person, and
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction. The term "U.S. Person" shall mean: (a)
individuals resident in the United States or (b) corporations, partnerships or
other entities organized in or under the laws of the United States or any
political subdivision thereof and whose office most directly involved with the
purchase is located in the United States. Each of the U.S. Underwriters has
agreed pursuant to the Agreement Between that, as a part of the distribution of
the shares offered as a part of the U.S. Offering, it will only offer, sell or
deliver shares of Common Stock, directly or indirectly, in the United States to
U.S. persons.
The International Underwriters do not anticipate a trading market in the
Company's shares of Common Stock to develop outside of the United States. In
order for the Company to avail itself of an exception to the registration
requirements of Hong Kong Securities Laws, investors located in Hong Kong who
purchase Shares in the International Offering are prohibited from selling their
shares in Hong Kong for a period of 6 months following the initial purchase.
Such investors would be permitted to sell Shares at any time in the United
States.
The Company has granted the International Underwriters an option
exercisable for 45 days after the date of this Prospectus to purchase up to an
aggregate of 105,000 additional shares of Common Stock to cover over-allotments,
if any, at the initial public offering price less the underwriting discount, as
set forth on the cover page of this Prospectus. If the International
Underwriters exercise their over-allotment option, the International
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
5
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
purchased by each of them, as shown in the foregoing table, bears to the 700,000
shares of Common Stock offered hereby. The International Underwriters may
exercise such option only to cover over-allotments, in connection with the sale
of the 700,000 shares of Common Stock offered hereby. The Company has granted
the U.S. Underwriters an option exercisable for 45 days to purchase up to an
aggregate of 45,000 additional shares of Common Stock, solely to cover
over-allotments, if any, at the initial public offering price less the
underwriting discount, as set forth on the cover page of the Prospectus.
The Company has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a price below the initial public offering price for a
period of one (1) year after the date of this Prospectus without the prior
written consent of the Representative of the Underwriters, except for the shares
of Common Stock offered in connection with the concurrent U.S. and International
Offerings.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Prior to the Offerings, there has been no public market for the shares.
The initial public offering price will be negotiated among the Company and the
Representative of the U.S. Underwriters and the Representatives of the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The U.S. Underwriters, through the Representative, have advised the
Company that they propose to offer the Shares at the public offering price set
forth on the cover page of this Prospectus and that the U.S. Underwriters may
utilize the services of certain dealers, including dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and certain
foreign dealers. The public offering price and the amount of the concessions and
reallowances, if any, provided for any broker-dealers involved in the
distribution of the securities offered hereby will not be changed until after
the initial public offering is completed.
Management of the Company may provide the Representatives with a list of
persons who they believe may be interested in purchasing Shares being offered
hereunder. The Representatives and the other International Underwriters may sell
a portion of the Shares to such persons if such persons reside in a country
where the Shares can be sold and where the International Underwriters or
selected dealers are permitted to sell the Shares.
The Company's officers and directors, the holders of the Company's 498,636
stock options (the "Option Holders"), and the holders of 5% or more (the "5%
Stockholders") of the outstanding shares of the Company's Common Stock
immediately prior to the date of this Prospectus, RADE and Criticare, have
agreed with and for the Representatives not to sell any of their Shares, options
or underlying Shares for the twelve-month period (the "Initial Twelve-Month
Period") commencing on the date of this Prospectus. The Company's officers and
directors, the 5% Holders, Option Holders, Criticare and certain consultants,
including RADE, have further agreed with and for the Representative not to sell
or transfer any of their Shares unless the Share market price, adjusted for
splits and like transactions, closes at or above 200% of the initial public
offering price per share for a period of 20 consecutive trading days.
In connection with this offering, the Company has agreed to issue to the
Underwriters, for a purchase price of $0.01 per warrant, (the "Underwriters'
Warrants"), warrants to purchase common stock at a price equal to 160% of the
respective public offering price per share, for up to 100,000 Shares. The
Underwriters' Warrants contain anti-dilution provisions and are exercisable for
a period of four years commencing twelve months from the date of this
Prospectus. They are restricted from sale, transfer, assignment or hypothecation
for a period of twelve months from the date of this Prospectus except to
officers of the Underwriters or their successors. The holders of the
Underwriters' Warrants will have no voting, dividend or other rights as
stockholders of the Company with respect to shares of Common Stock underlying
the Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Company has agreed, at its sole expense, to include the Underwriters'
Warrants and underlying shares in the Registration Statement of which this
Prospectus is a part and have granted certain registration rights to the
Underwriters.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
Common Stock, with a resulting dilution in the interest of other stockholders.
The holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company would be able to obtain needed
capital by an offering of its unissued capital shares on terms more favorable to
the Company
6
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
than those provided by the Underwriters' Warrants. Such facts may adversely
affect the terms upon which the Company can obtain additional financing. Any
profit realized by the Underwriters upon the sale of the Underwriters' Warrants
or shares of Common Stock issuable upon the exercise of the Underwriters'
Warrants may be deemed additional underwriting compensation (see "Risk Factors -
Potential Adverse Effect of Underwriters' Warrants").
The International Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
None of the Underwriters nor any of their controlling persons have any
material relationship with the Company, its promoters or their controlling
persons.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The Underwriters also may create a short position for the account of the
Underwriters by selling more Shares in connection with the offering than they
are committed to purchase from the Company, and in such case may cover all or a
portion of such short position. The Underwriters may also cover all or a portion
of such short position by exercising the Over-Allotment Option. In addition, the
Underwriters may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the offering) for the account of other Underwriters, the selling concession
with respect to Shares that are distributed in the offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at levels above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended, by reason of
misstatements of, or omissions to state, material facts in this Prospectus and
the Registration Statement of which it is a part.
This Underwriting section is a summary of all of the material terms of the
International Underwriting Agreement and does not purport to be complete. A copy
of the International Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available at or
from the offices of the Securities and Exchange Commission for review (see
"Additional Information").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Determination Of Offering Price
Prior to this offering, there has been no public market for any of the
Company's securities. The initial offering price of the Shares has been
arbitrarily determined by negotiations between the Company and the
Representative of the U.S. Underwriters and the Representatives of the
International Underwriters. Among the factors considered in determining such
prices are prevailing market conditions generally, the Company's historical and
prospective operations and earnings, the history of the prospects for the
industry in which the Company operates, and market prices for securities of
other companies comparable to the Shares.
7
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
DESCRIPTION OF SECURITIES
[Please refer to text from United States Prospectus]
REPORTS TO STOCKHOLDERS
[Please refer to text from United States Prospectus]
SHARES ELIGIBLE FOR FUTURE SALE
[Please refer to text from United States Prospectus]
LEGAL MATTERS
[Please refer to text from United States Prospectus]
EXPERTS
[Please refer to text from United States Prospectus]
GLOSSARY
[Please refer to text from United States Prospectus]
IMMTECH INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
[Please refer to text from United States Prospectus]
8
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to its date.
------------
TABLE OF CONTENTS
Page
----
Available Information............ 2
Prospectus Summary............... 3
Summary Financial Information.... 8
Risk Factors..................... 9
Use of Proceeds.................. 17
Dividend Policy.................. 18
Dilution......................... 18
Capitalization................... 19
Selected Financial Data.......... 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 22
Business......................... 25
Management and Key Scientific
Personnel..................... 38
Certain Transactions............. 41
Principal Stockholders........... 43
Certain Tax Considerations
Applicable to Non-U.S.
Holders of the Common Stock... 44
Underwriting..................... 46
Description of Securities........
Reports to Stockholders..........
Shares Eligible for Future Sale..
Legal Matters....................
Experts..........................
Glossary.........................
Index to Financial Statements.... F-1
------------
Until _________, 1999 ([___] days after the date of this Prospectus), all
dealers effecting transactions in the Registered Securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.]
================================================================================
================================================================================
1,000,000 Shares
[LOGO]
IMMTECH
INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
[LOGO]
NEW CHINA HONG KONG
THE NEW CHINA HONG KONG
SECURITIES LTD.
CHINA EVERBRIGHT
SECURITIES (H.K.), LTD.
April , 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATION OF DIRECTOR'S LIABILITY
The By-laws of the Company (the "By-laws") eliminates the liability of
directors to the fullest extent permissible under Delaware law. Delaware law
permits a corporation to limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of certain
fiduciary duties as a director, provided, that the director's liability may not
be eliminated or limited for: (a) breaches of the director's duty of loyalty to
the corporation or its shareholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. A
director's liability may also not be limited for violation of, or otherwise
relieve the corporation or its directors from the necessity of complying with,
federal or state securities laws or affect the availability of non-monetary
remedies such as injunctive relief or rescission.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws relating to indemnification require that the Company
indemnify its directors and its executive officers to the fullest extent
permitted under Delaware law, provided, that the Company may modify the extent
of such indemnification by individual contracts with its directors and executive
officers, and provided, further, that the Company will not be required to
indemnify any director or executive officer in connection with a proceeding
initiated by such person, with certain exceptions. Delaware corporate law, the
Company's Bylaws, as well as any indemnity agreements, may also permit
indemnification for liabilities arising under the Securities Act or the
Securities Exchange Act of 1934, as amended.
The Board of Directors has been advised that, in the opinion of the
Securities and Exchange Commission, indemnification of liabilities arising under
the Securities Act is contrary to public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director or officer of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director or officer in connection with the Shares being registered hereby, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
Securities and Exchange Commission Registration fee ............... $ 6,000
Underwriters unallocated expense reimbursement .................... $300,000
Nasdaq and Boston Stock Exchange application and listing fees ..... $ 20,000
Accounting fees and expenses ...................................... $125,000
Legal fees and expenses ........................................... $280,000
Printing and engraving expenses ................................... $ 70,000
Blue Sky fees and expenses (including legal fees) ................. $ 30,000
Transfer Agent and Registrar fees and expenses .................... $ 10,000
Miscellaneous ..................................................... $ 19,000
--------
TOTAL ........................................... $860,000
========
- ----------
The Registrant will bear all expenses listed above.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by the Registrant during the past three years that were not registered under the
Act. The information set forth below gives effect to a 1-for-0.645260 reverse
stock split of the Company's Common Stock effected on July 24, 1998 and a
1-for-2 reverse stock split of the Company's Common Stock effected on February
5, 1999.
1. The following shares of Series B Preferred Stock have been privately placed
during the past three years:
<TABLE>
<CAPTION>
Date No. of Shares Purchaser Total Offering Price
---- ------------- --------- --------------------
<S> <C> <C> <C>
12/16/96 7,700 William N. Pontikes $ 25,000.00
12/16/96 30,803 Nicholas K. Pontikes, Trustee $ 100,000.00
12/16/96 7,700 Nicholas R. Pontikes $ 25,000.00
01/02/97 23,102 Rick Kash $ 75,000.00
01/22/97 7,700 Donna & James Hale $ 25,000.00
</TABLE>
These shares were sold to accredited investors in reliance on Section 4(2)
of the Act based on the limited number of purchasers, their sophistication and
close relationship to principals of the Company and access to information
regarding the Company as a result of their relationships.
2. The following shares of Common Stock have been issued as a result of the
exercise of stock options:
Date Number of Shares Purchaser Total Offering Price
---- ---------------- --------- --------------------
3/18/97 12,985 Dr. Jeffrey Leiden $ 6,037.50
3/24/98 1,855 Barbara Buhrow $ 1,092.50
$10,485.96
(Contribution of
3/24/98 18,417 Gerald Walsh Promissory Note)
$ 4,044.95
(Contribution of
3/24/98 7,112 David Keating Promissory Note)
$13,921.82
(extinguishment of
3/27/98 40,832 T. Stephen Thompson Company obligation)
12/31/98 24,197 T. Stephen Thompson $ 8,250.00
12/31/98 16,131 Dr. Robert Murphy $ 5,000.00
12/31/98 322 Hans Liao $ 100.00
These stock options were granted to employees of and consultants to the
Company and were issued in reliance on Section 4(2) of the Act based on the
limited number of purchasers, their sophistication and close relationship to
principals of the Company and access to information regarding the Company as a
result of these relationships. No underwriters were involved in these
transactions.
3. As of July 24, 1998, the Company completed a private placement in Hong Kong
at $1.74 per common share and issued a total of 575,000 Common Shares to the
following individuals for aggregate cash consideration of $1,000,000. These
issuances were made in reliance on Section 4(2) and Regulation D of the Act by
the Company.
Date Number of Shares Purchaser Total Offering Price
---- ---------------- --------- --------------------
11/10/98 160,000 Wingpearl Investment Ltd. $278,260.86
11/10/98 105,000 Happy Result Ltd. $182,608.70
Fukoku Asset
11/10/98 80,000 Management Ltd. $139,130.43
United Resources
11/10/98 40,000 Investment Ltd. $ 69,565.21
11/10/98 190,000 Creditview Ltd. $330,434.78
II-2
<PAGE>
All of the investors were accredited investors. The determination of whether an
investor was accredited or nonaccredited was based on the responses in the
questionnaire filled out by each investor.
In connection with the transaction, the Company paid a placement agency
fee to The New China Hong Kong Securities Ltd. consisting of $50,000 and
warrants to purchase an aggregate of 75,000 shares of Common Stock at an
exercise price of $0.10 per share
Also in connection with services RADE has provided, the Company paid
a consulting fee to RADE consisting of warrants to purchase an aggregate of
225,000 shares of Common Stock at an exercise price of $0.10 per share. No
general solicitation was utilized.
4. On July 24, 1998, 86,207 shares of the Company's Common Stock were issued to
Criticare (in addition to rights to certain patents, agreements and rights
associated with those assigned assets) for an aggregate purchase price of
$150,000. This sale was made in reliance on Section 4(2) of the Act. Criticare
qualifies as an accredited investor. Criticare had access to all the records of
the Company before its purchase of this stock. No underwriter was involved in
this transaction.
5. An aggregate of 145,353 shares of the Company's Common Stock were issued to
Criticare on July 24, 1998 in exchange for the cancellation of a promissory note
in the amount of $597,722 and accrued interest in the amount of $68,368. This
sale was made in reliance on Section 4(2) of the Act. Criticare qualifies as an
accredited investor. Criticare had access to all the records of the Company
before the purchase of this stock. No underwriter was involved in this
transaction.
As of July 24, 1998, an aggregate of 196,824 shares of the Company's
Common Stock were issued to other shareholders in exchange for advances in the
aggregate amount of $387,450. This sale was made in reliance on Section 4(2) of
the Act. The shareholders qualify as accredited investors. The shareholders had
access to all the records of the Company before the purchase of this stock. No
underwriter was involved in this transaction.
6. In July, 1996, the Company pursued a private placement at $1,000 per Unit,
with each Unit consisting of $1,000 principal amount of Senior Subordinated
Debentures due 1997 and one warrant to purchase 200 (100 shares after the .5 for
1 reverse stock split) shares of the Company's Common Stock, $0.01 par value per
share, and issued a total of 914 units to the following individuals for
aggregate cash consideration of $914,000. These issuances were made in
compliance with Rule 505, Regulation D of the Securities Act by Registrant's
management and placement agent. A commission of 7% of the Offering Price was
paid to the placement agent, H.D. Brous & Co., Inc. No general solicitation was
utilized. All of the investors were accredited investors. The determination of
whether an investor was accredited or nonaccredited was based on the response in
the subscription agreement filled out by each investor.
Date Purchaser Total Offering Price
---- --------- --------------------
08/31/96 Tim Connolly $ 25,000.00
08/31/96 Alvin Silver $ 25,000.00
08/31/96 L. Patrick Mellon $ 100,000.00
08/31/96 Dean L. Davis $ 25,000.00
08/31/96 William Grossman $ 25,000.00
08/31/96 Hugh W. van der Wilt $ 100,000.00
08/31/96 Charles T. Graham $ 50,000.00
08/31/96 Dale L. Davis $ 100,000.00
08/31/96 Howard Brous (Todd) $ 15,000.00
08/31/96 Howard Brous (Robert) $ 15,000.00
08/31/96 Tim Connolly $ 15,000.00
08/31/96 Criticare $ 59,000.00
08/31/96 James Randolph $ 30,000.00
08/31/96 Alan & Larry Phelps $ 6,000.00
08/31/96 Frederick Wackerle $ 14,000.00
08/31/96 Michael & Martha Harshbarger $ 57,000.00
08/31/96 T. Stephen Thompson $ 8,000.00
08/31/96 Dale Phelps $ 11,000.00
08/31/96 Dale Geiss $ 58,000.00
08/31/96 Frederick Frank $ 1,000.00
08/31/96 Ray Reister $ 1,000.00
08/31/96 Richard Lione $ 35,000.00
08/31/96 Walt Gustavson $ 59,000.00
08/31/96 Jack Schuler $ 18,000.00
08/31/96 Paul Lavins $ 1,000.00
08/31/96 Gerhard Von der Ruhr $ 49,000.00
08/31/96 Joseph Lai $ 12,000.00
II-3
<PAGE>
7. As of July 24, 1998, the following debtholders of the Company converted
approximately $2,127,007 in indebtedness, consisting of stockholder advances,
notes payable and related accrued interest and accounts payable into 604,978
shares of Common Stock and $203,000 cash in reliance on Section 4(2) of the Act.
The debtholders qualify as accredited investors. The debtholders had access to
all the records of the Company before the conversion of debt to stock. No
underwriter was involved in this transaction.
Date No. of Shares Purchaser Total Offering Price
- ---- -------------- --------- --------------------
7/27/98 36,401 Walsh & Keating, SC $ 192,288
7/27/98 1,031 Garry Walsh $ 6,135.50
7/27/98 1,031 David Keating $ 6,135.50
7/27/98 35,359 Winston & Strawn $ 184,172
7/27/98 10,454 Reinhart, Boerner, Van Dueren, $ 57,270.00
Norris & Rieselbach
7/27/98 25,527 Criticare $116,978.00
7/27/98 8,066 William N. Pontikes $ 25,000.00+
7/27/98 32,263 Nicholas K. Pontikes $100,000.00+
7/27/98 8,066 Nicholas R. Pontikes $ 25,000.00+
7/27/98 290 Gary Parks $ 450.00+
7/27/98 8,066 Donna & James Hale $ 25,000.00+
7/27/98 3,226 Kevin Bowen $ 10,000.00+
7/27/98 16,131 Rick Kash $ 50,000.00+
7/27/98 46,562 T. Stephen Thompson $ 72,160.00+
7/27/98 49,955 Gerhard Von der Ruhr $ 77,419.00+
7/27/98 24,197 N.C. Joseph Lai $ 37,500.00
10/19/98 5,022 James G. Randolph $ 38,532.00*
10/19/98 4,185 William Grossman, IRA $ 32,110.00*
10/19/98 16,740 L. Patrick Mellon $128,439.00*
10/19/98 16,740 Hugh W. van der Wilt $128,439.00*
10/19/98 16,740 Dale Leslie Davis $128,439.00*
10/19/98 4,185 Dean L. Davis $ 32,110.00*
10/19/98 2,511 Tim Connolly, IRA $ 19,266.00*
10/19/98 4,185 Tim Connolly $ 32,110.00*
10/19/98 8,370 Charles T. Graham $ 64,220.00*
10/19/98 4,185 Alvin Silver $ 32,110.00*
10/19/98 2,511 Howard Brous (Todd) $ 19,266.00*
10/19/98 2,511 Howard Brous (Robert) $ 19,266.00*
10/19/98 9,876 Criticare Systems $ 75,779.00*
10/19/98 2,009 N.C. Joseph Lai $ 15,413.00*
10/19/98 8,202 Gerhard Von der Ruhr $ 62,935.00*
10/19/98 167 Paul Lavins $ 1,284.00*
10/19/98 3,013 Jack Schuler $ 23,119.00*
10/19/98 9,876 Walter Gustavson $ 75,779.00*
10/19/98 5,859 Richard Lione $ 44,954.00*
10/19/98 167 Ray Reister $ 1,284.00*
10/19/98 167 Frederick Frank $ 1,284.00*
10/19/98 9,709 Dale Geiss $ 74,495.00*
10/19/98 1,841 Dale Phelps $ 14,128.00*
10/19/98 1,339 T. Stephen Thompson $ 10,275.00*
10/19/98 2,344 Frederick Wackerle $ 17,982.00*
10/19/98 1,004 Alan & Larry Phelps $ 7,706.00*
10/19/98 9,542 Hirschberger International, Inc. $ 73,211.00*
* Refers to amount in Item No. 6 above.
+ Refers to amounts included in second paragraph of Item 5 above.
The Company issued warrants to purchase an aggregate of 91,400 shares of
Common Stock to the individuals designated by an (*) in the table above as of
August 31, 1996 in connection with the Senior Subordinated Debentures referenced
in Item No. 6, which warrants carry an exercise price of 1/2 of the initial
public offering price per Share and are exercisable upon completion of the
Offerings until August 31, 1999.
II-4
<PAGE>
On July 29, 1998, the Company issued warrants to purchase 225,000 shares
of Common Stock, at an exercise price of $0.10 per share, to RADE in exchange
for management consulting services. RADE had access to information on the
Company necessary to make an informed investment decision for services valued at
$198,000. (see Item No. 3)
On October 12, 1998, the Company issued warrants to purchase 750,000
shares of Common Stock, at an exercise price of $0.10 per share, to RADE in
exchange for management consulting services.
On July 29, 1998, the Company issued warrants to purchase 75,000 shares of
Common Stock, at an exercise price of $0.10 per share, to NCHK in connection
with the Private Placement on July 24, 1998. NCHK had access to information on
the Company necessary to make an informed investment decision for services
valued at $66,000. (see Item No. 3)
ITEM 27. EXHIBITS.
Exhibit Description
- ------- -----------
1.1(4) Form of U.S. Underwriting Agreement
1.2(4) Form of International Underwriting Agreement
1.3(4) Form of Selected Dealers Agreement
1.4(4) Form of Agreement Among Underwriters
3.1(4) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(2) Form of Common Stock Certificate
4.2(4) Form of Warrant Agreement relating to the Underwriters' Warrants
4.3(4) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(4) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
4.6(3) Registration Agreement dated December, 1992 by and among the
Company, Marquette Ventures Partners II, L.P. and certain investors
5.1(2) Opinion of Gardner, Carton & Douglas
10.1(3) Form of Consulting Agreement dated May 15, 1998 by and between the
Company and RADE Management Corporation
10.2(3) 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and
Criticare Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and
Criticare Systems, Inc.
10.8(3) Option Agreement dated April 20, 1998 between the Company and
ImmvaRx
10.9(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.10(3) License Agreement dated March 10, 1998 by and between the Company
and Northwestern University
10.11(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
10.12(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.13(3) Assignment of Intellectual Properties dated June 29, 1998 between
the Company and Criticare Systems, Inc.
10.14(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
10.15(3) International Patent, Know-How and Technology License Agreement
dated June 29, 1998 by and between the Company and Criticare
Systems, Inc.
10.16(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.17(3) Employment Agreement dated 1992 by and between the Company and T.
Stephen Thompson
10.18(4) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.19(4) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research
Group, Inc.
10.20(4) Office Lease dated December 5, 1991, as amended, by and between the
Company and Shaw Realty Services, Inc., as agent for CHS Evanston
One Associates, Limited Partnership
10.21(2) Amendment, dated March 8, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.22(2) Form of One Year Lock-Up Agreement
10.23(2) Form of One Year Plus 200% Lock-Up Agreement
23.1(2) Consent of Deloitte & Touche LLP
23.2(2) Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1(3) Powers of Attorney (included on signature page)
- ---------------
(1) To be filed by amendment.
(2) Filed herewith.
II-6
<PAGE>
(3) Included with the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-64393), as filed with the Securities and
Exchange Commission on September 28, 1998.
(4) Included with Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (Registration Statement No. 333-64393), as filed with the
Securities and Exchange Commission on February 11, 1999.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(a) It will provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as are required by the underwriters to permit prompt delivery to each
purchaser; and
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
(c) (1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on this 30th day of
March, 1999.
IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
-----------------------------------------------
T. Stephen Thompson
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on this 30th day of March, 1999.
Signatures Title
- ---------- -----
/s/ T. Stephen Thompson President, Chief Executive
---------------------------------- Officer and Director
T. Stephen Thompson (Principal Executive Officer)
* Lawrence A. Potempa Vice President of Research and
---------------------------------- Chief Science Officer
Lawrence A. Potempa, Ph.D.
/s/ Gary C. Parks Chief Financial Officer,
---------------------------------- Treasurer and Secretary
Gary C. Parks (Principal Financial and
Accounting Officer)
/s/ Emil Soika Director
----------------------------------
Emil Soika
* Byron E. Anderson Director
----------------------------------
Byron E. Anderson, Ph.D.
*By: /s/ T. Stephen Thompson
----------------------------------
T. Stephen Thompson
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
1.1(4) Form of U.S. Underwriting Agreement
1.2(4) Form of International Underwriting Agreement
1.3(4) Form of Selected Dealers Agreement
1.4(4) Form of Agreement Among Underwriters
3.1(4) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(2) Form of Common Stock Certificate
4.2(4) Form of Warrant Agreement relating to the Underwriters' Warrants
4.3(4) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(4) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
4.6(3) Registration Agreement dated December, 1992 by and among the
Company, Marquette Ventures Partners II, L.P. and certain investors
5.1(2) Opinion of Gardner, Carton & Douglas
10.1(3) Form of Consulting Agreement dated May 15, 1998 by and between the
Company and RADE Management Corporation
10.2(3) 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
<PAGE>
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and
Criticare Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and
Criticare Systems, Inc.
10.8(3) Option Agreement dated April 20, 1998 between the Company and
ImmvaRx
10.9(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.10(3) License Agreement dated March 10, 1998 by and between the Company
and Northwestern University
10.11(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
10.12(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.13(3) Assignment of Intellectual Properties dated June 29, 1998 between
the Company and Criticare Systems, Inc.
10.14(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
10.15(3) International Patent, Know-How and Technology License Agreement
dated June 29, 1998 by and between the Company and Criticare
Systems, Inc.
10.16(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.17(3) Employment Agreement dated 1992 by and between the Company and T.
Stephen Thompson
10.18(4) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.19(4) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research
Group, Inc.
10.20(4) Office Lease dated December 5, 1991, as amended, by and between the
Company and Shaw Realty Services, Inc., as agent for CHS Evanston
One Associates, Limited Partnership
10.21(2) Amendment, dated March 8, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.22(2) Form of One Year Lock-Up Agreement
10.23(2) Form of One Year Plus 200% Lock-Up Agreement
23.1(2) Consent of Deloitte & Touche LLP
23.2(2) Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1(3) Powers of Attorney (included on signature page)
- ---------------
(1) To be filed by amendment.
(2) Filed herewith.
(3) Included with the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-64393), as filed with the Securities and
Exchange Commission on September 28, 1998.
<PAGE>
(4) Included with Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (Registration Statement No. 333-64393), as filed with the
Securities and Exchange Commission on February 11, 1999.
================================================================================
NUMBER SHARES
IMMT [LOGO] IMMTECH INTERNATIONAL, INC.
COMMON STOCK, CUSIP 452519 10 1
$.01 PAR VALUE SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
IMMTECH INTERNATIONAL, INC. (the "Corporation"), a Delaware corporation. The
shares represented by this certificate are transferable only on the books of the
Corporation by the holder of record hereof, or by the holder's duly authorized
attorney or legal representative, upon the surrender of this certificate
properly endorsed. The Corporation has more than one class of stock authorized
for issuance. This certificate and the shares represented hereby are issued and
held subject to each of the laws of the State of Delaware, the certificate of
incorporation of the Corporation and the by-laws of the Corporation, as each may
from time to time be amended, modified or supplemented.
This certificate is not valid until countersigned and registered by the
Corporation's Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [CORPORATE
SEAL
OMITTED]
/s/ Gary C. Parks /s/ T. Stephen Thompson
Secretary President and Chief Executive Officer
Countersigned and Registered:
HARRIS Trust and Savings BANK
(Chicago)
Transfer Agent and Registrar;
By
Authorized Signature
================================================================================
<PAGE>
IMMTECH INTERNATIONAL, INC.
The corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
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 in common UNIF GIFT MIN ACT - _______ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act......................
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL
ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _________________________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the Books of the within-named Corporation
with full power of substitution in the premises.
Dated _______________________
________________________________________
Signature
________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
________________________________________________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
GARDNER, CARTON & DOUGLAS
QUAKER TOWER; SUITE 3400
321 N. CLARK STREET
CHICAGO, ILLINOIS 60610
March 29, 1999
Immtech International, Inc.
1890 Maple Avenue
Suite 110
Evanston, Illinois 60201
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel for Immtech International, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance by the
Company of up to 1,150,000 shares of Common Stock, $.01 par value per share, of
the Company (the "Shares"), as described in the Registration Statement filed
with the Securities and Exchange Commission on Form SB-2, File No. 333-64393, as
amended (the "Registration Statement"). We have examined the Certificate of
Incorporation of the Company, as amended, and such other documents as we have
deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares covered by
the Registration Statement have been duly authorized, and, when issued,
delivered and paid for as contemplated by the Registration Statement, will be
validly issued, fully paid and non-assessable.
We consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus constituting a part of the Registration Statement and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ Gardner, Carton & Douglas
FOURTH AMENDMENT TO LETTER AGREEMENT
This Amendment to the Letter Agreement dated January 15, 1997 among Immtech
International, Inc., The University of North Carolina at Chapel Hill and
Pharm-Eco Laboratories, Inc. (The "Letter Agreement") is effective as of October
1, 1998.
RECITALS
A. Immtech has not completed an IPO or the Alternative Financing required by
Paragraph 1 of the Letter Agreement within the nine month period specified in
Paragraph 10 thereof, as extended until February 28, 1999, permitting any of the
parties to terminate the Letter Agreement as of the effective date of this
Amendment.
B. Immtech has requested an extension of time to permit it to complete an IPO.
C. UNC and Pharm-Eco are willing to grant an extension of time to Immtech on the
condition specified below.
AGREEMENT
1. In return for Immtech agreeing to pay upon the completion of the IPO a
$100,000 Research Grant to Dr. Richard Tidwell's laboratory at UNC for the
quarter period January-March, 1999, UNC and Pharm-Eco agree to extend the Letter
Agreement until March 31, 1999, to allow Immtech time to complete the IPO.
Immtech will be given an automatic extension of up to two additional weeks, if
the SEC or NASD response to Immtech submission is latter than 30 days from the
original submission date of February 11, 1999. This Research Grant will be in
addition to Immtech's obligation to provide Research Grants as described in the
Letter Agreement and subsequently amended.
2. Capital terms used herein have the same meaning given in the Letter
Agreement.
3. Other than as amended herein and in the prior Amendments effective October
15, 1997, the Second Amendment effective January 15, 1998, and in the Third
Amendment effective January 15, 1999, the Letter Agreement remains in full force
and effect.
The University of North Pharm-co Laboratories, Inc. Immtech International,
Carolina at Chapel Hill Inc.
By: /s/ Francis J. Meyer By: /s/ [Illegible] By: /s/ [Illegible]
-------------------- ----------------------- ------------------
Francis J. Meyer, Ph.D.
Director, Office of Tech-
Title: nology Development Title: Core Team Title: President & CEO
------------------- --------------------- ----------------
Date: March 6, 1999 Date: March 8, 1999 Date: March 5, 1999
-------------------- ---------------------- -----------------
IMMTECH INTERNATIONAL, INC.
LOCK-UP AGREEMENT
January 28, 1999
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
As Representatives of the
Several Underwriters
c/o Westport Resources Investment Services, Inc.
315 Post Road West
P.O. Box 3039
Westport, Connecticut 06380
Ladies and Gentlemen:
The undersigned is currently a securityholder of Immtech International, Inc.
(the "Company") and wishes to facilitate the public offering (the "Offering") of
Common Stock of the Company ("Common Stock") pursuant to a Registration
Statement (the "Registration Statement") to be declared effective by the
Securities and Exchange Commission (the "Commission").
In consideration of the foregoing, in order to induce you to act as underwriters
in the Offering, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the undersigned hereby irrevocably agrees that it will
not, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge, loan or otherwise
dispose of (each, a "Disposition") any shares of Common Stock or any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire Common Stock (collectively, "Securities"), without the prior written
consent of Westport Resources Investment Services, Inc. acting alone or of each
of the Representatives of the Underwriters acting jointly, beginning on the date
of the prospectus and ending 365 days from the date of the final prospectus
related to the Offering (the "Lock-Up Period").
Notwithstanding the foregoing: (i) if the undersigned is a corporation or
partnership, it may distribute Securities on a pro rata basis to shareholders or
limited partners, respectively, so long as such transaction does not involve a
disposition for value; and (ii) if the undersigned is an individual, he or she
may transfer Securities either during his or her lifetime or, on death, by will
or intestacy, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided in each such case, however, that prior to any such
transfer, each donee, transferee or distributee shall execute an agreement,
satisfactory to Westport Resources Investment Services, Inc., pursuant to which
each donee, transferee or distributee shall agree to receive and hold such
Securities subject to the provisions hereof, and there shall be no further
transfer except in accordance with the provisions hereof. For the purposes of
this paragraph, "immediate family" shall mean spouse, lineal descendant, father,
mother, brother or sister of the transferor.
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
January 28, 1999
Page 2
The foregoing restriction on Dispositions is expressly agreed to preclude the
holder of the Securities form engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the
Registration Statement, and acknowledges and agrees that for a period of 365
days from the effective date of the Registration Statement, the undersigned has
no right to require the Company to register under the Securities Act of 1933
such Common Stock or other securities issued by the Company and beneficially
owned by the undersigned.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities of the Company held by
the undersigned except in compliance with this agreement.
Very truly yours,
Dated:_________________________ _________________________________________
Signature
_________________________________________
Printed Name and Title
_________________________________________
Address
_________________________________________
_________________________________________
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
January 28, 1999
Page 3
At the request of the Company, Westport Resources Investmet Services, Inc.
irrevocably waives its rights to release any shareholder from the attached
lock-up during the Lock-Up Period. At the request of Westport Resources
Investment Services, Inc. the Company acknowledges the foregoing lock-up
agreement and agrees that it will not allow any shares to be transferred of
record in contravention thereof.
Immtech International, Inc.
By:________________________
Westport Resources Investment Services, Inc.
By:________________________
IMMTECH INTERNATIONAL, INC.
LOCK-UP AGREEMENT
January 28, 1999
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
As Representatives of the
Several Underwriters
c/o Westport Resources Investment Services, Inc.
315 Post Road West
P.O. Box 3039
Westport, Connecticut 06380
Re: 5% Stockholders and Employee Option Holders
Ladies and Gentlemen:
The undersigned is currently a securityholder of Immtech International, Inc.
(the "Company") and wishes to facilitate the public offering (the "Offering") of
Common Stock of the Company ("Common Stock") pursuant to a Registration
Statement (the "Registration Statement") to be declared effective by the
Securities and Exchange Commission (the "Commission").
In consideration of the foregoing, in order to induce you to act as underwriters
in the Offering, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the undersigned hereby irrevocably agrees that it will
not, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge, loan or otherwise
dispose of (each, a "Disposition") any shares of Common Stock or any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire Common Stock (collectively, "Securities"), without the prior written
consent of Westport Resources Investment Services, Inc. acting alone or of each
of the Representatives of the Underwriters acting jointly, (i) beginning on the
date of the prospectus and ending 365 days from the date of the final prospectus
related to the Offering (the "Lock-Up Period"), and (ii) after the Lock-Up
Period, only after the average of the bid and ask prices of the Company's Common
Stock, as such Common Stock is quoted on the Nasdaq Automated Quotation System,
exceeds 200% of the per share initial public offering price for twenty (20)
consecutive trading days, after adjustment for any stock splits, stock
combinations or other similar changes in the outstanding shares of Common Stock
of the Company (the "Threshold Share Price").
Notwithstanding the foregoing: (i) if the undersigned is a corporation or
partnership, it may distribute Securities on a pro rata basis to shareholders or
limited partners, respectively, so long as such transaction does not involve a
disposition for value; and (ii) if the undersigned is an individual, he or she
may transfer Securities either during his or her lifetime or, on death, by will
or intestacy, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided in each such case, however, that prior to any such
transfer, each donee, transferee or distributee shall execute an agreement,
satisfactory to Westport Resources Investment Services, Inc., pursuant to which
each donee, transferee or distributee shall agree to receive and hold such
Securities subject to the provisions hereof, and there shall be no further
transfer except in
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
January 28, 1999
Page 2
accordance with the provisions hereof. For the purposes of this paragraph,
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
The foregoing restriction on Dispositions is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period or until the Threshold Share Price is
achieved even if such Securities would be disposed of by someone other than the
undersigned. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the
Registration Statement, and acknowledges and agrees that, during the Lock-Up
Period and until the Threshold Share Price is achieved, the undersigned has no
right to require the Company to register under the Securities Act of 1933 such
Common Stock or other securities issued by the Company and beneficially owned by
the undersigned.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities of the Company held by
the undersigned except in compliance with this agreement.
Very truly yours,
Dated:_________________________ _________________________________________
Signature
_________________________________________
Printed Name and Title
_________________________________________
Address
_________________________________________
_________________________________________
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
January 28, 1999
Page 3
At the request of the Company, Westport Resources Investmet Services, Inc.
irrevocably waives its rights to release any shareholder from the attached
lock-up during the Lock-Up Period. Westport confirms that if the Common Stock
achieves the Threshold Share Price during the Lock-Up Period, such condition
will be deemed satisfied regardless of the price of the Common Stock after the
Lock-Up Period. Westport hereby irrevocably releases all shareholders from the
attached lock-up agreement effective the fifth anniversary of the effective
dateof the Registration Statement relating to the offering regardless of the
trading price of the Common Stock. At the request of Westport Resources
Investment Services, Inc. the Company acknowledges the foregoing lock-up
agreement and agrees that it will not allow any shares to be transferred of
record in contravention thereof.
Immtech International, Inc.
By:________________________
Westport Resources Investment Services, Inc.
By:________________________
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-64393 of Immtech International, Inc. on Form SB-2 of our report dated August
29, 1998, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 29, 1999
