<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1997
Registration No. 333 -
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------------
ANTEX BIOLOGICS INC.
(FORMERLY MICROCARB INC.)
(Exact name of small business issuer in its charter)
-------------------------------
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DELAWARE 2830 52-1563899
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
-------------------------------
300 PROFESSIONAL DRIVE
GAITHERSBURG, MARYLAND 20879
(301) 590-0129
(Address and telephone number of principal executive offices)
V.M. ESPOSITO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
300 PROFESSIONAL DRIVE
GAITHERSBURG, MARYLAND 20879
(301) 590-0129
(Name, address, including zip code, telephone number, including area code,
of agent for service)
-------------------------------
COPY TO:
D. MICHAEL LEFEVER, ESQ.
COVINGTON & BURLING
P.O. BOX 7566, 1201 PENNSYLVANIA AVE., N.W.
WASHINGTON, D.C. 20044-7566
(202) 662-5176
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------------------
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of each class of Amount to be registered(1) Proposed maximum Proposed maximum Amount of registration
securities to be offering price per share(2) aggregate offering fee
registered price(2)
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Common Stock 71,430 shares (3) $0.70 $50,001 $15.15
===================================================================================================================================
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(1) Consists of shares of Common Stock being registered for resale. Pursuant to
Rule 429 under the Securities Act of 1933, as amended (the "Securities Act"),
the Prospectus included as Part I of this Registration Statement constitutes a
combined prospectus that also relates to 20,143,260 shares of Common Stock
registered pursuant to Registration Statement No. 33-96168, for which a
registration fee of $4,237 was paid.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the average of the
bid and the asked prices of the Common Stock on April 28, 1997, as reported on
the OTC Bulletin Board.
(3) Pursuant to Rule 416 under the Securities Act, the number of shares
registered hereby includes such additional number of shares of Common Stock as
are required to prevent dilution resulting from stock splits, stock dividends
or similar transactions.
-------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
ANTEX BIOLOGICS INC.
(FORMERLY MICROCARB INC.)
Cross-Reference Between Prospectus and Items of Form SB-2
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Registration Statement Item Number and Heading Location in Prospectus
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1. Front of Registration Statement and Outside Front Cover Front Cover
of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover
3. Summary Information and Risk Factors PROSPECTUS SUMMARY AND
RISK FACTORS
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders SELLING SECURITY HOLDERS
8. Plan of Distribution PLAN OF DISTRIBUTION
9. Legal Proceedings LEGAL PROCEEDINGS
10. Directors, Executive Officers, Promoters and MANAGEMENT
Control Persons
11. Security Ownership of Certain Beneficial Owners PRINCIPAL STOCKHOLDERS
and Management
12. Description of Securities DESCRIPTION OF SECURITIES
13. Interest of Named Experts and Counsel None
14. Disclosure of Commission Position on MANAGEMENT
Indemnification for Securities Act Liability
15. Organization Within Last Five Years None
16. Description of Business BUSINESS
17. Management's Discussion and Analysis or Plan of MANAGEMENT'S DISCUSSION
Operation AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
18. Description of Property DESCRIPTION OF PROPERTY
19. Certain Relationships and Related Transactions None
20. Market for Common Equity and Related MARKET FOR COMMON EQUITY
Stockholder Matters AND RELATED STOCKHOLDER
MATTERS
21. Executive Compensation EXECUTIVE COMPENSATION
22. Financial Statements FINANCIAL STATEMENTS
23. Changes in and Disagreements With Accountants None
on Accounting and Financial Disclosure
</TABLE>
<PAGE> 3
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.
PROSPECTUS Subject to Completion
May 1, 1997
ANTEX BIOLOGICS INC.
(formerly MicroCarb Inc.)
20,214,690 Shares
of
Common Stock
This Prospectus relates to the resale by the purchasers from Antex Biologics
Inc., a Delaware corporation (the "Company" or "Antex") or their transferees
(the "Selling Security Holders") of (i) up to 10,071,630 outstanding shares of
the Company's common stock, par value $0.01 per share (the "Common Stock"),
issued by the Company as components of Units that were sold by the Company in a
private placement completed in April 1995 (the "Private Placement") and (ii) up
to 10,143,060 outstanding shares of Common Stock that have been issued by the
Company upon the exercise during 1996 of Class B Warrants that also were a
component of the Units. The Common Stock currently trades on the OTC Bulletin
Board under the symbol "ANTX". The quotation for the Common Stock as of April
28, 1997, on the OTC Bulletin Board was a bid of $0.6875 and an asked of
$0.71875.
The Company has been advised by the Selling Security Holders that they may
offer and sell the shares of Common Stock from time to time through or to
securities brokers or dealers in the over-the-counter market or in negotiated
transactions. In accordance with the Securities Act of 1933, as amended (the
"Securities Act"), any confirmation of such sale of the Common Stock by the
Selling Security Holders, and any delivery of the Common Stock following a
sale, must be accompanied or preceded by this Prospectus, unless the
transaction is exempted from registration. The Selling Security Holders and any
broker, dealer, or agent that participates with the Selling Security Holders in
the sale of the Shares offered hereby may be deemed "underwriters" within the
meaning of the Securities Act, and any commissions or discounts received by
them and any profit on the resale of the Shares purchased by them may be deemed
to be underwriting commissions under the Securities Act. See "SELLING SECURITY
HOLDERS" and "PLAN OF DISTRIBUTION."
The Company will not receive any proceeds from the resale of the Common Stock
by the Selling Security Holders.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL INVESTORS
SHOULD NOT PURCHASE THESE SECURITIES UNLESS THEY CAN
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT HEREIN.
SEE "RISK FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 4
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.......................................................................................................3
RISK FACTORS.............................................................................................................7
USE OF PROCEEDS.........................................................................................................10
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................................................11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................................................................11
BUSINESS................................................................................................................13
DESCRIPTION OF PROPERTY.................................................................................................22
LEGAL PROCEEDINGS.......................................................................................................22
MANAGEMENT..............................................................................................................23
EXECUTIVE COMPENSATION..................................................................................................25
PRINCIPAL STOCKHOLDERS..................................................................................................28
DESCRIPTION OF SECURITIES...............................................................................................29
SELLING SECURITY HOLDERS................................................................................................30
PLAN OF DISTRIBUTION....................................................................................................37
LEGAL MATTERS...........................................................................................................37
EXPERTS.................................................................................................................37
ADDITIONAL INFORMATION..................................................................................................38
INDEX TO FINANCIAL STATEMENTS..........................................................................................F-1
</TABLE>
NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN A CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
- 2 -
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by, the detailed information and financial statements
appearing elsewhere in this Prospectus.
THE COMPANY
The Company, formerly known as MicroCarb Inc., is a development stage
biopharmaceutical company dedicated to the development and production of
therapeutic products to prevent and treat infectious diseases and related
disorders. The Company is a leader in the discovery and research of
technologies for the development of vaccines against mucosal infections. The
Company's initial focus has been the development of vaccines for respiratory,
gastrointestinal and urogenital diseases. At its inception in August 1991, the
Company was focused on researching a proprietary Adhesin-Receptor Technology
for vaccine development. In 1993, the Company broadened its technology platform
and began to develop its second core technology described as Nutriment Signal
Transduction. The combination of these two technologies provides a platform to
research and develop products to not only prevent, but also treat infectious
diseases and their related disorders. The Company's principal executive offices
are located at 300 Professional Drive, Gaithersburg, Maryland 20879. The
Company's telephone number is (301) 590-0129. See "BUSINESS."
TECHNOLOGIES
The Company's scientific base encompasses Adhesin-Receptor and
Nutriment Signal Transduction technologies.
Adhesin-Receptor Technology ("ART") is based on the principles of the
molecular events that underlie microbial adhesion to carbohydrate and lipid
receptors. Pathogenic organisms usually infect the susceptible host at the
mucosal surfaces of the respiratory, gastrointestinal or genital-urinary tract.
It is now recognized that organisms penetrating these non-specific barriers of
the mucosal surface must bind to the underlying epithelial cells, or they will
be washed away in the continual secretions bathing the mucosal surfaces. This
process is highly selective and is determined by the presence of specific
receptors on the epithelium. These receptors recognize microbial surface
ligands (adhesins) and successful attachment will lead to colonization of the
organism. The term "adhesin-receptor" has been coined to describe this process.
Initial data indicate that adhesins are conserved among strains and could be
ideal vaccine candidates to overcome the inherent limitations in conventional
antigen-based vaccines.
Nutriment Signal Transduction ("NST") is the process by which an
external signal is transmitted into and within a cell to elicit a response.
Signal transduction is generally initiated by the interaction of extracellular
factors with the cell surface receptors. These extracellular signals set off a
cascade of events that cause intracellular interactions resulting in various
events occurring within the cell and on the cell surface. The Company believes
that intracellular protein interactions are excellent targets for intervention
and control. These interactions appear to play important roles in infections,
inflammation and immune-related disorders.
VACCINES
On May 7, 1996, the Company entered into a joint venture with
SmithKline Beecham Corporation ("SBB"), and SmithKline Beecham Biologicals
Manufacturing s.a., a Belgian affiliate of SBB that is engaged in the
development, commercialization and marketing of human vaccines ("SKB")
(collectively "SmithKline"). The joint venture, MicroCarb Human Vaccines Inc.
(the "Joint Venture"), is a Delaware corporation that is 73.75% owned by the
Company and 26.25% owned by SKB. The Joint Venture acquired a worldwide,
royalty-free and perpetual license to use certain proprietary technology
previously held by the Company. The Joint Venture will engage in research and
development involving the application of this proprietary technology with the
goal of developing human bacterial vaccine products for commercial sale. The
research and development activities of the Joint Venture will be conducted with
research support services and facilities provided by the Company and with the
financial support of SmithKline.
- 3 -
<PAGE> 6
The technology that has been acquired by the Joint Venture consists of
the application of the Company's ART and NST technologies for use in the
development and sale of prophylactic and/or therapeutic human bacterial
vaccines, but excluding development of commercial products for use in passive
immunization (the "Field"). The Joint Venture has granted to SKB an exclusive,
worldwide license to market human infectious disease vaccine products in the
Field based on the proprietary technology. In connection with the formation of
the Joint Venture, SKB has made a cash payment of $3 million to the Company and
SBB has agreed to make research and development payments to the Company,
including $2.4 million during the first year of the Joint Venture. SmithKline
is obligated to make research and development payments during the first two
years of the Joint Venture. Thereafter, research and development payments are
at the option of SmithKline.
On December 1, 1994, the Company entered into a licensing agreement
with Pasteur Merieux Connaught ("PMC"), a wholly-owned subsidiary of Rhone
Poulenc Rorer, under which the Company granted to PMC an exclusive license to
an otitis media vaccine for nontypeable Haemophilus influenzae. The license is
worldwide, with the exception of the Pacific Basin. In exchange for the
license, PMC has paid to the Company a license fee and has agreed to pay the
Company certain milestone payments and royalties based on commercial sales. PMC
will be responsible for the clinical development of the vaccine.
All of the Company's activities related to the development of human
bacterial vaccine products, except for the activity covered by the license
agreement with PMC, will be conducted through the Joint Venture. The Company
will continue to pursue the development of animal vaccine products as warranted
by available resources.
THE OFFERING
In April 1995, the Company completed the Private Placement in which it
sold 70.5 Units, each Unit consisting of 142,860 shares of Common Stock and an
equal number of Class B Warrants, each exercisable to purchase one share of
Common Stock, to 122 Selling Security Holders in consideration of gross cash
proceeds to the Company of $3,525,000. All of the Class B Warrants issued in
the Private Placement, plus Class B Warrants exercisable to purchase an
additional 71,430 shares of Common Stock issued as the result of an inadvertent
overissuance, were exercised in 1996, resulting in additional gross proceeds to
the Company of approximately $5,072,000 before related costs of $215,000. The
Private Placement was conducted and the exercise of the Class B Warrants
occurred pursuant to exemptions from the registration requirements of the
Securities Act. Accordingly, the shares of Common Stock issued in the Private
Placement and upon exercise of the Class B Warrants are "restricted securities"
within the meaning of Rule 144 under the Securities Act and the shares may not
be resold or otherwise transferred except pursuant to an effective registration
statement under the Securities Act or an exemption from registration. See "PLAN
OF DISTRIBUTION."
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<PAGE> 7
The Company has registered under the Securities Act shares of Common
Stock for offer and sale pursuant to this Prospectus as described below.
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Securities offered by the Selling Security Holders: 20,214,690 shares of Common Stock
Common Stock outstanding 22,479,679 shares (1)
Use of Proceeds The Company will not receive any proceeds from the
resale of the shares of Common Stock by the Selling
Security Holders. See "USE OF PROCEEDS."
OTC Bulletin Board Symbol Common Stock -- ANTX
Risk Factors Investment in the Common Stock is highly
speculative and involves a high degree of risk.
Prospective purchasers should carefully review the
factors set forth under "RISK FACTORS."
</TABLE>
(1) Does not include shares of Common Stock issuable upon the exercise of (i)
outstanding stock options held by directors and employees to purchase 3,912,492
shares of Common Stock at exercise prices ranging from $0.37 to $6.00 per
share; (ii) Redeemable Warrants to purchase 1,794,000 shares of Common Stock at
an exercise price of $5.92 per share; (iii) Unit Purchase Options issued in
connection with the Company's initial public offering to purchase an aggregate
of 120,000 Units (the "IPO Unit Purchase Options"), each Unit consisting of
1.27 shares of Common Stock and 1.3 Redeemable Warrants, at an excise price of
$6.63 per Unit (nor the shares of Common Stock issuable upon exercise of such
Redeemable Warrants); (iv) a Unit Purchase Option issued in connection with the
Private Placement (the "Private Placement Unit Purchase Option") to purchase
24.67 Units, each Unit consisting of 142,860 shares of Common Stock and an
equal number of Class B Warrants, at an exercise price of $50,000 per Unit (nor
the shares of Common Stock issuable upon exercise of such Class B Warrants);
(v) the right of SKB to convert its interest in the Joint Venture into a
maximum of 4,793,685 shares of Common Stock; or (vi) a warrant issued to SKB
entitling it to purchase additional shares of Common Stock at an exercise price
of $0.37 per share to the extent that additional shares of Common Stock are
issued pursuant to the exercise of certain of the instruments identified in
clause (i) above, all of the instruments identified in clause (iv) above and
substantially all of the Class B Warrants.
See "PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF SECURITIES."
- 5 -
<PAGE> 8
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
AUGUST 3, 1991
(INCEPTION)
YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996
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RESULTS OF
OPERATIONS DATA:
Revenues................. $ 153,425 $ 3,827,111 $ 4,699,186
Net income (loss) $ (3,131,059) $ 535,435 $ (11,718,426)
Net income (loss)
per share.............. $ (0.32) $ 0.03
Shares used in
per share
calculations........... 9,646,846 35,687,731
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
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BALANCE SHEET DATA:
Working capital............................................ $ (343,195) $ 5,744,635
Total assets............................................... 2,645,992 8,442,190
Long-term liabilities...................................... 1,188,530 365,817
Total liabilities.......................................... 2,763,525 2,183,403
Deficit accumulated during the development stage........... (12,253,861) (11,718,426)
Total stockholders' equity (deficit)....................... (117,533) 6,258,787
</TABLE>
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<PAGE> 9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forwardlooking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or activities of the Company, or industry results, to be materially different
from any future results, performance or activities expressed or implied by such
forward-looking statements. Such factors include: general economic and business
conditions, the financial condition of the Company, competition, the Company's
dependence on other companies to commercialize, manufacture and sell products
using the Company's technologies, the uncertainty of results of preclinical and
clinical testing, the risk of product liability and liability for human
clinical trials, the Company's dependence on patents and other proprietary
rights, dependence on key management officials, the availability and cost of
capital, the availability of qualified personnel, changes in, or the failure to
comply with, governmental regulations, the failure to obtain regulatory
approvals of the Company's products and other factors discussed in this
Prospectus.
RISK FACTORS
The securities offered hereby involve a high degree of risk,
including, but not necessarily limited to, the risk factors described below.
Prospective investors, prior to making an investment in the Company should
carefully consider the risks and speculative factors inherent in and affecting
the business of the Company and the securities offered hereby, including the
following:
DEVELOPMENT STAGE COMPANY; CUMULATIVE NET LOSS. The predecessor of the
Company was founded in March 1988. Following a management buy-out (see
"BUSINESS"), the Company began operations as a development stage company in
August 1991. None of the Company's proposed vaccine and therapeutic products
has yet been commercially developed or sold and only limited research revenue
has been generated. Pursuant to a collaborative arrangement with SmithKline
entered into in May 1996, the Company's human bacterial vaccine product
development business is now conducted through the Joint Venture. None of the
Joint Venture's proposed human bacterial vaccine products has yet been
commercially developed or sold, and no revenue has been generated or is
expected to be generated for a number of years, assuming that the product
development activities of the Joint Venture are successful. The Company had a
net loss from August 3, 1991 (inception), through December 31, 1996, of
$11,718,426, and expects to incur losses during the next several years.
Prospective investors should be aware of the problems, delays, expenses and
difficulties encountered by any development stage company, many of which may be
beyond the Company's control. There can be no assurance that the Company will
successfully complete the transition from a development stage company to
profitability. Furthermore, there is no assurance that, if any vaccine or
therapeutic products are developed from the Company's technology and the
required regulatory approvals are obtained, any such products can be
successfully manufactured or marketed or that the Company will ever achieve
profitable operations.
EARLY STAGE OF RESEARCH AND DEVELOPMENT AND UNPROVEN PRODUCTS;
UNCERTAINTY OF PRODUCT REVENUE. The Company's proposed vaccine and therapeutic
products and the Joint Venture's proposed vaccine products are in the research
stages and will require further research and development, preclinical and
clinical testing and investment prior to commercialization in the United States
and abroad. There can be no assurance that any of the Company's proposed
vaccine and therapeutic products or any of the Joint Venture's proposed vaccine
products will be successfully developed, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards, demonstrate substantial
protective or therapeutic benefits in the prevention or treatment of any
disease, be capable of being produced in commercial quantities at reasonable
costs or be successfully marketed. It is not anticipated that any of the
Company's proposed vaccine and therapeutic products or any of the Joint
Venture's proposed vaccine products will receive the requisite regulatory
approval for commercialization in the United States for a number of years, if
at all, and there can be no assurance that any of the Company's or the Joint
Venture's proposed products will ever generate significant product revenue.
Because the Company does not receive a royalty on the license of its technology
to the Joint Venture, the ability of the Company to realize revenue from any
product sales by the Joint Venture will depend upon distributions from the
Joint Venture. See "BUSINESS."
- 7 -
<PAGE> 10
NEED FOR ADDITIONAL FUNDING; LACK OF FINANCING COMMITMENTS OR
ARRANGEMENTS. The Company currently does not have sufficient resources to
complete the commercialization of its proposed products. The Company may seek
the additional funding it requires through joint ventures or other
arrangements. There can be no assurance that additional funding will be
available to the Company on acceptable terms, if at all. The absence of such
additional funding will materially and adversely affect the Company's financial
condition and its ability to continue its operations. With respect to the Joint
Venture's proposed human bacterial vaccine products, SmithKline is required to
make research and development payments to the Company during the first two
years of the Joint Venture, including a payment of $2.4 million during the
first year. Thereafter, research and development payments are at the option of
SmithKline. There can be no assurance that funding will be available to the
Joint Venture after the second year to complete development or
commercialization of any of its proposed human bacterial vaccine products. The
absence of such funding will have a material and adverse effect on the Company.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
GOVERNMENT REGULATION. The production and marketing of the Company's
and the Joint Venture's proposed products and their respective research and
development activities are subject to regulation by numerous governmental
authorities in the United States and, to the extent that the Company or the
Joint Venture may be engaged in activities outside of the United States, in
other countries. In the United States, vaccines, drugs and certain diagnostic
products are subject to rigorous review of safety and efficacy by the Food and
Drug Administration ("FDA"). The Federal Food, Drug, and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in criminal prosecution and fines, recall or
seizure of products, total or partial suspension of production, refusal of the
government to approve product license applications or refusal to allow the
Company or the Joint Venture to enter into supply contracts. The FDA also has
the authority to revoke product licenses and establishment licenses previously
granted. The regulatory process for pharmaceutical products, including required
preclinical testing, can take a number of years and require the expenditure of
substantial resources. There can be no assurance that any vaccine or
therapeutic products made by the Company or the Joint Venture will be
determined to be safe and efficacious in clinical trials or meet other
applicable regulatory standards to receive the necessary approvals for
manufacture and marketing. Delays incurred by the Company or the Joint Venture
in obtaining requisite U.S. or foreign approvals would materially and adversely
affect the Company's financial condition and prospects. See "BUSINESS --
Government Regulation."
NO ASSURANCE OF PROTECTION OF IMPORTANT PROPRIETARY TECHNOLOGY; LACK
OF PATENTS. The Company's success depends, in large part, on its ability to
obtain patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties. The Company has acquired the
exclusive rights to one U.S. patent and has filed sixteen U.S. patent
applications on its technology and its various uses, four of which have been
issued, and an additional six of which have received Notices of Allowance.
These rights relating to the Company's ART and NST technologies have been
licensed to the Joint Venture on an exclusive basis in the Field (subject to
certain third party license agreements). There can be no assurance that any of
the claims in the pending patent applications will issue as patents, that the
Company will develop additional proprietary products that are patentable, that
any patents issued to the Company or its licensors will provide the Company
with competitive advantages or will not be challenged by third parties, or that
the patents of others will not have an adverse effect on the ability of the
Company or the Joint Venture to do business. Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate any of the Company's or the Joint Venture's products or, if patents
are issued to the Company or its licensors, design around the patented aspects
of the products developed by the Company or the Joint Venture. In addition, the
Company or the Joint Venture may be required to obtain licenses to patents or
other proprietary rights of third parties. No assurance can be given that any
licenses that may be required would be available, if at all, on terms
acceptable to the Company or the Joint Venture. If the Company or the Joint
Venture does not obtain such licenses, it could encounter delays in product
introductions, or could find that the development, manufacture or sale of
products requiring such licenses is foreclosed. The Company or the Joint
Venture could incur substantial costs in defending itself in suits brought
against it on such patents or in bringing suits against other parties to
enforce its rights. See "BUSINESS -- Patents and Other Rights."
INTENSE COMPETITION AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE. The
Company and the Joint Venture are engaged in rapidly evolving and highly
competitive fields. Competition from biotechnology and pharmaceutical companies
is intense. Many of these companies have capital resources, research and
development staffs, facilities and experience in obtaining regulatory approvals
(as well as in the manufacturing, marketing and distribution of
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<PAGE> 11
products) substantially greater than those of the Company and the Joint
Venture. Academic institutions, hospitals, governmental agencies and other
public and private research organizations are also conducting research and
seeking patent protection and may develop competing products or technologies on
their own or through joint ventures. In addition, recently developed
technologies or technologies that may be developed in the future are, or may
be, the basis for competitive products. There can be no assurance that the
Company's and the Joint Venture's competitors will not succeed in developing
technologies and products that are more effective and/or less costly than any
that may be developed by the Company or the Joint Venture or which could render
the Company's or the Joint Venture's technologies obsolete. See "BUSINESS --
Competition."
LACK OF MANUFACTURING AND MARKETING EXPERIENCE; DEPENDENCE ON OUTSIDE
PARTIES FOR THE COMMERCIAL DEVELOPMENT OF PRODUCTS. Neither the Company nor the
Joint Venture owns or leases any commercial manufacturing facilities. If any of
the Company's or the Joint Venture's proposed products are successfully
developed and/or approved by applicable regulatory agencies, the Company will
seek to manufacture, market or distribute such products through others pursuant
to licensing, distribution or similar collaborative arrangements, such as the
license granted by the Joint Venture to SmithKline. The Company may, in certain
instances, seek to manufacture, market or sell a product directly. The Company
has no experience with the commercial development of products and to the extent
the Company determines to manufacture or directly market and sell any products,
it will, among other things, have to attract and retain experienced personnel.
There can be no assurance that the Company will be able to attract and retain
qualified or experienced personnel for such purposes or that any efforts
undertaken by such personnel will be successful. See "BUSINESS -- Strategy for
Commercial Development."
DEPENDENCE UPON, ATTRACTION AND RETENTION OF KEY PERSONNEL. Both the
Company and the Joint Venture are highly dependent on the principal members of
the Company's management and scientific staff, particularly, V.M. Esposito, its
President and Chief Executive Officer. Although the Company has entered into an
employment contract with, and maintains key-man insurance in the amount of
$2,000,000 on the life of, Dr. Esposito, the loss of Dr. Esposito could have a
material adverse effect on the Company's and the Joint Venture's business. The
success of the Company and the Joint Venture will depend, in large part, on the
ability of the Company to attract and retain highly qualified scientific and
business personnel. The Company faces competition for such personnel from other
companies, research and academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful in
hiring or retaining the personnel it requires for the commercial development of
the products of the Company and the Joint Venture. See "BUSINESS --
Competition" and "MANAGEMENT."
POTENTIAL PRODUCT LIABILITY; LACK OF INSURANCE. The Company's business
will expose it to product liability risks that are inherent in the testing,
manufacturing, marketing and sale of vaccine and therapeutic products. If
available, product liability insurance generally is expensive for such
products. The Company does not currently have any product liability insurance
and there can be no assurance that it will be able to obtain or maintain such
insurance on acceptable terms or that any insurance maintained will provide
adequate protection against potential liabilities. In the case of the Joint
Venture, SmithKline is obligated to indemnify the Company for any liability or
losses relating to products developed by Antex on behalf of the Joint Venture
and/or SKB, including commercial sales, except that the Company is obligated to
indemnify SmithKline for any such liabilities or losses that result from the
gross negligence or willful misconduct of the Company or the Joint Venture. In
addition, SmithKline is required to maintain product liability and clinical
trial insurance against such liability. In the event of a successful product
liability suit against the Company or the Joint Venture, a lack or
insufficiency of insurance coverage could have a material adverse effect on the
Company.
POTENTIAL FOR CONFLICTS OF INTEREST. Certain stockholders of GalaGen,
an entity to which the Company has licensed a portion of its technology, own an
interest in another entity that is engaged in areas competitive with the
Company. GalaGen could sublicense a portion of the Company's technology to such
entity, among others. See "BUSINESS -- Strategy for Commercial Development."
POSSIBLE DELAY OR LIMITATION ON UTILIZATION OF EXISTING NET OPERATING
LOSSES. Due to certain changes in ownership, as determined under the Internal
Revenue Code of 1986, as amended, the Company's ability to utilize tax net
operating loss carryforwards prior to April 1995 is limited. A further
substantial change in ownership of the Common Stock could further delay or
limit the utilization of the Company's existing net operating loss
carryforwards and credits. As of December 31, 1996, the Company had net
operating loss carryforwards of approximately $11,456,000 for federal and state
tax reporting purposes which will expire substantially in years 2006 to 2011.
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<PAGE> 12
DIVIDENDS. The Company has not paid any cash dividends on the Common
Stock since its inception and does not anticipate paying cash dividends in the
foreseeable future. See "MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS -- Dividend Policy."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF
PREFERRED STOCK. The Company's Certificate of Incorporation authorizes, without
further stockholder action, the issuance of up to 5,000,000 shares of preferred
stock on terms that may be fixed from time to time by the Company's Board of
Directors. The terms of any series of preferred stock, which may include
priority claims to assets and dividends, and special voting rights, could
adversely affect the rights of holders of the Common Stock. The Certificate of
Incorporation also provides for the Board of Directors to be divided into three
classes which serve for staggered three-year terms. These provisions could make
the possible takeover of the Company or the removal of management of the
Company more difficult, discourage hostile bids for control of the Company in
which stockholders may receive premiums for their shares of Common Stock, or
otherwise dilute the rights of holders of Common Stock and the market price of
the Common Stock. See "MANAGEMENT" and "DESCRIPTION OF SECURITIES."
DELAWARE ANTI-TAKEOVER LAW. The Company is subject to the General
Corporation Law of the State of Delaware, including Section 203, an
anti-takeover law enacted in 1988. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time of the
transaction in which the person became an interested stockholder unless: (i)
prior to such time, the board of directors approved the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder; or (ii) upon becoming an interested stockholder, the stockholder
then owns at least 85% of the voting securities, as defined in Section 203; or
(iii) subsequent to such time, the business combination is approved by both the
board of directors and the stockholders. "Business combination" generally is
defined to include mergers, asset sales and certain other transactions with an
"interested stockholder." An "interested stockholder" generally is defined as a
person who, together with affiliates and associates, owns (or, within the prior
three years, did own) 15% or more of a corporation's voting stock. Although
Section 203 permits the Company to elect not to be governed by its provisions,
the Company to date has not made this election. As a result of the application
of Section 203, potential acquirors of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of such securities at above-market prices pursuant
to such transactions.
LIMITATION ON MARKETABILITY OF COMPANY SECURITIES. Based on current
qualification requirements, the Common Stock is not eligible for inclusion in
the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") system, which consists of the NASDAQ National Market and the NASDAQ
Small-Cap Market. In order for the Common Stock to qualify for inclusion in the
NASDAQ Small-Cap Market, among other requirements, the Company must have total
assets of at least $4.0 million, capital and surplus of at least $2.0 million
and a minimum bid price of at least $3.00 per share. The qualification
requirements for the NASDAQ National Market are more rigorous. Currently, the
Common Stock is quoted on the OTC Bulletin Board, an electronic medium for
stock not eligible for inclusion in NASDAQ, through which participating
broker-dealers display bid and asked quotations. Quotations on the OTC Bulletin
Board are not available directly to the public. Accordingly, a purchaser of the
Common Stock may find it difficult to obtain accurate quotations as to the
market value of the securities and may experience greater difficulties in
attempting to sell the securities than if these were listed on a stock exchange
or quoted on NASDAQ.
Because the market price of the Common Stock is less than $5.00, the
Common Stock is classified as a "penny stock." As such the Common Stock will be
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers that recommend the purchase or sale of
such securities to persons other than a person who qualifies as an "established
customer" or an "accredited investor." Among other requirements, a
broker-dealer must make a determination that investments in penny stocks are
suitable for the customer and make certain special disclosures to the customer
concerning the risks of penny stocks. Because of the application of the penny
stock rules to the Common Stock, the market liquidity for such securities could
be adversely affected, which in turn may affect the ability of the purchasers
of the Common Stock to resell the securities.
USE OF PROCEEDS
The Company will not receive any proceeds from the resale of the
shares of Common Stock offered hereby by the Selling Security Holders.
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<PAGE> 13
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock traded on the NASDAQ Small-Cap Market under the
symbol CARB until January 11, 1995, at which time it was delisted. The Common
Stock is currently quoted on the OTC Bulletin Board under the symbol "ANTX".
The range of high and low closing bid prices for the Common Stock for the years
ended December 31, 1996 and 1995 and the first quarter of 1997, as reported by
NASDAQ, is presented below. Such quotations reflect interdealer prices, without
retail mark-up, mark-down, or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<C> <C> <C>
1995
- ----
1st Quarter 7/8 1/2
2nd Quarter 3 5/8
3rd Quarter 1-1/4 1/2
4th Quarter 5/8 1/8
1996
- ----
1st Quarter 23/32 1/4
2nd Quarter 1-15/16 11/32
3rd Quarter 1-7/16 13/16
4th Quarter 1-1/16 17/32
1997
- ----
1st Quarter 1 17/32
</TABLE>
As of April 18, 1997, there were approximately 150 holders of record
of the Common Stock.
DIVIDEND POLICY
The Company has not in the past paid dividends on its Common Stock and
does not anticipate that any cash dividends will be paid in the foreseeable
future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company commenced operations in August 1991. In December 1992, the
Company became a public company through an initial public offering of units
consisting of Common Stock and redeemable warrants. In April 1995, the Company
completed the Private Placement of units consisting of Common Stock and Class B
Warrants. On May 7, 1996, the Company executed definitive agreements with
SmithKline, effective March 1, 1996, which established the Joint Venture to
develop and commercialize human bacterial vaccines utilizing the Company's
proprietary technologies (see Note 6 to the financial statements). Subsequent
to the completion of the transaction with SmithKline, the holders of Class B
Warrants exercised all of the Warrants received in the Private Placement (see
Note 8 to the financial statements).
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<PAGE> 14
The strategic collaboration with SmithKline is consistent with one
aspect of the Company's overall strategy which, since its inception, has been
the establishment of strategic partnerships and to focus on researching
technologies with the goal of developing products for identifying, preventing
and treating infectious diseases. The Company is operating as a development
stage enterprise.
RESULTS OF OPERATIONS
Revenues for 1996 include the recognition of human bacterial vaccine
research and development support of $1,655,802, reimbursable expenses incurred
of $241,649 and a milestone payment to the Joint Venture of $150,000, pursuant
to the provisions of the definitive agreements with SmithKline, and the payment
received of $1,669,752 from the sale of an equity interest in the Joint Venture
to SKB. The Company also earned $109,908 from Small Business Innovation
Research grants in 1996. Revenue for 1995 consisted of a $150,000 scheduled
milestone from PMC.
Research and development expenses in 1996 increased 21% in comparison
to 1995 due to increased efforts and expenditures for additional personnel
resulting directly from the substantial increase in activities attributable to
the strategic alliance with SmithKline.
General and administrative expenses in 1996 decreased 12.2% in
comparison to the comparable period in 1995. The decrease is due primarily to a
decrease in premiums for directors' and officers' liability insurance, the
nonrecurring expense incurred in 1995 to establish an additional investment
banking relationship, and a reduction in general legal fees. These decreases
were offset in part by an increase in executive officers' compensation, which
had been frozen for the period November 1994 until May 1996 as stipulated in
the terms of the Private Placement, and the hiring of a Vice President for
Corporate Development.
The increase in interest income in 1996 reflects the improved cash
position of the Company.
The decrease in interest expense is due to the continuing paydown on
the existing obligation for the sale/leaseback agreement.
The Company anticipates that its research and development expenses
related to human bacterial vaccines will continue to be substantial for the
foreseeable future and anticipates that sufficient funding will be provided
through the alliance entered into with SmithKline. To fund other research and
development activities and general and administrative expenses, the Company
will be required to rely on its current assets and future financings.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company funded its research
and development activities principally with the proceeds from private
placements of debt and equity securities. Through such placements, the Company
raised $2,074,000 during 1992.
As a result of the Company's initial public offering in December
1992/January 1993, the Company raised $8,280,000 in gross proceeds. Costs
directly related to the offering, including underwriting discounts and
commissions, totalled approximately $1,530,000. In August 1993, the Company
entered into a sale and leaseback agreement covering substantially all of the
Company's then-existing fixed assets, yielding net proceeds to the Company of
$2,164,792.
As the result of the Private Placement completed in April 1995, the
Company raised $3,525,000 in gross proceeds. Related offering costs and costs
associated with the initial registration of the securities for resale were
approximately $815,000.
In connection with the entry into the Joint Venture with SmithKline,
the Company received $3,000,000 from the sale to SKB of a 26.25% equity
interest in the Joint Venture, and $2,400,000 from SmithKline representing the
first year's funding for research and development of human bacterial vaccines.
In addition, the Company is reimbursed for expenses that it incurs in
connection with the agreed upon production of lots of vaccines for clinical
trials, the conduct of agreed upon clinical trials, and the agreed upon
prosecution and maintenance of the Company's patents and patent applications.
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<PAGE> 15
As a result of exercises and following a notice of redemption by the
Company, all of the Company's outstanding Class B Warrants were exercised in
1996, resulting in gross proceeds of $5,072,000. Fees associated with the
exercise of the warrants were approximately $215,000.
During 1997, the Joint Venture will continue to assess to which human
bacterial vaccine research projects resources will be allocated. The Company
currently plans to utilize a portion of its available resources to pursue
research and development activities with the goal of researching drugs and
evaluating non-human vaccine applications.
For 1997, the Company currently anticipates that it will increase its
total personnel by a minimum of five from its 1996 year end total of 20.
As a development stage company, the Company's operating activities
have been limited primarily to research and development involving its
proprietary technologies, and accordingly, have generated limited revenues. The
Company is currently scheduled to receive approximately $2,600,000 in 1997 in
research and development payments from SBB covering the period March 1, 1997 to
February 28, 1998. Additionally, the costs in 1997 associated with the conduct
of a Phase I human clinical trial for Helicobacter pylori, the costs of the
Company's production of vaccine lots, and the costs associated with the
Company's patents and patent applications are reimbursable under the terms of
the strategic alliance agreement. SKB's first option to increase its ownership
in the Joint Venture, at a cost of $1,000,000, expires on October 1, 1997.
Research currently being performed by the Company under a Phase II Small
Business Innovation Research grant from the National Institutes of Health
pertaining to the Company's vaccine for Chlamydia trachomatis, is anticipated
to generate approximately $315,000 in payments in 1997. The Company is also
scheduled to receive a milestone payment from PMC of $150,000 in 1997.
In order to fully fund its operations over the longer term, the
Company will continue to seek additional financing. The Company has no lines of
credit. In seeking additional funding, the Company is examining a range of
possible transactions, including: additional strategic alliances; the exercise
of the unit purchase option issued to the placement agent in connection with
the Private Placement; possible increases in research and development funding
by SmithKline; the exercise by SKB of the second option to increase its equity
in the Joint Venture; and the exercise by SKB of its warrant to the extent that
it becomes exercisable. In the case of the unit purchase option, exercises will
only occur when the market price of the Common Stock sustains a level such that
its exercise is economically justified. Additional public offerings and private
placements, and the filing of additional applications for Small Business
Innovation Research grants are also possible sources of funds. However, there
is no assurance that additional funds will be available from these or any other
sources or, if available, as to the terms on which such funds can be obtained.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party by
the United States Environmental Protection Agency ("EPA") for a site cleanup in
Denver, Colorado, where the Company sent hazardous materials through a
contractor for disposal. The EPA contacted approximately 800 potentially
responsible parties requesting additional information and listing manifests
which evidence shipments of each individual company's waste to the site. Due to
the number of parties involved, the multiplicity of possible solutions, the
evolving technology and the years of remedial activity required, the Company is
unable to assess and quantify the extent of its total responsibility at the
site. The liability for future remediation costs has been evaluated. Management
believes that any ultimate liability will not materially affect the financial
statements of the Company.
BUSINESS
The Company is a biopharmaceutical company dedicated to the
development and production of therapeutic products to prevent and treat
infectious diseases and related disorders. The Company is a leader in the
discovery and research of technologies for the development of vaccines against
mucosal infections. The Company's initial focus has been the development of
vaccines for respiratory, gastrointestinal and urogenital diseases. The Company
(formerly known as MicroCarb Inc.), at its inception in August 1991, was
focused on researching a proprietary Adhesin-Receptor Technology for vaccine
development. In 1993, the Company broadened its technology platform and began
to develop its second core technology described as Nutriment Signal
Transduction. The combination of
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<PAGE> 16
these two technologies provides a platform to research and develop products to
not only prevent, but also treat infectious diseases and their related
disorders.
As part of its strategy for the commercial development of human
vaccine products, the Company formed a strategic alliance with SmithKline in
May 1996. In connection with this alliance, the Company has entered into the
Joint Venture with SmithKline. The purpose of the Joint Venture is to engage in
research and development involving the application of the Company's two
proprietary core technologies to develop human vaccine products in the Field.
TECHNOLOGY OVERVIEW
General
Proteins and nucleic acids, two major groups of naturally occurring
molecules, and their respective roles in the development and treatment of
diseases, have received widespread attention from the scientific community. The
roles of complex carbohydrates and lipids in disease causation and prevention,
on the other hand, were largely ignored in the past because of the chemical
complexity of these molecules and the difficulty of analyzing them. Their roles
in biological functions such as infection, inflammation and other disease
processes are now being evaluated. Advances in molecular biology, bacterial
physiology and analytical techniques have enabled scientists to characterize
and begin to elucidate the roles of these bioactive molecules in the infectious
disease process.
Complex carbohydrates are associated with mammalian cells in several
forms and have been shown to serve as receptors on cell surfaces to which
viruses, bacteria and toxins (collectively, "microbes") can adhere, thereby
causing infection or disease in the host. Lipids also have a variety of
functions within the body. Certain types of lipids are reservoirs of
nutritional energy; others function in cell-cell adhesion and in communication
with other cells; and some make up the architecture of the plasma membranes of
individual cells of the body. These particular cell membrane lipids were once
thought to function only to maintain the shape and integrity of cells and to
serve as a barrier between extracellular and intracellular environments.
However, discoveries by the Company's scientists and collaborators have
revealed that certain lipids (i.e., phospholipids), particularly those found in
the mucus layer overlaying certain cells in the body, may play a major role in
the pathogenesis of infection by serving as receptors and nutrients for growth
of bacteria.
Adhesin-Receptor Technology ("ART")
Generally, the first step in the process of microbial infection is the
attachment of microbes to the surface of host cells through a binding process
known as adhesion. The Company has developed its proprietary ART to study the
precise molecular events that underlie microbial adhesion to host cell
receptors. Much like a lock and key, adhesins (the "key"), which are surface
proteins on the outer membrane or cell wall of microbes recognize only
particular molecular conformations and bind to specific, complementary
receptors (the "lock") on the host cell surface. Using its ART, the Company has
identified host cell receptors and their corresponding microbial adhesins for a
number of microbes. The Company believes that certain microbial adhesins may be
critical elements in providing a microbe access to the host cell by attaching
to the corresponding protein, carbohydrate or lipid receptor, thereby
facilitating the colonization (i.e., growth) and subsequent infection of the
microbes.
One of the most safe and effective means of preventing disease and
death from infectious microbes has been immunization. Immunization is the act
of inducing immunity by active or passive means. Antigens are substances of
foreign agents, such as microbes, which signal to the immune system the
presence of those particular agents. Once the human immune system identifies an
antigen associated with a microbe, it produces substances called antibodies,
which are specific proteins that recognize and react with the particular
antigen. The presence of the particular antigen on the cell surface of the
microbe enables the appropriate or corresponding antibody to bind to those
cells but not to others. These antibodies are generally effective in
neutralizing microbes. Therefore, exposure to the antigen in the form of a
vaccine containing the antigen can stimulate the immune system to produce
antibodies, thereby inducing immunity against a disease. This process is
referred to as "active immunization." However, in some cases, the immune system
on its own may not produce the antibodies in sufficient quantity to eliminate
the undesirable agents or may not have been stimulated prior to the infection.
In such instances, it may then be possible to provide immunity by injecting
antibodies directly (i.e. rather than inducing their production) that have been
produced in another host, either naturally or through vaccination. This process
is referred to as "passive immunization."
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<PAGE> 17
One of the most difficult problems inherent in vaccine development is
that microbes of the same species often exhibit strain-to-strain diversity with
respect to the types of antigens on their surfaces. With such diversity in the
composition of microbes of the same species, the effect of vaccines targeted to
a single strain of the microbe may be limited. The Company believes its
proprietary ART may aid in circumventing the problems posed by strain diversity
and antigen variations within strains. The Company has discovered that some
adhesins that occur on the outer membrane or cell wall of certain species of
microbes are the same throughout various strains within a given species (i.e.
they are "conserved"). Based on data from animal models, the Company believes
that the development of human vaccines aimed at stimulating the production of
antibodies against these highly conserved proteins (adhesins) should be
effective in providing immunity to a wide variety of strains of a given
species.
The first step in the process of developing adhesin vaccines is for
the Company to identify the host cell receptor and its molecular structure. To
date, the Company's scientists have identified the molecular structure of host
cell receptors for more than 60 microbes. Once the Company has identified the
receptor, the Company then uses it as a probe to identify and purify the
corresponding adhesin for further analysis and development. Monoclonal or
polyclonal antibodies and DNA probes are then used to identify the gene
responsible for the adhesin. The recombinant adhesin can then be produced in
sufficient quantities from the identified clone for preclinical and clinical
testing.
Nutriment Signal Transduction ("NST")
Microbes require a specific environment and nutrients to survive and
reproduce. Not only does the mucosal surface, where more than ninety (90)
percent of infections start, serve as a barrier to infection but it can serve
as an environment for bacteria to survive and grow using substances found in
the mucus as a nutriment source. NST is the regulation of cell growth through
the stimulation or suppression of cellular activities by substances or
conditions that nourish or promote growth. The application of NST is basically
the use of physiologically logical signals to permit growth and stimulate the
production of clinically relevant microbial antigens. The identification of
growth components in mucus has made it possible to duplicate in the laboratory
the specific environment found in the body by including these growth substances
and conditions in laboratory growth media. The behavior of a microbe during
entry and invasion of the host is a balancing act between the microbe and the
host. Bacteria grown in an NST environment express antigens that more closely
resemble the antigens produced within the body; these antigens may not be
expressed in bacteria grown using traditional laboratory conditions. Therefore,
these newly expressed antigens or antigenically enhanced microbes should result
in more potent and better targeted vaccines for inducing immunity against an
infectious agent. In addition, NST provides a platform for the Company to
investigate drug discovery and development for both infectious diseases and
related disorders.
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<PAGE> 18
STRATEGY FOR COMMERCIAL DEVELOPMENT
All of the Company's proposed vaccine products are in research,
preclinical or clinical development. Phase I clinical trials have been
completed for Campylobacter jejuni, and Helicobacter pylori and Haemophilus
influenzae are currently in Phase I clinical trials. All vaccine products will
require substantial additional research and development, preclinical testing,
clinical trials and/or regulatory approvals from the appropriate governmental
agencies prior to commercialization. See "BUSINESS -- Government Regulation."
With respect to the Company's proposed vaccine products, this process (from
research to marketing) could require significant expenditures over a number of
years assuming that the results obtained warrant continued development efforts.
On May 7, 1996, the Company executed definitive agreements with
SmithKline, effective March 1, 1996, which established the Joint Venture, to
develop and commercialize human bacterial vaccines utilizing the Company's
proprietary technologies. The agreements provide for the following: a payment
of $3,000,000 to the Company in connection with SKB's acquisition of a 26.25%
equity interest in the Joint Venture; a payment of $2,400,000 to the Company to
fund research and development for the first year; additional committed research
and development funding through February 28, 1998, with SmithKline having the
option to fund future years; two separate options granted to SKB expiring
October 1, 1997 and 1998, respectively, to acquire from the Company additional
equity interests in the Joint Venture; an exchange option granted by the
Company to SKB enabling SKB to convert its equity interest in the Joint Venture
for up to 4,793,685 shares of the Company's common stock, under specified
conditions; and a warrant granted by the Company to SKB enabling SKB to acquire
up to 7,682,637 shares of the Company's common stock, under specified
conditions, and only to the extent that certain options and warrants previously
granted and outstanding as of the date of the establishment of the strategic
alliance are exercised. The agreements also provide for SmithKline to make
milestone payments and pay royalties to the Joint Venture; and for SmithKline
to reimburse the Company for expenses the Company incurs for agreed upon
production lots of vaccines for clinical trials, the conduct of agreed upon
clinical trials, and the agreed upon prosecution and maintenance of the
Company's patents and patent applications. As further stipulated in the
agreements, SmithKline will be responsible for conducting additional clinical
trials, manufacturing, and sales and distribution.
In December 1994, the Company entered into a technology license
agreement with PMC, whereby the Company granted an exclusive license to
develop, produce and market any product using the Company's Haemophilus
influenzae nontypeable Hin47 adhesion protein in all countries other than those
of the Asia-Pacific region. Under the license agreement, PMC is obligated to
use commercially reasonable efforts to develop a marketable product. However,
at its option and for good cause, PMC may cease development upon 6 months'
prior written notice to the Company and upon payment of all amounts due to the
Company through the effective date of the termination (in which case the
licensed technology reverts to the Company). The Company earned a license fee
in 1994. The Company is entitled to milestone payments based on the licensee's
performance or the passage of time and earned the first milestone payment of
$150,000 in December 1995. Additionally, upon commercialization, the licensee
is obligated to pay a guaranteed minimum annual royalty to the Company on sales
of any product incorporating the Company's technology. The licensee commenced a
Phase I trial in February 1997 to determine the safety and immunogenicity of
the vaccine.
In August 1994, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the United States Navy, whereby the
Company granted Government Purpose License Rights to its Campylobacter vaccine
technology. In exchange for the rights granted, the United States Navy agreed
to conduct and fund the costs involved in Phase I, II and III clinical trials
for the vaccine, subject to the availability of required funds. Two Phase I
trials have been successfully completed and Phase II and III trials are being
planned. The Company retained all commercial rights to develop, produce and
market any product involving its proprietary Campylobacter technology. Either
party may terminate the CRADA upon thirty days written notice.
In October 1992, the Company entered into a license agreement with
Galagen, Inc. ("Galagen") pursuant to which Galagen paid the Company a license
fee for the exclusive rights to use Company technology, including certain
vaccines, to make, have made and sell non-parenteral passive immunity
antibodies and to use the Company's carbohydrate receptor technology for
certain therapeutic purposes. Under the license, Galagen also has exclusive
rights to use the Company's carbohydrate receptor technology for certain
purposes relating to the diagnosis and treatment of cancer. Galagen is
obligated to pay royalties on sales of certain products derived from such
technology.
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<PAGE> 19
The Company may continue to grant licenses to certain of its
proprietary technologies in exchange for upfront license fees and/or royalty
payments. The Company anticipates seeking such arrangements with respect to
technologies that it is unwilling or unable to pursue on its own.
Other Possible Joint Ventures
The Company may enter into joint ventures in the future with other
pharmaceutical companies for the development of human therapeutic products and
animal vaccines. It is expected that these entities would bear the cost of the
regulatory approval process necessary to commercialize these products,
including the costs of preclinical and clinical trials, as well as to
manufacture and market any product which may be successfully developed. In
addition, it is expected that such entities also would be responsible for
commercial scale manufacturing which would be in compliance with applicable FDA
regulations. The Company anticipates that any such arrangements may involve the
grant by the Company of the exclusive or semi-exclusive right to sell specific
products to specified market segments in particular geographic territories in
exchange for royalty, joint venture, future co-marketing or other financial
interests. The Company believes that these arrangements will be more effective
in promoting and distributing therapeutic products in the United States in view
of the Company's limited resources and the extensive marketing networks and
large advertising budgets of large pharmaceutical companies.
The Company has and may in the future, in certain limited instances
where a product's target market would require a relatively small sales force,
retain marketing rights. Further, the Company may determine to manufacture
certain products in addition to producing specific components thereof. If the
Company determines to establish its own marketing and/or manufacturing
capability for certain products (which will depend on the availability of
sufficient financial resources), it will, among other things, need to attract
and retain experienced personnel.
PRODUCTS UNDER RESEARCH AND DEVELOPMENT
RESEARCH ACTIVITIES ON BEHALF OF THE JOINT VENTURE
The Company is currently conducting or expects to conduct on behalf of
the Joint Venture research activities in several product areas which are based
on its ART and NST technologies.
Helicobacter pylori
The Company is engaged in ongoing efforts aimed at developing a
vaccine for Helicobacter ("H.") pylori, bacteria that can colonize in the
stomach for years and are believed to play a major role in peptic ulcers and
other gastrointestinal disorders, including gastritis and gastric cancer.
Approximately half the world's population is infected with this organism, and
one out of ten Americans are affected some time during their lives.
Using NST technology, the Company has produced H. pylori bacteria that
are antigenically enhanced when compared to conventionally grown H. pylori.
These cells have been formalin-inactivated (killed) and combined with a
proprietary mucosal adjuvant for use as a vaccine. A clinical trial is in
progress under a FDA Investigational New Drug Application ("IND") to assess the
safety and immunogenicity of this H. pylori vaccine preparation. This
randomized double-blinded Phase I clinical trial will be conducted in
volunteers with and without subclinical gastric infection. Preclinical models
indicate that the vaccine has both prophylactic and therapeutic applications.
In addition, Company scientists and collaborators have identified host
cell receptors and have purified adhesins from H. pylori. The Company has
cloned the genes, produced the recombinant proteins and produced quantities of
the adhesins for preclinical animal testing. See "BUSINESS -- Production
Facility." Further, the Company is evaluating other surface proteins and
acellular antigens as potential vaccine candidates.
Uses of these potential vaccine products for other than as human
vaccines are available for other collaborations that may be entered into by the
Company. See "BUSINESS -- Strategy for Commercial Development."
Chlamydia
The Company is involved in an adhesin vaccine development project
aimed at Chlamydia ("C.") trachomatis, the most common sexually transmitted
bacteria. More than four million infections occur annually in
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<PAGE> 20
the United States in men and women. Infection with these bacteria in women can
lead to more severe diseases, including pelvic inflammatory disease, and
ultimately infertility.
The Company believes that through its proprietary ART it is possible
that an effective anti-Chlamydial vaccine could be developed. The Company has
identified and purified an adhesin from C. trachomatis and is completing the
cloning of the adhesin gene. The Company plans to produce the recombinant
adhesin to conduct initial animal testing. Uses of these potential vaccine
products for other than as human vaccines are available for other
collaborations that may be entered into by the Company. See "BUSINESS --
Strategy for Commercial Development."
Based on the successful completion of a Phase I Small Business
Innovation Research grant ("SBIR"), the Company was awarded in August 1996 a
$600,000 Phase II SBIR from the National Institutes of Health ("NIH") to
further develop this antigen as a potential subunit vaccine.
Campylobacter
Campylobacter is a leading cause of diarrheal disease worldwide--over
400 million cases annually. The Company has entered into a CRADA with the
United States Navy which has as its objective the development of a safe and
effective vaccine to prevent diarrhea caused by enteropathogenic Campylobacter
jejuni. The Company has developed and produced a whole cell vaccine utilizing
its know-how in NST.
Two successful clinical trials have been completed. The first was a
Phase I clinical study which showed the safety and immunogenicity of the
formalin-inactivated (killed) Campylobacter whole cell vaccine preparation. The
second trial tested the safety and immunogenicity of a killed Campylobacter
whole cell vaccine in combination with a mucosal adjuvant. Data from this
second study are being analyzed; however, preliminary results indicated that
the combination is safe and immunogenic. As a result of these successful Phase
I clinical studies, Phase II and III clinical studies are being planned. Uses
of these potential vaccine products for other than as human vaccines are
available for other collaborations that may be entered into by the Company. See
"BUSINESS -- Strategy for Commercial Development."
Otitis Media
Otitis media, an ear infection, is the most frequent reason children
visit the doctor, occurring in almost 80% of all children at least once. The
three predominant types of bacteria found in infants and children with otitis
media are Haemophilus influenzae, Moraxella catarrhalis, and Streptococcus
pneumoniae. The current treatment of choice for otitis media is antibiotic
therapy. However, because of the increase in the incidence of antibiotic
resistant strains of all three of these bacteria and the costs associated with
the treatment of this disease, the Company believes that an otitis media
vaccine would be a preferred alternative for addressing this disease. The
Company is currently developing a recombinant adhesin for Moraxella
catarrhalis. The Company has identified receptors and proprietary adhesins for
this bacteria and is in preclinical development efforts.
Other Projects/Products
Neisseria meningitidis is a respiratory pathogen that causes invasive
meningococcal infections primarily in children younger than 5 years of age and
travelers to countries recognized to have epidemic disease. The only vaccine
available to date is one comprising bacterial capsular polysaccharides. These
capsular polysaccharides have been shown to cross-react with neural cells,
potentially causing severe side effects. The Company is using both ART and NST
to identify novel adhesins or other surface proteins to develop a subunit
vaccine that should avoid the drawbacks of the vaccine currently being used.
Shigella is another leading cause of diarrheal disease worldwide with
over 1 billion cases reported. Infection is most common in children 1 to 4
years old. There is no vaccine available. NST is being used to produce
antigenically enhanced Shigella that may provide broad protective efficacy
against diarrheal diseases.
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<PAGE> 21
OTHER RESEARCH ACTIVITIES
The Pittsburgh Otitis Media Research Center estimates that Haemophilus
("H.") influenzae nontypeable is present in over 25% of otitis media
infections. The Company has identified an adhesin of H. influenzae and has
successfully cloned the gene for production of the recombinant adhesin. This
adhesin is extremely conserved in H. influenzae. The recombinant form of the
adhesin has been shown in animal studies to elicit an immune response.
In December 1994, the Company entered into a license agreement with
PMC under which the Company granted to PMC an exclusive license to develop,
manufacture and sell one or more vaccines based on the Company's proprietary H.
influenzae technology. The Company continues to collaborate with PMC in
evaluation of this technology and has received the first milestone payment
according to the agreement.
In the territory not included in the PMC license, H. influenzae
vaccine preparations described above for use in humans have been licensed to
SmithKline through the Joint Venture for further development and possible
commercialization. See "BUSINESS -- Strategy for Commercial Development."
PRODUCTION FACILITY
The Company established a contract for the services of a FDA approved
pilot plant. This facility initially has been used for the production of the
Company's Campylobacter jejuni and Helicobacter pylori whole cell vaccines for
clinical trial purposes. The pilot plant was established and operates in
compliance with the FDA's Good Manufacturing Practices ("GMP"). See "BUSINESS
- -- Government Regulation." The Company anticipates that it will produce
pilot/clinical trial lots of its other proposed vaccines in this pilot
facility.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its
research and development activities are subject to regulation by numerous
governmental authorities in the United States and other countries. In the
United States, vaccines, drugs and certain diagnostic products are subject to
rigorous FDA review of safety and efficacy. The Federal Food, Drug and Cosmetic
Act, the Public Health Service Act and other federal statutes and regulations
govern or influence the testing, manufacture, safety, labeling, storage,
recordkeeping, approval, advertising and promotion of such products.
Noncompliance with applicable requirements can result in criminal prosecution
and fines, recall or seizure of products, total or partial suspension of
production, refusal of the government to approve Product License Applications
("PLAs") or refusal to allow the Company to enter into supply contracts. The
FDA also has the authority to revoke product licenses and establishment
licenses previously granted.
In order to obtain FDA approval to market a new biological or
pharmaceutical product, the Company or its licensees must submit proof of
safety, purity, potency and efficacy, which will require the Company or its
licensees to conduct extensive laboratory, preclinical and clinical tests. This
testing, as well as preparation of necessary applications and processing of
those applications by the FDA, are expensive and time-consuming and often take
several years to complete. There is no assurance that the FDA will act
favorably in making such reviews, and significant difficulties or costs may be
encountered by the Company or its licensees in their efforts to obtain FDA
approvals that could delay or preclude the Company or its licensees from
marketing any such products that they may develop. The FDA may also require
postmarketing testing and surveillance to monitor the effects of marketed
products or place conditions on any approvals that could restrict the
commercial applications of such products. Product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. With respect to patented products or technologies,
delays imposed by governmental marketing approval processes may materially
reduce the period during which the Company or its licensees will have the
exclusive right to exploit patented products or technologies. See "BUSINESS --
Patents and Other Rights." Refusals or delays in the regulatory process in one
country may make it more difficult and time consuming for the Company or its
licensees to obtain marketing approvals in other countries.
The FDA approval process for a new biological drug involves completion
of preclinical studies and the submission of the results of these studies to
the FDA in an IND, which must be approved before human clinical trials may be
conducted. The results of preclinical and clinical studies on biological drugs
are submitted to the FDA in the form of a PLA for approval to commence
commercial sales. In responding to a PLA, the FDA may require additional
testing or information, or may deny the application. In addition to obtaining
FDA approval for each biological product, an Establishment License Application
("ELA") must be filed and the FDA must inspect and
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<PAGE> 22
license the manufacturing facilities for each product. Product sales may
commence only when both the PLA and ELA are approved. For a new, non-biological
drug product, a New Drug Application ("NDA") must be submitted to the FDA
instead of a PLA.
In certain instances in which a treatment for a rare disease or
condition is concerned, the manufacturer may request the FDA to grant the drug
product Orphan Drug status for a particular use. In such event, the developer
of the drug may request grants from the government to defray the costs of
certain expenses related to the clinical testing of such drug and be entitled
to marketing exclusivity and certain tax credits. The Company or its licensees
may seek Orphan Drug designation in the future for proposed products. If these
products are the first such products approved, the Company or its licensees may
be entitled to seven year marketing exclusivity for such products once
regulatory approval has been obtained. The seven year period of exclusivity
applies only to the particular drug for the rare disease or condition for which
the FDA has designated the product an Orphan Drug. Therefore, another
manufacturer could obtain approval of the same drug for an indication other
than the Company's or could seek Orphan Drug status for a different drug for
the same indication.
Sales of medical devices and biological and pharmaceutical products
outside the United States are subject to foreign regulatory requirements that
vary widely from country to country. Whether or not FDA approval has been
obtained, approval of a product or a device by a comparable regulatory
authority of a foreign country must generally be obtained prior to the
commencement of marketing in that country. Although the time required to obtain
such approval may be longer or shorter than that required for FDA approval, the
FDA approval process generally takes longer than foreign regulatory reviews.
The Company is also subject to regulation by the Occupational Safety
and Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. The Company
believes that it is in compliance with regulations regarding the disposal of
radioactive and chemical waste. The Company voluntarily complies with NIH
guidelines regarding research involving recombinant DNA molecules. Such
guidelines, among other things, restrict or prohibit certain recombinant DNA
experiments and establish levels of biological and physical containment that
must be met for various types of research.
The Company either alone or in conjunction with its collaborators have
filed INDs for Campylobacter jejuni and Helicobacter pylori vaccines. The
applications were accepted by the FDA. As noted, the Company has entered into,
and anticipates that it may in the future enter into, joint ventures, licensing
or similar collaborative arrangements with one or more companies that will
assume the costs and responsibility for clinical testing and for FDA and
comparable foreign regulatory approval of any product which the Company may
have in development. See "BUSINESS -- Strategy for Commercial Development." To
the extent that the Company is unable to enter into such arrangements or to
raise substantial additional capital, it may not have the resources to complete
the regulatory approval process for such products.
PATENTS AND OTHER RIGHTS
The Company has four issued U.S. patents and eight issued foreign
patents. Currently there are twelve pending patent applications in the United
States, for which six Notices of Allowance have been received, and twenty-eight
corresponding international patent applications. Two of the issued patents and
one of the U.S. patent applications, and the corresponding foreign patent
applications, are co-owned with other entities. The majority of the patent
applications relate to the Company's ART and NST. Collectively, the
applications include composition claims for enhanced bacteria, receptors and
their corresponding adhesins or toxins and method of use claims for the use of
these compositions for vaccines and other antimicrobial products.
The Company holds licenses for exclusive rights to patents and related
technologies covering VeroTest and certain H. pylori products. The Company has
made initial payments to the licensors and is obligated to timely pay certain
royalties or these licenses may be converted to non-exclusive licenses. In
addition, royalty payments must be made if the Company markets products or
services incorporating the licensed technologies.
There can be no assurance that the Company's pending patent
applications will result in issued patents, that any of its issued patents will
afford protection against a competitor, or that any patents issued or licensed
to the Company could not be challenged, invalidated or circumvented by others.
Further, the patent position worldwide
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<PAGE> 23
of biotechnology firms generally is highly uncertain, involving complex legal
and factual questions. Since patent applications in the United States are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature tends to lag behind actual discoveries
by several months or even years, the Company cannot be certain that others have
not filed patent applications directed toward inventions covered by its pending
patent applications or that it was the first to file patent applications on
such inventions. There can also be no assurance that any application of the
Company's technologies will not infringe patents or proprietary rights of
others or that licenses that might be required for the Company's processes or
products would be available on reasonable terms. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any patent owned or licensed by the Company or, if
instituted, that such challenges will not be successful or that the Company
will have the financial resources to defend against any such challenge. The
extent to which the Company or its licensees may be required to obtain licenses
under other proprietary rights, the cost and availability of such licenses are
unknown. Patent litigation is becoming more widespread in the biotechnology
industry. There can be no assurance that others could not bring legal actions
against the Company or its licensees for patent infringement. If the Company or
its licensees becomes involved in such litigation, it could consume a
substantial portion of the Company's resources. The Company also may lack the
financial resources to defend its patents against infringements by others.
The Company believes that obtaining foreign patents may be more
difficult than obtaining domestic patents because of differences in patent
laws. In addition, foreign patents, if obtained, may not provide the level of
protection provided by domestic patents.
The Company's success depends, in large part, on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of third parties. If patents do not issue from present or
future patent applications, the Company will likely be subject to greater
competition. The Company also relies upon unpatented proprietary technology,
and in the future may determine in some cases that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. In such circumstances, no assurance can be made that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to such proprietary technologies or
disclose such technologies or that the Company or its licensees can
meaningfully protect its rights in such unpatented proprietary technologies.
The Company requires each of its employees, consultants, and advisors
to execute a confidentiality agreement upon the commencement of an employment
or consulting relationship with the Company. The employee agreements generally
provide that all inventions conceived by the individual and all confidential or
proprietary technology, including information and materials, 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 under specified circumstances. The terms of
agreements with consultants and advisors vary, as they relate to the ownership
of inventions, depending primarily upon the policies of the academic and other
institutions with which the consultants and advisors are associated. The
Company has entered into non-disclosure agreements which are intended to
protect its confidential information delivered to third parties for research or
other purposes. There can be no assurance that these agreements will provide
meaningful protection of the Company's confidential or proprietary technology
in the case of unauthorized use or disclosure. Even if others do not gain
unauthorized access to the Company's confidential or proprietary technology,
there can be no assurance that others will not independently develop
substantially equivalent proprietary technology. In addition, to the extent
that strategic partners or consultants apply technological information
developed independently by them or others to Company projects or apply Company
technology to other projects, disputes may arise as to the ownership of
proprietary rights to such technology.
COMPETITION
Competition in the biotechnology and pharmaceutical industry is
intense. While the Company is only aware of a limited number of companies that
are pursuing the development of new bacterial vaccines and antimicrobial
products, competition from other biotechnology and pharmaceutical companies for
the development of products for prevention and/or treatment of the same
infectious diseases targeted by the Company is intense and expected to
increase. Many of the competitors of the Company have substantially greater
financial resources and larger research and development staffs than the
Company, as well as substantially greater experience in developing products, in
obtaining regulatory approvals, and in manufacturing and marketing
pharmaceutical products than the Company. Competition with these companies
involves not only product development, but also acquisition of products and
technologies from universities and other research institutions. The Company
also competes with universities and
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<PAGE> 24
other institutions in the development of products, technologies and processes.
Competitors have developed, or may be in the process of developing technologies
that are, or in the future may be, the basis for competitive products. There
can be no assurance that the competitors of the Company will not succeed in
developing technologies and products that are more effective or affordable than
those being developed by the Company. In addition, one or more of the Company's
competitors may achieve product commercialization or patent protection earlier
than the Company.
To the extent the Company has exclusively licensed out applications of
the technology to address potential alternatives for treatment of certain
infectious diseases, such alternatives are no longer available to the Company,
thereby impacting the Company's ability to compete in the market for certain
therapies for infectious diseases.
The Company expects products approved for sale to compete primarily on
the basis of product efficacy, safety, reliability, and patent position.
Certain of the infectious diseases that the Company has chosen to target for
its research and development are currently being treated with therapies that
have varying degrees of success. Accordingly, the Company will be dependent
upon the acceptance of a developed product by the medical community as a
preferable method of treatment which in turn will depend upon the marketing and
education efforts made by or on behalf of the Company. In addition, the first
pharmaceutical product to reach the market in a therapeutic or preventive area
is often at a significant competitive advantage relative to later entrants to
the market. The Company's competitive position also will depend on its ability
to attract and retain qualified scientific and other personnel, develop
effective proprietary products, implement production and marketing plans,
obtain patent protection and secure adequate capital resources.
BACKGROUND
In March 1988, BioCarb Inc., the Company's predecessor, was
established as a wholly-owned subsidiary of BioCarb AB, a Swedish biotechnology
company. In August 1991, the Company was acquired by a then officer in a
management buy-out and began doing business as MicroCarb Inc. Subsequent to the
management buy-out, the Company has been operating as a development stage
enterprise. In 1996, the Company changed its name to Antex Biologics Inc.
EMPLOYEES
At December 31, 1996, the Company had 20 full-time employees,
including sixteen research and development personnel. Of these employees, ten
hold Ph.D. degrees. None of the employees is represented by a labor union. The
Company considers its employee relations to be good.
DESCRIPTION OF PROPERTY
The Company leases approximately 15,000 square feet of office and
laboratory space in Gaithersburg, Maryland, pursuant to a lease expiring in
January 1999. The lease provides for current annual rent of approximately
$257,000, subject to specified annual increases. In addition, the lease
provides for excess utility usage and administrative services of approximately
$108,000 per year. The physical plant is fully equipped as a state-of-the-art
biotechnology research facility. The Company believes that these facilities
will be sufficient for the Company's planned activities for approximately the
next twelve months, with the exception of the need for a small animal facility
and pilot plant. The Company currently contracts for these needed services from
such existing facilities.
LEGAL PROCEEDINGS
The Company has been identified as a potentially responsible party by
the EPA for a site cleanup in Denver, Colorado, where the Company sent
hazardous materials through a contractor for disposal. The EPA contacted
approximately 800 potentially responsible parties requesting additional
information and listing manifests which evidence shipments of each individual
company's waste to the site. Due to the number of parties involved, the
multiplicity of possible solutions, the evolving technology and the years of
remedial activity required, the Company is unable to assess and quantify the
extent of its total responsibility at the site. The liability for future
remediation costs has been evaluated. The Company believes that any ultimate
liability will not materially affect the financial condition of the Company.
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<PAGE> 25
MANAGEMENT
DIRECTORS AND OFFICERS
The names of each director and each executive officer, and each such
individual's age, positions and offices held with the Company, years of service
as a director, if applicable, principal occupation and business experience
during the past five years, and certain other directorships held is set forth
below. The following descriptions are based on information provided by such
persons.
V. M. ESPOSITO, PH.D., age 56, has served as President, Chief
Executive Officer and a director of the Company since May 1992. In July 1992,
he was elected Chairman of the Board of Directors. From April 1987 until
joining the Company, Dr. Esposito was the founder and served as the President
and Chief Executive Officer of Theracel Corporation, a privately-owned
biotechnology company.
CHARLES J. COULTER, age 71, has been a director of the Company since
October 1992. Mr. Coulter was President of American Research and Development, a
venture capital organization, from 1973 until his retirement in June 1992. Mr.
Coulter is currently a director of a publicly-held company, Fusion Systems,
Inc.
BRUCE E. ELMBLAD, age 68, has been a director of the Company since
April 1995. Mr. Elmblad has been the President of Venture Investment Advisors,
Inc., a venture capital organization, since November 1994. From April 1990 to
October 1994 he was a Partner with SED Partners and the President of SEC
Management Company, Inc., two venture capital organizations. Mr. Elmblad is
currently a director of two publicly-held companies, Martek Biosciences
Corporation and PCD.
DONALD G. STARK, age 70, has been a director of the Company since
October 1992. From September 1987 until his retirement in September 1992, Mr.
Stark served as the Vice Chairman of the Board of Nova Pharmaceutical
Corporation.
THERESA M. SMITH, ESQ., age 36, has served as Vice President,
Corporate Development of the Company since September 30, 1996. From January
1995 to September 1996, Ms. Smith served as a patent attorney for the law firm
of Armstrong, Westerman, Hattori, McLeland & Naughton. Previously, she was a
patent attorney with the law firm of Pennie & Edmonds from August 1993 to
January 1995. Prior to August 1993, she worked as a patent attorney in the
legal department of The DuPont Merck Pharmaceutical Company.
GREGORY C. ZAKARIAN, age 48, has served as Vice President,
Administration, Chief Financial Officer and Treasurer of the Company since
September 1992. He has served as Secretary of the Company since November 1993,
and was Assistant Secretary of the Company from September 1992 until October
1993. Mr. Zakarian served as Director of Finance and Administration for
Partnership for Democracy, a charitable organization, from 1991 until September
1992. He was a partner with BDO Seidman, a public accounting firm, from 1982 to
1991. Mr. Zakarian is a Certified Public Accountant.
The Board of Directors consists of four members and is subdivided into
three classes. One class is elected each year to hold office for a three-year
term and until their successors are elected and qualified. Currently, (i) the
Class I director, whose term expires at the 1999 Annual Meeting, is Bruce E.
Elmblad, (ii) the Class II director, whose term expires at the 2000 Annual
Meeting is Donald G. Stark and (iii) the Class III directors, whose terms
expire at the 1998 Annual Meeting are V.M. Esposito and Charles J. Coulter.
Successors to those directors whose terms have expired are required to be
elected by stockholder vote; vacancies in unexpired terms and any additional
positions created by board action may be filled by action of the existing Board
of Directors, until their successors are elected. There are no family
relationships among the executive officers and directors.
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board on matters relating to employee compensation and
benefits, determines the compensation of the officers and other key employees,
and administers the Stock Option Plan. The current members are Charles J.
Coulter, Bruce E. Elmblad and Donald G. Stark (chair). The Audit Committee of
the Board of Directors reviews and monitors the Company's financial reporting
and accounting practices. The current members are Charles J. Coulter (chair),
Bruce E. Elmblad and Donald G. Stark. The Company does not have a nominating
committee.
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<PAGE> 26
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), Article Eighth of the Company's Certificate of Incorporation
provides that no director of the Company shall be personally liable to the
Company or to its stockholders for monetary damages for breach of fiduciary
duty as a director other than (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit.
Section 145 of the DGCL provides that a corporation may, under certain
circumstances, indemnify its directors and officers against expenses,
judgments, fines, and amounts paid in settlement, provided that such expenses
have been actually and reasonably incurred by the directors and officers by
reason of their capacity as such. Article Thirteenth of the Company's
Certificate of Incorporation requires the Company to indemnify, to the fullest
extent permitted by the DGCL, as amended from time to time, any person who is,
was, or has agreed to become a director or officer of the Company against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person.
The Company maintains, at its expense, a policy of insurance that
insures its directors and officers, subject to certain exclusions or deductions
that are usual in such insurance policies, against certain liabilities that may
be incurred in those capacities, including liabilities arising under the
Securities Act and the Exchange Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provision, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
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<PAGE> 27
EXECUTIVE COMPENSATION
The following table sets forth information for each of the Company's
last three fiscal years concerning the compensation earned by each of the
Company's executive officers whose compensation, consisting of salary and
bonuses, exceeded $100,000 for the year ended December 31, 1996 (the "named
executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
---------------------------------------------
Annual
Compensation Awards Payouts
-----------------------------------------------------------------------------------------------------------
Securities All Other
Name and Other Restricted Underlying LTIP Compen-
Principal Annual Stock Options/ Pay- sation
Position Year Salary ($)(1) Bonus ($) Compensat.($) Awards($) SARs(#) outs($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
V.M. Esposito, 1996 257,990 175,000 -- -- 1,000,000 -- 64,023(3)
Ph.D., Chief 1995 230,000 -- -- -- 1,250,000 -- 88,674
Executive 1994 205,000(2) -- -- -- 250,000 -- 64,033
Officer
G.C. Zakarian, 1996 127,212 30,000 -- -- 125,000 -- 26,739(3)
Chief Financial 1995 118,000 -- -- -- 325,000 -- 34,918
Officer 1994 103,000 -- -- -- 75,000 -- 24,139
</TABLE>
- ------------------
(1) Pursuant to the terms of the Private Placement, the compensation of
the named executive officers of the Company (except for options,
warrants and similar equity incentives) could not be increased for a
period ending 13 months following the April 18, 1995 termination date
of the offering.
(2) Dr. Esposito elected to defer receipt of $25,000 in 1994 of his salary
under the Company's Deferred Compensation Program.
(3) Consists of premiums paid by the Company on a split dollar life
insurance policy held by the individual.
The following table sets forth individual grants of stock options to
the named executive officers during the year ended December 31, 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
Number of Percent of
Securities Total Options
Underlying Granted Exercise
Options to Employees Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
V. M. Esposito, Ph.D. 500,000(1) 33.4% $0.37 01/16/06
500,000(2) 33.4% $0.56 11/11/06
G. C. Zakarian 125,000(1) 8.3% $0.37 01/16/06
</TABLE>
(1) All options vested on May 7, 1996.
(2) 250,000 options vested on January 1, 1997. Balance of 250,000 options
vest ratably on a monthly basis over the period November 11, 1996
through November 11, 2000.
- 25 -
<PAGE> 28
The following table sets forth information concerning stock options
exercised during 1996 and the value of unexercised stock options held at
December 31, 1996 by the named executive officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Year-End (#) at Year-End
Shares Acquired on Exercisable (E)/ Exercisable (E)/
Name Exercise (#) Value Realized ($) Unexercisable (U) Unexercisable (U)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
V. M. Esposito, Ph.D. 0 -- 2,065,219(E)(1) $135,000(E)
494,792(U)(2) --
G. C. Zakarian 0 -- 545,000(E)(3) $ 34,250(E)
-- --
</TABLE>
- --------------
(1) Includes options to purchase 20,003 shares that are subject to an
escrow arrangement entered into by certain of the Company's
stockholders and optionholders in connection with the Company's
initial public offering under which such shares are subject to
forfeiture if certain income targets are not met (the "Escrow
Arrangement").
(2) Includes 250,000 options that vested on January 1, 1997.
(3) Includes options to purchase 6,666 shares that are subject to
forfeiture in accordance with the terms of the Escrow Arrangement.
COMPENSATION OF DIRECTORS
Only directors who are not employees of the Company are compensated
for their services as directors. During 1996, each nonemployee director was
paid $1,000 for each meeting of the Board of Directors which he attended. In
addition, each nonemployee director receives $500 for each meeting of a
committee of the Board attended in person and held separately. Directors also
are reimbursed for their expenses incurred in attending Board and committee
meetings. Effective May 1, 1997, each nonemployee director will also be paid an
annual retainer of $10,000 as compensation for services.
The 1992 Directors' Stock Option Plan (the "Directors' Plan"), as
amended in April 1997, provides for the grant by the Company of options to
purchase up to an aggregate of 1,700,000 shares of the Company's authorized but
unissued Common Stock (subject to adjustment, in certain cases, including stock
splits, recapitalizations and reorganizations). Each member of the Board of
Directors of the Company who is not an employee of the Company qualifies to
participate in the Directors' Plan. Upon initial election to the Board, a
director is granted an option to purchase the number of shares of common stock
equal to $20,000 ($10,000 if elected on or after the six-month anniversary of
the most recent annual shareholders meeting) divided by the greater of the
market price of the common stock on the date of grant or $0.50. At the time of
reelection to serve or upon continuing to hold office for the following year, a
director is granted an additional option to purchase the number of shares of
common stock equal to $20,000 divided by the greater of the market price of the
common stock on the date of the grant or $0.50. For directors who have served
for at least three years, this basic annual grant is supplemented every third
year by an additional grant of an option to purchase a number of shares of
common stock equal to 150% of the number of shares covered by the basic grant.
Vesting occurs quarterly in four equal installments over a period of one year
following the date of grant. All stock options granted under the Directors'
Plan have a five-year term. At December 31, 1996, options to purchase 111,300
shares of common stock were outstanding under the Directors' Plan.
EMPLOYMENT CONTRACTS
Dr. Esposito entered into a new agreement with the Company which
commenced January 1, 1996 and is due to expire on December 31, 2000. The
agreement requires Dr. Esposito to devote his entire business time to the
- 26 -
<PAGE> 29
Company, not to compete with the Company for a period of two years after
termination of employment with the Company and to assign to the Company all
rights to technology discovered by him during his employment. The agreement
provides for an annual base salary of $300,000 through December 31, 1997, and
thereafter is subject to adjustment by the Board, provided that it is not less
than the prior year's base salary. Dr. Esposito also is eligible to receive
bonuses as determined by the Board. The agreement provides for termination by
the Company on thirty-six months' prior notice or without notice upon payment
of severance equal to thirty-six months' salary and any bonus to which he would
have been entitled.
Gregory C. Zakarian is employed under an agreement with the Company
which commenced May 1, 1995 and is due to expire on April 30, 1998. Like Dr.
Esposito's agreement, Mr. Zakarian's agreement requires him to devote his
entire business time to the Company, not to compete with the Company for a
period of two years after termination of employment with the Company and to
assign to the Company all rights to technology discovered by him during his
employment. The agreement provides for an annual base salary of $135,000
through April 30, 1997, and thereafter is subject to adjustment by the Board,
provided that it is not less than the prior year's base salary. Mr. Zakarian
also is eligible to receive bonuses as determined by the Board. The agreement
provides for termination by the Company on twelve months' prior notice or
without notice upon payment of severance equal to twelve months' salary and any
bonus to which he would have been entitled.
AMENDED AND RESTATED STOCK OPTION PLAN
The Antex Biologics Inc. Amended and Restated Stock Option Plan (the
"Stock Option Plan") provides for the grant of stock options to purchase up to
an aggregate of 7,500,000 shares of the Company's authorized but unissued
Common Stock (subject to adjustment, in certain cases, including stock splits,
recapitalizations and reorganizations) to employees (including officers and
directors who are employees), to members of advisory boards to the Company and
to consultants and advisors to the Company. The options may be either
"incentive stock options" within the meaning of Section 422 of the Code, or
non-statutory options. Incentive stock options may be granted only to salaried
employees (including officers and directors who are employees). Approximately
20 persons currently are eligible to participate in the Stock Option Plan.
The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, each member of which is a "disinterested person" within
the meaning of Rule 16b-3 under the Exchange Act. The Committee is responsible
for determining the individuals to whom options will be granted, the time or
times at which options will be granted, the designation of an option as either
an incentive stock option or a non-statutory stock option, the option exercise
price, the term of each option, the date or dates on which each option will
become exercisable and any other terms of the options, all subject to the
provisions of the Stock Option Plan.
The exercise price of an option may not be less than 50%, in the case
of a non-statutory option, and 100%, in the case of an incentive stock option,
of the fair market value of a share of Common Stock on the date the option is
granted. The term of an option may not exceed ten years. Notwithstanding the
foregoing, in the case of an incentive stock option granted to a person who at
the time of grant owns, directly or by attribution, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
and its affiliates, the exercise price of an option may not be less than 110%
of the fair market value of a share of Common Stock on the date of grant and
the term of the option may not exceed five years. During the optionee's
lifetime, an option is exercisable only by the optionee and is not transferable
except by will or by the laws of descent and distribution.
The exercise price of an option may be paid (i) in cash, (ii) if
authorized by the Committee, by delivery to the Company of shares of Common
Stock owned by the optionee having a fair market value equal to the aggregate
exercise price or (iii) by any other means authorized by the Committee,
including the delivery of a promissory note. If delivery of shares of Common
Stock in payment of the exercise price is permitted, an optionee could, through
a series of virtually simultaneous exercises and tenders of the shares received
upon exercise, exercise all exercisable options with a minimum initial
commitment of previously-owned shares. If payment of the exercise price is made
through a tender of shares, the Company will receive no cash consideration for
the sale of shares.
Upon the occurrence of a "change in control" of the Company (which is
defined by the Stock Option Plan to include (i) the acquisition by any person
or group of 50% or more of the combined voting power of the Company's
outstanding securities, (ii) certain changes in the composition of the Board of
Directors within a two year period, (iii) certain mergers or (iv) a liquidation
or sale of all or substantially all of the assets of the Company), all
- 27 -
<PAGE> 30
outstanding options become immediately exercisable in full without regard to
any otherwise applicable vesting restrictions.
The Board of Directors may amend or terminate the Stock Option Plan at
any time; provided that the approval of the stockholders of the Company is
required to the extent necessary (i) to comply with Section 422 of the Code or
any successor provision with respect to incentive stock options or (ii) to
maintain compliance with Rule 16b-3 under the Exchange Act, with respect to
options granted to executive officers and to directors who are employees of the
Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 18,
1997, regarding the beneficial ownership of the Company's common stock by (i)
each person known to the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each executive officer of the Company named in the Summary Compensation Table,
and (iv) all directors and executive officers of the Company as a group. The
persons named in the table below have advised the Company that they have sole
voting power and sole investment power with respect to all shares of common
stock shown as beneficially owned by them, except where otherwise indicated.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME AND ADDRESS(1) OF SHARES OF CLASS
------------------- --------- --------
<S> <C> <C>
V. M. Esposito, Ph.D. 2,423,717(2)(3)(4) 9.76%
Charles J. Coulter 43,125(5) *
Bruce E. Elmblad 18,550(5) *
Donald G. Stark 78,840(6) *
Gregory C. Zakarian 550,000(7) 2.39%
All directors and executive officers
(6 persons in group) 3,114,232(8) 12.22%
</TABLE>
- -----------------
* less than 1%
(1) The address of each person is 300 Professional Drive, Gaithersburg, MD
20879.
(2) Includes 39,083 shares that are subject to forfeiture in accordance
with the terms of the Escrow Arrangement.
(3) Includes 2,346,469 shares issuable upon the exercise of options that
are immediately exercisable or that will become exercisable within 60
days after April 18, 1997 (of which 20,003 are subject to forfeiture
in accordance with the terms of the Escrow Arrangement).
(4) Includes 20,000 shares owned by a trust of which Dr. Esposito's wife
is sole trustee and as to which he disclaims beneficial ownership.
(5) Consists solely of shares issuable upon the exercise of options that
are immediately exercisable or that will become exercisable within 60
days after April 18, 1997.
(6) Includes 43,125 shares issuable upon the exercise of options that are
immediately exercisable or that will become exercisable within 60 days
after April 18, 1997.
(7) Includes 545,000 shares issuable upon the exercise of options that are
immediately exercisable or that will become exercisable within 60 days
after April 18, 1997 (of which 6,666 are subject to forfeiture in
accordance with the terms of the Escrow Arrangement.)
(8) Includes 39,083 shares subject to forfeiture in accordance with the
terms of the Escrow Arrangement and 2,999,269 shares issuable upon the
exercise of options that are immediately exercisable or that will
become exercisable within 60 days after April 18, 1997 (of which
options 26,669 are subject to forfeiture in accordance with the terms
of the Escrow Arrangement).
- 28 -
<PAGE> 31
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 95,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of April 18, 1997,
there were 22,479,679 shares of Common Stock issued and outstanding. No shares
of Preferred Stock are issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
of record. The holders of the Common Stock have no preemptive rights or rights
to subscribe for additional shares or any conversion right or right of
redemption. Holders of the Common Stock are (i) entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor and (ii) upon liquidation, are entitled to
participate pro rata in the assets of the Company available for distribution to
the holders of the Common Stock.
All of the outstanding shares of Common Stock are fully paid and nonassessable.
The Company's Certificate of Incorporation provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at a duly called annual or special meeting of the stockholders and
special meetings may be called only by the Board of Directors or the President.
These provisions could have the effect of delaying until the next stockholders
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as a
stockholder (such as approving a merger) only at a duly called stockholders
meeting, and not by written consent.
REDEEMABLE WARRANTS
In connection with the Company's initial public offering, the Company
issued 1,380,000 Redeemable Warrants. Each Redeemable Warrant, as the terms
thereof subsequently have been adjusted, entitles the registered holder thereof
to purchase 1.3 shares of Common Stock at an exercise price of $5.92 per share,
on or prior to December 17, 1997, unless earlier redeemed. The Redeemable
Warrants are subject to redemption by the Company, upon 30 days' prior written
notice, at a price of $0.05 per Redeemable Warrant, if the average market price
of the Common Stock over a period of 20 consecutive business days ending within
five days of the date on which the notice of redemption is given shall have
exceeded $10.50 per share. The Redeemable Warrants are not being offered for
sale pursuant to this Prospectus.
IPO UNIT PURCHASE OPTION
In connection with the Company's initial public offering, the Company
issued to D.H. Blair Investment Banking Corp., the underwriter for the initial
public offering, a Unit Purchase Option (the "IPO Unit Purchase Option"), as
the terms thereof subsequently have been adjusted, to purchase up to 120,000
Units (the "IPO Units"), each IPO Unit consisting of 1.27 shares of Common
Stock and 1.3 Redeemable Warrants, at an exercise price of $6.63 per IPO Unit.
The IPO Unit Purchase Option is exercisable for the two-year period commencing
December 17, 1995. Neither the IPO Unit Purchase Option nor the underlying
securities are being offered for sale pursuant to this Prospectus.
PRIVATE PLACEMENT UNIT PURCHASE OPTION
In connection with the Private Placement, the Company issued to D.H.
Blair Investment Banking Corp., the placement agent for the Private Placement,
a Unit Purchase Option (the "Private Placement Unit Purchase Option"), to
purchase up to 24.67 Units (the "Private Placement Units"), each Private
Placement Unit consisting of 142,860 shares of Common Stock and an equal number
of Class B Warrants, at an exercise price of $50,000 per Private Placement
Unit. The Private Placement Unit Purchase Option is exercisable for the two
year period beginning on March 24, 1998, and is transferrable commencing as of
the date of issuance. Neither the Private Placement Unit Purchase Option nor
the underlying securities are being offered for sale pursuant to this
Prospectus.
- 29 -
<PAGE> 32
TRANSFER AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
the Transfer Agent for the Common Stock.
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
Selling Security Holders and the shares of Common Stock covered by this
Prospectus. The number of shares of Common Stock indicated as owned represent
(i) those shares purchased by the Selling Security Holder in the Private
Placement or directly or indirectly from a purchaser of the shares in the
Private Placement and (ii) those shares acquired by the Selling Security Holder
upon exercise of Class B Warrants. Some of the Selling Security Holders may
already have sold some or all of the shares of Common Stock shown as owned by
them.
With the exception of Donald G. Stark, who is a director of the
Company, none of the Selling Security Holders has been a director, officer or
employee of, or has had any material relationship with, the Company or its
predecessor. The Selling Security Holders may own additional shares of Common
Stock that are not covered by this Prospectus and, accordingly, the Company is
not aware of the extent to which a Selling Security Holder, upon the completion
of the sale of the shares of Common Stock covered by this Prospectus, may
continue to own other shares of Common Stock.
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
1. Magid M. Abraham
Common Stock 285,720 285,720
2. Jeffrey Anderson
Common Stock 142,860 142,860
3. Eric C. Appolonia
Common Stock 142,860 142,860
4. John Augustyn
Common Stock 142,860 142,860
5. The Aries Fund
Common Stock 142,860 142,860
6. The Aries Domestic Fund LP
Common Stock 285,720 285,720
7. William H. Baker and
Ann V. Baker, JT
Common Stock 142,860 142,860
8. George H. Baldwin, Jr.
Common Stock 285,720 285,720
9. Paul A. Balsamo
Common Stock 71,430 71,430
10. Charles A. Beach and
Elizabeth M. Beach, JT
Common Stock 142,860 142,860
11. Robert S. Benach and
Sonia T. Benach, JT
Common Stock 142,860 142,860
</TABLE>
- 30 -
<PAGE> 33
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
12. Howard Berg, M.D.
Common Stock 142,860 142,860
13. Donald P. Boggs
Common Stock 71,430 71,430
14. Midocean Trust Limited TTEE
for the Bressman Family Trust
Common Stock 571,440 571,440
15. Bridge Publishing
Common Stock 142,860 142,860
16. Morris L. Brunson
Common Stock 571,440 571,440
17. Claude L. Buller
Common Stock 285,720 285,720
18. Robert D. Burke, M.D.
Common Stock 142,860 142,860
19. Andrew P. Carter, Jr.
Common Stock 285,720 285,720
20. Jack Chehebar
Common Stock 142,860 142,860
21. C.L.F.S., Ltd.
Common Stock 142,860 142,860
22. Mark H. Cohen and
Mary Jane P. Cohen, JT
Common Stock 142,860 142,860
23. Betty Cornell
Common Stock 285,720 285,720
24. Dr. Michael L. Darby and
Kelly O. Darby, JT
Common Stock 142,860 142,860
25. Michael H. Davidson, M.D.
Common Stock 142,860 142,860
26. Diane Doppelt and
Jeffrey Doppelt, TIC
Common Stock 285,720 285,720
27. Robert Doyon and
Pauline Doyon, JT
Common Stock 571,440 571,440
28. Jules H. Dreyfuss
Common Stock 285,720 285,720
29. Jonathan Elias and Irene Elias,
Tenants by the Entirety
Common Stock 142,860 142,860
</TABLE>
- 31 -
<PAGE> 34
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
30. William Embry and
Helen M. Embry, JT
Common Stock 142,860 142,860
31. Ralph Falk, II
Common Stock 285,720 285,720
32. Leonard R. Farber
Common Stock 142,860 142,860
33. Bruce Fetzer and
D'Arbra Fetzer, JT
Common Stock 142,860 142,860
34. Stephen Ficchi
Common Stock 71,430 71,430
35. Brian Frank
Common Stock 142,860 142,860
36. Melrene Friedler
Common Stock 285,720 285,720
37. Garrett Associates, Inc.
Common Stock 71,430 71,430
38. Jerome Gilbert
Common Stock 142,860 142,860
39. Mark Gilder and
Judy Gilder, JT
Common Stock 71,430 71,430
40. Marvin A. Ginsburg and
Sheila Weiss Ginsburg, JT
Common Stock 71,430 71,430
41. Jeffrey Goffman
Common Stock 142,860 142,860
42. Irving Goldman
Common Stock 285,720 285,720
43. Goldstein Family Loving Trust
Common Stock 142,860 142,860
44. Paul Goslin
Common Stock 142,860 142,860
45. Charles Grodin
Common Stock 142,860 142,860
46. Guaranty and Trust Co. TTEE
Richard Hofmann IRA
Common Stock 71,430 71,430
47. Franklin Gutman and
Laurie Gutman, JT
Common Stock 71,430 71,430
</TABLE>
- 32 -
<PAGE> 35
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
48. William M. Hager
Common Stock 71,430 71,430
49. Raymond Haysbert
Common Stock 71,430 71,430
50. James J. Higbee
Common Stock 71,430 71,430
51. Birte Hofmann
Common Stock 71,430 71,430
52. Holistic Chiropractic Center
Common Stock 71,430 71,430
53. Samuel J. Holtzman Trust
FBO AMND REINSTD 2/8/94
Common Stock 142,860 142,860
54. Trevor W. Hunt
Common Stock 285,720 285,720
55. George R. Isely and
Judith A. Isely, JT
Common Stock 142,860 142,860
56. Stephen Baldwin Jayne
Common Stock 142,860 142,860
57. Peter M. Kash and
Donna F. Kash, JT
Common Stock 142,860 142,860
58. Stephen J. Kornfeld and
Janice T. Kornfeld, JT
Common Stock 71,430 71,430
59. Randall H. Leisure
Common Stock 142,860 142,860
60. Charles Leithauser
Common Stock 285,720 285,720
61. George Lionikis, Sr.
Common Stock 142,860 142,860
62. Dr. Joseph Litner
Common Stock 214,290 214,290
63. Jeffrey A. Lotz and
Patricia E. Lotz, JT
Common Stock 71,430 71,430
64. Joseph O. Manzi
Common Stock 571,440 571,440
65. Gary R. Marano
Common Stock 71,430 71,430
</TABLE>
- 33 -
<PAGE> 36
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
66. Brian Mclean
Common Stock 142,860 142,860
67. Michael F. Merollis
Common Stock 71,430 71,430
68. Joseph Migliarese
Revocable Trust
Common Stock 71,430 71,430
69. Minmetals, Inc.
Common Stock 142,860 142,860
70. Victor Molinsky
Common Stock 142,860 142,860
71. Patrick Morgan and
Ruth Morgan, JT
Common Stock 71,430 71,430
72. Richard A. Nelson and
Elaine M. Nelson, JT
Common Stock 285,720 285,720
73. John New and
Rita New, JT
Common Stock 142,860 142,860
74. Orion Research
Common Stock 142,860 142,860
75. Steven N. Ostrovsky
Common Stock 285,720 285,720
76. Pacific Northwest Trust -- FBO
Patrick D. Morgan -- SEP
Common Stock 71,430 71,430
77. Barry Paley
Common Stock 142,860 142,860
78. Alan N. Parnes, D.D.S.
Common Stock 71,430 71,430
79. Irwin H. Parnes
Common Stock 71,430 71,430
80. Michael Patoff and
Mary Patoff, JT
Common Stock 357,150 357,150
81. Robert M. Patton
Common Stock 285,720 285,720
82. Gary R. Perrine and
Rebecca C. Perrine, JT
Common Stock 142,860 142,860
83. Joseph V. Perrotta
Common Stock 71,430 71,430
</TABLE>
- 34 -
<PAGE> 37
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
84. Donald W. Peterson
Common Stock 71,430 71,430
85. James R. Pinke, M.D.
Common Stock 142,860 142,860
86. PLM Trust Farm Partnership
Common Stock 71,430 71,430
87. Dr. Stephen Posovsky
Money Purchase Keogh
Plan & Trust
Common Stock 71,430 71,430
88. Joseph R. Pugni
Common Stock 71,430 71,430
89. Steven Richman
Common Stock 142,860 142,860
90. Fred Rosen
Common Stock 71,430 71,430
91. Sidney Rosen
Common Stock 285,720 285,720
92. Elaine Rubin
Common Stock 285,720 285,720
93. August J. Saccoccio
Common Stock 142,860 142,860
94. Charles Sacks
Common Stock 71,430 71,430
95. Renolt Samaan
Common Stock 71,430 71,430
96. Barry Shemaria
Common Stock 142,860 142,860
97. Lee H. Silverstein, D.D.S, M.S.
Common Stock 71,430 71,430
98. Bryan Simmons
Common Stock 142,860 142,860
99. Cynthia A. Simmons
Common Stock 71,430 71,430
100. Harold Singer
Common Stock 71,430 71,430
101. Eugene L. Snowden
Common Stock 71,430 71,430
102. Leonard A. Solomon
Common Stock 142,860 142,860
</TABLE>
- 35 -
<PAGE> 38
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
103. Ricky Solomon
Common Stock 71,430 71,430
104. Peter M. Speier and
Janyce Speier, JT
Common Stock 142,860 142,860
105. Dr. George Spiegel
Common Stock 142,860 142,860
106. Samuel R. Staggers
Common Stock 71,430 71,430
107. Donald G. Stark
Common Stock 71,430 71,430
108. STD Partners
Common Stock 142,860 142,860
109. Sterling Corp.
Common Stock 142,860 142,860
110. Faye L. Stilley
Common Stock 142,860 142,860
111. Bernard Strassner and
Bernice Strassner, JT
Common Stock 142,860 142,860
112. Dennis Su
Common Stock 142,860 142,860
113. Eugene S. Sumner
Common Stock 285,720 285,720
114. Donna W. Timmerman
Common Stock 285,720 285,720
115. Terry Sports, Inc.
Common Stock 285,720 285,720
116. Douglas M. Trabilcy
Common Stock 571,440 571,440
117. Urgent Care Corp
P/S Robert Juranek
Common Stock 142,860 142,860
118. George Wailand
Common Stock 142,860 142,860
119. Charles Xue
Common Stock 285,720 285,720
120. Harold Yordy and
Phyllis Yordy, JT
Common Stock 71,430 71,430
</TABLE>
- 36 -
<PAGE> 39
<TABLE>
<CAPTION>
Number To
Selling Security Holder Number Owned Be Sold
- ----------------------- ------------ -------
<S> <C> <C>
121. Herman L. Zeller
Common Stock 142,860 142,860
122. Murray Zung
Common Stock 71,430 71,430
</TABLE>
PLAN OF DISTRIBUTION
MANNER OF DISTRIBUTION BY THE SELLING SECURITY HOLDERS
The Company has been advised by the Selling Security Holders that the
shares of Common Stock to be sold by the Selling Security Holders may be sold
by them from time to time directly to purchasers in privately negotiated
transactions. Alternatively, the Selling Security Holders may, from time to
time, offer the shares of Common Stock for sale in the over-the-counter market
through or to securities brokers or dealers that may receive compensation in
the form of discounts, concessions, or commissions from the Selling Security
Holders. The Selling Stock Holders, and any dealers or brokers that participate
in the distribution of the shares of Common Stock may be deemed to be
"underwriters" as that term is defined by the Securities Act, and any profit on
the sale of shares of Common Stock by them, and any discounts, commissions, or
concessions received by any such dealers or brokers, may be deemed to be
underwriting discounts and commissions under the Securities Act.
REGISTRATION OF THE COMMON STOCK
The Company has undertaken to use its best efforts to cause the
Registration Statement (as hereinafter defined) under the Securities Act
registering the shares of Common Stock for resale by the Selling Security
Holders to remain effective until such time as all of the shares of Common
Stock issued upon exercise of the Class B Warrants issued in the Private
Placement may be sold without volume limitations under Rule 144 under the
Securities Act. The Company has agreed to pay all fees, costs and expenses
incidental to the registration of the Registration Statement, except that the
Selling Security Holders have agreed to bear their pro rata share of any
underwriting discounts and commissions and transfer taxes. The costs to be
borne by the Company include, without limitation, all registration, filing and
NASD fees, printing expenses, fees and disbursements of counsel and accountants
for the Company, and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
such shares are to be registered and qualified. The fees and disbursements of
counsel and accountants, if any, retained by the Selling Security Holders, and
any other expenses incurred by the Selling Security Holders not expressly
provided for in the individual subscription agreements between the initial
purchaser of the Common Stock and Class B Warrants and the Company, will be
borne by the Selling Security Holders.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Covington & Burling, Washington, D.C., counsel to the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996
and 1995, and the consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended have been audited by Coopers
& Lybrand L.L.P., independent accountants, as set forth in their report thereon
appearing in the Prospectus, and are so included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
- 37 -
<PAGE> 40
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials can be obtained from the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (the "Registration Statement") under the Securities Act with respect
to the securities being offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities being offered hereby, reference is made to the Registration
Statement, exhibits and schedules, which may be inspected without charge at the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Reference is made to the copies of any contracts
or other documents filed as exhibits to the Registration Statement.
- 38 -
<PAGE> 41
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants, on Audited Financial Statements....................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996....................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996
and the period August 3, 1991 (inception) to December 31, 1996..........................................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the period August 3, 1991 (inception) to December
31, 1996........................................................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996
and the period August 3, 1991 (inception) to December 31, 1996..........................................F-9
Notes to Consolidated Financial Statements................................................................ . . F-11
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Antex Biologics Inc.
We have audited the accompanying consolidated balance sheets of Antex
Biologics Inc. and its subsidiary (a development stage enterprise) as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended and for the period January 1, 1993 to December 31, 1996. 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 did not audit the financial statements of the Company for the
period from August 3, 1991 (inception) to December 31, 1992. The financial
statements for the period August 3, 1991 (inception) to December 31, 1992 were
audited by other auditors, whose report, dated February 28, 1993, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Antex Biologics Inc. and its subsidiary as of December 31, 1995 and 1996,
and the consolidated results of their operations and their cash flows for the
years then ended and for the period January 1, 1993 to December 31, 1996 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Rockville, Maryland
February 7, 1997
F-2
<PAGE> 43
Antex Biologics Inc.
(a development stage enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 903,951 $6,918,836
Restricted cash - 300,000
Accounts and other receivables 144,466 95,668
Prepaid expenses and deposits 183,383 247,717
------------ -------------
Total current assets 1,231,800 7,562,221
Property and equipment, net 952,742 537,113
Restricted cash 300,000 -
Prepaid expenses - 151,667
Deferred compensation trust 161,450 191,189
------------ -------------
$2,645,992 $8,442,190
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 198,512 $ 272,119
Deferred research and development revenue - 744,198
Deferred option payment 250,000 -
Deferred gain on sale and leaseback 524,794 349,857
Obligation under capitalized lease 601,689 451,412
------------ -------------
Total current liabilities 1,574,995 1,817,586
Deferred gain on sale and leaseback 349,857 -
Obligation under capitalized lease 451,412 -
Deferred compensation 161,450 191,189
Excess of fair value over cost of net assets acquired, net of
accumulated amortization of $124,708 and $152,944 157,645 129,409
Other 68,166 45,219
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 65,000,000 shares
authorized; 12,326,619 and 22,479,679 shares
issued and outstanding 123,266 224,797
Additional paid-in capital 12,013,062 17,752,416
Deficit accumulated during the development stage (12,253,861) (11,718,426)
------------ -------------
Total stockholders' equity (deficit) (117,533) 6,258,787
------------ -------------
$2,645,992 $8,442,190
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 44
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AUGUST 3, 1991
----------- (INCEPTION)
TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
Revenues $ 153,425 $ 3,827,111 $ 4,699,186
---------- ----------- -------------
Expenses:
Research and development 1,780,834 2,154,047 9,399,635
General and administrative 1,425,101 1,251,556 6,954,869
---------- ----------- -------------
Total expenses 3,205,935 3,405,603 16,354,504
---------- ----------- -------------
Income (loss) from operations (3,052,510) 421,508 (11,655,318)
Other income (expense):
Interest income 118,938 228,966 635,126
Interest expense (197,487) (115,039) (698,234)
---------- ----------- -------------
Net income (loss) $(3,131,059) $ 535,435 $ (11,718,426)
=========== ========== =============
Net income (loss) per share $(.32) $.03
===== ====
Shares and common share
equivalents used in per share
calculations 9,646,846 35,687,731
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 45
Antex Biologics Inc.
(a development stage enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1996
<S> <C>
Initial capitalization ($.20 per share).........................................................................
Net loss........................................................................................................
Balance at December 31, 1991....................................................................................
Sale of common stock for cash, January 1992 ($4.61 per share)...................................................
Sale of common stock for cash, February 1992 ($6.90 per share)..................................................
Issuance of common stock for services, March 1992 to July 1992 ($2.00 per share)................................
Conversion of notes payable into preferred stock, September 1992 ($4.48 per share)..............................
Sale of preferred stock for cash, September 1992 ($4.48 per share)..............................................
Issuance of preferred stock upon exercise of warrants, September 1992
($1.92 per share)...........................................................................................
Issuance of common stock for cash ($1.00 per share) and services ($1.00
per share), October 1992....................................................................................
Conversion of preferred stock into common stock, December 1992..................................................
Sale of common stock and warrants for cash, December 1992 ($4.84 per unit,
net of offering costs of $1,396,893 or $1.16 per unit)......................................................
Net loss........................................................................................................
Balance at December 31, 1992....................................................................................
Sale of common stock and warrants for cash, January 1993 ($5.27 per
unit, net of offering costs of $131,723 or $.73 per unit)...................................................
Compensation and consulting expense in connection with options granted..........................................
Net loss........................................................................................................
Balance at December 31, 1993....................................................................................
Net loss........................................................................................................
Balance at December 31, 1994....................................................................................
Sale of common stock and warrants for cash, March and April 1995 ($39,972 per unit, net of offering
costs of $706,971 or $10,028 per unit)........................................................................
Required registration of common stock and warrants, October 1995 ($1,525 per unit)..............................
Net loss........................................................................................................
Balance at December 31, 1995....................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 46
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK DEFICIT
- --------------------------------------------------------------- ACCUMULATED DURING
ADDITIONAL THE
SHARES PAR VALUE SHARES PAR VALUE PAID-IN CAPITAL DEVELOPMENT STAGE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $ - 390,830 $ 3,908 $ 74,093 $ - $ 78,001
- - - - - (941,145) (941,145)
- - 390,830 3,908 74,093 (941,145) (863,144)
- - 43,430 435 199,565 - 200,000
- - 115,801 1,158 798,842 - 800,000
- - - - 383,014 - 383,014
113,700 1,137 - - 507,972 - 509,109
89,328 893 - - 399,296 - 400,189
46,900 469 - - 89,531 - 90,000
- - 75,000 750 149,250 - 150,000
(249,928) (2,499) 249,928 2,499 - - -
- - 1,200,000 12,000 5,791,227 - 5,803,227
- - - - - (2,415,723) (2,415,723)
- ------------------------------------------------------------------------------------------------------------------------------
- - 2,074,989 20,750 8,392,790 (3,356,868) 5,056,672
- - 180,000 1,800 946,477 - 948,277
- - - - 64,011 - 64,011
- - - - - (2,725,902) (2,725,902)
- ------------------------------------------------------------------------------------------------------------------------------
- - 2,254,989 22,550 9,403,278 (6,082,770) 3,343,058
- - - - - (3,040,032) (3,040,032)
- - 2,254,989 22,550 9,403,278 (9,122,802) 303,026
- - 10,071,630 100,716 2,717,314 - 2,818,030
- - - - (107,530) - (107,530)
- - - - - (3,131,059) (3,131,059)
- ------------------------------------------------------------------------------------------------------------------------------
- - 12,326,619 123,266 12,013,062 (12,253,861) (117,533)
</TABLE>
F-6
<PAGE> 47
Antex Biologics Inc.
(a development stage enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
For the Period August 3, 1991 (inception) to December 31, 1996
<S> <C>
Issuance of exchange option, May 1996 ($.37 per share, net of related costs of $351,082)........................
Issuance of common stock upon exercise of Class B Warrants and stock options, May - August 1996,
($.50 per share, net of related costs of $214,811)..........................................................
Net income......................................................................................................
Balance at December 31, 1996....................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 48
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK DEFICIT ACCUMULATED
- --------------------------------------------------------------- ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $ - - $ - $ 979,166 $ - $ 979,166
- - 10,153,060 101,531 4,760,188 - 4,861,719
- - - - - 535,435 535,435
- -----------------------------------------------------------------------------------------------------------------------
- $ - 22,479,679 $224,797 $17,752,416 $(11,718,426) $6,258,787
=======================================================================================================================
</TABLE>
F-8
<PAGE> 49
Antex Biologics Inc.
(a development stage enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
--------------------------- TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(3,131,059) $ 535,435 $ (11,718,426)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization of
property and equipment, net of
amortization of deferred gain on
sale/leaseback 29,330 47,334 116,177
Amortization of deferred credits (53,808) (51,183) (288,153)
Expense recorded on issuance of
common stock and vesting of options - - 531,134
Changes in operating assets
and liabilities:
Accounts and other receivables 172,589 48,798 (95,668)
Prepaid expenses and deposits (44,027) (216,001) (283,142)
Accounts payable and accrued
expenses (55,777) 73,607 (160,461)
Deferred research and development - 744,198 744,198
Deferred option payment 250,000 (250,000) -
Due from BioCarb AB - - 420,448
---------- ------- -----------
Net cash provided by (used in)
operating activities (2,832,752) 932,188 (10,733,893)
---------- ------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (33,377) (156,499) (303,433)
Increase in restricted cash - - (300,000)
---------- ------- -----------
Net cash used in investing activities (33,377) (156,499) (603,433)
---------- ------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(Continued)
F-9
<PAGE> 50
Antex Biologics Inc.
(a development stage enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
-------------------------- TO
1995 1996 DECEMBER 31, 1996
---- ---- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sales of common stock and
warrants and the exchange option $2,903,066 $ 979,166 $11,516,170
Net proceeds from exercise of warrants and
stock options - 4,861,719 4,861,719
Proceeds from sale and leaseback
agreement - - 2,164,792
Principal repayments on sale and
leaseback agreement (521,888) (601,689) (1,713,380)
Proceeds from issuance of notes payable - - 500,000
Proceeds from sale of preferred stock - - 400,189
Proceeds from exercise of warrants - - 90,000
------------ ----------- ------------
Net cash provided by financing activities 2,381,178 5,239,196 17,819,490
------------ ----------- ------------
Net increase (decrease) in cash and 6,014,885
cash equivalents (484,951) 6,482,164
Cash and cash equivalents at
beginning of period 1,388,902 903,951 436,672
------------ ----------- ------------
Cash and cash equivalents at
end of period $ 903,951 $6,918,836 $ 6,918,836
============ =========== ============
Supplemental cash flows disclosures:
Notes payable and accrued interest
converted to preferred stock $ - $ - $ 509,109
============ =========== ============
Sale and leaseback of property and
equipment $ - $ - $ 2,099,175
============ =========== ============
Deferred compensation $ 34,590 $ 29,739 $ 191,189
============ =========== ============
Interest paid $ 197,487 $ 115,039 $ 689,125
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 51
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1. BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
dedicated to the development and production of clinical technologies and
therapeutic products to prevent and treat infectious diseases and related
disorders. With respect to its human bacterial vaccine research and
development, the Company currently has a strategic alliance with SmithKline
Beecham and technology license agreements with Pasteur Merieux Connaught and
the United States Navy.
The Company was incorporated in March 1988 as BioCarb Inc., a wholly
owned subsidiary of BioCarb AB, a Swedish biotechnology company. On August 3,
1991, the Company was acquired by a then officer at a cost of $78,001 in a
business combination accounted for as a purchase, and began doing business as
MicroCarb Inc. Since the fair market value of the assets acquired less
liabilities assumed exceeded the purchase price, such excess was applied first
to reduce to zero the value of non-current assets (which had a net book value
to BioCarb Inc. of $2,321,001). The remaining excess of $282,353 was recorded
as the excess of fair value over cost of net assets acquired.
As of December 31, 1996, the Company's research and products were not
sufficiently developed to enable the Company to generate significant revenues
on an ongoing basis. As a result, beginning August 3, 1991 and through the
present, the Company is considered to be in the development stage.
In September 1996, the Company changed its name from MicroCarb Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The financial statements include the accounts of Antex Biologics Inc. and
its 73.75% owned subsidiary, MicroCarb Human Vaccines Inc., incorporated in
April 1996. All intercompany transactions have been eliminated.
BASIS OF ACCOUNTING
The Company is complying with Statement of Financial Accounting Standards
No. 7, which prescribes requirements in reporting for development stage
enterprises.
CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in a money market fund with a major bank. This fund
invests in securities of the U.S. Government. The Company has not had any
losses on its investments.
PROPERTY AND EQUIPMENT
Property and equipment acquired are stated at cost and depreciated on a
straight-line basis over estimated useful lives of five years. Equipment under
capital lease is amortized on a straight-line basis over the term of the lease,
48 months. When assets are retired or sold, the cost and related accumulated
depreciation are removed from the accounts, and any related gain or loss is
reflected in operations. Expenditures for maintenance, repairs and minor
renewals are charged to operations.
EXCESS OF FAIR VALUE OVER COST OF NET ASSETS ACQUIRED
The excess of fair value over cost of net assets acquired is being
amortized over a period of ten years, using the straight-line method, and is
included in general and administrative costs on the statements of operations.
The amounts of $28,236,
F-11
<PAGE> 52
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
$28,236, and $152,944 have been reflected as contra-expenses for the years
ended December 31, 1995 and 1996, and for the period August 3, 1991 (inception)
to December 31, 1996, respectively.
REVENUE RECOGNITION
Cash payments received in advance of performing contracted research and
development services are recorded as deferred revenue until the services are
performed.
Revenue equal to expenses incurred by the Company which are directly
reimbursable pursuant to the provisions of the strategic alliance is recognized
when the related expenses are incurred.
Milestone payments are recognized as revenue when earned.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce net deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Net income per share calculations are based on the weighted average
number of shares of common stock outstanding, assuming conversion of dilutive
common stock equivalent shares from common stock options and warrants using the
modified treasury stock method. Primary and fully diluted per share amounts are
the same.
Net loss per share calculations are based upon the weighted average
number of shares of common stock outstanding or deemed outstanding.
Escrowed shares have been excluded from the computations of earnings per
share.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation. SFAS 123 allows the Company to account for its
stock-based compensation plans based upon either a fair value method or under
the intrinsic value method, as prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
elected the intrinsic value method, however SFAS 123 requires certain other
disclosures regarding the impact which the fair value method would have had on
the results of the Company's operations (See Note 9). Since the Company elected
to adopt SFAS 123 through disclosure only, such adoption had no impact on the
Company's financial position or results of operations.
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
F-12
<PAGE> 53
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
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.
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 financial statements to
conform to the 1996 financial statement presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Research and development equipment $ 81,317 $ 237,816
Equipment under capital lease 2,164,792 2,164,792
---------- ----------
2,246,109 2,402,608
Accumulated amortization and depreciation (1,293,367) (1,865,495)
---------- ----------
$ 952,742 $ 537,113
========== ==========
</TABLE>
In August 1993, the Company entered into a $2,164,792 sale and leaseback
agreement covering substantially all of the Company's existing research and
development equipment, furniture and fixtures, and leasehold improvements. As a
result of the management buy-out that occurred on August 3, 1991, substantially
all the fixed assets involved in this agreement had been previously reflected
for financial reporting purposes at a carrying value of $1. Other research and
development equipment subsequently acquired, and with a carrying value of
$65,616, was included in the agreement.
The sale and leaseback is for a period of forty-eight (48) months
expiring August 1997 and provides for monthly payments of principal and
interest of $59,497 at an interest rate of 14.99%. Provisions of the agreement
provide for the payment of $1 at the end of the term to reacquire the assets,
and the opportunity to prepay the indebtedness. The Company is required to
maintain cash of $500,000 during the term of the agreement, subject to
adjustments. This requirement has been satisfied in part by providing the
lessor with a $300,000 irrevocable letter of credit that is collateralized by a
$300,000 certificate of deposit.
For financial reporting purposes, the Company capitalized the equipment
and recorded a deferred gain of $2,099,175. The capitalized equipment and
deferred gain are being amortized on a straight-line basis over the 48-month
period, with the net effect reflected in operating expenses in the statements
of operations.
Equipment under capital lease consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Research and development equipment $1,782,792 $1,782,792
Office furniture and equipment 82,000 82,000
Leasehold improvements 300,000 300,000
------------ -----------
2,164,792 2,164,792
Accumulated amortization (1,262,800) (1,803,998)
------------- ------------
$ 901,992 $ 360,794
============ ===========
</TABLE>
F-13
<PAGE> 54
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
As of December 31, 1996, the future minimum payments under this lease
were $475,976, with a present value of $451,412.
4. INCOME TAXES
Significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
generated $ 5,208,100 $ 4,424,400
Research and development tax credit
carryforwards 39,000 64,000
Other deferred tax assets 256,300 482,200
---------- ----------
5,503,400 4,970,600
Valuation allowance (5,503,400) (4,970,600)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
Management has provided a full valuation allowance against total deferred
tax assets as of the balance sheet dates because the Company's ability to
generate sufficient future taxable income is uncertain.
For the year ended December 31, 1996, the Company utilized $2,279,000 of
net operating loss carryforwards to offset current taxes payable. As of
December 31, 1996, the Company had net operating loss carryforwards of
approximately $11,456,000 for federal and state tax reporting purposes which
will substantially expire in years 2006 to 2011. Due to certain changes in
ownership, the Company's ability to utilize tax net operating loss
carryforwards prior to April 1995 is limited.
5. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATION
The Company leases research facilities and office space pursuant to a
noncancelable operating lease expiring in January 1999. The lease provides for
fees for excess utility usage and administrative services and scheduled
increases in rental payments. Rent expense was approximately $217,000, $224,000
and $1,118,000 for the years ended December 31, 1995 and 1996, and the period
August 3, 1991 (inception) to December 31, 1996, respectively. Future minimum
lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
<S> <C>
1997 $ 257,000
1998 265,000
1999 22,000
----------
$ 544,000
==========
</TABLE>
F-14
<PAGE> 55
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
LICENSES
The Company has an exclusive license to a U.S. patent and pending foreign
patent applications covering the Company's VeroTest(TM) product. The licensor
may convert the license to a non-exclusive license since the Company failed to
pay certain royalty levels by November 1996. The Company is currently in
discussions with the licensor to amend the royalty provisions.
In addition, the Company has two licenses for exclusive rights for issued
and pending patent applications that are co-owned. Under both, if the Company
fails to pay certain royalty levels for certain products by 1997 or 2000, as
the case may be, the licensor may convert the licenses to non-exclusive
licenses.
Royalties are expensed as incurred.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party by the
United States Environmental Protection Agency ("EPA") for a site cleanup in
Denver, Colorado, where the Company sent hazardous materials for disposal. The
EPA has identified approximately 800 potentially responsible parties requesting
additional information and listing manifests which evidence shipments of each
individual company's waste to the site. Due to the number of parties involved,
the multiplicity of possible solutions, the evolving technology and the years
of remedial activity required, the Company is unable to assess and quantify the
extent of its total responsibility at the site. The liability for future
remediation costs has been evaluated. Management believes that any ultimate
liability will not materially affect the financial statements of the Company.
6. STRATEGIC ALLIANCE
On May 7, 1996, the Company executed definitive agreements with
SmithKline Beecham Corporation and SmithKline Beecham Biologicals Manufacturing
s.a. ("SmithKline"), effective March 1, 1996, which established a corporate
joint venture, MicroCarb Human Vaccines Inc. ("MCHV"), to develop and
commercialize human bacterial vaccines utilizing the Company's proprietary
technologies. The agreements provide for the following: a payment of $3,000,000
to the Company in connection with SmithKline's acquisition of a 26.25% equity
interest in MCHV; a payment of $2,400,000 to the Company to fund research and
development for the first year; additional committed research and development
funding through February 28, 1998 with SmithKline having the option to fund
future years; two separate options granted to SmithKline expiring October 1,
1997 and 1998, respectively, to acquire from the Company additional equity
interests in MCHV; an exchange option granted by the Company to SmithKline
enabling SmithKline to convert its equity interest in MCHV for up to 4,793,685
shares of the Company's common stock, under specified conditions; and a warrant
granted by the Company to SmithKline enabling SmithKline to acquire up to
7,682,637 shares of the Company's common stock, under specified conditions, and
only to the extent that stipulated options and warrants previously granted and
outstanding as of the date of the establishment of the strategic alliance are
exercised. The agreements also provide for SmithKline to make milestone
payments and pay royalties to MCHV; and for SmithKline to reimburse the Company
for expenses the Company incurs for agreed upon production lots of vaccines for
clinical trials, the conduct of agreed upon clinical trials, and agreed upon
prosecution and maintenance of the Company's patents and patent applications.
As further stipulated in the agreements, SmithKline will be responsible for
conducting additional clinical trials, manufacturing, and sales and
distribution.
With respect to the $3,000,000 the Company received for the equity
interest purchase, $1,330,248, representing the portion applicable to the
exchange option granted by the Company, has been reflected as additional
paid-in capital. Legal fees of approximately $351,000 incurred in connection
with the strategic alliance have been offset against the additional paid-in
capital. The remaining balance of $1,669,752, representing the portion
applicable to the sale of the equity interest in MCHV by the Company, has been
reflected in 1996 operating revenues.
F-15
<PAGE> 56
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
In addition, the Company received payments totalling $2,400,000
representing the first year's research and development funding. Revenue has
been recognized for the period March 1, 1996 through December 31, 1996 to the
extent of actual expenses incurred. Amounts unearned at December 31, 1996 have
been deferred.
A milestone payment to MCHV and additional expenses incurred that qualify
as reimbursables due from SmithKline pursuant to the provisions of the
agreements, have been recognized as revenue.
7. TECHNOLOGY LICENSE AGREEMENTS
In December 1994, the Company entered into a technology license agreement
with Pasteur Merieux Connaught, whereby the Company granted an exclusive
license to develop, produce and market any product using the Company's
Haemophilus influenzae nontypeable adhesion protein in all countries other than
those of the Asia-Pacific region, as defined. The Company earned a license fee
in 1994 and is entitled to milestone payments based on the licensee's
performance or the passage of time. In December 1995, the Company recognized
revenue attributable to a scheduled $150,000 milestone payment, and received
payment in January 1996. Upon commercialization, the licensee is obligated to
pay a guaranteed minimum annual royalty to the Company on sales of any product
incorporating the Company's technology. The licensee commenced a Phase I human
clinical trial in February 1997.
In August 1994, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the United States Navy, whereby the
Company granted Government Purpose License Rights to its Campylobacter vaccine
technology. In exchange for the rights granted, the United States Navy agreed
to conduct and fund the costs involved in Phase I, II and III human clinical
trials for the vaccine, subject to the availability of required funds. The
Company retained all commercial rights to develop, produce and market any
product involving the Campylobacter technology. Either party may terminate the
CRADA upon thirty days written notice. A Phase I human clinical trial of the
vaccine candidate was successfully completed in 1996. A second Phase I human
clinical of the vaccine candidate with an adjuvant was successfully completed
in January 1997.
8. CAPITAL TRANSACTIONS
INITIAL PUBLIC OFFERING
In December 1992, the Company closed an initial public offering of
1,200,000 units at $6.00 per unit, each unit consisting of one share of the
Company's common stock and one warrant to purchase one share of the Company's
common stock at $7.50 per share, expiring December 17, 1997. In January 1993,
the Company sold an additional 180,000 units at $6.00 per unit. In connection
with the offering, the Company issued, to the investment banker who offered the
units, an option to purchase up to 120,000 units at $8.40 per unit. The option
is exercisable during the period December 17, 1995 through December 17, 1997.
PRIVATE PLACEMENT
On April 18, 1995, the Company completed a private placement resulting in
gross proceeds to the Company of $3,525,000 before related offering and
registration costs of approximately $815,000. Pursuant to the terms of the
private placement, the Company issued 70.5 units, each unit consisting of
142,860 shares of common stock and an equal number of Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock at an exercise price of $0.50 per share. The Class B warrants were
exercised in their entirety in 1996 resulting in gross proceeds to the Company
of approximately $5,072,000 before related costs of approximately $215,000.
In connection with the private placement, the Company issued to the
Placement Agent a unit purchase option granting the Placement Agent the option
to purchase 24.67 units from the Company at a purchase price of $50,000 per
unit. Each
F-16
<PAGE> 57
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
warrant comprising the Placement Agent's units has the same terms and
conditions as did a Class B warrant, except that it is not subject to
redemption by the Company. The unit purchase option is exercisable for a
two-year period commencing on March 24, 1998.
ANTI-DILUTION
In accordance with the anti-dilution provisions thereof, the exercise
price and the number of shares of common stock issuable upon exercise of the
Company's redeemable warrants issued in connection with the Company's initial
public offering have been adjusted as a consequence of the private placement.
Similar adjustments have been made to the terms of the unit purchase option
granted to the investment banker at the time of the initial public offering.
COMMON STOCK
As of December 31, 1996, common stock reserved for future issuance
includes the following:
<TABLE>
<S> <C>
Common Stock Warrants:
SmithKline 7,682,637
Placement Agent's option 3,524,357
Initial public offering 1,950,000
Common Stock Options:
Stock option plans 5,990,000
Exchange option 4,793,685
Placement Agent's option 3,524,356
Investment banker's option 152,400
----------
Total 27,617,435
==========
</TABLE>
1992 DIRECTORS' STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan, as amended May 1996, provides for the
grant of options to purchase up to an aggregate of 1,200,000 shares of the
Company's common stock to nonemployee directors. Under the Directors' Plan,
upon initial election to the Board, a director is granted an option to purchase
the number of shares of common stock equal to $20,000 ($10,000 if elected on or
after the six-month anniversary of the most recent annual shareholders meeting)
divided by the greater of the market price of the common stock on the date of
grant or $0.50. At the time of reelection to serve or upon continuing to hold
office for the following year, a director is granted an additional option to
purchase the number of shares of common stock equal to $20,000 divided by the
greater of the market price of the common stock on the date of the grant or
$0.50. For directors who have served for at least three years, this basic
annual grant is supplemented every third year by an additional grant of an
option to purchase a number of shares of common stock equal to 150% of the
number of shares covered by the basic grant. Vesting occurs quarterly in four
equal installments over a period of one year following the date of grant.
Options granted under the Directors' Plan have a term of five years.
1992 STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the "Plan"). The
Plan, as amended June 1995, provides for the grant of options to purchase up to
an aggregate of 4,800,000 shares of the Company's common stock. The Plan
provides for the issuance of incentive stock options ("ISOs") to employees and
non-qualified stock options ("NQSOs") to employees and others. The exercise
price of ISOs must be at least equal to the fair market value of the Company's
common stock on the date of grant. Under the Plan, ISOs and NQSOs may have a
term of up to ten years.
F-17
<PAGE> 58
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
STOCK OPTIONS OUTSTANDING
Stock options outstanding under these plans are as follows:
<TABLE>
<CAPTION>
DIRECTORS' PLAN 1992 PLAN
--------------- ---------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1994 22,500 $3.75 to $6.00 455,011 $1.00 to $6.00
Granted 22,500 $1.00 1,810,000 $0.50
Expired - (35,781) $0.50 to $2.75
------ ----------
December 31, 1995 45,000 2,229,230
Granted 66,300 $1.81 1,495,000 $0.37 to $0.87
Expired - (14,219) $0.50 to $6.00
Exercised - (10,000) $0.50
------ ----------
December 31, 1996 111,300 3,700,011
======= ==========
Exercisable, December 31, 1996
Exercise Price
$0.37 - 656,874
$0.50 - 1,676,375
$0.56 to $1.00 22,500 65,219
$1.81 33,150 -
$2.00 to $6.00 22,500 367,720
------ ----------
78,150 2,766,188
====== ==========
</TABLE>
On January 1, 1997, 250,000 outstanding options with an exercise price of
$0.56 vested.
F-18
<PAGE> 59
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
9. STOCK-BASED COMPENSATION DISCLOSURE
The Company has adopted the disclosure-only provisions of SFAS 123 for
its stock options plans. The Plan provides for the issuance of stock options
that generally vest over a 4 year period and have a maximum term of 10 years.
The Directors' Plan provides for the issuance of stock options that vest over a
one year period and have a maximum term of 5 years. Had compensation cost for
the Company's stock option plans been determined on the fair value at the grant
date for awards in 1995 and 1996, consistent with the provisions of SFAS 123,
the Company's net income (loss) would have been (decreased) increased to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income (loss) -- as reported $(3,131,059) $ 535,435
SFAS 123 pro forma adjustment (675,000) (570,000)
------------ ------------
Net loss -- pro forma $(3,806,059) $ (34,565)
============ ============
Net income (loss) per share, as reported $(0.32) $0.03
====== =====
Net loss per share, pro forma $(0.39) $ -
====== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Expected life (years) 9.94 9.94
Interest rate 7.49% 6.30%
Volatility 177.6% 177.6%
Dividend yield 0% 0%
</TABLE>
The fair values at date of grant ranged from $0.37 to $1.81 per option
and in each case was equal to the market value of the Company's common stock at
the date of grant. The weighted average exercise price is $0.51 and $0.56 per
option for 1995 and 1996, respectively, and the weighted average remaining
contractual life of options outstanding is 8.1 years and 9.26 years for 1995
and 1996, respectively. The weighted average fair value of the options is $0.50
and $0.55 per option for 1995 and 1996, respectively. The expense related to
the value ascribed to the stock options is recognized over the vesting period
of 1 to 4 years.
10. 401(k) PLAN AND EXECUTIVE COMPENSATION BENEFITS
The Company has a 401(k) Plan which covers all employees who have
completed six months of service and are at least 21 years of age. Each eligible
employee may contribute up to 10% of their salary, subject to certain annual
limits. The Company does not match employee contributions.
As part of a deferred compensation plan adopted in 1993, the Company has
established a "Rabbi Trust". The Trust holds the assets of the deferred
compensation plan; which could be available to creditors in the event of a
liquidation. Accordingly, an asset and a corresponding liability have been
recorded for financial reporting purposes resulting from $125,000 of
compensation deferred by an officer prior to 1995 and capital appreciation
thereon.
F-19
<PAGE> 60
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
In 1993, the Company entered into Split Dollar Agreements with two
officers whereby the Company pays the premiums on split dollar life insurance
policies held by these individuals. Under the terms of the agreements, the
officers are required to reimburse the Company for these premiums. However,
since it is probable that the Company may waive this reimbursement, no asset
for the premiums has been recorded. The Company paid approximately $124,000 and
$90,800 in premium payments in 1995 and 1996, respectively.
F-20
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article Eighth of the Company's Certificate of Incorporation
provides that no director of the Company shall be personally liable to the
Company or to its stockholders for monetary damages for breach of fiduciary
duty as a director other than (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit.
Section 145 of the DGCL provides that a corporation may, under certain
circumstances, indemnify its directors and officers against expenses,
judgments, fines, and amounts paid in settlement, provided that such expenses
have been actually and reasonably incurred by the directors and officers by
reason of their capacity as such. Article Thirteenth of the Company's
Certificate of Incorporation requires the Company to indemnify, to the fullest
extent permitted by the DGCL, as amended from time to time, any person who is,
was, or has agreed to become a director or officer of the Company against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person.
The Company maintains, at its expense, a policy of insurance that insures
its directors and officers, subject to certain exclusions or deductions that
are usual in such insurance policies, against certain liabilities that may be
incurred in those capacities, including liabilities arising under the
Securities Act of 1933, as amended, and the Exchange Act.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the expenses expected to be
incurred in connection with the offer and sale of the shares of Common Stock
covered by this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee $ 15
Legal fees 20,000
Accounting fees and expenses 3,000
Printing and duplication expenses 2,000
--------
TOTAL $ 25,015
========
</TABLE>
All expenses, except for the SEC registration fee, are estimates.
The Selling Security Holders will not bear any portion of the foregoing
expenses, but will pay fees in connection with the resale of the shares of
Common Stock effected to or through securities brokers and/or dealers in the
form of markups, markdowns, or commissions, as well as the fees and
disbursements of counsel and accountants, if any, retained by the Selling
Security Holders and any other fees and expenses not expressly agreed to be
borne by the Company.
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
PRIVATE PLACEMENT
On April 18, 1995, the Company completed the private offer and sale (the
"Private Placement") of 70.5 Units (each, a "Unit"), at a purchase price of
$50,000 per Unit, each Unit consisting of 142,860 shares (the "Unit Shares") of
Common Stock and an equal number of Class B Warrants (the Unit Shares, the
Class B Warrants, and the Common Stock issuable upon exercise of the Class B
Warrants, collectively, the "Private Placement Securities"). An aggregate of
10,071,630 Unit Shares and an equal number of Class B Warrants were sold in the
Private Placement. The Private Placement Securities were sold to 122
"accredited investors" as such term is defined in Rule 501(a) under the
Securities Act.
The Company received $3,525,000 in gross proceeds as a result of the
Private Placement. D.H. Blair Investment Banking Corp. acted as Placement
Agent. In consideration for its services provided as Placement Agent, the
Placement Agent
II-1
<PAGE> 62
received among other things (i) a placement fee equal to ten percent (10%) of
the gross proceeds realized by the Company from the Private Placement, (ii) a
nonaccountable expense allowance equal to three percent of the gross proceeds
realized by the Company from the Private Placement, (iii) a Unit Purchase
Option (the "Private Placement Unit Purchase Option"), exercisable for two
years beginning on March 24, 1998, at a purchase price of $50,000 per Unit, to
purchase 24.67 Units (each such Unit having terms that are the same as the
Units sold in the Private Placement, except that the Warrants comprising such
Units are not subject to redemption) and (iv) reimbursement by the Company for
certain expenses (including legal fees) incurred in connection with the
Offering.
In 1996, all of the Class B Warrants issued in the Private Placement,
plus Class B Warrants to purchase an additional 71,430 shares of Common Stock
issued as the result of an inadvertent overissuance, were exercised by the
holders thereof (the "Warrant Exercises"). The Company received gross proceeds
of $5,072,000 from the Warrant Exercises before paying associated fees of
$215,000.
Both the Private Placement and the Warrant Exercises were effected under
an exemption from registration pursuant to Section 4(2) of the Securities Act
and Rule 506 promulgated thereunder. Each investor was provided with business
and financial information with respect to the Company and was provided with the
opportunity to obtain additional information in order to verify the information
provided or to further inform himself respecting the Company. In addition, each
investor acknowledged in writing, that he was "an accredited investor" as
defined in Rule 501, as indicated by his responses to an investor
questionnaire, and that he was able to bear the economic risk of an investment
in the Private Placement Securities. Each investor agreed that he would not
sell or otherwise transfer the Private Placement Securities unless they were
registered or otherwise qualified under the Securities Act and any applicable
state securities laws or unless an exemption from such registration or
qualification was applicable. Each investor also consented to the placement of
a legend on any certificate or other document that evidenced the Unit Shares
and Class B Warrants comprising his Units and the Common Stock issuable upon
exercise of such warrants stating that they have not been registered or
otherwise qualified under the securities laws and setting forth or referring to
the restrictions and transferability and sale thereof.
A notice on Form D was filed with the Commission with respect to the
issuance of the Units.
JOINT VENTURE
On May 7, 1996, the Company entered into a joint venture (the "Joint
Venture") with SmithKline Beecham Corporation ("SBB"), and SmithKline Beecham
Biologicals Manufacturing s.a., a Belgian affiliate of SBB that is engaged in
the development, commercialization and marketing of human vaccines ("SKB"). In
connection with the entry into the Joint Venture, the Company granted to SKB an
option (the "Exchange Option") to convert its interest in the Joint Venture
into up to 4,793,685 shares of Common Stock, subject to the limitation that in
no event may SKB convert its equity interest in the Joint Venture into Common
Stock to the extent that it would result in SKB, taking into account all other
shares of Common Stock acquired by SKB regardless of the source, owning in
excess of 28% of the outstanding shares of Common Stock. In addition, to
protect SKB against the dilution of its right to convert its interest in the
Joint Venture into Common Stock, the Company granted to SKB a warrant (the "SKB
Warrant") to purchase an indeterminate number of additional shares of Common
Stock that becomes exercisable under certain circumstances if and to the extent
that certain designated warrants and employee stock options outstanding as of
the date of the establishment of the Joint Venture are exercised.
The Exchange Option and the SKB Warrant were issued by the Company to SKB
in reliance on an exemption from registration under Section 4(2) of the
Securities Act.
ITEM 27: EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.1 Certificate of Incorporation (1)
3.2 Certificate of Merger relating to merger of BioCarb Inc. with and into the Registrant as filed with
the Delaware Secretary of State on September 21, 1992 (1)
3.3 Certificate of Amendment to Certificate of Incorporation (7)
3.4 Certificate of Ownership and Merger Merging Virgo Biologicals Inc. into MicroCarb Inc., dated
</TABLE>
II-2
<PAGE> 63
<TABLE>
<S> <C>
August 16, 1996 (effecting the change in the corporate name from MicroCarb Inc. to Antex Biologics
Inc.) (11)
3.5 ByLaws, as amended (3)
4.1 Form of Common Stock Certificate (8)
4.2 Form of Redeemable Warrant Agreement (including form of specimen warrant certificate) (3)
5.1 Opinion of Covington & Burling*
10.1 Amended and Restated Stock Option Plan, as amended (7)
10.2 1992 Directors' Stock Option Plan, as amended (10)
10.3 Employment Agreement dated as of January 1, 1996 by and between the Company and V. M. Esposito (9)
10.4 Employment Agreement dated as of May 1, 1995 by and between the Company and Gregory C. Zakarian (8)
10.5 Employment agreement effective as of September 30, 1996 by and between the Company and Theresa M.
Smith (12)
10.6 Form of Confidentiality Agreement by and between the Company and its employees (1)
10.7 Form of Inventions Disclosure Agreement by and between the Company and its employees (1)
10.8 Form of Non-disclosure and Invention Assignment Agreement by and between the Company and its employees
(1)
10.9 Patent License Agreement dated as of May 15, 1992 by and between the Company and HSC Research and
Development Limited Partnership (1)
10.10 Patent License Agreement dated as of May 15, 1992 by and between the Company and HSC Research and
Development Limited Partnership (1)
10.11 Patent and Technology License Agreement dated as of November 21, 1990 by and between BioCarb Inc. and
HSC Research Development Corporation (1)
10.12 Form of Technology License Agreement dated as of October 26, 1992 by and between the Company and
GalaGen Inc. (1)
10.13 Lease dated January 13, 1989 by and between Crown Pointe Center Venture and BioCarb Inc. with
Assignment of Lease dated September 13, 1990 (1)
10.14 Stock Purchase Agreement dated as of July 17, 1991 by and between BioCarb AB and Howard C. Krivan,
Ph.D. (2)
10.15 Form of Unit Purchase Option with Underwriter (3)
10.16 Sale and Leaseback Agreement dated as of August 13, 1993 by and between the Registrant and Aberlyn
Capital Management Limited Partnership for a total of $2,164,792 (4)
10.17 Form of Letter Agreement by and between the Company and members of Company's Vaccine Advisory Board (5)
10.18 Form of Private Placement Unit Purchase Option (8)
</TABLE>
II-3
<PAGE> 64
<TABLE>
<S> <C>
10.19 MicroCarb Human Vaccines Inc. Stockholders Agreement dated May 6, 1996, effective March 1, 1996, by
and between the Company, SmithKline Beecham Biologicals Manufacturing s.a., and MicroCarb Human
Vaccines Inc. (6)
10.20 Stock Purchase Agreement dated May 6, 1996, effective March 1, 1996, by and between MicroCarb Human
Vaccines Inc., the Company and SmithKline Beecham Biologicals Manufacturing s.a. (Certain confidential
information omitted) (6)
10.21 SKB Transitory License Agreement dated May 6, 1996, effective March 1, 1996, by and between the
Company and SmithKline Beecham Biologicals Manufacturing s.a. (Certain confidential information
omitted) (6)
10.22 MicroCarb Vaccines License Agreement dated May 6, 1996, effective March 1, 1996, by and between
MicroCarb Human Vaccines Inc. and the Company (Certain confidential information omitted) (6)
10.23 Assignment of Transitory License Agreement and Restatement of Rights and Obligations Under the
Vaccines License Agreement dated May 6, 1996, effective March 1, 1996, by and between SmithKline
Beecham Biologicals Manufacturing s.a., MicroCarb Human Vaccines Inc. and the Company (6)
10.24 Research and Development, Research Support and License Agreement dated May 6, 1996, effective March 1,
1996, by and between MicroCarb Human Vaccines Inc., the Company and SmithKline Beecham Corporation
(Certain confidential information omitted) (6)
10.25 Exchange Option Agreement dated May 6, 1996, effective March 1, 1996, by and between SmithKline
Beecham Biologicals Manufacturing s.a., the Company and MicroCarb Human Vaccines Inc. (6)
10.26 Warrant to Purchase Common Stock of the Company dated May 6, 1996, effective March 1, 1996, issued to
SmithKline Beecham Biologicals Manufacturing s.a. (Certain confidential information omitted) (6)
10.27 Registration Rights Agreement dated May 6, 1996, effective March 1, 1996, by and between the Company
and SmithKline Beecham Biologicals Manufacturing s.a. (6)
11.1 Statements Re: Computation of Per Share Income (Loss) (12)
23.1 Consent of Covington & Burling, included in Exhibit 5.1.
23.2 Consent of Coopers & Lybrand L.L.P.*
- -------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-1 (Reg No. 33-53774) filed on October 27, 1992.
(2) Incorporated by reference to an exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-53774) filed
on December 2, 1992.
(3) Incorporated by reference to an exhibit to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-53774) filed
on December 15, 1992.
(4) Incorporated by reference to an exhibit to Form 10-QSB for the quarter
ended September 30, 1993 filed on November 12, 1993.
(5) Incorporated by reference to an exhibit to Form 10-KSB for the year
ended December 31, 1993 filed on March 29, 1994.
II-4
<PAGE> 65
(6) Incorporated by reference to an exhibit to Form 8-K filed on May 22,
1996.
(7) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form S-8 (Registration No. 33- 94692) filed on July 18,
1995.
(8) Incorporated by reference to an exhibit to the Company's Registration
Statement on Form SB-2 (Reg. No. 33-96168) filed on August 24, 1995.
(9) Incorporated by reference to an exhibit to Form 10-QSB for the quarter
ended March 31, 1996 filed on May 20, 1996.
(10) Incorporated by reference to an exhibit to the 1996 Proxy Statement
and Notice of Annual Meeting to Stockholders filed on April 12, 1996,
under cover of a Schedule 14A.
(11) Incorporated by reference to an exhibit to Form 8-K filed on September
9, 1996.
(12) Incorporated by reference to an exhibit to Form 10-KSB for the year
ended December 31, 1996 filed on February 25, 1997.
*Filed herewith.
ITEM 28: UNDERTAKINGS.
(a) The undersigned Registrant will:
(1) file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) include any additional or changed material information
on the plan of distribution.
(2) for determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering thereof.
(3) file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(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 Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the 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.
II-5
<PAGE> 66
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned in the
City of Gaithersburg, State of Maryland, May 1, 1997.
ANTEX BIOLOGICS INC.
By: /s/ V.M. ESPOSITO
-------------------------
V.M. Esposito
President
II-6
<PAGE> 67
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature appears below
constitutes and appoints V.M. Esposito and Gregory C. Zakarian, and each of
them, as his true and lawful attorneys-in-fact and agents, each with the power
of substitution and resubstitution, for him in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as the
person might or could do in person, hereby ratifying and confirming what each
of said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE DATE
/s/ V.M. ESPOSITO May 1, 1997
-----------------------------
V.M. Esposito
Director, President, and
Chief Executive Officer
(Principal Executive Officer)
/s/ GREGORY C. ZAKARIAN May 1, 1997
-----------------------------
Gregory C. Zakarian
Treasurer and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ CHARLES J. COULTER May 1, 1997
--------------------------------
Charles J. Coulter
Director
/s/ BRUCE E. ELMBLAD May 1, 1997
--------------------------------
Bruce E. Elmblad
Director
/s/ DONALD G. STARK May 1, 1997
---------------------------------
Donald G. Stark
Director
II-7
<PAGE> 68
EXHIBIT INDEX
The following exhibits are filed with this Registration Statement.
Exhibit
Number
5.1 Opinion of Covington & Burling
23.2 Consent of Coopers & Lybrand L.L.P.
<PAGE> 1
Exhibit 5.1
April 29, 1997
Antex Biologics Inc.
300 Professional Drive
Gaithersburg, MD 20879
Gentlemen:
This opinion is being furnished to you in connection with a
Registration Statement on Form SB-2 being filed on or about the date hereof by
Antex Biologics Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, registering for resale 71,430 shares of the Company's common stock,
par value $.01 per share (the "Shares"). The Shares were issued by the Company
upon the exercise of certain additional Class B Warrants that were issued by
the Company as the result of an inadvertent over-issuance in connection with a
private placement of securities completed in April 1995, as more particularly
described in the Registration Statement.
For purposes of this opinion, we have examined copies of the
Registration Statement and the exhibits thereto. We also have examined and
relied upon a copy of the Company's Certificate of Incorporation, certified by
the Secretary of State of the State of Delaware, and copies of the Company's
Bylaws and certain resolutions adopted by the Board of Directors of the
Company, certified by the Secretary of the Company. In addition, we have
examined such other documents and made such other investigations as we have
deemed necessary to form a basis for the opinions hereinafter expressed.
In examining the foregoing documents, we have assumed the
authenticity of documents submitted to us as originals, the genuineness of all
signatures, the legal capacity of natural persons, the conformity to original
documents of documents submitted to us as copies, and the accuracy of the
representations and statements included therein.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized and are validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name in the Prospectus that
forms a part thereof under the heading "Legal Matters."
Very truly yours,
/s/ Covington & Burling
Covington & Burling
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2 of our
report, dated February 7, 1997, on our audits of the consolidated financial
statements of Antex Biologics Inc. as of December 31, 1995 and 1996, and for
the years then ended and for the period January 1, 1993 to December 31, 1996.
We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Rockville, Maryland
May 1, 1997
