<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
- --------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- --------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File No. 0-21972
------------------------
INNOVIR LABORATORIES, INC.
(Exact name of Registrant as specified in its Charter)
------------------------
Delaware 13-3536290
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
510 East 73rd Street, New York, New York 10021
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 249-4703
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Registrant's common stock outstanding on
November 10, 1997 was 29,750,529.
------------------------
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) at September 30,
1997 and December 31, 1996 ............................... 3
Condensed Consolidated Statements of Operations (unaudited) for the
three and nine months ended September 30, 1997 and 1996 and for
the period from January 6, 1995 (inception) through September 30,
1997...................................................... 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Deficit) (unaudited) for the nine months ended September 30,
1997...................................................... 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1997 and 1996 and for the
period from January 6, 1995 (inception) through September 30,
1997...................................................... 6
Notes to Condensed Consolidated Financial Statements............ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................. 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................ 12
SIGNATURES. ................................................................ 13
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
--------------------
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- ------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,775,000 $ 6,412,000
Prepaid expenses and other current assets 62,000 203,000
----------------- ------------------
Total current assets 1,837,000 6,615,000
Fixed assets less accumulated depreciation and amortization 2,641,000 2,439,000
Amount due from VIMRX Pharmaceuticals Inc. - 535,000
Goodwill, net 927,000 1,236,000
Other assets 244,000 249,000
================= ==================
Total assets $ 5,649,000 $ 11,074,000
================= ==================
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses $ 960,000 $ 1,319,000
Capital lease - current portion 492,000 472,000
Term note payable - warrantholder; current portion includes accrued 36,000 36,000
interest of $5,000
Other liabilities 91,000 -
----------------- ------------------
Total current liabilities 1,579,000 1,827,000
Amount due to VIMRX Pharmaceuticals Inc. 135,000 -
Term note payable - warrantholder; includes accrued interest of $39,000 227,000 227,000
Capital leases 234,000 463,000
----------------- ------------------
Total liabilities 2,175,000 2,517,000
----------------- ------------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.06; 15,000,000 shares authorized
Class B Convertible Preferred Stock; 2,500,000 shares designated; 17,000 18,000
280,000 shares issued and outstanding at September 30, 1997,
297,000 shares issued and outstanding at December 31, 1996
Class D Convertible Preferred Stock; 8,667,000 shares designated, -- 520,000
issued and outstanding at December 31, 1996
Common stock, par value $.013; 70,000,000 shares authorized 29,751,000
shares issued and outstanding at September 30, 1997, 17,946,000
shares issued and outstanding at December 31, 1996 387,000 233,000
Additional paid-in capital 32,083,000 29,667,000
Cumulative translation adjustment (43,000) (8,000)
Unearned compensation - (181,000)
Deficit accumulated during the development stage (28,970,000) (21,692,000)
----------------- ------------------
Total stockholders' equity 3,474,000 8,557,000
================= ==================
Total liabilities and stockholders' equity $ 5,649,000 $ 11,074,000
================= ==================
</TABLE>
3
<PAGE>
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations (unaudited)
For the Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Period
Three months ended September 30 Nine months ended September 30 January 6, 1995
------------------------------------ --------------------------------- (inception)
through
1997 1996 1997 1996 September 30, 1997
------------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $ 1,377,000 $ 431,000 $ 4,711,000 $ 1,041,000 $ 8,092,000
Purchased in process research and
development -- 163,000 -- 3,105,000 17,374,000
General and administrative 752,000 20,000 2,289,000 312,000 3,362,000
Amortization of Goodwill 103,000 -- 309,000 -- 309,000
------------- ------------- ------------- ------------- ---------------
2,232,000 614,000 7,309,000 4,458,000 29,137,000
------------- ------------- ------------- ------------- ---------------
Other (income) expenses:
Interest income (22,000) -- (153,000) (41,000) (166,000)
Interest expense -- --
37,000 122,000 150,000
Other-net -- -- -- -- (151,000)
------------- ------------- ------------- ------------- ---------------
15,000 -- (31,000) (41,000) (167,000)
------------- ------------- ------------- ------------- ---------------
Net (loss) $ (2,247,000) $ (614,000) $ (7,278,000) $ (4,417,000) $ (28,970,000)
============= ============= ============= ============= ===============
Loss-per-share data:
Net loss per share $ (0.08) $ (0.06) $ (0.34) $ (0.46)
------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding 28,055,938 9,500,000 21,374,889 9,500,000
============= ============= ============= =============
</TABLE>
4
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Deficit) (unaudited) For the Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Class B Convertible Class D Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 297,000 $18,000 8,667,000 $520,000 17,946,000 $233,000
Exercise of options and warrants 3,131,000 41,000
Costs incurred in connection with
issuance of equity securities
Conversion of Class
B Convertible Stock (17,000) (1,000) 26,000
Conversion of Class D Convertible
Stock (8,667,000) (520,000) 8,667,000 113,000
Adjustment for shares held in
escrow in connection with
stockholder's litigation (19,000)
Compensation expense incurred in
connection with the issuance of
stock options
Amortization of unearned
compensation
Cumulative transaction adjustment
Net loss for the nine months ended
September 30, 1997
--------- --------- --------- --------- ---------- ---------
Balance at September 30, 1997 280,000 $17,000 -- -- 29,751,000 $387,000
========= ========= ========= ========= ========== =========
<CAPTION>
Deficit
Accumulated
Additional Cumulative During the
Paid-in Translation Unearned Development
Capital Adjustment Compensation Stage Total
----------- ------------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $29,667,000 $(8,000) $(181,000) $(21,692,000) $8,557,000
Exercise of options and warrants 1,973,000 2,014,000
Costs incurred in connection with
issuance of equity securities (24,000) (24,000)
Conversion of Class B Convertible
Stock 1,000 --
Conversion of Class D Convertible
Stock 407,000 --
Adjustment for shares held in
escrow in connection with
stockholder's litigation
Compensation expense incurred in
connection with the issuance of
stock options 59,000 59,000
Amortization of unearned
compensation 181,000 181,000
Cumulative transaction adjustment (35,000) (35,000)
Net loss for the nine months ended
September 30, 1997 $(7,278,000) $(7,278,000)
----------- --------- --------- ------------ -----------
Balance at September 30, 1997 $32,083,000 (43,000) -- $(28,970,000) $3,474,000
=========== ========= ========= ============ ===========
</TABLE>
5
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Period
January 6, 1995
(inception)
Nine months ended through
September 30 September 30,
1997 1996 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (7,278,000) $ (4,458,000) $ (28,970,000)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 451,000 20,000 601,000
Amortization of goodwill 309,000 - 309,000
Amortization of unearned compensation 181,000 - 388,000
Purchased in process research and development - 3,105,000 17,374,000
Provision for losses on notes receivable - - 85,000
Non-cash compensation 59,000 - 59,000
Changes in operating assets and liabilities:
(Decrease) increase in other current assets 140,000 (19,000) 100,000
(Decrease) in other assets 6,000 - 6,000
(Decrease) increase in accounts payable and accrued
expenses (359,000) (65,000) 224,000
Increase in other current liabilities 91,000 - 92,000
----------------- ----------------- -----------------
Net cash (used in) operating activities (6,399,000) (1,417,000) (9,732,000)
================= ================= =================
Cash flows from investing activities:
Purchase of equipment (587,000) (110,000) (1,241,000)
Cash acquired in acquisitions - 145,000 3,532,000
----------------- ----------------- -----------------
Net cash provided by (used in) investing
activities (587,000) 35,000 2,291,000
----------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from sales of common stock 2,014,000 - 2,026,000
Advances and contributed capital from VIMRX
Pharmaceuticals Inc. 670,000 1,486,000 7,536,000
Costs incurred in connection with issuance of
equity securities (24,000) - (24,000)
Repayment of capital leases (275,000) - (275,000)
Net cash provided by financing activities 2,385,000 1,486,000 9,263,000
Effect of exchange rate changes on cash (36,000) - (47,000)
----------------- ----------------- -----------------
Net increase in cash and cash equivalents (4,637,000) 104,000 1,775,000
Cash and cash equivalents at beginning of period 6,412,000 68,000 --
----------------- ----------------- -----------------
Cash and cash equivalents at end of period $ 1,775,000 $ 172,000 $ 1,775,000
================= ================= ==================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 122,000 $ 125,000
================= ==================
</TABLE>
6
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The condensed consolidated financial statements of Innovir Laboratories,
Inc. and Subsidiaries (the "Company") reflect all adjustments, consisting
only of normal recurring accruals, which are, in the opinion of the
Company's management, necessary for a fair presentation of the Company's
results of operations for the respective periods presented. Operating
results for any interim period are not necessarily indicative of results
for a full year. These notes do not include all the information required by
generally accepted accounting principles. The condensed interim
consolidated financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1996 and in the transition
report for the transition period from October 1, 1996 to December 31, 1996,
filed on Form 10-Q.
(2) Statements of Cash Flows - Supplemental schedule of noncash activities:
During the nine months ended September 30, 1997, the Company converted
17,000 shares of Class B Convertible Preferred Stock into 26,000 shares of
Common Stock. All of the outstanding Class D Convertible Preferred Stock
("D Preferred Stock") was automatically converted to 8,666,667 shares of
Common Stock effective July 1, 1997. The D Preferred Stock was issued in
connection with the transaction between the Company, VIMRX Pharmaceuticals
Inc. ("VIMRX") and certain stockholders of the Company whereby VIMRX
acquired a majority holding in the Company. In August 1997, warrants to
purchase 1,000,000 shares of Common Stock at $1.00 per share were exercised
by VIMRX. In addition, VIMRX owns warrants to purchase 1,000,000 shares of
Common Stock at an exercise price of $2.00 per share. In August 1997,
warrants to purchase 2,000,000 shares of Common Stock at $0.50 per share
were exercised by certain other shareholders. VIMRX owns approximately 65%
of the Company's common stock at September 30, 1997.
(3) Contingency: The Company may be considered to be in violation of the terms
of its office and laboratory sublease by not obtaining the required
approval from the owner of the property prior to the consummation of the
transactions with VIMRX whereby VIMRX acquired a majority holding in
Innovir Laboratories, Inc. ("Innovir") and Innovir acquired all of the
issued and outstanding shares of VIMRX Holding, Ltd. ("VHL"), a wholly
owned subsidiary of VIMRX, in December 1996. In addition, the owner of the
property has alleged, and the Company's sublandlord disputes, that the
sublandlord may also be in breach of its lease with the owner of the
property. If the sublandlord is evicted, the Company would lose its right
to occupy its current space. While the Company believes these matters may
be resolved without a materially adverse effect on the Company's business
or financial position, no assurance can be given as to the ultimate
outcome.
(4) During February 1996, Innovir was named as defendant in an action filed by
an investor alleging that Innovir wrongfully refused to honor the
investor's request to convert certain shares of Innovir's preferred stock
into Innovir's Common Stock. During February 1997, the investor and Innovir
settled the action at no material cost to the Company. In connection with
the settlement, 19,000 shares of Common Stock, which had been held in
escrow pending the resolution of the action, were returned to the Company.
7
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
(5) In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This Statement establishes standards
for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
Statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings Per Share," and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. This Statement requires restatement
of all prior-period EPS data presented. The adoption of this Statement will
not have any impact on the Company's EPS disclosure, as the Company's stock
options and warrants are anti-dilutive and will be excluded from the
denominator of earnings per share; thus, earnings per common share is equal
to basic earnings per share as computed under SFAS No. 128.
The FASB recently issued three new accounting standards, Statement No. 129,
Disclosure of Information about Capital Structure, Statement No. 130,
Reporting Comprehensive Income, and Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, and if adopted will be
effective for the period presented after December 31, 1997. The Company is
evaluating the effect of these new statements.
8
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
This report contains forward-looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
the Company's plans to differ. Factors that may cause such differences include,
but are not limited to, the progress of the Company's research and development
programs, the Company's ability to obtain additional funds, the Company's
ability to compete successfully, the Company's ability to attract and retain
qualified personnel, the Company's ability to successfully enter into
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the Company's ability to establish development and
commercialization relationships, the cost of manufacturing, and those other
risks discussed under the heading Risk Factors included in the Company's Form S-
3 Registration Statement (Reg. No. 333-12865).
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto contained herein and the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 and the transition
report for the transition period from October 1, 1996 to December 31, 1996,
filed on Form 10-Q.
Background
On December 23, 1996, Innovir, VIMRX and certain stockholders of Innovir ("The
Aries Funds") consummated a transaction (the "Transaction") whereby VIMRX
acquired 68% of the outstanding stock of Innovir and Innovir acquired all of the
issued and outstanding shares of VHL, a wholly-owned subsidiary of VIMRX.
Innovir's acquisition of VHL and VIMRX's partial acquisition of Innovir have
been accounted for as a purchase in accordance with APB Opinion No. 16, Business
Combinations and Emerging Issues Task Force Issue No. 90-13, Accounting for
Simultaneous Common Control Mergers ("EITF No. 90-13"). The application of APB
No. 16 and EITF No. 90-13 requires that the Transaction be accounted for as a
reverse acquisition and accordingly, for accounting purposes, (i) VHL is deemed
to be the acquirer and surviving entity, (ii) because Innovir is deemed to be
the legal acquirer, VHL's historic capital accounts have been retroactively
restated (recapitalized) to reflect Innovir's capital accounts and the
equivalent number of shares received by VIMRX in the Transaction, (iii) Innovir
has fair valued its assets and liabilities to the extent acquired by VIMRX (68%)
and (iv) the assets and liabilities of VHL are carried at VHL's historic cost.
Since VHL is deemed to be the surviving entity, the statement of operations
includes the operations of VHL for the period from January 6, 1995 (inception).
The operations of Innovir are included only since the date of acquisition, i.e.,
for the period from December 23, 1996 to September 30, 1997. For accounting
purposes, VHL assumed the name of Innovir Laboratories, Inc. and Subsidiaries,
and, for purposes of this Quarterly Report, all references to the "Company"
shall mean the consolidated entity consisting of Innovir, VHL and subsidiaries.
On February 11, 1997, Innovir elected to change its fiscal year end date from
September 30 to December 31 of each year, effective January 1, 1997. This change
was made to conform Innovir's
9
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development Stage Enterprise)
fiscal year end date with that of VHL. This Quarterly Report on Form 10-Q covers
the first nine months of the new fiscal year, that is January 1 to September 30,
1997.
Results of Operations
Since its inception, substantially all of the Company's resources have been
applied to research and development, patents and licensing and other general and
administrative matters. The Company has no commercially viable therapeutic
products and does not anticipate having any for several years. The Company is
developing the technology to be used as a research tool to facilitate
determination of gene function and to validate drug targets. No significant
revenues have been earned from this use. The Company has had no operating
revenues to date and has sustained net losses since its inception. The Company
expects losses to continue for the foreseeable future.
Three Month Period Ended September 30, 1997 vs. September 30, 1996
Research and development expenses increased $946,000 due to the acquisition of
Innovir's operations in December 1996 ($918,000) and an increase in spending in
the European operations.
General and administrative expenses increased $732,000 due to the acquisition of
Innovir ($689,000) and a increase in VHL expenses related to the European
operations ($43,000).
Purchases in process research and development in the three months ended
September 30, 1996 relate to the acquisition of Ribonetics GmbH; in May 1996,
VHL had acquired Ribonetics GmbH and had incurred expenses in connection
therewith.
Amortization of goodwill relates to the asset recorded in the transaction with
VIMRX described under "Background" above.
Nine Month Period Ended September 30, 1997 vs. September 30, 1996
Research and development expenses increased $3,670,000 due to the acquisition of
Innovir's operations in December 1996 ($3,014,000) and increased spending in the
European operations ($656,000).
General and administrative expenses increased $1,977,000 due to the acquisition
of Innovir ($2,223,000) and a decrease in European expenses from 1996.
Amortization of goodwill relates to the asset recorded in the transaction with
VIMRX described under "Background" above.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash equivalents of $1,775,000
as compared to $6,412,000 at December 31, 1996. The Company had working capital
of $258,000 at September
10
<PAGE>
INNOVIR LABORATORIES, INC. and SUBSIDIARIES
(A Development State Enterprise)
30, 1997, as compared to working capital of $4,788,000 at December 31, 1996. The
decrease in cash and working capital positions resulted from cash expended for
operations and capital assets, net of $2,000,000 provided by the exercise of
warrants.
The Company may be considered to be in violation of the terms of its sublease
for its principal office and laboratory space by not obtaining the required
approval from the owner of the property prior to the consummation of the
transactions with VIMRX in December 1996. See the notes to the Company's
financial statements. In addition, the owner of the property has alleged, and
the Company's sublandlord disputes, that the sublandlord may also be in breach
of its lease with the owner of the property. If the sublandlord is evicted, the
Company would lose its right to occupy its current space. While the Company
believes that these matters may be resolved without a materially adverse effect
on the Company's business or financial position, no assurances can be given as
to the ultimate outcome.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products.
As of September 30, 1997, the Company had cash and cash equivalents of
approximately $1.8 million. Based on current projections, which are subject to
change (such change may be significant), the Company's management believes that
this and continued funding by VIMRX, will be sufficient to fund its operations
into the second quarter of the year ended December 31, 1998. Thereafter, the
Company will require additional funds, which it may seek to raise through public
or private equity or debt financings, collaborative or other arrangements with
corporate sources, or through other sources of financing. There can be no
assurance that such additional financing can be obtained on terms reasonable to
the Company, if at all. In the event the Company is unable to raise additional
capital, planned operations would need to be scaled back or discontinued during
1998.
11
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
--------
10 Separation Agreement, dated September 1997, by and between the
Company and Allan R. Goldberg.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
-------------------
During the quarter for which this report is filed, the Company filed a
current report on Form 8-K, dated September 26, 1997 as filed on
October 3, 1997, regarding the appointment of the Company's new
President and Chief Executive Officer; no financial statements
were filed in connection with such report.
All other Items of this report are inapplicable.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 1997
Innovir Laboratories, Inc.
By: /s/ THOMAS R. SHARPE
-----------------------------------------------
Name: Thomas R. Sharpe, Ph.D.
Title: President and Chief Executive Officer
(Principal executive officer)
By: /s/ FRANCIS M. O'CONNELL
-----------------------------------------------
Name: Francis M. O'Connell
Title: Chief Financial Officer
(Principal financial and accounting officer)
13
<PAGE>
Exhibit 10
SEPARATION AGREEMENT
--------------------
THIS SEPARATION AGREEMENT (this "Agreement"), effective as of October
1, 1997, by and between INNOVIR LABORATORIES, INC., a Delaware corporation
having offices at 510 East 73rd Street, New York, New York 10021 (the
"Company"), and ALLAN R. GOLDBERG, residing at 200 East 66th Street, Apt. E1607,
New York, New York 10021 ("Consultant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Consultant is presently Chief Executive Officer and Chairman
of the Board of Directors of the Company pursuant to that certain Amended and
Restated Employment Agreement, made as of December 1, 1996, between the Company
and Consultant (the "Employment Agreement");
WHEREAS, the Company and Consultant mutually agree that Consultant
shall no longer serve as an executive officer and director of the Company,
effective October 1, 1997 (the "Separation Date"); and
WHEREAS, the Company desires to have Consultant's advice and services
available to it, and Consultant is desirous of providing such advice and
services to the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Effective as of the Separation Date, Consultant hereby resigns as
Chief Executive Officer, Chairman of the Board and director of the Company, and
the Employment Agreement is hereby terminated and shall have no further force or
effect, except as otherwise provided herein. Consultant acknowledges that,
except as provided herein, he is not entitled to any additional payments or
compensation from the Company, whether pursuant to the Employment Agreement or
otherwise.
2. (a) The Company hereby retains Consultant for a period of one (1)
year (the "Consulting Period") commencing on the Separation Date and ending
September 30, 1998 (the "Termination Date") as a consultant and advisor to the
Company, including its subsidiaries and other affiliates, in areas relating to
the Company's scientific research and development efforts and any other matters
as may from time to time be requested by the Chief Executive Officer, President
or the Board of Directors of the Company. The Consulting Period may be extended
on mutually acceptable terms and conditions. The Company acknowledges that,
subject to the other provisions of this Agreement, Consultant may accept full-
time employment or perform certain services, including consulting and advisory
services, for other persons or entities during the Consulting Period.
14
<PAGE>
(b) In addition, Consultant hereby covenants that Consultant shall:
(i) cooperate fully with the Company to transition its business
and operations under the management of the new Chief Executive Officer;
(ii) cooperate fully with the Company in the event of any
litigation against the Company, its parent, subsidiaries or other
affiliates, and/or any of their officers, directors, stockholders,
employees, agents or other representatives;
(iii) in the sole discretion of, and to the extent required by,
the Company, serve on the Science Advisory Board of the Company;
(iv) refrain from making, or causing to be made, directly or
indirectly, any negative or disparaging statements, whether orally or
in writing, concerning the Company, its parent, subsidiaries or other
affiliates, and/or any of their officers, directors, stockholders,
employees, agents or other representatives;
(v) refrain from disparaging or tortiously interfering in any
way with the present or future business activities or operations of the
Company, its parent, subsidiaries or other affiliates;
(vi) comply in all respects with the provisions of Sections 7
(Confidential Information), 9 (Employment with Competitors), 10 (Post-
------------------------ --------------------------- -----
Employment Hiring or Solicitation of Employer Employees and
-----------------------------------------------------------
Representatives) and 11 (Inventions, Ideas and Patents) of the
--------------- -----------------------------
Employment Agreement;
(vii) release and forever discharge the Company, its parent,
subsidiaries and other affiliates, and/or any of their officers,
directors, stockholders, employees, agents or other representatives
(collectively, "Releasees") of and from all actions, claims, causes of
action, demands and obligations of all kinds, arising at law or in
equity, whether known or unknown, which Consultant has, ever had and
ever in the future may have, directly or indirectly, against Releasees,
arising up to and including the Separation Date (collectively,
"Claims"), including, without limitation, Claims arising under the Age
Discrimination in Employment Act and the Older Workers Benefit
Protection Act. Consultant hereby acknowledges that he has been
provided an opportunity to consult with an attorney or other advisor of
his choice regarding the terms and conditions of this Agreement and
that he has been given twenty-one (21) days in which to consider this
release. This release shall become effective and enforceable upon the
expiration of seven (7) days following the date of Consultant's
execution hereof; provided, that Consultant shall not have revoked this
release prior to such date by delivering written notice of his
revocation to the Company at the address set forth above. In the event
of such revocation, the Agreement, including this release, shall be
null and void as of the date hereof and shall have no force or effect;
and
(viii) refrain from encouraging or voluntarily participating in
any legal action, charge or complaint by third parties against
Releasees in any forum whatsoever. In the event any such actions,
charges or complaints are asserted in the future, in addition to any
other remedies available, Releasees shall be entitled to receive from
Consultant the reasonable attorneys' fees incurred by Releasees in
defending such action, charge or complaint.
3. (a) In consideration of the services to be rendered, and the
covenants to be performed, by Consultant hereunder, the Company agrees to pay to
Consultant the sum of $16,667.00 per month during the Consulting Period, payable
in accordance with normal Company practice.
15
<PAGE>
(b) (i) In connection with the execution and delivery of this
Agreement, the Company and Consultant shall amend Consultant's Regular Option
(as defined in the Employment Agreement), pursuant to which amendment Consultant
shall be entitled to purchase an aggregate of 200,000 shares of the Company's
common stock, $.013 par value per share, at an exercise price of $1.30 per share
("Common Stock"), pursuant to the Company's 1993 Stock Option Plan, as amended
from time to time (the "1993 Plan"). The Regular Option as so amended shall
hereinafter be referred to as the "Amended Option" and shall be in the form of
Exhibit A attached hereto.
- ---------
(ii) The Amended Option shall vest as follows: with respect to
166,667 shares of Common Stock, the Amended Option shall be immediately
exercisable as of the Separation Date; and with respect to the remaining 33,333
shares of Common Stock, the Amended Option shall vest on October 1, 1998;
provided, however, that in the event Consultant breaches any of his obligations
hereunder prior to October 1, 1998, to the extent not yet vested, the Amended
Option shall immediately terminate, without further action by the Company, as of
the time of such breach. With respect to all other provisions of the Amended
Option, including the term of the Amended Option, the Amended Option shall be
identical to the Regular Option.
(iii) Consultant acknowledges that any and all stock options to
acquire capital stock of the Company held by Consultant prior to the Separation
Date, including, without limitation, the Regular Option (except as and to the
extent amended hereby) and the Milestone Option (as defined in the Employment
Agreement), shall be terminated and surrendered to the Company as of the
Separation Date.
(c) Consultant shall be entitled to reimbursement for reasonable
out-of-pocket expenses in accordance with normal Company policy as in effect
from time to time. Major travel and expense expenditures shall be precleared and
incurred in accordance with normal Company travel and expense policies.
(d) The Company shall pay, and Consultant shall be entitled to
receive, accrued vacation pay with respect to thirty-five (35) days of accrued
vacation, in accordance with normal Company policy.
(e) In partial consideration for the services to be provided by
Consultant hereunder, the Company shall pay through the Termination Date the
premiums owed in connection with the continuation of the term life insurance
policy previously paid by the Company on behalf of Consultant. In addition,
until August 31, 1998, the Company shall continue to provide for lease payments
and related expenses for the automobile currently used by Consultant in
connection with services rendered by Consultant hereunder. As of the Separation
Date, Consultant shall not be entitled to any other fringe benefits provided by
the Company.
16
<PAGE>
(f) The Company hereby covenants that it shall refrain from making, or
causing to be made, directly or indirectly, any negative or disparaging
statements, whether orally or in writing, concerning Consultant.
4. (a) On the Separation Date, in connection with the execution of this
Agreement, the Company shall purchase from Consultant, and Consultant shall sell
to the Company, all the equipment listed on Exhibit A to the Employment
Agreement for an aggregate consideration equal to $34,000.00. Such consideration
shall be paid by the Company to Consultant on the Separation Date.
(b) Consultant represents and warrants that, as of the Separation Date,
pursuant to Section 8 (Return of Materials) of the Employment Agreement,
-------------------
Consultant has delivered to the Company all of the Company's materials,
documents, plans, records, notes, drawings or papers and any copies thereof
which constitute or embody Confidential Information (as defined in the
Employment Agreement) and are in Consultant's possession or control.
5. (a) Consultant acknowledges and agrees that in the event he breaches
any of his obligations hereunder, all obligations of the Company herein shall
immediately terminate without further action by the Company.
(b) The Company acknowledges that failure of the Company to avail
itself of Consultant's services hereunder shall not in any way reduce the sums
payable to Consultant hereunder.
6. (a) Consultant agrees that all data, reports, equipment and other
property furnished to Consultant by the Company or produced by Consultant in
connection with his consulting services hereunder shall remain the property of
the Company.
(b) Consultant agrees to disclose to the Company all Inventions (as
defined below) made or conceived, first reduced to practice or learned by him as
a result of the consulting services performed hereunder. Consultant agrees that
all Inventions shall be the property of the Company. "Inventions" shall mean all
formulas, processes, know-how, data, analyses and inventions, whether patentable
or not.
7. The Company and Consultant acknowledge and agree that Consultant is
retained and engaged by the Company only for the purposes and to the extent set
forth in this Agreement and that, during the Consulting Period, Consultant's
relation to the Company shall be that of an independent contractor in the
performance of each and every part of this Agreement.
8. Unless otherwise agreed, this Agreement shall terminate on the
Termination Date. Consultant acknowledges and agrees that subsections (ii),
(iv), (v), (vi) with respect to Section 7 of the Employment Agreement, (vii) and
(viii) of Section 2(b) hereof shall survive the expiration or termination of
this Agreement. In the event of Consultant's death or permanent disability
resulting in Consultant's inability to perform consulting services by reason of
illness or other incapacity during the Consulting Period, the obligations of the
Company set forth in Section 3 hereof shall continue.
9. All provisions of this Agreement are separate terms and conditions,
and in the event any provision shall be held illegal, invalid or unenforceable,
all other provisions hereof shall remain in full force and effect as if the
illegal, invalid or unenforceable provision were not a part hereof. If,
moreover, anyone or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed by limiting and reducing it, so
17
<PAGE>
as to be enforceable to the maximum extent allowed by the applicable law as it
shall then appear.
10. This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Consultant.
11. This Agreement shall be construed and interpreted in all respects
according to the laws of the State of New York.
12. This Agreement embodies the entire agreement of the parties hereto
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, whether oral or written. No
amendments or modification of this Agreement shall be valid or binding unless in
writing and signed by the parties hereto.
13. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one and the same agreement.
INNOVIR LABORATORIES, INC.
Dated: September 24, 1997 By: /s/ Francis M. O'Connell
----------------------------------------
Dated: September 24, 1997 /s/ Allan R. Goldberg
--------------------------------------------
Allan R. Goldberg, Ph.D.
18
<PAGE>
EXHIBIT A
Amendment No. 1
to
Innovir Laboratories, Inc.
Non-Incentive Stock Option Agreement
This Amendment No. 1 (this "Amendment"), by and between Innovir
Laboratories, Inc. (the "Company") and Allan R. Goldberg ("Consultant"), amends
the Non-Incentive Stock Option Agreement, effective as of November 21, 1996 (the
"Option Agreement"), issued by the Company to Consultant.
WHEREAS, the Company and Consultant have entered into that certain
Separation Agreement, effective as of October 1, 1997 (the "Separation
Agreement"); and
WHEREAS, in connection with the execution and delivery of the Separation
Agreement, the Company and Consultant desire to amend certain terms of the
Option Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. The first sentence of the introductory paragraph of the Option
Agreement is hereby deleted in its entirety and hereby amended to read
as follows:
"We are pleased to inform you that by the
determination of the Board of Directors of Innovir
Laboratories, Inc. (the "Company") an option to
purchase 200,000 shares of the Common Stock, par
value $.013 per share, of the Company (the "Common
Stock"), at the price of $1.30 per share, has, as of
November 21, 1996, been granted to you."
2. Paragraph 2 of the Option Agreement is hereby deleted in its
entirety and hereby amended to read as follows:
"The option granted to you hereunder may be
immediately exercised, in whole or in part, as to
166,667 shares of Common Stock and may be exercised
on or after October 1, 1998 as to the remaining
33,333 shares of Common Stock; provided, however,
that you may not sell any shares issued to you
pursuant to an exercise of this option until November
21, 1997; and further provided, however, that this
option may not be exercised as to less than 100
shares at any one time. In the event that you breach
prior to October 1, 1998 any of the provisions of
that certain Separation Agreement, effective as of
October
19
<PAGE>
1, 1997, by and between you and the Company,
to the extent not yet vested, this option shall
immediately terminate, without further action by the
Company, as of the time of such breach.
Notwithstanding anything to the contrary contained
herein, this option expires at the end of ten years
from the date of grant whether or not it has been
duly exercised. To the extent exercisable, you may
exercise this option at any time during such term of
this option."
3. Paragraphs 5, 6 and 7 of the Option Agreement are hereby
deleted in their entirety.
Effective as of October 1, 1997
AGREED TO ACCEPTED BY:
INNOVIR LABORATORIES, INC.
By:
-------------------------------------
Allan R. Goldberg, Ph.D.
20
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,775,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,837,000
<PP&E> 4,370,000
<DEPRECIATION> 1,729,000
<TOTAL-ASSETS> 5,649,000
<CURRENT-LIABILITIES> 1,579,000
<BONDS> 0
0
17,000
<COMMON> 387,000
<OTHER-SE> 3,070,000
<TOTAL-LIABILITY-AND-EQUITY> 5,649,000
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> 7,156,000
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<INTEREST-EXPENSE> 122,000
<INCOME-PRETAX> (7,278,000)
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