<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 March 31, 1998
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NO. 0-21972
________________________
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 73/RD/ 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 May 14, 1998
was 37,501,119.
________________________
<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 March 31, 1998
and December 31, 1997 ............................................ 3
Condensed Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1998 and 1997 for the period from
January 6, 1995 (inception) through March 31, 1998................ 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Deficit) (unaudited) for the three months ended March 31, 1998... 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1998 and 1997 and for the period from
January 6, 1995 (inception) through March 1998.................... 6
Notes to Condensed Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................... 11
SIGNATURES............................................................................ 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 439,000 $ 2,159,000
Prepaid expenses and other current assets 103,000 184,000
------------------- -------------------
Total current assets 542,000 2,343,000
Fixed assets less accumulated depreciation and amortization 2,142,000 2,345,000
Goodwill, net 723,000 826,000
Other assets 326,000 220,000
------------------- -------------------
Total assets $ 3,733,000 $ 5,734,000
=================== ===================
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses $ 991,000 $ 1,274,000
Capital lease - current portion 382,000 382,000
Term note payable 99,000 130,000
------------------- -------------------
Total current liabilities 1,472,000 1,786,000
Amount due to VIMRX Pharmaceuticals Inc. 969,000 838,000
Term note payable 96,000 96,000
Capital leases 182,000 289,000
------------------- -------------------
Total liabilities 2,719,000 3,009,000
------------------- -------------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.06; 15,000,000 shares authorized
Class B Convertible Preferred Stock; 2,500,000 shares designated; 17,000 17,000
280,000 shares issued and outstanding at March 31, 1998 and
December 31, 1997
Common stock, par value $.013; 70,000,000 shares authorized 467,000 453,000
35,901,666 shares issued and outstanding at March 31, 1998,
34,830,925 shares issued and outstanding at December 31, 1997
Additional paid-in capital 34,492,000 34,036,000
Cumulative translation adjustment (58,000) (40,000)
Deficit accumulated during the development stage (33,904,000) (31,741,000)
------------------- -------------------
Total stockholders' equity 1,014,000 2,725,000
------------------- -------------------
Total liabilities and stockholders' equity $ 3,733,000 $ 5,734,000
=================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
INNOVIR LABORATORIES, INC. and Subsidiaries
(a development stage enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
PERIOD
JANUARY 6, 1995
(INCEPTION)
THROUGH
1998 1997 MARCH 31, 1998
-------------------- -------------------- --------------------------
<S> <C> <C> <C>
Operating expenses:
Research and development $ 1,717,000 $ 1,664,000 $ 11,496,000
Purchased in process research and
development -- -- 17,374,000
General and administrative 338,000 766,000 4,787,000
Amortization of Goodwill 103,000 103,000 515,000
-------------------- -------------------- ----------------------
2,158,000 2,533,000 34,172,000
-------------------- -------------------- ----------------------
Other (income) expenses:
Interest income (12,000) (73,000) (161,000)
Interest expense 27,000 37,000 181,000
Other-net (10,000) -- (288,000)
-------------------- -------------------- ----------------------
5,000 (36,000) (268,000)
-------------------- -------------------- ----------------------
Net (loss) $ (2,163,000) $ (2,497,000) $ (33,904,000)
==================== ==================== ======================
Loss-per-share data:
Basic loss per share $ (0.06) $ (0.14)
-------------------- --------------------
Weighted average number of shares of
common stock outstanding 35,149,566 18,042,470
Net loss per share $ (0.06) $ (0.14)
-------------------- --------------------
Weighted average number of shares of
common stock and dilutive equivalent
shares outstanding 35,149,566 18,042,470
==================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
CLASS B CONVERTIBLE ADDITIONAL CUMULATIVE
PREFERRED STOCK COMMON STOCK PAID-IN TRANSLATION
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT
--------------- -------- ------------- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 280,000 $17,000 34,831,000 $453,000 $34,036,000 $(40,000)
Exercise of options and warrants 1,071,000 14,000 436,000
Compensation expense incurred in
connection with the issuance of
stock options 20,000
Cumulative translation adjustment (18,000)
Net loss for the three months ended
March 31, 1998
--------------- -------- ------------- --------- --------------- ----------------
Balance at March 31, 1998 280,000 $17,000 35,902,000 $467,000 $34,492,000 $(58,000)
=============== ======== ============= ========= =============== ================
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
-----------------------------
<S> <C> <C>
Balance at December 31, 1997 $(31,741,000) $ 2,725,000
Exercise of options and warrants 450,000
Compensation expense incurred in
connection with the issuance of
stock options 20,000
Cumulative translation adjustment (18,000)
Net loss for the three months ended
March 31, 1998 (2,163,000) (2,163,000)
---------------------------
Balance at March 31, 1998 $(33,904,000) $ 1,014,000
============== ===========
</TABLE>
5
<PAGE>
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PERIOD
JANUARY 6, 1995
(INCEPTION)
THREE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
------------------------------
1998 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (2,163,000) $ (2,497,000) $ (33,902,000)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 203,000 184,000 1,150,000
Amortization of goodwill 103,000 103,000 515,000
Purchased in process research and development - - 17,374,000
Provision for losses on notes receivable - - 85,000
Non-cash compensation 20,000 113,000 486,000
Changes in operating assets and liabilities:
(Decrease) increase in other current assets (34,000) 17,000 (81,000)
(Decrease) in other assets 6,000 7,000 5,000
(Decrease) increase in accounts payable and accrued expenses (308,000) (166,000) 233,000
Increase in other current liabilities - 108,000 -
------------ ------------ -------------
Net cash (used in) operating activities (2,173,000) (2,131,000) (14,135,000)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (22,000) (549,000) (1,340,000)
Cash acquired in acquisitions - -- 3,532,000
------------ ------------ -------------
Net cash provided by (used in) investing activities (22,000) (549,000) 2,190,000
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock 450,000 14,000 4,476,000
Advances and contributed capital from VIMRX Pharmaceuticals
Inc. 131,000 670,000 8,369,000
Costs incurred in connection with issuance of equity securities - (24,000) (24,000)
Repayment of capital leases (107,000) (84,000) (497,000)
------------ ------------ -------------
Net cash provided by financing activities 474,000 576,000 12,324,000
------------ ------------ -------------
Effect of exchange rate changes on cash 1,000 (8,000) 60,000
------------ ------------ -------------
Net increase /(decrease) in cash and cash equivalents (1,720,000) 2,112,000 439,000
Cash and cash equivalents at beginning of period 2,159,000 6,412,000 --
------------ ------------ -------------
Cash and cash equivalents at end of period $ 439,000 $ 4,300,000 $ 439,000
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 27,000 $ 37,000 $ 156,000
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
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 December 31, 1997.
(2) 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.
(3) NASDAQ recently notified the Company that it was not in compliance with
the new minimum bid requirement of at least $1.00 per share. If the
Company does not regain compliance with this requirement by May 28, 1998,
NASDAQ will issue a delisting letter, setting forth the review procedures
available to the Company. In the event the Company's securities are so
delisted, trading, if any, in the Company's securities may thereafter be
conducted in the "pink sheets" or the "Electronic Bulletin Board".
(4) Effective January 1, 1998, The Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This Statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual
financial statement. For example, other comprehensive earnings may include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale. Annual financial statement for prior
periods will be reclassified, as required. The Company's total
comprehensive earnings were as follows:
Three Months Ended March 31,
----------------------------
1998 1997
--------- ---------
Net Loss 2,163,000 2,497,000
Foreign currency translation 18,000 8,000
--------- ---------
Comprehensive loss 2,181,000 2,505,000
--------- ---------
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share". Adoption of this Statement, which requires
restatement of previously reported amounts, had no impact on prior year
loss per share. Basic loss per share is calculated by dividing loss by the
weighted average number of common shares outstanding during the period. For
diluted loss per share, net loss is divided by the weighted average number
of common and potentially diluted shares outstanding during the period.
Potentially dilutive common shares consist of stock options and warrants
using the treasury stock method, but are excluded if their effect is
antidilutive.
7
<PAGE>
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 10-K Annual Report.
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 December 31,
1997.
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
March 31, 1998. For accounting purposes, VHL assumed the name of
Innovir Laboratories, Inc. and Subsidiaries, and, for purposes of this
Quarterly Report, all
8
<PAGE>
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 fiscal year end date
with that of VHL.
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 March 31, 1998 vs. March 31, 1997
Research and development expenses increased by $53,000 or 3% due to a
step up of research operations by the Company offset by a reduction in
research agreements.
General and administrative expenses decreased $428,000 or 56% due to a
decrease in insurance, salaries, professional fees and amortization of
options and warrant expenses.
Amortization of goodwill relates to the asset recorded in the
transaction with VIMRX, described under "Background" above.
Interest income decreased $61,000 or 84% due principally to the decrease
in the average cash balance for the three month period ended March 31,
1998 as compared to the same period in 1997.
Interest expense decreased due to the paydown of equipment leases.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of $439,000
as compared to $2,159,000 at December 31, 1997. The Company had negative
working capital of $930,000 at March 31, 1998 as compared to working
capital of $557,000 at December 31, 1997. The decrease in cash and
working capital positions resulted principally from cash used in
operations ($2,173,000), purchases of equipment ($22,000), pay down of
capital
9
<PAGE>
leases ($107,000) offset by sales of common stock (approximately
$450,000) and advances and contributed capital from VIMRX ($131,000).
Except for payments on existing capital leases, planned operations for 1998
currently contemplate no additional expenditures for capital assets.
Pursuant to an agreement, dated December 31, 1997, between the Company and
VIMRX (the "VIMRX Agreement"), the Company sold to VIMRX an aggregate of
5,080,436 shares of the Company's Common Stock for an aggregate purchase
price of $2,000,000. In addition, the Company issued to VIMRX a warrant to
purchase 1,000,000 shares of Common Stock at an exercise price per share of
$0.394. Pursuant to the VIMRX Agreement, the Company may require, from
time to time until December 31, 1999, that VIMRX purchase from the Company
up to $5,000,000 of Common Stock at a purchase price per share equal to the
lower of (i) the average closing bid price per share of Common Stock during
the preceding fifteen (15) days and (ii) $1.30; provided, however, that
VIMRX will not be required to so purchase any Common Stock in the event it
ceases to own at least 50% of the outstanding shares of Common Stock. In
the three month period ended March 31, 1998, the Company sold 1,070,801
shares to VIMRX under this agreement for an aggregate amount of $450,000.
The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its
proposed products. As of March 31, 1998, the Company had cash and cash
equivalents of approximately $439,000. Based on current projections, which
are subject to change (such change may be significant), the Company's
management believes that this, along with the funds available under the
VIMRX Agreement, will be sufficient to fund its operations into the first
quarter of the year ended December 31, 1999. Thereafter, the Company will
require additional funds, which it may seek to raise through public or
private equity or debt financing, collaborative or other arrangements with
corporate sources, or through other sources of financing, which may involve
the sale, licensing or spinning off of certain of the Company's
technologies. VIMRX has indicated that it may not continue to provide
funding to the Company subsequent to VIMRX's existing commitment pursuant
to the VIMRX Agreement. There can be no assurance that any 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.
The Company is developing and implementing a plan to address the Year 2000
issue. Management does not believe that the associated costs will be
material to the statement of operations.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
---------
10.24 Employment Agreement, effective as of October 1, 1997, between
Registrant, Thomas R. Sharpe and VIMRX
27 Financial Data Schedule.
(b) Reports on Form 8-K:
-------------------
None
All other Items of this report are inapplicable.
11
<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.
May 14, 1998
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)
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective as of October 1, 1997, between Innovir
Laboratories, Inc., a Delaware corporation (the "Company"), and Thomas R. Sharpe
(the "Employee"). VIMRX Pharmaceuticals, Inc. ("VIMRX"), a Delaware corporation
and the majority owner of the Company, is also a party to and guarantor of this
Agreement.
The Company desires to employ the Employee as President and CEO of the
Company and the Employee desires to accept such employment by the Company, on
the terms and subject to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual convenants and
obligations set forth in this Agreement, the Company and the Employee agree as
follows:
1. Employment. The Company hereby employs the Employee, and the
----------
Employee hereby accepts employment by the Company, upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for earlier termination set forth
----
in this Agreement, the employment of the Employee hereunder shall initially be
for the period commencing on October 1, 1997 (the "Effective Date") and ending
on the second anniversary thereof (the "Initial Term"). The term of this
Agreement shall automatically be extended annually on the anniversary date of
this Agreement for additional successive two-year periods (each a "Renewal
Term") unless either the Company or the Employee notifies the other party in
writing of its election not to extend this Agreement, such notice to be provided
on or prior to the date 60 days before commencement of any Renewal Term. The
Initial Term and any Renewal Term are referred to herein collectively as the
"Employment Period".
3. Duties.
------
(a) The Employee shall be employed in an executive management
capacity as the President and CEO of the Company. The Employee shall perform
such duties and services, consistent with his position as the President and CEO
of the Company, as may be assigned to him from time to time by the Board of
Directors of the Company or its designee. In furtherance of the foregoing, the
Employee hereby agrees to perform well and faithfully the aforesaid duties and
responsibilities and the other reasonable duties and responsibilities consistent
with his position as the President and CEO of the Company assigned to him from
time to time by the Board of Directors of the Company or its designee.
(b) The Company shall use its best efforts to cause the Employee
to be elected to the Board of Directors and the Executive Committee of the Board
of Directors of the Company.
3. Time to be Devoted to Employment.
--------------------------------
<PAGE>
2
(a) Except for reasonable vacations (consistent with Company
policies) and absences due to temporary illness, during the Employment Period
the Employee shall devote his full time and energy to the business of the
Company.
(b) During the Employment Period the Employee shall not be
engaged in any other business activity which, in the reasonable judgment of the
Company, conflicts with the duties of the Employee hereunder, whether or not
such activity is pursued for gain, profit or other pecuniary advantage.
4. Compensation; Benefits.
----------------------
(a) During the Initial Term, the Company shall pay to the
Employee an annual base salary (the "Base Salary") of not less than $162,000,
payable in such installments as is the policy of the Company with respect to the
employees of the Company at substantially the same employment level as the
Employee. Said Base Salary shall be reviewed at the conclusion of each fiscal
year and shall be subject to increase at the option and in the sole discretion
of the Board of Directors of the company, said increase shall be made effective
at the time that annual merit increases for other employees of the Company at
substantially the same employment level as the Employee shall be made effective.
(b) The Employee may also receive an annual cash bonus based on
the Company's achievement of performance objectives established by the Board of
Directors for each fiscal year. Such performance objectives, as adopted by the
Board form time to time, shall be incorporated by reference in this Agreement.
For the Initial Term, such bonus shall be an amount in the range of 0% to 50% of
the Base Salary, as determined by the Board of Directors in its sole discretion.
For subsequent years the bonus a amount shall be determined by the Board of
Directors in its sole discretion. Any such cash bonus shall be paid promptly
after the end of the fiscal year, at the time that cash bonuses for other
employees of the Company at substantially the same employment level as the
Employee shall be paid.
(c) During the Employment Period, the Employee shall be entitled
to such insurance and other fringe benefits, including medical, life and
disability insurance as are made available form time to time to the employees of
the Company at substantially the same employment level as the Employee.
5. Reimbursements; Other Expenses.
------------------------------
(a) The Company shall reimburse the Employee, in accordance with
the practice from time to time for other officers of the Company, for all
reasonable and necessary traveling expenses, disbursements and other reasonable
and necessary incidental expenses incurred by him for or on behalf of the
Company on or after the Effective Date and in the performance of his duties
hereunder upon presentation by the Employee to the Company of appropriate
vouchers.
(b) If the Employee vacates his corporate apartment at 1775 York
Avenue, #15B, New York, New York 10128 for any reason, the Company, VIMRX or the
acquiring entity of either or both will assume all responsibility for all
payments required for the balance of the apartment and furniture leases in
effect at that time.
<PAGE>
3
(c) If the Employee's position as President and CEO of Innovir
is terminated for any reason except for cause, the Company or VIMRX or the
acquiring entity of either or both will pay the Employee's moving expenses from
New York to Wilmington, Delaware if the Employee so requests.
(d) Upon initiation of employment, Innovir will pay the Employee
a signing bonus of $20,000.
(e) Upon completion of one year of employment, Employee will be
eligible for payment of a bonus based on his and the Company's performance
during the prior year, the amount of which is to be determined at the sole
discretion of the Company's Board of Directors, except that in no case will the
amount of the bonus in the first year of employment be less than $18,000 unless
during said first year of employment the Employee has been terminated for cause.
6. Involuntary Termination.
-----------------------
(a) If the Employee is incapacitated or disabled by accident,
sickness or otherwise so as to render him mentally or physically incapable of
performing the services required to be performed by him under this Agreement for
a period of ninety (90) consecutive days or longer or for ninety (90) days
during any six (6) month period (such condition being herein referred to as
"Disability"), the company may, at that time or any time thereafter, at its
option, with the approval of a majority of the Board of Directors of the
Company, terminate the employment of the Employee under this Agreement
immediately upon giving him notice to that effect (such termination as well as a
termination under Section 7(b) hereof, being hereinafter called an "Involuntary
Termination"). until the Company shall have terminated the Employee's employment
hereunder in accordance with the foregoing, the Employee shall be entitled to
receive his compensation notwithstanding any such physical or mental disability.
(b) If the Employee dies during the Employment Period, his
employment hereunder shall be deemed to cease as of the date of his death.
8. Termination for Cause. The Company may, with the approval of a
---------------------
majority of the Board of Directors of the Company, terminate the employment of
the Employee hereunder at any time during the Employment Period for "cause"
(such termination being hereinafter called a "Termination for Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination shall take effect immediately. For the purposes of this Section 8,
"cause" shall mean (a) the Employee's willful misconduct with respect to the
business and affairs of the Company or any subsidiary or affiliate thereof, (b)
the Employee's neglect of duties or failure to act which can reasonably be
expected to materially and adversely affect the business or affairs of the
Company or any subsidiary or affiliate thereof, (c) the Employee's breach of
this Agreement or of his confidentiality obligation to the Company or its
majority owner, VIMRX, (d) the commission by the Employee of an act involving
embezzlement or fraud or (e) the Employee's indictment for any crime; provided,
---------
however, that (i) in the event of a Termination for Cause, solely pursuant to
- -------
clause (e) hereof, and such indictment is subsequently withdrawn or the Employee
is subsequently acquitted of such crime (and has not at such time been convicted
of any other crime), then upon such withdrawal or acquittal the Employee shall
be entitled to the payments provided for pursuant to Section 11(c) hereof, and
(ii) in the event of a Termination for Cause, solely pursuant to clauses (a) or
(b) hereof, the Company shall first provide written notice to the Employee
specifying the manner in which Employee has engaged in willful misconduct or
<PAGE>
4
has neglected or failed to act, and Employee shall have 30 days after receipt of
such notice to cure such specified matters, and if a cure is effected, in the
reasonable determination of the Board of Directors, within such 30-day period,
the Company shall not have the right to effect a Termination for Cause relating
to the matters specified in such notice.
9. Termination without Cause. The Company may, with the approval of a
-------------------------
majority of the Board of Directors of the Company, terminate the employment of
the Employee hereunder at any time during the Employment Period without "cause"
(such termination being hereinafter called a "Termination without Cause") by
giving the Employee notice of such termination, upon the giving of which such
termination shall take effect immediately.
10. Voluntary Termination. Any termination of the employment of the
---------------------
Employee hereunder otherwise than as a result of an Involuntary Termination, a
Termination for Cause or a Termination without Cause shall be deemed to be a
"Voluntary Termination". A Voluntary Termination shall be deemed to be
effective immediately upon such termination.
11. Effect of Termination of Employment.
-----------------------------------
(a) Upon the termination of the Employee's employment hereunder
pursuant to a Voluntary Termination or a Termination for Cause, neither the
Employee nor his beneficiary or estate shall have any further rights or claims
against the Company under this Agreement except to receive:
(i) any unpaid portion of the Base Salary provided for in
Section 5(a), computed on a pro rata basis to the date of termination;
--------
(ii) reimbursement for any expenses for which the Employee
shall not have theretofore been reimbursed as provided in Section 6; and
(iii) payment for any accrued but unused vacation.
(b) Upon the termination of the Employee's employment hereunder
pursuant to an Involuntary Termination, neither the Employee nor his beneficiary
or estate shall have any further rights or claims against the Company under this
Agreement except to receive a termination payment equal to that provided for in
Section 11(a) hereof.
(c) Upon termination of the Employee's employment hereunder
pursuant to a Termination Without Cause, neither the Employee nor his
beneficiary or estate shall have any further rights or claims against the
Company under this Agreement except to receive a termination payment equal to
that provided for in Section 11(a) hereof, PLUS an amount equal to $100,000
payable in six (6) equal monthly installments.
12. Change of Control. In the event that, within twelve (12) months
-----------------
following a Change of Control (as defined below), the Employee terminates his
employment for Good Reason (as defined below), the Employee shall be entitled to
the payments set forth in Section 11(c), treating such termination for purposes
of this Agreement as a Termination without Cause. The term "Change of Control"
means the sale of substantially all of the assets of the Company to, or the
merger of the Company into, another corporation or entity, or the acquisition of
more than 50% of the voting securities of the Company by an entity which is not
a majority stockholder of
<PAGE>
5
the Company as of the Effective Date. The term "Good Reason" means: (a) any
significant diminution in the Employee's position, duties, responsibilities,
power, title or office as in effect immediately prior to a Change in Control;
(b) any reduction in the Employee's annual base salary, or material reduction in
the benefits made available to the Employee, as in effect on the Effective Date
or as may be increased from time to time; or (c) any requirement by the Company
that the location at which the Employee performs his principal duties for the
Company be changed to a new location outside a radius of fifty (50) miles from
the Employee's principal residence at the time of the Change of Control.
13. Liquidation. In the event that the Company is dissolved, liquidated
-----------
or otherwise ceases to do business, the Employee will be deemed to have been
subject to a Termination without Cause, and shall be entitled to the payments
set forth in Section 11(c).
14. Remedies and Survival. The Employee acknowledges and understands that
---------------------
the provisions of this Agreement are of a special and unique nature, the loss of
which cannot be accurately compensated for in damages by an action at law, and
that the breach or threatened breach of the provisions of this Agreement would
cause the Company irreparable harm. In the event of a breach or threatened
breach by the Employee, the Company shall be entitled to an injunction
restraining him from such breach. Nothing herein contained shall be construed
as prohibiting the Company from pursuing any other remedies available for any
breach or threatened breach of this Agreement.
15. Notices. All notices and other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by aid courier or first class certified or registered mail, return
receipt requested and postage prepaid, addressed as follows:
If to the Employee: Thomas R. Sharpe
1775 York Avenue, Apt 15B
New York, NY 10128
If to the Company: David A. Jackson, Chairman
Innovir Laboratories, Inc.
c/o VIMRX Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, DE 19808
With a copy to: Merrill M. Kraines, Esquire
Fulbright & Jaworski, L.L.P.
666 Fifth Avenue
New York, NY 10103-3198
or to such other address as the party to whom notice is given may have furnished
to the other party in writing in accordance herewith. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of delivery if
personally delivered; on the business day after the date when sent if sent by
air courier; and on the fifth business day after the date when sent if sent by
mail, in
<PAGE>
6
each case addressed to such party as provided in this Section or in accordance
with the latest unrevoked direction from such party.
16. Binding Agreement; Benefit. The provisions of this Agreement will be
--------------------------
binding upon, and will inure to the benefit of, the respective heirs, legal
representatives and successors of the parties hereto.
17. Governing Law. This Agreement shall be governed by, and construed and
-------------
enforced in accordance with, the laws of the State of Delaware.
18. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any subsequent breach by such other
party.
19. Entire Agreement; Amendments. This Agreement contains the entire
----------------------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings among the parties with respect
thereto. This Agreement may be amended only by an agreement in writing signed
by the parties hereto.
20. Headings. The section headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
21. Severability. Any provision of this agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22. Assignment. This Agreement is personal in its nature and the parties
----------
hereto shall not, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided, however, that the
-------- -------
provisions hereof shall inure to the benefit of, and be binding upon (i) each
successor of the Company, whether by merger, consolidation, transfer of all or
substantially all assets, or otherwise and (ii) the heirs and legal
representatives of the Employee.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INNOVIR LABORATORIES, INC. VIMRX PHARMACEUTICALS, INC.
_______________________ _______________________________
By: David A. Jackson By: Richard L. Dunning
Chairman President and CEO
ACCEPTED:
_______________________________
Thomas R. Sharpe
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 439,000
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0
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<COMMON> 467,000
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<TOTAL-LIABILITY-AND-EQUITY> 3,733,000
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