<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 333-3378
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT
NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIRUS RESEARCH INSTITUTE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2836 22-3098869
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
61 MOULTON STREET
CAMBRIDGE, MASSACHUSETTS 02138
(617) 864-6232
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
J. BARRIE WARD, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
VIRUS RESEARCH INSTITUTE, INC.
61 MOULTON STREET
CAMBRIDGE, MASSACHUSETTS 02138
(617) 864-6232
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SHELDON E. MISHER, ESQ. DAVID E. REDLICK, ESQ.
STEVEN A. FISHMAN, ESQ. HALE AND DORR
BACHNER, TALLY, POLEVOY & MISHER LLP 60 STATE STREET
380 MADISON AVENUE BOSTON, MASSACHUSETTS 02109
NEW YORK, NEW YORK 10017 (617) 526-6000
(212) 687-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
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. / /
------------------------
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.
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<PAGE> 2
VIRUS RESEARCH INSTITUTE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages;
Additional Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Inside Front Cover Page; Prospectus
Summary; Risk Factors; Financial Statements
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information With Respect to the
Registrant............................... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- ---------------
* Not applicable.
<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.
SUBJECT TO COMPLETION, DATED MAY 14, 1996
2,300,000 SHARES
[VIRUS RESEARCH INSTITUTE, INC. LOGO]
VIRUS RESEARCH INSTITUTE, INC.
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being sold by Virus
Research Institute, Inc. (the "Company"). Prior to this offering, there has been
no public market for the Common Stock of the Company. It is anticipated that the
initial public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "VRII."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
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- ------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 345,000 additional shares of
Common Stock at the Price to Public per share, less the Underwriting
Discount, for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1996 at the office
of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
------------------------
OPPENHEIMER & CO., INC. PACIFIC GROWTH EQUITIES, INC.
The date of this Prospectus is , 1996
<PAGE> 4
[Graphic of torso with blow-ups of certain area of body to depict use
of vaccine delivery systems being developed by the company]
The Company's vaccine delivery systems and vaccines are currently in
various stages of research and development. There can be no assurance that any
products will be successfully developed, receive necessary regulatory approvals
or, if such approvals are received, that any product will be marketed
successfully.
ADJUMER,(TM) MICROMER(TM) AND VIBRIOVEC(TM) ARE TRADEMARKS OF THE COMPANY.
ALL OTHER BRAND NAMES OR TRADEMARKS APPEARING IN THIS PROSPECTUS ARE THE
PROPERTY OF THEIR RESPECTIVE HOLDERS. THE COMPANY WAS INCORPORATED IN DELAWARE
IN FEBRUARY 1991. THE COMPANY'S PRINCIPAL OFFICE IS LOCATED AT 61 MOULTON
STREET, CAMBRIDGE, MASSACHUSETTS 02138, AND ITS TELEPHONE NUMBER IS (617)
864-6232.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Unless the context indicates otherwise, the information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option
and gives effect to (i) a one-for-three reverse stock split of the Common Stock
to be effective prior to the closing of this offering, (ii) the conversion of
all outstanding shares of the Company's Preferred Stock into an aggregate of
5,553,569 shares of Common Stock and (iii) the conversion of all the Company's
Convertible Notes into an aggregate of 208,334 shares of Common Stock. See
"Capitalization," "Description of Capital Stock" and Notes to Financial
Statements. Investment in the securities offered hereby involves a high degree
of risk. See "Risk Factors."
THE COMPANY
Virus Research Institute, Inc. (the "Company") is engaged in the discovery
and development of vaccine delivery systems and improved and novel vaccines for
adults and children. The Company is developing a portfolio of proprietary
vaccine delivery systems designed to improve the efficacy, lower the cost of
administration and improve patient compliance for a variety of vaccine products.
The Company and its collaborators currently are applying the Company's vaccine
delivery systems to develop vaccines for the prevention of influenza, Lyme
disease and Helicobacter pylori("H. pylori") infections. The Company has entered
into long-term collaboration agreements with Pasteur Merieux Serums & Vaccins
S.A. ("Pasteur Merieux"), a wholly-owned subsidiary of Rhone-Poulenc S.A.,
pursuant to which Pasteur Merieux may utilize the Company's vaccine delivery
systems in developing a number of vaccines. The Company is also developing its
own proprietary vaccines utilizing antigens licensed exclusively by the Company,
including an oral vaccine for rotavirus infection, a gastrointestinal disease of
infants, and a vaccine for herpes simplex virus 2 ("HSV2"), the virus that
causes genital herpes.
While vaccines have proven to be safe and effective for the prevention of
certain infectious diseases, the Company believes that there is significant
potential for improvement, including: enhancement of the immune response;
reduction in the number of doses required for an effective immune response;
increase in the percentage of the population responding to certain vaccines;
delivery of vaccines through methods other than by injection; and stimulation of
a mucosal immune response. To address these shortcomings, the Company is
developing vaccine delivery systems that may lead to more effective and less
costly vaccines, increased patient compliance and the introduction of new
vaccines.
The Company's strategy is to utilize its expertise in the design and
application of vaccine delivery systems to develop vaccine products for
infectious diseases that have significant and growing market potential. The
Company is developing three vaccine delivery systems. The Adjumer vaccine
delivery system utilizes a novel polymer, which is a synthetic polyphosphazene
derivative ("PCPP"), as an adjuvant for use with a variety of antigens
administered by injection. The Company believes that Adjumer-formulated vaccines
will be capable of producing an enhanced and longer-lived immune response with
fewer injections. In preclinical studies, Adjumer-formulated vaccines elicited
an immune response that was greater than either vaccines formulated with alum,
the only approved adjuvant for commercial use in humans, or non-adjuvanted
vaccines. The Micromer vaccine delivery system utilizes a mixture of PCPP and
antigens formed into hydrogel microparticles for the intranasal and oral
delivery of vaccines. Mucosal vaccine delivery has potential advantages over
conventional delivery by injection, including ease of administration and the
generation of immunity at the mucosal surfaces, where most infectious organisms
enter the body, as well as the generation of systemic (blood and other organs)
immunity. The VibrioVec vaccine delivery system utilizes a recombinant bacterial
vector for the oral delivery of antigens to the gastrointestinal tract. The
Company believes that VibrioVec-delivered vaccines will be capable of inducing a
systemic and mucosal immune response.
As part of the Company's strategy to bring its vaccine delivery
technologies to market, the Company collaborates with corporate partners that
offer substantial market presence, unique antigens or complementary
technologies. The Company and Pasteur Merieux, the leading worldwide supplier of
influenza vaccines, are currently collaborating on the development of an
Adjumer-formulated vaccine for influenza. Pursuant to a separate agreement with
Pasteur Merieux, the Company is conducting research on the mucosal
administration of an influenza vaccine using its Micromer vaccine delivery
system. Influenza accounts for an average of 20,000 deaths annually in the
United States; the greatest number of fatalities occur among the elderly. The
Company anticipates that Pasteur Merieux will commence Phase I clinical trials
on an Adjumer-formulated
3
<PAGE> 6
influenza vaccine in France during 1996. Pasteur Merieux also has the right to
develop Adjumer-formulated vaccines for prevention of other diseases, including
Lyme disease.
The Company is also conducting research relating to the use of VibrioVec
for the delivery of vaccines to prevent and treat infections caused by H.
pylori. H. pylori is a bacterium that causes chronic gastritis and peptic
ulcers. Currently, no vaccine or generally effective therapy is approved for the
elimination of H. pylori infection. The Company is conducting research
separately with each of CSL Ltd., Australia ("CSL") and with the joint venture
between Pasteur Merieux and OraVax, Inc. ("PM-O") to determine the utility of
the Company's VibrioVec system in delivering vaccines against H. pylori.
The Company is also developing novel vaccines against rotavirus and HSV2
infections. Rotavirus is a major cause of diarrhea and vomiting in infants. The
Company has completed Phase I clinical trials of an orally delivered live human
rotavirus vaccine selected to elicit a broadly protective immune response to the
most prevalent strains of rotavirus. HSV2 is a sexually transmitted virus with
an estimated incidence of 500,000 new cases occurring in the United States each
year. At present, there is no approved vaccine for prevention of rotavirus or
HSV2 infection.
In connection with its collaboration relating to Adjumer, Pasteur Merieux
made a $3.0 million equity investment in the Company in December 1994. In
addition, in connection with this collaboration, in April 1996 Pasteur Merieux
made a milestone payment of $2.5 million to the Company and an additional equity
investment of $1.0 million in the Company. Contingent upon achieving certain
milestones, Pasteur Merieux has agreed to pay the Company an additional $1.0
million in connection with the development of Adjumer and up to an additional
$7.2 million in connection with the development of Adjumer-formulated vaccines
for the prevention of influenza and Lyme disease. Contingent upon achieving
certain milestones, Pasteur Merieux has also agreed to make payments, on a
product by product basis, if Pasteur Merieux commences clinical development of
Adjumer-formulated vaccines against certain specified pathogens, or
Micromer-formulated vaccines directed against influenza and other specified
pathogens. Pasteur Merieux is required to fund all costs associated with the
development and commercialization, including the costs of clinical trials, of
any vaccines it elects to develop utilizing the Company's technology and to make
royalty payments based on product sales.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
by the Company........................ 2,300,000 shares
Common Stock to be outstanding
after the offering.................... 8,753,506 shares (1)
Use of proceeds......................... To repay bank indebtedness, finance research and
development activities, including scale up of PCPP
manufacturing, and for working capital and other
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq
National Market symbol................ VRII
Risk factors............................ The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
</TABLE>
- ---------------
(1) Includes (i) 5,553,569 shares of Common Stock issuable upon conversion of
all outstanding shares of all series of convertible Preferred Stock, $.001
par value (collectively, the "Preferred Stock") and (ii) 208,334 shares of
Common Stock issuable upon conversion of $1,000,000 in outstanding
convertible notes (the "Convertible Notes") (exclusive of any shares of
Common Stock issuable with respect to accrued interest on the Convertible
Notes). Excludes 928,964 shares of Common Stock reserved for issuance upon
the exercise of warrants and options outstanding as of May 10, 1996. See
"Capitalization," "Certain Transactions" and "Description of Capital Stock."
4
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licensing and option revenue.......... $ -- $ 700,000 $ 770,000 $ -- $ 20,000
Research and development revenue...... -- 5,000 1,047,500 -- 525,000
Research and development grants....... -- 16,269 19,980 -- --
Interest income....................... 83,610 163,591 126,249 65,330 12,427
----------- ----------- ----------- ------------ -----------
Total revenues.......................... 83,610 884,860 1,963,729 65,330 557,427
Expenses:
Research and development.............. 4,205,781 5,756,042 5,734,427 1,639,203 1,346,986
General and administrative............ 1,452,344 1,887,512 1,854,732 564,560 348,808
Depreciation expense.................. 268,391 517,756 583,654 144,752 168,585
Interest expense...................... 84,315 52,332 87,944 6,671 59,957
----------- ----------- ----------- ------------ -----------
Total expenses.......................... 6,010,831 8,213,642 8,260,757 2,355,186 1,924,336
----------- ----------- ----------- ------------ -----------
Net loss................................ $(5,927,221) $(7,328,782) $(6,297,028) $(2,289,856) $(1,366,909)
=========== =========== =========== ============ ===========
Pro forma net loss per share........................................ $ (.98) $ (.36) $ (.21)
=========== ============ ===========
Pro forma weighted average common shares outstanding................ 6,390,760 6,390,364 6,425,559
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
------------ ---------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 704,342 $2,704,482 $26,572,482
Working capital (deficit)..................................... (1,576,967) 357,738 25,225,738
Total assets.................................................. 2,302,778 4,302,918 28,170,918
Notes payable................................................. 934,565 1,000,000 --
Lease obligation payable, less current portion................ 181,514 181,514 181,514
Redeemable convertible preferred stock........................ 25,009,239 -- --
Total stockholders' equity (deficit).......................... $(25,615,126) $1,328,818 $26,196,818
</TABLE>
- ---------------
(1) Presented on a pro forma basis to give effect to (i) the sale, subsequent to
March 31, 1996, of Preferred Stock to Pasteur Merieux and the receipt of
$1,000,000 in gross proceeds therefrom; (ii) the automatic conversion of all
outstanding shares of Preferred Stock into 5,553,569 shares of Common Stock
upon the consummation of this offering; (iii) the issuance of 208,334 shares
of Common Stock upon conversion of the Convertible Notes upon the
consummation of this offering (exclusive of any shares of Common Stock
issuable with respect to accrued interest on the Convertible Notes); and
(iv) the incurrence of $1,000,000 in indebtedness in April 1996. See
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions," "Description
of Capital Stock" and Notes to Financial Statements.
(2) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of 2,300,000 shares of Common Stock at an assumed initial public offering
price of $12.00 per share and the repayment of an aggregate of $1,000,000 in
indebtedness, plus accrued interest, out of the proceeds of this offering.
See "Use of Proceeds."
5
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby.
EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTIES. The
Company is in the development stage, and the development of any products will
require significant further research, development, testing and regulatory
approvals and additional investment prior to commercialization. Substantially
all of the Company's resources have been, and for the foreseeable future will
continue to be, dedicated to the discovery, development and commercialization of
vaccine delivery systems and vaccines, most of which are still in the early
stages of development and testing. There are a number of technological
challenges that the Company must successfully address to complete any of its
development efforts. The results of preclinical studies by the Company and/or
its collaborators may be inconclusive and may not be indicative of results that
will be obtained in human clinical trials. In addition, results attained in
early human clinical trials relating to the vaccine delivery systems and
vaccines under development by the Company may not be indicative of results that
will be obtained in later clinical trials. As results of particular preclinical
studies and clinical trials are received by the Company, the Company may abandon
projects which it might otherwise have believed to be promising, some of which
may be described in this Prospectus.
In addition, the product development programs conducted by the Company and
its collaborators are subject to the risks of failure inherent in the
development of product candidates based on new technologies. These risks include
the possibility that the technologies used by the Company will prove to be
ineffective or any or all of the Company's vaccine delivery systems and vaccine
candidates will prove to be unsafe or toxic or otherwise fail to receive
necessary regulatory approvals; that the product candidates, if safe and
effective, will be difficult to manufacture on a large scale or uneconomical to
market; that the proprietary rights of third parties will preclude the Company
or its collaborators from marketing vaccine delivery systems or vaccines
utilizing the Company's technologies; or that third parties will market superior
or equivalent products. Currently, there are only 16 vaccines in routine use in
the United States. There can be no assurance that any additional vaccines being
developed by the Company or others will be successfully developed or
commercially accepted. Accordingly, there can be no assurance that the Company's
research and development activities will result in any commercially viable
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Product Development Programs" and
" -- Competition."
HISTORY OF OPERATING LOSSES; NO PRODUCT REVENUE AND UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred substantial losses in each year since
its inception. As of March 31, 1996, the Company had an accumulated deficit of
approximately $26 million. Such losses have resulted principally from costs
incurred in research and development of the Company's vaccine delivery systems
and vaccine product candidates and from general and administrative costs
associated with the Company's development programs. No revenues have been
generated by the Company from product sales or royalties and no product sales or
royalties are likely for a number of years, if ever. The Company expects to
incur additional operating losses over the next several years and expects
cumulative losses to increase significantly as the Company expands research and
development and clinical trial efforts. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
The Company's ability to achieve profitability is dependent in part on obtaining
regulatory approvals for vaccine products and entering into agreements for
commercialization of such vaccine products. There can be no assurance that such
regulatory approvals will be obtained or such agreements will be entered into.
Further, there can be no assurance that the Company's operations will become
profitable even if vaccines under development by the Company or its
collaborators using the Company's technology are commercialized. Revenues that
the Company may receive in the next few years will be pursuant to the Company's
agreement with Pasteur Merieux or to other collaboration agreements that the
Company has or will establish. In most cases, payments received under these
agreements are and will be contingent upon the achievement of specified
milestones. There can be no assurance that the Company will be able to establish
any additional collaborations on terms acceptable to the Company or that
specified
6
<PAGE> 9
milestones will be achieved. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
believes that the net proceeds of this offering, together with the Company's
available cash, should be sufficient to fund the Company's operating expenses
and capital requirements through 1997. Thereafter, the Company will require
substantial funds in addition to the proceeds of this offering to conduct
development activities, preclinical studies, clinical trials and other
activities relating to the commercialization of any potential products. The
Company anticipates that these funds will be obtained from external sources and
intends to seek additional equity, debt or lease financing to fund future
operations. The Company also expects to seek additional collaborative agreements
with corporate partners to fund its research and development programs. There can
be no assurance, however, that the Company will be able to negotiate such
arrangements or obtain the additional funds it will require on acceptable terms,
if at all. In addition, the Company's cash requirements may vary materially from
those now planned because of results of research and development, results of
product testing, potential relationships with collaborators, changes in the
focus and direction of the Company's research and development programs,
competitive and technological advances, the cost of filing, prosecuting,
defending and enforcing patent claims, the regulatory approval process and other
factors.
If adequate funds are not available, the Company may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs; to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or to license the rights to such
products on terms that are less favorable to the Company than might otherwise be
available. If the Company raises additional funds by issuing equity securities,
further dilution to stockholders may result and such investors could have rights
superior to existing stockholders. See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON COLLABORATIVE AGREEMENTS; NEED FOR ADDITIONAL PARTNERS. The
Company has entered into agreements with certain pharmaceutical and
biotechnology companies relating to the licensing, development and
commercialization of vaccine products utilizing the Company's vaccine delivery
technologies. In particular, the Company has entered into collaborative
agreements with Pasteur Merieux which place substantial responsibility on
Pasteur Merieux for development of vaccines utilizing the Company's vaccine
delivery systems, including conducting certain preclinical studies, clinical
trials, preparation and submission of applications for regulatory approval and
marketing and distribution. The agreements grant Pasteur Merieux the exclusive,
and in some cases, the co-exclusive, right to commercialize vaccines for the
prevention of a number of specified diseases and give Pasteur Merieux broad
discretion to determine which vaccines, if any, will be developed. The Company
expects to enter into similar agreements in the future which will place
substantial responsibility on the Company's collaborator to commercialize
vaccine products and which may allow such collaborators substantial discretion
in determining the amount and timing of resources to be devoted to such efforts.
Should a collaborative partner fail to successfully develop or commercialize, or
elect not to develop or commercialize, any product candidate to which it has
exclusive rights, the Company's business prospects may be materially and
adversely affected. There can be no assurance that the Company's collaborators
will continue their development efforts using the Company's technology or that
such development efforts, if continued, will be successful. There can also be no
assurance that the Company would be able to continue development of certain
vaccine products if the Company's collaborators failed to do so.
Several of the Company's collaboration agreements relate to research and
development to determine the feasibility of developing certain vaccines
utilizing the Company's vaccine delivery systems, and, in one case, involves the
grant of an exclusive option to negotiate a license. The programs that are the
subjects of these agreements are in the early stages of research and
development, and the agreements require the negotiation and execution of further
licenses or other agreements. There can be no assurance that any vaccine
products will be developed from such agreements or that any license agreements
will be entered into relating to products developed under such agreements.
7
<PAGE> 10
There also can be no assurance that the Company's collaborators will not
pursue alternative technologies or product candidates, either on their own or in
collaboration with others, that target the same indications as those covered
under the Company's collaboration agreements. For example, the Company is aware
that PM-O and CSL, which have entered into agreements with the Company relating
to use of the Company's vaccine delivery systems for delivery of certain
antigens for a vaccine against H. pylori, are also evaluating and/or developing
other methods of delivery of an H. pylori vaccine. In particular, the Company is
aware that PM-O is currently conducting Phase II clinical trials of a vaccine
using a delivery system other than the Company's to deliver an H. pylori vaccine
mucosally.
The Company's strategy for the research, development and commercialization
of its vaccine candidates has required, and will continue to require, the
Company to enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others. The vaccine market is dominated
by five large companies which control in excess of 80% of the worldwide market;
therefore, the Company will need to enter into collaborative agreements with one
or more of these companies to commercialize vaccine products. The Company will,
therefore, be dependent upon the success of any such collaborators in performing
their marketing and commercialization responsibilities. Failure to obtain such
agreements could result in delays in marketing the Company's proposed vaccine
products or the inability to proceed with the development, manufacture or sale
of vaccine candidates. Collaborative agreements may also require the Company to
meet certain milestones and expend funds, and there can be no assurance that the
Company will be successful in doing so. Failure of the Company to meet such
obligations could result in a termination of those agreements and could have a
material adverse effect on the Company's results of operations and business
prospects. See "Business -- Collaborative Agreements," "-- Patents, Licenses and
Proprietary Rights" and "-- Competition."
DEPENDENCE ON NOVEL VACCINE DELIVERY SYSTEMS. A major portion of the
Company's research and development efforts are focused on the development of
novel vaccine delivery systems utilizing new technologies which have not been
clinically tested in humans. There can be no assurance that these approaches and
technologies will be successful. To date, there is only one adjuvant approved by
the United States Food and Drug Administration (the "FDA") for commercial use in
human vaccines. The Company's Adjumer and Micromer vaccine delivery systems
utilize PCPP as an adjuvant. PCPP has not yet been tested in humans. The
Company's Micromer and VibrioVec delivery systems are being developed for
delivery of vaccines intranasally and orally. No mucosal vaccine delivery
systems for intranasal or oral delivery have yet been approved. Micromer and
VibrioVec are still in the early stages of research and development, and the
Company and its collaborators are not yet ready to commence clinical testing of
vaccines utilizing these delivery systems. Of the 16 vaccines in routine use in
the United States, only two are delivered orally, both of which are live,
attenuated and localize in the intestines and do not utilize separate vaccine
delivery systems. There can be no assurance that the Company will be able to
successfully complete the development of technology for mucosal delivery of
vaccines utilizing a separate vaccine delivery system. Further, VibrioVec, a
live, attenuated strain of Vibrio cholerae, is a recombinant bacterial vector
for the oral delivery of antigens to the gastrointestinal tract. The Company is
unaware of any approved products that utilize live, attenuated bacterial or
viral strains as vaccine delivery systems. The clinical evidence concerning the
efficacy of such vectors is limited. Accordingly, there can be no assurance that
this method of vaccine delivery will prove to be safe or efficacious or result
in the approval of any vaccine products.
The Company is unable to predict the position that regulatory agencies,
such as the FDA, will take with respect to the risk of transmission of the
disease from vaccine delivery systems and vaccines using live, attenuated
bacteria and viruses or the reaction of the private medical community or the
public to vaccines utilizing the Company's VibrioVec delivery system or other
vaccines using live bacteria or viruses. The transmission of any infectious
disease by bacterial or viral vaccines or regulatory, physician or public
concerns regarding any such transmission, even if no transmission were to take
place, could delay, prevent, limit or halt the commercialization of vaccine
products utilizing VibrioVec or any other vaccine products under development
comprised of live attenuated viruses or bacteria. See "Business -- Company
Vaccine Delivery Systems" and "-- Product Development Programs."
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NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION. The Company's and its
collaborators' research and development activities, preclinical studies and
clinical testing, and ultimately the production and marketing of products are
subject to extensive regulation by numerous governmental authorities in the
United States, including the FDA. Similar regulatory requirements exist in other
countries where the Company and its collaborators intend to test and market
their products. The rigorous preclinical and clinical testing requirements and
regulatory approval process of the FDA and of foreign regulatory authorities can
take a number of years and require the expenditure of substantial resources. The
Company has limited experience in conducting and managing preclinical and
clinical testing necessary to obtain government approvals. There can be no
assurance that the Company and its collaborators will be able to obtain the
necessary approvals for further clinical testing or for the manufacturing and
marketing of any products that they develop.
Additional governmental regulation may be established that could prevent or
delay regulatory approval of the Company's product candidates. Delays in
obtaining regulatory approvals would adversely affect the marketing of any
vaccine products developed by the Company and its collaborators and the
Company's ability to receive product revenues or royalties. If regulatory
approval of a potential product is granted, such approval may include
significant limitations on the indicated uses for which such product may be
marketed.
Even if initial regulatory approvals for the Company's product candidates
are obtained, the Company, its products and its manufacturing facilities would
be subject to continual review and periodic inspection. The regulatory standards
for manufacturing are applied stringently by the FDA. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer or facility, including warning
letters, fines, suspensions of regulatory approvals, product recalls, operating
restrictions, delays in obtaining new product approvals, withdrawal of the
product from the market, seizure of the product, injunction and criminal
prosecution. Other violations of FDA requirements can result in similar
penalties.
The effect of government regulation may be to delay marketing of new
products for a considerable period of time, to impose costly procedures upon the
Company's activities and to furnish a competitive advantage to larger companies
that compete with the Company. There can be no assurance that FDA or other
regulatory approval for any potential products developed by the Company or its
collaborators will be granted on a timely basis or at all. See
"Business -- Government Regulation."
DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY RIGHTS. The Company's
success will depend, in part, on its ability to obtain patent protection for its
vaccine delivery systems and vaccine products both in the United States and in
other countries, to preserve its trade secrets and to operate without infringing
upon the proprietary rights of others. The Company intends to file applications
as appropriate for patents covering both its products and its processes. No
assurance can be given that any patents will issue from any of these
applications or that, if patents do issue, the claims allowed will be
sufficiently broad to protect the Company's technology. Although a patent has a
statutory presumption of validity in the United States, the issuance of a patent
is not conclusive as to such validity or as to the enforceable scope of the
claims of the patent. There can be no assurance that the Company's issued
patents or any patents subsequently issued to or licensed by the Company will
not be successfully challenged in the future. The validity or enforceability of
a patent after its issuance by the patent office can be challenged in
litigation. If the outcome of the litigation is adverse to the owner of the
patent, third parties may then be able to use the invention covered by the
patent, in some cases without payment. There can be no assurance that the
Company's patents will not be infringed or successfully avoided through design
innovation.
There can be no assurance that patent applications owned by or licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology. It is also
possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to the Company. In cases where third parties are
first to invent a particular product or technology, it is possible that those
parties will obtain patents that will be sufficiently broad so as to prevent the
Company from using certain technology or from further developing or
commercializing certain products. If licenses from third parties are necessary
but cannot be obtained, commercialization of the related products would be
delayed or prevented.
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The Company uses a mutated Vibrio cholerae in its VibrioVec vaccine
delivery system. The Company is aware of an issued United States patent which
claims a culture of mutated Vibrio cholerae. The Company believes that only one
claim (the "Claim") of the patent may be pertinent to the Company's VibrioVec
system. The remaining claims of the patent cover other cultures which the
Company believes are not pertinent to VibrioVec. The Company has received an
opinion of counsel from Fish & Richardson, P.C. that, based on the analysis set
forth in their opinion and the facts known to them, the Claim is invalid. It
should be noted that a party challenging validity of a patent has the burden of
proving invalidity and that the outcome of any litigation cannot be predicted
with certainty. Accordingly, there can be no assurance that, if litigated, a
court would conclude that the Claim is invalid.
The Company is aware of a patent granted in Europe which claims an oral
composition capable of delivering a bioactive agent in microcapsules of a
defined size. The European patent is currently subject to an opposition
proceeding, pursuant to which the allowance of the patent is being challenged by
third parties. The Company's Micromer vaccine delivery system is focused on
intranasal delivery of vaccines. The Company has received an opinion from Dr.
Volker Vossius, German and European Patent Attorney, that based on his review of
the European patent, the intranasal composition of Micromer does not fall within
the extent of the protection of the relevant claims in the European patent. An
opinion of legal counsel is based on the facts reviewed by them and could be
affected by any alteration of these facts and represents only counsel's best
legal judgment. Accordingly, there can be no assurance that the European Patent
Office or a court would reach the same conclusion. The Company has also
commenced research on oral delivery of vaccines using Micromer. If the
opposition of the third parties in Europe is not successful, the sale of a
Micromer-formulated vaccine to be delivered orally could infringe the European
patent, unless the Company is able to obtain a license to such patent. It is
possible that a patent application may be pending in the United States directed
to similar claims. There can be no assurance that, if necessary, a license will
be available on acceptable terms, if at all.
In addition to the patents and the patent applications referred to in the
previous two paragraphs, there may be other patent applications and issued
patents that belong to competitors that may require the Company to alter its
vaccine candidates and vaccine delivery systems, pay licensing fees or cease
certain activities. If the Company's product candidates infringe patents that
have been or may be granted to competitors, universities or others, such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin manufacturing and marketing of the affected products. If any
such actions are successful, in addition to any potential liability for damages,
the Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. The Company
believes that there may be significant litigation regarding patent and other
intellectual property rights in this area. If the Company becomes involved in
such litigation, it could consume substantial resources.
The Company has licensed certain intellectual property from third parties,
including certain patents underlying Adjumer, Micromer and VibrioVec. Under the
terms of its license agreements, the Company is obligated to exercise diligence,
achieve certain milestones and expend minimum amounts of resources in bringing
potential products to market and make certain royalty and milestone payments,
including a percentage of any sublicensing income, as well as patent cost
reimbursement payments. The licensors can terminate these agreements or, in
certain cases, make the licenses non-exclusive, if the Company defaults in the
performance of its obligations. Should the Company default under any of these
agreements, the Company may lose its right to market and sell any vaccine
products based on the licensed technology. In such event, the Company's results
of operations and business prospects would be materially and adversely affected.
There can be no assurance that the Company will be able to meet its obligations
under these agreements on a timely basis, or at all. Further, the Company may be
required to obtain licenses to additional technologies to be utilized in some of
the vaccine products under development by the Company currently, or in the
future. If any such licenses are not obtained by the Company, the Company may
not be able to market any such vaccine products.
The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its corporate
partners, collaborators, employees and consultants. There can be
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no assurance that these agreements will not be breached, that the Company will
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently discovered by competitors. See
"Business -- Patents, Licenses and Proprietary Rights."
COMPETITION AND TECHNOLOGICAL CHANGE. Competition in the biotechnology and
vaccine industries is intense. The Company faces competition from many companies
in the United States and abroad, including a number of large companies, firms
specialized in the development and production of vaccines, adjuvants and vaccine
delivery systems and major universities and research institutions. Most of the
Company's competitors have substantially greater resources, more extensive
experience in conducting preclinical studies and clinical trials and obtaining
regulatory approvals for their products, greater operating experience, greater
research and development and marketing capabilities and greater production
capabilities than those of the Company. There can be no assurance that the
Company's competitors will not develop technologies and products that are safer
or more effective than any being developed by the Company or which would render
the Company's technology and products obsolete and noncompetitive, and the
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company. The Company will also face competition from companies
marketing existing therapies or developing new therapies for diseases targeted
by the Company's vaccine technology. The development of such new technologies or
treatment methods for those infectious diseases for which the Company is
developing vaccines could render the Company's vaccine delivery systems and
vaccine candidates noncompetitive and obsolete. There can be no assurance that
the vaccines under development by the Company and its collaborators will be able
to compete successfully with existing products or products under development by
other companies, universities and other institutions or that they will attain
regulatory approval in the United States or elsewhere.
The Company believes that its principal competitors include large
pharmaceutical companies such as American Home Products Corporation, Pasteur
Merieux, Merck & Co., Inc., SmithKline Beecham plc and Chiron Corporation, as
well as a number of biotechnology companies engaged in developing vaccine
delivery systems and vaccines. The Company is aware that a number of
pharmaceutical companies are engaged in research and development with respect to
vaccines for the prevention of influenza, H. pylori infection, Lyme disease,
rotavirus disease, genital herpes and HIV which would compete with the Company
and its collaborators' vaccine candidates, some of which are further advanced in
their development and testing than the Company and its collaborators' programs.
In addition, the Company's collaborators are developing or evaluating vaccine
delivery systems other than the Company's for many of the vaccines covered by
the Company's collaborative agreements. Both CSL and PM-O, with respect to
vaccines against H. pylori infection, and Pasteur Merieux, with respect to
influenza and Lyme disease, are engaged in research and development in
connection with vaccines utilizing the same antigens that are the subject of
their collaborations with the Company. The Company is also aware of a number of
companies seeking to develop new adjuvants for vaccines and mucosal vaccine
delivery systems. Some of these companies may be further advanced in their
development and clinical testing than the Company.
A significant amount of research in the field is also being carried out at
academic and government institutions. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products on
their own or in collaboration with competitors and will compete with the Company
in recruiting highly qualified scientific personnel. See
"Business -- Competition."
LACK OF MANUFACTURING CAPABILITY AND EXPERIENCE; LIMITED SOURCES OF
SUPPLY. The Company has no manufacturing facilities, no experience in volume
manufacturing and plans to rely upon collaborators or contract manufacturers to
manufacture its proposed products in both clinical and commercial quantities.
There can be no assurance that the Company will be able to enter into any
arrangements with such third-party manufacturers on acceptable terms or at all.
To date, the Company has been arranging on a purchase order basis with
contract manufacturers for the manufacture of PCPP and vaccines in quantities
sufficient for preclinical studies and for clinical trials of the Company's
rotavirus vaccine candidate. The Company does not yet have a written agreement
with a contract
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manufacturer for production of PCPP or for other components of its vaccine
delivery systems or vaccine candidates. While the Company believes that the
manufacturing process used for small-scale production of its delivery systems
and antigens can be scaled up, there can be no assurance that unforeseen
difficulties will not be encountered in doing so.
One of the intermediates included in PCPP is currently available from only
one supplier. Although the Company believes that there are several other
companies which could produce such intermediate and that the Company could
itself develop the capacity to synthesize such intermediate, there can be no
assurance that the supply of such intermediate or the terms on which the Company
can purchase such intermediate will not affect the Company's ability to produce
PCPP.
The Company intends to establish manufacturing arrangements with
manufacturers that comply with the FDA's requirements and other regulatory
standards, although there can be no assurance that the Company will be able to
do so. Before commercial distribution can begin, each vaccine manufacturing
facility must be licensed for the production of vaccines under an establishment
license application ("ELA"). If the FDA finds the ELA inspection unsatisfactory,
it may decline to approve the ELA, resulting in a delay in production or
distribution of products. In the future, the Company may, if it becomes
economically attractive to do so, establish its own manufacturing facilities to
produce any vaccine products that it may develop. In order for the Company to
establish a manufacturing facility, the Company will require substantial
additional funds and will be required to hire and retain significant additional
personnel and comply with the extensive current Good Manufacturing Practice
("cGMP") regulations of the FDA applicable to such facility. The product
manufacturing facility would also need to be licensed for the production of
vaccines under an ELA. See "Business -- Manufacturing" and "--Government
Regulation."
LACK OF MARKETING AND SALES CAPABILITY; DEPENDENCE UPON THIRD PARTIES FOR
MARKETING. Under the terms of existing and future collaborative agreements, the
Company relies and expects to continue to rely on the efforts of its
collaborators for the sale and marketing of any vaccine products. There can be
no assurance that the Company's collaborators will be successful in marketing
any vaccine products developed. In the event that the Company's collaborators
fail to market a product successfully, the Company's business may be adversely
affected. The Company has no marketing and sales staff and limited experience
with respect to marketing vaccine products. If the Company markets products
directly, significant additional expenditures and management resources would be
required to develop an internal sales force. There can be no assurance that the
Company will be able to establish a successful sales force. See
"Business -- Marketing."
DEPENDENCE UPON KEY PERSONNEL; SCIENTIFIC ADVISORS. The Company's success
depends on the continued contributions of its executive officers, scientific and
technical personnel and consultants. During the Company's limited operating
history, many key responsibilities within the Company have been assigned to a
relatively small number of individuals. The Company does not currently have any
employment agreements with any of its executive officers or other personnel. The
competition for qualified personnel is intense, and the loss of services of
certain key personnel could adversely affect the business of the Company. The
Company's planned activities will require additional expertise in areas such as
preclinical testing, clinical trial management and regulatory affairs. Such
activities will require the addition of new personnel, including management, and
the development of additional expertise by existing management personnel. The
inability to acquire such services or to develop such expertise could have a
material adverse effect on the Company's operations.
The Company's scientific advisors are employed by entities other than the
Company and some have consulting agreements with entities other than the
Company, some of which may in the future compete with the Company. The
scientific advisors are expected to devote only a small portion of their time to
the Company and are not expected to participate actively in the day-to-day
operations of the Company. Certain of the institutions with which the scientific
advisors are affiliated may adopt new regulations or policies that limit the
ability of the scientific advisors to consult with the Company.
UNCERTAINTY RELATED TO HEALTH CARE REFORM MEASURES AND REIMBURSEMENT. In
recent years, there have been numerous proposals to change the healthcare system
in the United States. Some of these proposals have included measures that would
limit or eliminate payments for certain medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. Significant
changes in the health care system
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in the United States or elsewhere might have a substantial impact on the manner
in which the Company conducts its business. Such changes could have a material
adverse effect on the Company's ability to raise capital. Furthermore, the
Company's ability to commercialize vaccine products based on the Company's
vaccine delivery systems and vaccine candidates may be adversely affected to the
extent that such proposals have a material adverse effect on the business,
financial condition and profitability of other companies that are collaborators
or prospective collaborators of the Company.
In addition, significant uncertainty exists as to the reimbursement status
of newly-approved healthcare products. The Company and its collaborators'
success in generating revenue from sales of vaccine products may depend, in
part, on the extent to which reimbursement for the costs of such products will
be available from third-party payors such as government health administration
authorities, private health insurers and health maintenance organizations
("HMOs"). In addition, the trend towards managed health care in the United
States and the concurrent growth of organizations such as HMOs, which could
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reduce government insurance
programs, may all result in lower prices for vaccine products and could affect
the market for vaccine products. If the Company succeeds in bringing one or more
vaccine products to market, there can be no assurance that such products will be
considered cost-effective or that adequate third-party insurance coverage will
be available for the Company to establish and maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. Third-party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement of new
products approved for marketing by FDA. If adequate coverage and reimbursement
levels are not provided by government and third-party payors for uses of the
Company's vaccine products, the market acceptance of such products would be
adversely affected.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The testing and
marketing of vaccine products entails an inherent risk of product liability and
the marketing of any vaccine products may expose the Company to product
liability claims. The Company has obtained clinical trial liability insurance
coverage in the amount of $2.0 million, which it deems appropriate for its
current stage of development. However, there can be no assurance that the
Company's present insurance coverage is now or will continue to be adequate as
the Company further develops vaccine products. In addition, the Company's
collaborative agreements may require the Company to obtain certain levels of
product liability insurance. There can be no assurance that in the future
adequate insurance coverage will be available in sufficient amounts or at a
reasonable cost, or that a product liability claim or recall would not have a
material adverse effect on the business or financial condition of the Company.
See "Business -- Product Liability."
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development and manufacturing processes involve the controlled use of hazardous,
controlled and radioactive materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
maintains safety procedures for handling and disposing of such materials that it
believes comply with the standards prescribed by such laws and regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. Although the Company believes that it is in compliance
in all material respects with applicable environmental laws and regulations,
there can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws and regulations in the
future, nor that the operations, business or assets of the Company will not be
materially or adversely affected by current or future environmental laws or
regulations.
The Company is leasing premises in Cambridge, Massachusetts in an area of
past industrial activities and, as a result of such past activities, there is
evidence of low levels of oil and hazardous materials at the site leased by the
Company. The Company believes that the level of oil and hazardous materials at
the site are typical of this and many other urban areas and that no remediation
of the site is likely to be required. However, there can be no assurance that in
the future the Commonwealth of Massachusetts or the United States Environmental
Protection Agency will not require remediation of the site and, if remediation
were required, the Company could be required to bear part of the costs of
remediation, which could be substantial.
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The research and development efforts sponsored by the Company involves use
of laboratory animals. The Company may be adversely affected by changes in laws,
regulations or accepted clinical procedures or by social pressures that would
restrict the use of animals in testing or by actions against the Company or its
collaborators by groups or individuals opposed to such testing.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS. Upon the
completion of this offering, the current executive officers, directors and
principal stockholders of the Company will beneficially own or control
approximately 56% of the outstanding shares of Common Stock and will therefore
be able to elect all of the Company's directors, to determine the outcome of
most corporate actions requiring stockholder approval, and otherwise to control
the business of the Company. Such control could preclude any unsolicited
acquisition of the Company and consequently adversely affect the market price of
the Common Stock. The Company's Certificate of Incorporation and by-laws include
certain restrictions which will be effective upon closing of this offering
relating to calling meetings of stockholders, bringing matters before
stockholders' meetings and taking stockholder action by written consent.
Furthermore, the Company is subject to the anti-takeover provisions of Section
203 of the General Corporation Law of Delaware which prohibits a publicly held
corporation from engaging in a "business combination" with an "interested
person" for a period of three years after the date of a transaction in which the
person becomes an "interested stockholder," unless the business combination is
approved in a prescribed manner. These provisions could have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including changes in control or management which
stockholders may deem to be in their best interests or transactions in which
stockholders might otherwise receive a premium over then-current market prices.
In addition, the Company's Board of Directors is authorized to issue from time
to time shares of preferred stock, without stockholder authorization, in one or
more designated series or classes. The issuance of preferred stock could make
the possible takeover of the Company or the removal of the Company's management
more difficult, discourage hostile bids for control of the Company in which
stockholders may receive a premium for their shares of Common Stock or otherwise
dilute the rights of holders of Common Stock and depress the market price of the
Common Stock. See "Principal Stockholders" and "Description of Capital Stock."
ABSENCE OF PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this offering, there has been no public market for the Common Stock, and
there is no assurance that an active market will develop or be sustained after
this offering. The initial public offering price will be determined by
negotiation between the Company and the representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
completion of this offering. See "Underwriting" for factors to be considered in
determining such offering price. The market price of the shares of Common Stock,
like that of the common stock of many other early-stage pharmaceutical
companies, is likely to be highly volatile. Factors such as the results of
preclinical studies and clinical trials by the Company or its competitors, other
evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new commercial
products by the Company or its competitors, governmental regulation, changes in
reimbursement policies, healthcare legislation, developments in patent or other
proprietary rights, developments in the Company's relationships with existing
and future collaborative partners, if any, public concern as to the safety and
efficacy of vaccines developed by the Company, fluctuations in the Company's
operating results, and general market conditions may have a significant impact
on the market price of the Common Stock.
FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS. Future sales of shares
of Common Stock in the public market by existing stockholders (including shares
issued upon exercise of stock options or warrants) pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or the perception
that such sales could occur, and the exercise of outstanding registration rights
could adversely affect the prevailing market price of the Common Stock or the
ability of the Company to raise capital through a public offering of its equity
securities. In addition to the 2,300,000 shares of Common Stock offered hereby,
approximately 6,376,790 shares of Common Stock will be eligible for sale in the
public market subject to compliance with Rule 144 and Rule 701 under the
Securities Act, beginning 180 days from the date of this Prospectus upon the
expiration of agreements not to sell such shares. Additionally, commencing 180
days after the date of this Prospectus, holders of approximately 5,892,256
shares of Common Stock (including shares issuable upon exercise of warrants)
will have registration rights under certain conditions. Additional shares of
Common Stock, including shares issuable upon
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exercise of options and warrants, will also become eligible for sale in the
public market from time to time in the future, including 798,614 shares subject
to outstanding options, which may be eligible for future sale pursuant to Rule
701 under the Securities Act. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
DILUTION. The initial public offering price will be substantially higher
than the book value per share of currently outstanding Common Stock. Investors
purchasing shares of Common Stock in this offering will suffer immediate,
substantial net tangible book value dilution of $9.01 per share, assuming an
initial public offering price of $12.00 per share. This dilution will be
increased to the extent that holders of outstanding options and warrants to
purchase Common Stock at prices below the initial public offering price exercise
such options. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain earnings, if any, for the
development of its business. See "Dividend Policy."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discount and
expenses payable by the Company, are estimated to be approximately $24,868,000
($28,718,200 if the Underwriters' over-allotment option is exercised in full).
The Company currently anticipates that an aggregate of approximately $1,000,000
of the net proceeds will be used to repay indebtedness incurred in April 1996
(which bears interest at the prime rate plus 2% per annum and is due on July 31,
1996 and which has been used to fund research and development and working
capital requirements). The Company anticipates that the balance of the net
proceeds will be devoted to research and development activities, including the
scale up of PCPP manufacturing, and for working capital and other general
corporate purposes.
The Company believes that the net proceeds of this offering, together with
the Company's available cash, should be sufficient to fund the Company's
operating expenses and capital requirements through 1997. Thereafter, the
Company will require substantial funds in addition to the proceeds of this
offering to conduct development activities, preclinical studies, clinical trials
and other activities relating to the commercialization of any potential
products. The Company anticipates that these funds will be obtained from
external sources and intends to seek additional equity, debt or lease financing
to fund future operations. The Company also expects to seek additional
collaborative agreements with corporate partners to fund its research and
development programs. There can be no assurance, however, that the Company will
be able to negotiate such arrangements or obtain the additional funds it will
require on acceptable terms, if at all. In addition, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of product testing, potential relationships
with collaborators, changes in the focus and direction of the Company's research
and development programs, competitive and technological advances, the cost of
filing, prosecuting, defending and enforcing patent claims, the regulatory
approval process and other factors.
Pending such uses, the net proceeds from this offering will be temporarily
invested by the Company in short-term, interest bearing investment grade
securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for the development of its
business.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth as of March 31, 1996 (a) the actual
capitalization of the Company, (b) the pro forma capitalization of the Company
after giving effect to (i) the sale, subsequent to March 31, 1996, of shares of
Preferred Stock to Pasteur Merieux and the receipt of $1,000,000 in gross
proceeds therefrom, (ii) the conversion of all outstanding shares of Preferred
Stock and the Convertible Notes into 5,761,903 shares of Common Stock upon the
closing of this offering, (iii) the one-for-three reverse stock split of the
Common Stock to be effected prior to the offering, (iv) the filing of an
amendment to the Company's Certificate of Incorporation to change the authorized
capital stock of the Company and (v) the incurrence of $1,000,000 in
indebtedness in April 1996, and (c) the pro forma capitalization of the Company,
as adjusted to reflect the sale by the Company of the 2,300,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00 per
share and the repayment of $1,000,000 in indebtedness out of the estimated net
proceeds therefrom. This table should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. See "Use
of Proceeds," "Description of Capital Stock" and Notes E and G of Notes to
Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Notes payable.................................... $ 934,565 $ 1,000,000 $ --
Lease obligation payable, less current portion... 181,514 181,514 181,514
Redeemable convertible preferred stock........... 25,009,239 -- --
Stockholders equity (deficit):
Preferred Stock -- $.001 par value; 5,000,000
shares authorized, pro forma and pro forma
as adjusted; no shares issued and
outstanding................................. -- -- --
Common Stock -- $.001 par value; 30,000,000
shares authorized, pro forma and pro forma
as adjusted; 690,087 shares issued, actual;
6,451,990 shares issued, pro forma;
8,751,990 shares issued, pro forma as
adjusted(1)................................. 690 6,452 8,752
Additional paid-in capital....................... 134,325 27,072,507 51,938,207
Deficit accumulated during the development
stage.......................................... (25,750,141) (25,750,141) (25,750,141)
------------ ------------ ------------
Total stockholders' equity (deficit)........ (25,615,126) 1,328,818 26,196,818
------------ ------------ ------------
Total capitalization........................ $ 510,192 $ 2,510,332 $ 26,378,332
============ ============ ============
</TABLE>
- ---------------
(1) Excludes 928,964 shares of Common Stock reserved for issuance upon exercise
of warrants and options outstanding as of May 10, 1996. See
"Management -- Stock Options" and "Description of Capital Stock."
16
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996,
after giving effect to the transactions described in footnote (1) to "Selected
Financial Data," was $1,269,000, or approximately $0.20 per share. Net tangible
book value per share is equal to the Company's total tangible assets less its
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of the 2,300,000 shares of Common Stock in this
offering at an assumed initial public offering price of $12.00 per share and the
receipt of the estimated net proceeds therefrom, the pro forma net tangible book
value at March 31, 1996 would have been $26,137,000, or $2.99 per share. This
represents an immediate increase in such net tangible book value of $2.79 per
share to existing stockholders and an immediate dilution in net tangible book
value of $9.01 per share to new investors purchasing shares in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Pro forma net tangible book value per share as of December 31,
1995.............................................................. $0.20
Increase per share attributable to new investors.................... 2.79
----
Pro forma net tangible book value per share after offering.......... 2.99
------
Dilution per share to new investors................................. $ 9.01
======
</TABLE>
The following table summarizes on a pro forma basis the difference between
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by new investors in this offering (assuming an initial public offering price
of $12.00 per share and before deducting the estimated underwriting discount and
offering expenses):
<TABLE>
<CAPTION>
AVERAGE TOTAL
SHARES PURCHASED CONSIDERATION
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................. 6,451,990 73.4% $27,310,000 49.7% $ 4.23
New Investors......................... 2,300,000 26.6 27,600,000 50.3 $ 12.00
--------- ----- ----------- -----
Total....................... 8,751,990 100.0% $54,910,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing assumes no exercise of the Underwriters' over-allotment
option and assumes no exercise of any outstanding stock options or warrants. At
May 10, 1996, there were outstanding options to purchase an aggregate of 798,614
shares of Common Stock at a weighted average exercise price of $1.20 per share
and outstanding warrants to purchase an aggregate of 130,350 shares of Common
Stock at a weighted average exercise price of $2.54 per share. To the extent
such outstanding options and warrants are exercised, there will be further
dilution to new investors. See "Management -- Stock Options," "Description of
Capital Stock" and Note G of Notes to Financial Statements.
17
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations data for the years ended December 31, 1993, 1994 and
1995 and with respect to the balance sheet data as of December 31, 1994 and 1995
have been derived from and should be read in conjunction with the more detailed
financial statements of the Company and related notes thereto which have been
audited by Richard A. Eisner & Company, LLP, independent auditors, whose report
thereon is included elsewhere in this Prospectus. The selected financial data
with respect to the Company's statement of operations data for the period from
February 11, 1991 (inception) to December 31, 1991, for the year ended December
31, 1992 and with respect to the balance sheet data as of December 31, 1991,
1992 and 1993 have been derived from financial statements audited by Richard A.
Eisner & Company, LLP but not included in this Prospectus. The selected
financial data presented below as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is derived from the Company's unaudited financial
statements included elsewhere in this Prospectus and reflect, in management's
opinion, all adjustments necessary for a fair presentation of the results of
operations for the periods. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for a full fiscal year. The selected financial data set forth below
should be read in conjunction with the financial statements of the Company and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
FEBRUARY 11, 1991 THREE MONTHS ENDED MARCH
(INCEPTION) TO FOR THE YEARS ENDED DECEMBER 31, 31,
DECEMBER 31, -------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
----------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licensing and
option
revenue.......... $-- $ -- $ -- $ 700,000 $ 770,000 $ -- $ 20,000
Research and
development
revenue.......... -- -- -- 5,000 1,047,500 -- 525,000
Research and
development
grants........... -- -- -- 16,269 19,980 -- --
Interest income.... -- -- 83,610 163,591 126,249 65,330 12,427
--------- ----------- ----------- ----------- ----------- ------------ ------------
Total
revenues.... -- -- 83,610 884,860 1,963,729 65,330 557,427
Expenses:
Research and
development...... 619,938 2,430,785 4,205,781 5,756,042 5,734,427 1,639,203 1,346,986
General and
administrative... 212,888 1,228,679 1,452,344 1,887,512 1,854,732 564,560 348,808
Depreciation
expense.......... 5,601 68,993 268,391 517,756 583,654 144,752 168,585
Interest expense... 24,170 239,147 84,315 52,332 87,944 6,671 59,957
--------- ----------- ----------- ----------- ----------- ------------ ------------
Total
expenses.... 862,597 3,967,604 6,010,831 8,213,642 8,260,757 2,355,186 1,924,336
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net loss............ $(862,597) $(3,967,604) $(5,927,221) $(7,328,782) $(6,297,028) $(2,289,856) $(1,366,909)
========= =========== =========== =========== =========== ============ ============
Pro forma net loss per share........................................................ $ (.98) $ (.36) $ (.21)
=========== ============ ============
Pro forma weighted average common shares outstanding................................ 6,390,760 6,390,364 6,425,559
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, --------------------------------------------
-------------------------------------------------------------------- PRO FORMA AS
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
--------- ----------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
SHEET DATA:
Cash and
cash
equivalents... $ 36,709 $ 19,814 $ 954,134 $ 5,669,490 $ 1,180,176 $ 704,342 $2,704,482 $ 26,572,482
Working
capital....... (945,613) (1,456,980) 394,438 4,856,567 (824,212) (1,576,967) 357,738 25,225,738
Total
assets........ 131,475 955,098 2,742,301 7,667,363 2,727,905 2,302,778 4,302,918 28,170,918
Notes
payable....... 796,298 1,031,988 -- -- 923,315 934,565 1,000,000 --
Lease
obligation
payable,
less
current
portion....... -- 244,448 220,028 46,838 210,842 181,514 181,514 181,514
Redeemable
convertible
preferred
stock......... -- 3,936,231 12,581,906 24,508,053 24,527,073 25,009,239 -- --
Total
stockholders'
equity
(deficit)...... $(862,097) $(4,281,027) $(10,751,850) $(18,043,081) $(24,248,340) $(25,615,126) $1,328,818 $ 26,196,818
</TABLE>
- ---------------
(1) Presented on a pro forma basis to give effect to (i) the sale, subsequent to
March 31, 1996, of shares of Preferred Stock to Pasteur Merieux and the
receipt of $1,000,000 in gross proceeds therefrom, (ii) the automatic
conversion of all outstanding shares of Preferred Stock into 5,553,569 of
Common Stock upon the consummation of this offering; (iii) the issuance of
208,334 shares of Common Stock upon conversion of the Convertible Notes upon
the consummation of this offering (exclusive of any shares of Common Stock
issuable with respect to accrued interest on the Convertible Notes); and
(iv) the incurrence of $1,000,000 in indebtedness in April 1996. See
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions," "Description
of Capital Stock" and Notes to Financial Statements.
(2) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of 2,300,000 shares of Common Stock at an assumed initial public offering
price of $12.00 per share and the repayment of an aggregate of $1,000,000 in
indebtedness, plus accrued interest, out of the proceeds of this offering.
See "Use of Proceeds."
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since inception in February 1991, the Company has been engaged in the
discovery and development of vaccine delivery systems and improved and novel
vaccines for adults and children. The Company is in the development stage and
has devoted substantially all of its resources to the research and development
of its vaccine delivery systems and vaccine candidates and general and
administrative expenses. Since inception, the Company has not generated any
revenue from product sales, but has received an aggregate of $3,489,000 in
revenues from licensing, option and research and development agreements,
research and development grants and interest income. There can be no assurance
that the Company will receive any such revenue in the future.
The Company has not been profitable since inception. The Company's losses
incurred since inception have resulted principally from expenditures under its
research and development programs, and the Company expects to incur significant
operating losses over the next several years due primarily to expanded research
and development efforts, preclinical and clinical testing of its product
candidates, investment in new technologies, investment in production
capabilities for certain product candidates and the performance of
commercialization activities. The Company's results of operations may vary
significantly from quarter to quarter due to timing of license and milestone
payments and other factors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
The Company's total revenue increased by $492,000 to $557,000 in the three
months ended March 31, 1996 from $65,000 for the same period in 1995. Revenue
from research and development support agreements and from licensing and option
agreements was $525,000 and $20,000, respectively, for the 1996 quarter. No
similar revenue was recorded for the prior year quarter. Research and
development revenue consisted principally of $313,000 and $138,000 received
pursuant to agreements with Pasteur Merieux and SmithKline Beecham plc,
respectively. Revenue from interest income decreased by $53,000 to $12,000 for
the three months ended March 31, 1996 compared with $65,000 for the 1995
quarter, principally due to a reduction of cash and cash equivalents earning
interest in the 1996 quarter.
The Company's total expenses decreased $431,000 to $1,924,000 in the three
months ended March 31, 1996 from $2,355,000 in the 1995 quarter. Research and
development expenses decreased by $292,000 to $1,347,000 in the three months
ended March 31, 1996 from $1,639,000 in the 1995 quarter principally as a result
of a reduction in outside consulting costs and the conclusion of certain
sponsored research agreements during 1995. General and administrative expenses
decreased $216,000 to $349,000 in the three months ended March 31, 1996 from
$565,000 in the 1995 quarter principally as a result of reduced legal costs
associated with patent filings and decreased executive compensation costs
resulting from a temporary reduction in executive salaries in the 1996 quarter.
FISCAL YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company's total revenue increased by $1,079,000 to $1,964,000 in 1995
from $885,000 in 1994 and increased by $801,000 in 1994 from $84,000 in 1993.
Revenue from licensing and option payments increased by $70,000 to $770,000 in
1995 from $700,000 in 1994. Revenue from licensing and option payments in 1995
consisted principally of $750,000 earned under a collaboration agreement with
Chiron Corporation. In 1994, revenue from option payments consisted of $500,000
and $200,000 received under an agreement with Pasteur Merieux and another
company, respectively. The Company received no revenue from licensing and option
payments in 1993. Revenue from research and development increased by $1,043,000
to $1,048,000 in 1995 from $5,000 in 1994. This increase was due primarily to
the payment of $413,000 earned under a collaboration agreement with SmithKline
Beecham plc and $625,000 earned under a collaboration agreement with Pasteur
Merieux during 1995. The Company earned no revenue from research and development
in 1993. Revenue from research and development grants increased by $4,000 to
$20,000 in 1995 from $16,000 in 1994 primarily
19
<PAGE> 22
due to additional grant funding from the National Institutes of Health. The
Company received no revenue from research and development grants in 1993.
Revenue from interest income decreased by $38,000 to $126,000 in 1995 from
$164,000 in 1994. This decrease was primarily due to a reduction of cash and
cash equivalents earning interest during 1995. Revenue from interest income
increased by $80,000 to $164,000 in 1994 from $84,000 in 1993. This increase is
principally due to the increase in cash and cash equivalents as a result of the
sale of Preferred Stock totalling $10,983,000 in 1994. Interest income was the
Company's sole source of revenue in 1993.
The Company's total expenses increased by $47,000 to $8,261,000 in 1995
from $8,214,000 in 1994 and increased by $2,203,000 in 1994 from $6,011,000 in
1993. Research and development expenses decreased slightly from $5,756,000 in
1994 to $5,734,000 in 1995. Research and development expenses increased by
$1,550,000 in 1994 from $4,206,000 in 1993 principally as a result of growth in
the Company's research and development programs relating to its vaccine delivery
systems. General and administrative expenses decreased by $33,000 to $1,855,000
in 1995 from $1,888,000 in 1994, primarily as a result of substantial reductions
in recruiting costs offset by increased legal and consulting costs associated
with the negotiation of collaboration agreements in connection with the
Company's vaccine delivery and other programs. General and administrative
expenses increased by $436,000 to $1,888,000 in 1994 from $1,452,000 in 1993
principally as a result of costs related to the recruitment and hiring of
additional management and research staff and increased legal costs primarily
associated with patent filings.
LIQUIDITY AND CAPITAL RESOURCES
From inception (February 11, 1991) through March 31, 1996, the Company's
cash expenditures have exceeded revenues. The Company's operations have been
funded principally through the sale of equity, loans from stockholders,
equipment lease financing and payments under licensing, option and research and
development agreements. Net cash used by the Company's operations was
$22,879,000, which was principally used to fund research and development efforts
and its general and administrative expenses. The Company incurred $2,589,000 in
capital expenditures primarily for leasehold improvements and equipment for the
Company's laboratories. The Company anticipates incurring approximately $750,000
in capital expenditures primarily on equipment necessary for the scale-up of
PCPP manufacturing for the year ending December 31, 1996.
From inception through March 31, 1996, the Company raised net proceeds of
approximately $18,048,000 through the sale of equity securities. During the
period, the Company borrowed an aggregate of $7,974,000 from certain
stockholders. Of the amount borrowed, an aggregate of $6,676,000 plus accrued
interest has been converted into Preferred Stock and $1,000,000 (plus accrued
interest) will be converted into Common Stock upon the closing of this offering.
In addition, from inception the Company has funded $751,000 of capital
expenditures through capital leases, $510,000 of the principal of which has been
repaid. In April 1996, the Company entered into a loan agreement with a bank
pursuant to which it borrowed $1,000,000, bearing interest at the bank's prime
rate plus 2%. This loan will be repaid from the proceeds of this offering.
In December 1994, Pasteur Merieux made a $3,000,000 equity investment in
the Company in connection with the execution of a collaboration agreement
relating to Adjumer. In January 1996, Pasteur Merieux and OraVax, Inc. each made
an equity investment of $250,000 in connection with the execution of an option
agreement relating to VibrioVec. These amounts are included in the $18,048,000
referred to above. In April 1996, Pasteur Merieux made an additional equity
investment of $1,000,000 in connection with the collaboration agreement relating
to Adjumer.
As of December 31, 1995 the Company's federal net operating loss
carryforwards were approximately $16,700,000. If not used, the tax loss
carryforwards will expire at various dates through 2010. The Company's ability
to use these carryforwards is subject to limitations resulting from an ownership
change as defined in Internal Revenue Code Section 382 and 383. See also Note H
of Notes to Financial Statements.
Following this offering, the Company will not have any credit facilities in
place and will not be entitled to receive further payments unless certain
milestones are achieved under its agreements with Pasteur Merieux or unless new
collaborative agreements are entered into which provide for upfront payments or
payments based upon milestones which the Company achieves. In 1996 and 1997 the
Company plans to continue to devote a substantial portion of its spending to the
research and development of vaccine delivery systems and vaccine candidates and
expects to substantially increase research and development expenditures.
The Company believes that the net proceeds of this offering, together with
the Company's available cash, should be sufficient to fund the Company's
operating expenses and capital requirements through 1997.
20
<PAGE> 23
Thereafter, the Company will require substantial funds in addition to the
proceeds of this offering to conduct development activities, preclinical studies
and clinical trials and other activities relating to the commercialization of
any potential products. The Company anticipates that these funds will be
obtained from external sources and intends to seek additional equity, debt or
lease financing to fund future operations. The Company also expects to seek
additional collaborative agreements with corporate partners to fund its research
and development programs. There can be no assurance, however, that the Company
will be able to negotiate such arrangements or obtain the additional funds it
will require on acceptable terms, if at all. In addition, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of product testing, potential relationships
with collaborators, changes in the focus and direction of the Company's research
and development programs, competitive and technological advances, the cost of
filing, prosecuting, defending and enforcing patent claims, the regulatory
approval process and other factors.
If adequate funds are not available, the Company may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs; to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself; or to license the rights to such
products on terms that are less favorable to the Company than might otherwise be
available. See "Risk Factors -- History of Operating Losses; No Product Revenue
and Uncertainty of Future Profitability" and "Risk Factors -- Future Capital
Needs; Uncertainty of Additional Funding."
21
<PAGE> 24
BUSINESS
GENERAL
The Company is engaged in the discovery and development of vaccine delivery
systems and improved and novel vaccines for adults and children. The Company is
developing a portfolio of proprietary vaccine delivery systems designed to
improve the efficacy, lower the cost of administration and improve patient
compliance for a variety of vaccine products. The Company and its collaborators
currently are applying the Company's vaccine delivery systems to develop
vaccines for the prevention of influenza, Lyme disease and H. pylori infections.
The Company has entered into long-term collaboration agreements with Pasteur
Merieux, pursuant to which Pasteur Merieux may utilize the Company's vaccine
delivery systems in developing a number of vaccines. The Company is also
developing its own proprietary vaccines utilizing antigens licensed exclusively
by the Company, including an oral vaccine for rotavirus infection, a
gastrointestinal disease of infants, and a vaccine for HSV2, the virus that
causes genital herpes.
While vaccines have proven to be safe and effective for the prevention of
certain infectious diseases, the Company believes that there is significant
potential for improvement, including: enhancement of the immune response;
reduction in the number of doses required for an effective immune response;
increase in the percentage of the population responding to certain vaccines;
delivery of vaccines through methods other than by injection; and stimulation of
a mucosal immune response. To address these shortcomings, the Company is
developing vaccine delivery systems that may lead to more effective and less
costly vaccines, increased patient compliance and the introduction of new
vaccines.
The Company's strategy is to utilize its expertise in the design and
application of vaccine delivery systems to develop vaccine products for
infectious diseases that have significant and growing market potential. The
Company is developing three vaccine delivery systems. The Adjumer vaccine
delivery system utilizes a novel polymer, which is a synthetic polyphosphazene
derivative ("PCPP"), as an adjuvant for use with a variety of antigens
administered by injection. The Company believes that Adjumer-formulated vaccines
will be capable of producing an enhanced and longer-lived immune response with
fewer injections. In preclinical studies, Adjumer-formulated vaccines elicited
an immune response that was greater than either vaccines formulated with alum,
the only approved adjuvant for commercial use on humans, or non-adjuvanted
vaccines. The Micromer vaccine delivery system utilizes a mixture of PCPP and
antigens formed into hydrogel microparticles for the intranasal and oral
delivery of vaccines. Mucosal vaccine delivery has potential advantages over
conventional delivery by injection, including ease of administration and the
generation of immunity at the mucosal surfaces, where most infectious organisms
enter the body, as well as the generation of systemic (blood and other organs)
immunity. The VibrioVec vaccine delivery system utilizes a recombinant bacterial
vector for the oral delivery of antigens to the gastrointestinal tract. The
Company believes that VibrioVec-delivered vaccines will be capable of inducing a
systemic and mucosal immune response.
As part of the Company's strategy to bring its vaccine delivery
technologies to market, the Company collaborates with corporate partners that
offer substantial market presence, unique antigens or complementary
technologies. The Company and Pasteur Merieux, the leading worldwide supplier of
influenza vaccines, are currently collaborating on the development of an
Adjumer-formulated vaccine for influenza. Pursuant to a separate agreement with
Pasteur Merieux, the Company is conducting research on the mucosal
administration of an influenza vaccine using its Micromer vaccine delivery
system. Influenza accounts for an average of 20,000 deaths annually in the
United States; the greatest number of fatalities occur among the elderly. The
Company anticipates that Pasteur Merieux will commence Phase I clinical trials
on an Adjumer-formulated influenza vaccine in France during 1996. Pasteur
Merieux also has the right to develop Adjumer-formulated vaccines for prevention
of other diseases, including Lyme disease.
The Company is also conducting research relating to the use of VibrioVec
for the delivery of vaccines to prevent and treat infections caused by H.
pylori. H. pylori is a bacterium that causes chronic gastritis and peptic
ulcers. Currently, no vaccine or generally effective therapy is approved for the
elimination of H. pylori infection. The Company is conducting research
separately with CSL and PM-O to determine the utility of the Company's VibrioVec
system in delivering vaccines against H. pylori.
22
<PAGE> 25
The Company is also developing novel vaccines against rotavirus and HSV2
infections. Rotavirus is a major cause of diarrhea and vomiting in infants. The
Company has completed Phase I clinical trials of an orally delivered live human
rotavirus vaccine selected to elicit a broadly protective immune response to the
most prevalent strains of rotavirus. HSV2 is a sexually transmitted virus with
an estimated incidence of 500,000 new cases occurring in the United States each
year. At present, there is no approved vaccine for prevention of rotavirus or
HSV2 infection.
In connection with its collaboration relating to Adjumer, Pasteur Merieux
made a $3.0 million equity investment in the Company in December 1994. In
addition, in connection with this collaboration, in April 1996 Pasteur Merieux
made a milestone payment of $2.5 million to the Company and an additional equity
investment of $1.0 million in the Company. Contingent upon achieving certain
milestones, Pasteur Merieux has agreed to pay the Company an additional $1.0
million in connection with the development of Adjumer and up to an additional
$7.2 million in connection with the development of Adjumer-formulated vaccines
for the prevention of influenza and Lyme disease. Contingent upon achieving
certain milestones, Pasteur Merieux has also agreed to make payments, on a
product by product basis, if Pasteur Merieux commences clinical development of
Adjumer-formulated vaccines against certain specified pathogens, or
Micromer-formulated vaccines directed against influenza and other specified
pathogens. Pasteur Merieux is required to fund all costs associated with the
development and commercialization, including the costs of clinical trials, of
any vaccines it elects to develop utilizing the Company's technology and to make
royalty payments based on product sales.
VACCINE OVERVIEW
THE VACCINE MARKET. Vaccines have long been recognized as a safe and
cost-effective method for preventing infection caused by certain bacteria and
viruses. The Centers for Disease Control and Prevention (the "CDC") have
estimated that every dollar spent on vaccination saves $16 in healthcare costs.
There are currently 16 vaccines in routine use in the United States against such
life-threatening infectious organisms as tetanus, diphtheria, poliovirus,
hepatitis B virus, Haemophilus influenzae B, measles, mumps and rubella. From
1990 to 1995, annual worldwide vaccine sales increased from $1.6 billion to $3.6
billion, a compound annual growth rate of approximately 17.5%. The Company
believes that this growth may be accelerated as a result of advances in vaccine
technologies and formulations that address the shortcomings of existing
vaccines. Areas of potential improvement include enhancement of immune
responses, which could lead to reduction in the number of doses required for
effective protection as well as effective immunization in a higher percentage of
the population, and delivery of vaccines through methods other than injection.
The vaccine market may also expand due to the introduction of new purified
antigens, produced as a result of advances in molecular biology. The Company
also believes that the growing awareness and incidence of certain infectious
diseases, such as H. pylori, hepatitis C virus, HIV1 and HSV2 infection, could
further expand the vaccine market.
THE IMMUNE SYSTEM AND VACCINES. The function of the human immune system is
to respond to pathogens, including infectious bacteria and viruses, that enter
the body. However, a pathogen may establish an infection and cause disease
before it is eliminated by an immune response. Antibodies are produced as part
of the immune response to antigens, which are components of the pathogen. These
antibodies can continue to circulate in the human body for many years, providing
continued protection against reinfection by the same pathogen.
Protective antibodies can be produced in both the systemic and mucosal
branches of the immune system. The systemic immune system produces IgG
antibodies to protect against infection occurring in blood and deep tissue. The
mucosal immune system produces IgA antibodies that protect against infection
occurring in the mucosal layer lining the digestive, respiratory and
genitourinary tracts. Mucosal immunity may act as a first line of defense, by
attacking pathogens at the point of entry into the body, prior to systemic
penetration, as well as by targeting certain pathogens such as H. pylori,
influenza and rotavirus that propagate exclusively at the mucosal layer.
Vaccines are a pre-emptive means of generating a protective antibody
response. A vaccine consists of either a weakened pathogen or pathogen-specific,
non-replicating antigens which are deliberately administered to induce the
production of antibodies. When weakened pathogens are used as a vaccine, they
replicate in the
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body, extending presentation to the immune system and inducing the production of
antibodies without causing the underlying disease. When non-replicating antigens
are used as a vaccine, they must be delivered in sufficient quantity and remain
in the body long enough to generate an effective antibody response. To achieve
this goal, many vaccines require multiple administrations. Of the 16 vaccines
currently in routine use, 14 are delivered by injection and stimulate only
systemic immunity. Only polio and typhoid vaccines can be administered orally
and induce both a mucosal and a systemic immune response. Both of these vaccines
are live, weakened pathogens that localize in the intestines and do not require
a separate vaccine delivery system.
ADJUVANTS. The antigens contained in many injectable vaccines will not
produce an immune response sufficient to confer protection against infection and
require the use of an adjuvant to sustain the presentation of the antigens to
the human immune system. Alum (aluminum hydroxide) is the only adjuvant
currently approved by the FDA for commercial use in humans. While alum has
gained widespread use, it does not sufficiently enhance the immune response to
permit administration of many existing injected vaccines in a single dose. In
the case of certain vaccines, such as influenza, alum is ineffective as an
adjuvant.
The Company believes that alum will prove ineffective for vaccines using
many of the new purified recombinant antigens being developed. Further, alum
cannot be used for mucosal delivery of vaccines. Accordingly, the Company
believes that there is a significant need for a new adjuvant that is safe, works
with a wide variety of antigens, induces a protective immune response with only
one or two injections and can be administered mucosally. These attributes could
result in certain benefits, including cost savings and improved patient
compliance.
COMPANY VACCINE DELIVERY SYSTEMS
The Company is developing a portfolio of proprietary vaccine delivery
systems designed to improve the efficacy, lower the cost of administration and
improve patient compliance for a variety of vaccine products. The following
summarizes the Company's three main vaccine delivery systems:
<TABLE>
<CAPTION>
DELIVERY DELIVERY POTENTIAL
SYSTEM COMPOSITION METHOD BENEFITS(1)
- ---------- ---------------------- --------------------- ----------------------------
<S> <C> <C> <C>
Adjumer Water Soluble Polymer Injectable Enhanced systemic immune
response; fewer injections
Micromer Polymer Microparticles Mucosal Systemic and mucosal immune
responses; no injection
VibrioVec Genetically Engineered Oral Systemic and mucosal immune
Bacterial Vector responses; targeted
delivery; no injection;
single dose
</TABLE>
- ---------------
(1) Based upon preclinical studies conducted by the Company. The Company's
vaccine delivery systems are in various stages of development. The summary
information included in the above table is qualified in its entirety by the
detailed discussions of each of the vaccine delivery systems that follows.
ADJUMER. The Company is developing Adjumer, a proprietary vaccine delivery
system as an adjuvant to enhance the immune response to injected vaccines.
Adjumer is a water soluble, synthetic derivative of the polymer polyphosphazene
(PCPP). The water soluble nature of PCPP facilitates a simple aqueous-based
manufacturing process for vaccines, thereby preserving the integrity of the
antigen.
In preclinical studies conducted by the Company, Adjumer demonstrated
sustained presentation of influenza, hepatitis B, HSV2, HIV1 and tetanus
antigens to the immune system. In those preclinical studies, single
intramuscular injections of Adjumer-formulated vaccines elicited a higher immune
response than both alum-formulated vaccines and non-adjuvanted vaccines as
measured by resulting IgG antibody levels. In additional preclinical studies, an
Adjumer-formulated influenza vaccine using lower antigen doses sustained higher
antibody levels over a longer time period than both alum-formulated vaccines and
non-adjuvanted vaccines. In certain other preclinical studies Adjumer-formulated
vaccines produced an effective immune
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response in a higher percentage of animals than in animals receiving existing
vaccine formulations. Furthermore, in these studies, as well as tests conducted
using Adjumer alone, the Company observed no material adverse reactions when
Adjumer was administered at effective levels.
Based on these preclinical results, the Company believes that an
Adjumer-formulated vaccine may provide a number of benefits over existing
injected vaccines. These benefits include reducing the number of doses required
for an effective immune response, thereby improving compliance; providing cost
savings as a result of the reduction in the number of doses and the amount of
antigen required; and increasing the time period over which immune protection
can be sustained. In addition, based on the results of these preclinical
studies, the Company believes that an Adjumer-formulated vaccine may be able to
induce an immune response in a number of subjects who would not otherwise
respond to existing vaccines. The Company expects that the first human clinical
trials of a vaccine using Adjumer as a delivery system will commence in 1996.
See "-- Product Development Programs."
MICROMER. The Company is conducting ongoing research on Micromer, a
proprietary vaccine delivery system designed to facilitate the mucosal
(intranasal or oral) delivery of antigens and stimulate both the systemic and
mucosal branches of the immune system. The focus of the Company's current
efforts are on intranasal delivery. Micromer is synthesized utilizing a
manufacturing process in which PCPP and an antigen are formulated into hydrogel
microparticles. The Company believes that the physical characteristics of these
microparticles will facilitate absorption by mucosal surfaces.
In preclinical studies conducted by the Company, several
Micromer-formulated antigens delivered intranasally elicited both a mucosal
(IgA) immune response and a systemic (IgG) immune response. IgA antibodies were
detected at all mucosal sites, and the level of IgG antibodies was comparable to
the level obtained through Adjumer-formulated injections of the same antigen. A
micromer-formulated influenza vaccine required only a single, intranasal dose to
provide an immune response sufficient to protect the animals against subsequent
infection by the influenza virus. In addition to conducting further research on
the Micromer vaccine delivery system, the Company has commenced research on
additional Micromer-formulated vaccines.
VIBRIOVEC. The Company is developing VibrioVec, a proprietary vaccine
delivery system that uses a bacterial vector for the oral delivery of antigens.
This vector is a live organism that has been genetically altered to make it
non-virulent, incapable of reacquiring virulence and capable of delivering
selected antigens. VibrioVec is an attenuated form of the bacterium Vibrio
cholerae.
In preclinical studies conducted by the Company, single, oral doses of
VibrioVec engineered to express genes encoding antigens from selected bacteria
have generated systemic and mucosal immune responses that protected against
infection from the virulent organism. In addition, in 1995 the Company completed
Phase II human clinical studies involving more than 100 subjects administering
VibrioVec as a potential cholera vaccine. The subjects in this study showed no
clinically significant vaccine-related side effects. Separate clinical trials
will be needed to test each antigen proposed to be delivered by VibrioVec.
Based on its preclinical studies, the Company believes that VibrioVec will
be an effective oral delivery system that can deliver antigens to the
gastrointestinal tract where the VibrioVec vector will grow and express the
antigens for a limited period of time. The Company is currently inserting the
genes which encode certain H. pylori antigens into VibrioVec to determine if the
vector containing these genes can grow and express the antigen.
STRATEGY
The Company's strategy is to utilize its expertise in the design and
application of vaccine delivery systems to create improved versions of existing
vaccines, as well as to develop new vaccines. The key elements of the Company's
strategy are to develop novel vaccine delivery systems, develop proprietary
vaccines and establish collaborations for product development and
commercialization.
DEVELOP NOVEL VACCINE DELIVERY SYSTEMS. The Company is developing a
portfolio of vaccine delivery systems to address shortcomings in currently
available delivery methods, as well as to provide new methods of
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vaccine delivery. The Company's vaccine delivery systems, which are based on a
novel polymer and on bacterial vectors, have the potential to improve existing
injectable vaccines and to permit intranasal and oral delivery of vaccines.
These systems may be applicable to most of the vaccines in routine use and may
enable the introduction of new vaccines to prevent bacterial or viral diseases
for which there is currently no adequate treatment or prevention. The Company
intends to pursue the broad application of its current vaccine delivery systems,
as we well as to continue to invest in development of new vaccine delivery
technologies.
DEVELOP PROPRIETARY VACCINES. The Company is currently developing several
proprietary vaccines believed to have significant near-term commercial promise.
The Company is continuing to seek exclusive licenses for suitable antigens to be
used to develop vaccines with a significant market potential. The Company
believes that the development of its own proprietary vaccines complements its
development of novel vaccine delivery systems. The Company believes that its
ability to combine its vaccine delivery technology with its own proprietary
antigens may lead to the introduction of new vaccines with competitive
advantages.
ESTABLISH COLLABORATIONS FOR PRODUCT DEVELOPMENT AND COMMERCIALIZATION.
The Company has entered into and intends to seek additional collaborative
agreements with established vaccine companies to develop vaccines utilizing the
Company's vaccine delivery systems and its collaborators' antigens. By entering
into these collaborations, the Company believes it will benefit from the antigen
development work already performed by its collaborators and from access to their
extensive clinical testing capabilities, wide distribution and marketing
infrastructure and market presence. This strategy may permit the Company to take
advantage of established markets for its collaborators' existing vaccines and
expedite commercialization of products incorporating the Company's technologies.
With respect to proprietary vaccines being developed, the Company generally
intends to seek collaborators to be responsible for completing the clinical
testing and for the manufacturing and marketing of the vaccine. However, the
Company intends to develop such proprietary vaccines to the point at which it
believes it can establish the most commercially favorable collaborations. The
Company believes that this strategy will allow the successful market
introduction of products incorporating the Company's technologies without the
Company incurring the substantial costs associated with clinical development.
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<PAGE> 29
PRODUCT DEVELOPMENT PROGRAMS
The Company and its collaborators are engaged in research and development
efforts on the vaccine programs using the Company's technologies summarized in
the table below. The summary information included in this table is provided
solely for convenience of reference and is qualified in its entirety by the
detailed discussion of each of the vaccine programs that follows.
<TABLE>
<CAPTION>
VACCINE PROGRAM MARKET APPLICATION STATUS(1) COLLABORATOR(2)
- ----------------------- --------------------------- ------------------------ ----------------
<S> <C> <C> <C>
ADJUMER
Influenza Prevention of Influenza Preclinical/Expected to Pasteur Merieux
enter Phase I (France)
in 1996
Lyme Disease Prevention of Lyme disease Preclinical Pasteur Merieux
MICROMER
Influenza Prevention of Influenza Research Pasteur Merieux
VIBRIOVEC
H. pylori vaccine Prevention and treatment of Research PM-O
using urease H. pylori infection
H. pylori vaccine Prevention and treatment of Research CSL
using H. pylori infection
lipopolysaccharide
PROPRIETARY VACCINES
Rotavirus Prevention of rotavirus Phase I --
disease in infants
HSV2 Prevention of genital Research --
herpes
</TABLE>
- ---------------
(1) "Research" refers to development of analysis systems, evaluation of vaccine
candidates, development of prototypes of vaccines and vaccine delivery
systems and other associated research.
"Preclinical" refers to studies being conducted in the laboratory using
animal models to evaluate the potential efficacy and safety of a product,
including immunogenicity and toxicology testing.
"Phase I" refers to the first phase of human clinical trials required to
gain evidence of safety and immunogenicity of a vaccine.
(2) See "-- Collaborative Agreements" for a more detailed discussion of the
Company's collaborative agreements.
ADJUMER PROGRAMS
INFLUENZA. Pursuant to an agreement with Pasteur Merieux, Pasteur Merieux
is developing an Adjumer-formulated influenza vaccine. Influenza and its
complications account for an average of 20,000 deaths annually in the United
States, greater than 80% of which are estimated to occur among the elderly.
However, fewer than 40% of persons at high risk of complications from influenza
(e.g., the elderly, persons suffering from respiratory infections and
immunocompromised patients) receive immunizations. Currently available vaccines
for the prevention of influenza generally exhibit efficacy rates ranging from
55% to 70% and provide relatively short-lived immune responses which do not
always afford protection throughout the influenza season. As a result of the
changes in the prevalent influenza strains, influenza vaccines have to be
reformulated and administered annually. The Company estimates that worldwide
influenza vaccine market sales are approximately $250 million per year. A number
of large companies market influenza vaccines. The Company believes, based on
discussions with Pasteur Merieux, that Pasteur Merieux has an approximately 50%
worldwide market share. The Company believes that improved efficacy of the
influenza vaccines in the elderly would significantly expand the market for this
product. The Company is aware of two approved influenza therapies, which are not
widely used because of their limited applicability.
In preclinical studies conducted by the Company and Pasteur Merieux, an
Adjumer-formulated influenza vaccine produced a significantly enhanced and
longer-lived immune response than one of the influenza vaccines currently on the
market. Pasteur Merieux recently completed preclinical toxicity studies of this
Adjumer-formulated influenza vaccine candidate and plans to initiate Phase I
human clinical trials of this
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<PAGE> 30
vaccine in France during 1996. As part of its collaboration with Pasteur
Merieux, the Company will conduct additional toxicology work with Adjumer alone
and will provide Adjumer for all the preclinical and clinical studies to be
conducted by Pasteur Merieux. See "-- Collaborative Agreements."
LYME DISEASE. The Company and Pasteur Merieux are conducting research on
the development of an Adjumer-formulated Lyme disease vaccine utilizing Pasteur
Merieux's antigen. Lyme disease was first recognized in the United States 20
years ago when a cluster of arthritis cases was reported from Lyme, Connecticut.
The bacteria that cause Lyme disease are transmitted by ticks, and the infection
causes a variety of conditions ranging from influenza-like symptoms to chronic
neurologic, cardiac and joint abnormalities. In 1994, 13,000 cases of Lyme
disease were reported to the CDC, representing an increase of 53% over the
number of cases reported in 1993. The Company believes that the number of cases
of Lyme disease is underestimated because of difficulties in early diagnosis and
under-reporting of infections. Of the reported cases, 85% occurred in six
northeastern states of the United States, where approximately 20% of the total
United States population is concentrated. Antibiotic therapy for Lyme disease is
generally effective if started early. However, treatment for later stage disease
has not generally been successful. Given the continuing difficulties with early
diagnosis and the potentially serious consequences of infection, efforts have
focused on developing a vaccine to prevent Lyme disease.
Pasteur Merieux and SmithKline Beecham plc are each currently conducting
Phase III clinical studies on their own proprietary vaccines for the prevention
of Lyme disease. The Company believes that both of these vaccine candidates
require two doses to elicit an effective immune response. The Company believes
that an Adjumer-formulated Lyme disease vaccine might induce a longer-lasting
immune response and thereby permit delivery of a vaccine in a single dose.
MICROMER PROGRAM
INFLUENZA. The Company and Pasteur Merieux are collaborating on research
to determine the feasibility of developing a Micromer-formulated influenza
vaccine to stimulate both a mucosal and a systemic immune response. The Company
believes that a mucosal vaccine could be more efficacious than an injectable
vaccine because influenza infects mucosal surfaces. Moreover, the convenience of
intranasal (or oral) administration of a Micromer-formulated influenza vaccine
may expand the existing influenza vaccine market to cover new patients,
particularly those at higher risk (e.g., children and elderly persons). The
Company and Pasteur Merieux are currently conducting animal studies to assess
the dosage and the immune response generated by a Micromer-formulated influenza
vaccine.
VIBRIOVEC PROGRAM
H. PYLORI. Pursuant to separate agreements, the Company is conducting
research with each of PM-O and CSL to determine the feasibility of utilizing
VibrioVec to deliver vaccines against H. pylori infection. The Company is aware
of three different companies, CSL, PM-O and Chiron Biocene Inc., engaged in
developing H. pylori vaccines. By entering into agreements with CSL and PM-O in
which the use of VibrioVec with their respective proprietary antigens are being
evaluated, the Company believes it has increased its opportunity to participate
in the development of a vaccine for H. pylori.
In recent years, clinical studies have established that H. pylori
infections are a direct cause of chronic gastritis and peptic ulcer disease.
Moreover, a strong correlation exists between H. pylori infection and increased
risk of gastric cancer. Approximately five million patients are treated annually
for peptic ulcers in the United States at a direct medical cost estimated to
exceed $5 billion. There are currently no accepted methods for the prevention of
chronic gastritis or peptic ulcer disease caused by H. pylori. Until recently,
treatment of peptic ulcer disease has been based on the inhibition of gastric
acid secretion through the use of H(2)-antagonists (e.g. Tagamet or Zantac) or
protein pump inhibitors (e.g. Prilosec). These treatments permit the healing of
ulcers, but alone do not cure the H. pylori infection. Eradication of H. pylori
has been accomplished by use of antibiotics in combination with anti-secretory
drugs or bismuth, which form of treatment was recently approved by the FDA.
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Although vaccines generally produce immune responses which protect against
infection, they are not generally effective in treating existing infection.
However, because the infection with H. pylori localizes at the mucosal surface
of the stomach, the Company believes that a VibrioVec-delivered vaccine that
generates both mucosal and systemic immune responses may be effective both in
the prevention and treatment of this infection.
PM-O is independently developing a vaccine against H. pylori infection
utilizing urease as an antigen. Pursuant to an option agreement, PM-O and the
Company are currently inserting urease genes into VibrioVec in order to assess
in preclinical studies the efficacy of a VibrioVec-delivered urease vaccine. CSL
is independently conducting research to determine whether lipopolysaccharide
(LPS) of H. pylori is an effective antigen for treatment and prevention of H.
pylori infection. Pursuant to an agreement with CSL, the Company is inserting
LPS genes into VibrioVec to assess the efficacy of a VibrioVec-delivered LPS
vaccine. In animal studies conducted by the Company using a VibrioVec-delivered
vaccine, genes encoding an LPS antigen from a microorganism unrelated to H.
pylori were expressed and induced a protective mucosal immune response. See
"-- Collaborative Agreements."
PROPRIETARY VACCINE PROGRAMS
The Company is developing proprietary vaccines based on antigens or
attenuated microorganisms exclusively licensed by the Company from third
parties. The initial focus of the Company is on vaccines directed against
rotavirus and genital herpes infection.
ROTAVIRUS VACCINE. The Company is developing an oral vaccine designed to
prevent rotavirus infection, which is the major cause of acute diarrhea and
vomiting in infants. There are several strains of rotavirus that can cause
disease. Each year approximately 500,000 infants in the United States require
treatment for this disease and approximately 90,000 of those infants have
disease of a severity that requires hospitalization. Currently, no product is
available for the prevention of rotavirus infection in infants. The Company is
aware of two large pharmaceutical companies (Merck & Co., Inc. and Wyeth-Ayerst,
Inc.) that are engaged in clinical development of vaccines directed against
rotavirus infection. Since rotavirus infects infants, the Company anticipates
that an effective vaccine might be incorporated into the routine pediatric
immunization schedule.
The Company's vaccine candidate is an orally-delivered attenuated live
human rotavirus. No separate vaccine delivery system is required because the
rotavirus naturally localizes in the intestines. Epidemiologic studies in
infants indicate that the rotavirus isolate being utilized by the Company
induces immune responses against reinfection from a variety of rotavirus
strains. In January 1996, the Company completed a Phase I clinical trial of this
vaccine candidate involving 44 infants. The clinical trial was a double-blind,
placebo controlled study to determine the safety and immunogenicity of a
two-dose regimen of this vaccine candidate. In this trial, 95% of the subjects
developed a mucosal IgA immune response with no clinically significant
vaccine-related side effects. The Company plans to commence a Phase I/II dosing
study in infants during 1996.
HSV2 VACCINE. The Company is conducting research on a vaccine for the
prevention of genital herpes. This disease currently affects a total of 40-60
million people in the United States and Europe with more than 500,000 new cases
occurring in the United States each year. Current therapy is based on antiviral
compounds (e.g., Zovirax and Famvir). There are no approved methods for the
prevention of genital herpes infection. The Company is aware of a number of
pharmaceutical companies and biotechnology companies conducting research,
development and clinical trials on vaccines against genital herpes. To date,
attempts to generate a vaccine to treat genital herpes have been unsuccessful.
Concern about the safety of using a live attenuated, replicating virus in a
genital herpes vaccine has hampered development efforts in this area.
The Company's vaccine candidate is a disabled HSV2 virus
genetically-engineered to be incapable of reproducing itself in subjects. In
animal models, this disabled virus stimulated a protective immune response
comparable to virulent HSV2. The Company believes that this vaccine candidate
does not carry with it the risks of a live, replicating vaccine. This program is
in the research stage.
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<PAGE> 32
OTHER VACCINE PROGRAMS
HIV1 VACCINE. The Company is conducting research on a preventative vaccine
against HIV1 virus. Approximately 17 million people worldwide are estimated to
be infected with HIV1, the principal HIV virus in the developed world. It is
believed that all HIV1 infected individuals will develop AIDS, which has a
fatality rate believed to be 100%. Current treatment of HIV1 infection is based
on use of antiviral agents. Numerous companies are conducting clinical trials to
develop treatments and vaccines for AIDS. The Company is developing a
preventative Adjumer-formulated vaccine candidate utilizing non-infectious HIV1
antigens. The Company intends to seek third party funding for further research
and development on this vaccine candidate.
OTHER VACCINES. The Company believes its delivery systems and other
proprietary technologies can be utilized to develop vaccines directed against
diseases in addition to those described above. For example, the Company's
vaccine delivery systems may be directed to the development of vaccines against
parainfluenza virus type 3 ("PIV") and respiratory syncyctial virus ("RSV")
(both of which are covered by the Company's agreement with Pasteur Merieux
relating to Micromer) and pneumococcal pneumonia and infections caused by
meningococcus (both of which are covered by the Company's agreement with Pasteur
Merieux relating to Adjumer). The Company is seeking other collaborations to
develop an Adjumer-formulated vaccine against hepatitis B virus and a vaccine
using either Adjumer, Micromer or VibrioVec directed against human papilloma
virus, the virus that causes genital warts. The Company also believes its
vaccine delivery systems may be useful for pediatric combination vaccines and
animal vaccines. The Company continues to seek exclusive licenses to proprietary
antigens being developed by academic and other institutions. Additionally, the
Company is conducting research utilizing In Vivo Expression Technology ("IVET"),
a technology licensed by the Company, which may result in the identification of
genes and proteins that are expressed only when bacteria grows in vivo and
thereby cause an infection. This may result in the identification of novel
vaccine antigens.
COLLABORATIVE AGREEMENTS
PASTEUR MERIEUX SERUMS & VACCINS S.A. The Company is a party to two
license agreements entered into in December 1994 and August 1995 with Pasteur
Merieux relating to Adjumer and Micromer-formulated vaccines, respectively, for
the prevention of a variety of infectious diseases. Under the agreements,
Pasteur Merieux has been granted the exclusive right to make, use and sell
Adjumer and Micromer-formulated vaccines for prevention of influenza, Lyme
disease and diseases caused by meningococcus and the co-exclusive right
(exclusive, except for the right of the Company or one other person licensed by
the Company) to make, use and sell Adjumer and Micromer-formulated vaccines
directed against five other pathogens, including pneumococcus and RSV. The
licenses to Pasteur Merieux apply to specified territories, including North and
South America, Europe, Africa, Thailand and the countries of the former Soviet
Union. The Company has retained rights to make, use, sell and license Adjumer
and Micromer-formulated vaccines against the subject infections in most of the
Far East, including China and Japan, subject to certain geographical extension
rights available to Pasteur Merieux.
Pasteur Merieux made a $3.0 million equity investment in the Company in
December 1994 upon the execution of the agreement relating to Adjumer. In
addition, in connection with this collaboration, in April 1996 Pasteur Merieux
made a milestone payment of $2.5 million to the Company and an additional equity
investment of $1.0 million in the Company. Contingent upon achieving certain
milestones, Pasteur Merieux has agreed to pay the Company an additional $1.0
million in connection with the development of Adjumer and up to an additional
$7.2 million in connection with the development of Adjumer-formulated vaccines
for influenza and Lyme disease. Contingent upon achieving certain milestones,
Pasteur Merieux has also agreed to make payments, on a product by product basis,
if Pasteur Merieux commences clinical development of Adjumer-formulated vaccines
against certain specified pathogens, or Micromer-formulated vaccines directed
against influenza and other specified pathogens. Pasteur Merieux is required to
fund all costs associated with the development and commercialization, including
the costs of clinical trials, of any vaccines it elects to develop utilizing the
Company's technology. In addition, the Company will be entitled to royalties
based on net sales of any vaccine products developed and sold by Pasteur Merieux
pursuant thereto.
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In connection with its agreement relating to Micromer, the Company has
agreed to conduct research through July 1997 to develop Micromer-formulated
vaccines directed against influenza and PIV. Pasteur Merieux has agreed to pay
to the Company up to a maximum of $2.5 million to fund this research, of which
$1.25 million had been paid through March 31, 1996.
Under the agreement relating to Adjumer, the Company was required to use
commercially reasonable efforts to establish a process capable of yielding
quantities of clinical grade PCPP for use by Pasteur Merieux in clinical
studies. The Company has satisfied this requirement. In addition, Pasteur
Merieux and the Company have agreed to enter into a cost-based supply agreement,
upon terms to be negotiated, pursuant to which the Company will be responsible
for scaling-up the process of PCPP production in an efficient, cost-effective
cGMP manufacturing facility according to agreed-upon specifications. However,
Pasteur Merieux has reserved the right to manufacture PCPP for use in Adjumer-
and Micromer-formulated vaccines.
PASTEUR MERIEUX -- ORAVAX, INC. (PM-O). In November 1995, the Company
entered into two option agreements with PM-O relating to the use of the
Company's vaccine delivery systems to develop vaccines against H. pylori
infections utilizing certain specified antigens other than LPS. Under the
agreements, PM-O has agreed to evaluate during the option period the potential
effectiveness of applying the Company's vaccine delivery systems for this use.
The Company has agreed that during the option period it will not grant rights in
the field covered by the option agreements to any third party (which did not
affect the Company's ability to enter into the agreement with CSL described
below). The parties have also agreed to initiate good faith negotiations with
respect to a license agreement under which the Company would grant rights to
PM-O to use the Company's vaccine delivery systems to develop and commercialize
H. pylori vaccines. The option with respect to VibrioVec expires in November
1996 and the option with respect to PCPP-based delivery systems expires twelve
months from the date of receipt by PM-O of a specified quantity of clinical
grade PCPP. PM-O may extend each of the options under certain conditions for an
additional six month period. In connection with the execution of these option
agreements, Pasteur Merieux and OraVax, Inc. each made a $250,000 equity
investment in the Company in January 1996.
CSL LTD., AUSTRALIA. In January 1996, the Company and CSL entered into a
research agreement pursuant to which the parties are conducting research into a
vaccine against H. pylori infection utilizing the Company's VibrioVec technology
and CSL's LPS antigen. CSL has agreed to pay the Company $150,000 for research
undertaken by the Company. CSL is an Australian public corporation that
develops, manufactures and markets vaccines, pharmaceutical and diagnostic
products. If, as a result of the research conducted, both parties determine that
a vaccine should be further developed, the parties have agreed to negotiate in
good faith a development agreement under which they will share equally in
profits and expenses of development. If the parties fail to reach an agreement,
each of the Company and CSL will have a co-exclusive right to make, use and sell
an H. pylori vaccine using the LPS antigen delivered by VibrioVec, subject to
the payment of royalties to the other party. If only one party determines to
pursue development, that party will have the sole right to develop and
commercialize such vaccine, subject to the payment of royalties to the other
party. Pursuant to the agreement, the Company and CSL may also evaluate Micromer
as an alternative vaccine delivery system for a vaccine using LPS as an antigen
directed against H. pylori infection.
SMITHKLINE BEECHAM PLC. The Company and SmithKline Beecham plc ("SB")
entered into a research and license agreement in June 1995, pursuant to which
the Company is conducting research using IVET in the identification of novel in
vivo expressed genes of a specific microorganism. Under the terms of the
agreement, SB has agreed to pay an aggregate of $1.1 million of research
payments through April 1997 ($412,500 of which has been paid through March 31,
1996), subject to SB's right to terminate the agreement if certain milestones
are not met. Subject to certain limitations, the Company has exclusive rights to
the intellectual property resulting from the research for use in developing
vaccines and, subject to certain limitations, SB has been granted exclusive
rights to non-vaccine products resulting from such research. The Company has
also granted SB a right of first offer with respect to vaccines developed under
the agreement if the Company determines to license such vaccines to third
parties. SB has agreed to pay the Company up to $3.2 million contingent upon the
successful completion of certain milestones relating to the testing,
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development and regulatory approval of products subject to the agreement, 50% of
which would be creditable against future royalties. In addition, SB has agreed
to pay royalties to the Company based on the net sales of any such products sold
by SB. Other than pursuant to this agreement, the Company does not anticipate
conducting additional research and development of the technology that is the
subject of this agreement.
CHIRON CORPORATION ("CHIRON"). In December 1995, the Company and Chiron
entered into an agreement pursuant to which the Company granted Chiron an
exclusive license to use certain inventions made or licensed by the Company to
carry out research and development activities with respect to intracellular
immunization (i.e., gene therapy) products directed against HIV1 infection.
Under the terms of the agreement, Chiron paid the Company $750,000 and will be
obligated to pay an additional $300,000 in support of the Company's research in
this area unless Chiron terminates the agreement prior to January 1, 1997. The
Company also granted Chiron an option to obtain a commercial license to this
technology. This option expires in December 2000, subject to a one-year
extension under certain conditions. Under the contemplated terms of such a
commercial license, Chiron would be required to make payments to the Company
upon the achievement of certain milestones and royalty payments based on the net
sales of products by Chiron. Other than pursuant to this agreement, the Company
does not anticipate conducting further research and development of the
technology that is the subject of this agreement.
COMPETITION
Competition in the biotechnology and vaccine industries is intense. The
Company faces competition from many companies in the United States and abroad,
including a number of large companies, firms specialized in the development and
production of vaccines, adjuvants and vaccine delivery systems and major
universities and research institutions. Most of the Company's competitors have
substantially greater resources, more extensive experience in conducting
preclinical studies and clinical testing and obtaining regulatory approvals for
their products, greater operating experience, greater research and development
and marketing capabilities and greater production capabilities than those of the
Company. There can be no assurance that the Company's competitors will not
develop technologies and products that are safer or more effective than any
which are being developed by the Company or which would render the Company's
technology and products obsolete and noncompetitive, and the Company's
competitors may succeed in obtaining FDA approval for products more rapidly than
the Company. There can be no assurance that the vaccines under development by
the Company and its collaborators will be able to compete successfully with
existing products or products under development by other companies, universities
and other institutions or that they will attain regulatory approval in the
United States or elsewhere. The Company believes that the principal competitive
factors in the vaccine market are product quality, measured by efficacy and
safety, ease of administration and price.
The Company believes that its principal competitors include large
pharmaceutical companies such as American Home Products Corporation, Pasteur
Merieux, Merck & Co., Inc., SB and Chiron, as well as a number of biotechnology
companies engaged in developing vaccine delivery systems and vaccines. The
Company is aware that a number of pharmaceutical companies are engaged in
research and development with respect to vaccines for the prevention of
influenza, Lyme disease, rotavirus disease, H. pylori, HSV2 and HIV1 infections
which would compete with the Company's and its collaborators' product
candidates. Some of these vaccines are further advanced in their development and
clinical testing than those of the Company and its collaborators. The Company
will also face competition from companies marketing existing therapies or
developing new therapies for diseases targeted by the Company's vaccine
technology. The development of such new technologies or treatment methods for
those infectious diseases for which the Company is developing vaccines could
render the Company's vaccine delivery systems and vaccine candidates
noncompetitive and obsolete.
The Company's collaborators are developing or evaluating vaccine delivery
systems other than the Company's for many of the vaccines covered by the
Company's collaborative agreements. Both CSL and PM-O, with respect to vaccines
against H. pylori infection, and Pasteur Merieux, with respect to influenza and
Lyme disease, are engaged in research and development in connection with
vaccines utilizing the same antigens that are the subject of their
collaborations with the Company. The Company is also aware of a number of
companies seeking to develop new adjuvants for vaccines and mucosal vaccine
delivery systems.
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Some of these companies may be further advanced in their development and
clinical testing than the Company.
The Company's competitive position will also depend upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often lengthy period between technological conception and
commercial sales.
MANUFACTURING
The Company has no manufacturing facilities, no experience in volume
manufacturing and plans to rely upon collaborators or contract manufacturers to
manufacture its proposed products for both clinical and commercial purposes. The
Company believes that there is currently sufficient capacity worldwide for the
production of its potential products by the Company's collaborators or through
contract manufacturers.
To date, the Company has been arranging on a purchase order basis with
contract manufacturers for the manufacture of PCPP and vaccines in quantities
sufficient for preclinical studies and for clinical trials of the Company's
rotavirus vaccine candidate. The Company does not yet have a written agreement
with a contract manufacturer for production of PCPP or for any other components
of its vaccine delivery systems or vaccine candidates. The manufacturing
processes for the Company's vaccine delivery systems and vaccines utilize known
technologies. The Company believes that the vaccine delivery systems and
vaccines it currently has under development can be readily scaled up to permit
manufacture in commercial quantities. However, there can be no assurance that
the Company will not encounter difficulties in scaling up the manufacturing
process.
One of the intermediates included in PCPP is currently available from only
one supplier. The Company believes that there are several other companies which
could produce the intermediate and that the Company could itself develop the
capacity to synthesize such intermediate. There can be no assurance, however,
that the price or unavailability of the intermediate will not adversely affect
the Company's ability to produce PCPP.
Pasteur Merieux and the Company have agreed to enter into a cost-based
supply agreement, upon terms to be negotiated, pursuant to which the Company
will be responsible for scaling-up the process of PCPP production in an
efficient, cost-effective cGMP manufacturing facility according to agreed-upon
specifications. However, Pasteur Merieux has reserved the right to manufacture
PCPP for use in Adjumer- and Micromer-formulated vaccines.
The Company intends to establish manufacturing arrangements with
manufacturers that comply with the FDA's requirements and other regulatory
standards, although there can be no assurance that the Company will be able to
do so. Before commercial distribution can begin, each vaccine manufacturing
facility must be granted an ELA on the basis of inspections of the applicant's
facilities in which the primary focus is on compliance with cGMP. If the FDA
finds the inspection unsatisfactory, it may decline to approve the ELA,
resulting in a delay in production or distribution of products. In the future,
the Company may, if it becomes economically attractive to do so, establish its
own manufacturing facilities to produce any vaccine products that it may
develop. In order for the Company to establish a manufacturing facility, the
Company will require substantial additional funds and will be required to hire
and retain significant additional personnel and comply with the extensive cGMP
regulations of the FDA applicable to such facility. The product manufacturing
facility would also need to be licensed for the production of vaccines under an
ELA.
MARKETING
Under the terms of existing and future collaborative agreements, the
Company relies and expects to continue to rely on the efforts of its
collaborators for the sale and marketing of any vaccine products. There can be
no assurance that the Company's collaborators will market vaccine products
incorporating the Company's technologies, or, if marketed, that such efforts
will be successful. The failure of the Company's collaborators to successfully
market products will have an adverse effect on the Company's business.
The Company has retained, and in the future intends to retain, marketing
rights to certain of its vaccine delivery systems and vaccine candidates in
selected geographic areas. The Company intends to seek marketing and
distribution agreements and/or co-promotion agreements for the distribution of
vaccines in such
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territories. The Company believes that these arrangements could enable the
Company to generate a higher level of financial return than might be obtained
from early stage licensing and collaboration agreements for its vaccine
candidates. The Company has no marketing and sales staff and limited experience
relating to vaccine marketing. If the Company determines in the future to engage
in direct marketing of vaccine products, it will be required to recruit an
experienced marketing group and incur significant additional expenditures. There
can be no assurance that the Company will be able to establish a successful
marketing force.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
LICENSES
The Company has entered into several significant license agreements
relating to technology which is being developed by the Company or its
collaborators, including licenses from: Massachusetts Institute of Technology
covering certain proprietary technologies for vaccine delivery related to PCPP
microparticles; Penn State Research Foundation covering the use of a
polyphosphazene polymer for vaccines; Harvard College relating to proprietary
technology involving genetically altered Vibrio strains; Cincinnati Children's
Hospital involving proprietary rights and technologies relating to an attenuated
rotavirus strain for a rotavirus vaccine; and Harvard College and the Dana
Farber Cancer Institute relating to a genetically-altered HSV2 virus for herpes
virus vaccines. In general, these institutions have granted the Company an
exclusive worldwide license (with right to sublicense) to certain proprietary
technologies (including rights to patents and patent applications) to make, use
and sell products using the licensed technology, subject to the reservation by
the licensor of a non-exclusive right to use the technologies for non-commercial
purposes. Generally, the term of each license is through the expiration of the
last of the patents issued with respect to the technologies covered by such
license. The Company has generally agreed to use its reasonable efforts to
develop and commercialize products and achieve certain milestones and to pay
license fees, milestone payments and royalties based on the net sales of the
licensed products or to pay a percentage of sublicense income. If the Company
breaches its obligations, the licensor has the right to terminate the license,
and, in some cases, convert the license to a non-exclusive license.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to protect its technology by filing patent
applications. In addition to filing patent applications in the United States,
the Company has filed, and intends to file, patent applications in foreign
countries on a selective basis. The Company also relies on trade secrets,
unpatented know-how and technological innovation to develop and maintain its
competitive position.
The Company owns an issued United States patent which expires on July 12,
2013, and corresponding foreign applications, directed to the use of vaccines
which incorporate the Company's Adjumer vaccine delivery technology. In
addition, the Company has filed a United States patent application, and
corresponding foreign applications, directed to the use of vaccines
incorporating the Company's Micromer vaccine delivery technology. Further, the
Company owns and has licensed other United States patent applications which are
directed to technology which may be useful for the Company's Micromer and
Adjumer vaccine delivery systems, and in the case of Micromer, corresponding
foreign applications. The Company has an exclusive license to a United States
patent application, and corresponding foreign applications, directed to a vector
construct which is used in the Company's VibrioVec vaccine delivery system. The
Company has an exclusive license to an issued United States patent which expires
on August 30, 2013, directed to a rotavirus antigen which forms a part of the
Company's rotavirus vaccine and to a United States patent application, and
corresponding foreign applications, directed to a defective HSV2 virus for use
in the Company's vaccine directed against genital herpes.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to such validity or as to
the enforceable scope of the claims of the patent. There can be no assurance
that the Company's issued patents or any patents subsequently issued to or
licensed by the Company will not be successfully challenged in the future. The
validity or enforceability of a patent after its issuance by the patent office
can be challenged in litigation. If the outcome of the litigation is adverse to
the
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owner of the patent, third parties may then be able to use the invention covered
by the patent without payment. There can be no assurance that the Company's
patents will not be infringed or successfully avoided through design innovation.
There can be no assurance that patent applications owned by or licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology. It is also
possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to the Company. In cases where third parties are
first to invent a particular product or technology, it is possible that those
parties will obtain patents that will be sufficiently broad so as to prevent the
Company from using certain technology or from further developing or
commercializing certain vaccine delivery systems and vaccine candidates. If
licenses from third parties are necessary but cannot be obtained,
commercialization of the vaccine candidates would be delayed or prevented.
The Company uses a mutated Vibrio cholerae in its VibrioVec vaccine
delivery system. The Company is aware of an issued United States patent which
claims a culture of mutated Vibrio cholerae. The Company believes that only one
claim (the "Claim") of the patent may be pertinent to the Company's VibrioVec
system. The remaining claims of the patent cover other cultures which the
Company believes are not pertinent to VibrioVec. The Company has received an
opinion of counsel from Fish & Richardson, P.C. that, based on the analysis set
forth in their opinion and the facts known to them, the Claim is invalid. It
should be noted that a party challenging validity of a patent has the burden of
proving invalidity and that the outcome of any litigation cannot be predicted
with certainty. Accordingly, there can be no assurance that, if litigated, a
court would conclude that the Claim is invalid.
The Company is aware of a patent granted in Europe which claims an oral
composition capable of delivering a bioactive agent in microcapsules of a
defined size. The European patent is currently subject to an opposition
proceeding, pursuant to which the allowance of the patent is being challenged by
third parties. The Company's Micromer vaccine delivery system is focused on
intranasal delivery of vaccines. The Company has received an opinion from Dr.
Volker Vossius, German and European Patent Attorney, that based on his review of
the European patent, the intranasal composition of Micromer does not fall within
the extent of the protection of the relevant claims in the European patent. An
opinion of legal counsel is based on the facts reviewed by them and could be
affected by any alteration of these facts and represents only counsel's best
legal judgment. Accordingly, there can be no assurance that the European Patent
Office or a court would reach the same conclusion. The Company has also
commenced research on oral delivery of vaccines using Micromer. If the
opposition of the third parties in Europe is not successful, the sale of a
Micromer-formulated vaccine to be delivered orally could infringe the European
patent, unless the Company is able to obtain a license to such patent. It is
possible that a patent application may be pending in the United States directed
to similar claims. There can be no assurance that, if necessary, a license will
be available on acceptable terms, if at all.
In addition to the patents and the patent applications referred to in the
previous two paragraphs, there may be other patent applications and issued
patents belonging to competitors that may require the Company to alter its
vaccine candidates and vaccine delivery systems, pay licensing fees or cease
certain activities. If the Company's vaccine candidates conflict with patents
that have been or may be granted to competitors, universities or others, such
other persons could bring legal actions against the Company claiming damages and
seeking to enjoin manufacturing and marketing of the affected products. If any
such actions are successful, in addition to any potential liability for damages,
the Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms or at all. The Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. If the Company becomes involved
in such litigation, it could consume substantial resources.
The enactment of the legislation implementing the General Agreement on
Trade and Tariffs has resulted in certain changes to United States patent laws
that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of United States
patents will commence on the date of issuance
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and terminate twenty years from the earliest effective filing date of the
application. Because the time from filing to issuance of patent applications is
often more than three years, a twenty-year term from the effective date of
filing may result in a substantially shortened term of patent protection, which
may adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage, the Company's business could be adversely
affected to the extent that the duration and level of the royalties it is
entitled to receive from its collaborators is based on the existence of a valid
patent. None of the issued patents currently owned or licensed by the Company
are adversely affected by these changes in the term of patent protection.
The Company also relies on unpatented technology, trade secrets and
information and no assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain
access to the Company's technology or disclose such technology, or that the
Company can meaningfully protect its rights in such unpatented technology, trade
secrets and information. The Company requires each of its employees, consultants
and advisors to execute a confidentiality agreement at the commencement of an
employment or consulting relationship with the Company. The agreements generally
provide that all inventions conceived by the individual in the course of
employment or in providing services to the Company and all confidential
information developed by, or made known to, the individual during the term of
the relationship shall be the exclusive property of the Company and shall be
kept confidential and not disclosed to third parties except in limited specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's information in the event of
unauthorized use or disclosure of such confidential information.
GOVERNMENT REGULATION
The Company's activities and products are significantly regulated by a
number of governmental entities, especially by the FDA in the United States and
by comparable authorities in other countries. These entities regulate, among
other things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
promotion, distribution and sale of the Company's products. Product development
and approval within this regulatory framework takes a number of years and
involves the expenditure of substantial resources. Many products that initially
appear promising ultimately do not reach the market because they are found to be
unsafe or do not demonstrate effectiveness during the testing required by the
regulatory process. In addition, there can be no assurance that this regulatory
framework will not change or that additional regulation will not arise at any
stage of the Company's product development that may affect approval, delay an
application or require additional expenditure by the Company. Moreover, even if
approval is obtained, failure to comply with present or future regulatory
requirements, or new information adversely reflecting on the safety or
effectiveness of the approved vaccine, can lead to FDA withdrawal of approval to
market the product or other sanctions, including fines, recall or seizure of
products, injunctions and criminal prosecutions.
In the United States, human vaccines are subject to FDA review and approval
as "biologics" under the Public Health Service Act and as "drugs" under the
Federal Food, Drug, and Cosmetic Act. In most cases, the steps required before a
new human vaccine can be produced and marketed include: preclinical studies; the
filing of an investigational new drug ("IND") application with the FDA
summarizing preclinical development work; clinical trials in humans to determine
safety and efficacy; FDA approval of the product for commercial sale and FDA
approval of the product manufacturing facility.
The initial testing of a biologic product before it may be marketed in the
United States is called preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and other end points and animal
studies to assess the potential safety and efficacy of the product as
formulated. Many preclinical studies are regulated by the FDA under a series of
regulations called the Good Laboratory Practice (GLP) regulations. Violations of
these regulations can, in some cases, lead to invalidation of the studies,
requiring such studies to be replicated.
FDA regulations provide that human clinical trials may begin 30 days
following the submission and receipt of an IND, unless the FDA advises otherwise
or requests additional information, clarification or additional time to review
the IND submission; it is generally considered good practice to obtain
affirmative
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FDA acquiescence before commencing trials. There is no assurance that the
submission of an IND will eventually allow a company to commence clinical
trials. Once trials have commenced, the FDA may stop the trials, or particular
types of trials, by placing a "clinical hold" on such trials because of concerns
about, for example, the safety of the product being tested or the adequacy of
the trial design. Such holds can cause substantial delay and in some cases may
require abandonment of a product. There can be no assurance that the FDA's
acquiescence in an IND constitutes any indication that the FDA will find the
protocol for a clinical trial satisfactory or will accept any data generated
from such clinical trial.
Clinical trials are subject to extensive FDA regulation and are typically
conducted in three sequential phases, although in certain cases, the phases may
overlap. In Phase I, the initial introduction of the vaccine into healthy human
subjects, the vaccine is tested for safety (adverse effects), optimal dosage,
and its ability to induce an immune response (immunogenicity). Phase II involves
studies in a limited target patient population to further evaluate
immunogenicity and optimal dosage, and to identify possible adverse effects and
safety risks. When a product is found to have an acceptable safety profile in
Phase II evaluation, Phase III clinical trials are undertaken to evaluate
clinical efficacy and to further test for safety within an expanded target
patient population at geographically dispersed clinical study sites. The FDA may
order the temporary or permanent discontinuation of a clinical trial at any time
for any reason.
The results of the preclinical studies and human clinical trials are
submitted to the FDA in a product license application ("PLA"), approval of which
must be obtained prior to commencement of commercial sales. The interval between
the filing of the IND and the filing of a PLA application can be lengthy. The
FDA may deny a PLA if, among others reasons, clinical trial protocols are not
adequate or appropriate. The FDA also may deny a PLA or require additional
testing or information to assess the safety of the Company's products if the FDA
does not view the PLA as containing adequate evidence of the safety and efficacy
of the product. Notwithstanding the submission of such data, the FDA may
ultimately decide that the application does not satisfy its regulatory criteria
for approval. Even if the PLA is approved, the product may be required to
undergo post-licensure testing and surveillance to continue to monitor its
safety and effectiveness.
Any product manufacturing facility must be licensed for the production of
vaccines. To accomplish this, an ELA must be filed with the FDA. The ELA
describes the facilities, equipment and personnel involved in the manufacturing
process. An establishment license is granted on the basis of inspections of the
applicant's facilities in which the primary focus is on compliance with cGMP and
the ability to consistently manufacture the product in the facility in
accordance with the PLA. If the FDA finds the inspection unsatisfactory, it may
decline to approve the ELA, resulting in a delay in production of products.
Although reviewed separately, approval of both the PLA and ELA must be received
prior to commercial marketing of a vaccine.
Failure to comply with applicable FDA requirements may result in a number
of consequences, including a "clinical hold," that could materially and
adversely affect the Company. Non-compliance with GLPs and good clinical
practices (GCPs) could have a negative impact on the FDA's evaluation of data
submitted in a PLA. Failure to adhere to cGMP and other applicable requirements
could result in FDA enforcement action including, but not limited to, fines,
seizure of products, injunction, refusal of the FDA to approve an ELA or PLA,
withdrawal of approved PLAs or ELAs, and prosecution.
To market its products abroad, the Company is also subject to numerous and
varying foreign regulatory requirements, implemented by foreign health
authorities, governing, among other things, the design and conduct of human
clinical trials, product pricing and marketing approval criteria. The approval
procedure currently varies among countries and can involve additional testing,
and the time required to obtain approval may differ from that required to obtain
FDA approval. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union (EU) certain registration
procedures are available to companies wishing to market a product in more than
one EU member country. The foreign regulatory approval includes all of the risks
associated with obtaining FDA approval set forth above. Approval by the FDA does
not ensure approval by other countries.
The Advisory Committee on Immunization Practices ("ACIP") of the CDC has a
role in setting the public market in the United States for most, if not all, of
the products the Company intends to develop. The ACIP meets quarterly to review
developing data on licensed vaccines, and those approaching license, as well
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as epidemiologic data on the need for these products. The recommendations of
ACIP on the appropriate use of vaccines and related products are published in
the Morbidity and Mortality Weekly Report and reprinted in several journals. The
CDC develops epidemiologic data in support of the need for new vaccines and
monitors vaccine usage and changes in disease incidence. In addition CDC staff
frequently act as key advisors to the FDA in their review process.
Due to the potential for epidemic disease, the availability of certain
pediatric vaccines is considered to be a matter of national importance, both
domestically and internationally. The ten vaccines recommended for pediatric use
are vaccines against diphtheria, tetanus, pertussis, measles, mumps, rubella,
polio, hepatitis B, Haemophilus influenzae B and varicella zoster virus. In
addition to these ten vaccines, the ACIP periodically reviews current
immunization practices and issues its recommendations for additional pediatric
vaccinations.
The Company's collaborators are subject to all of the above-described
regulations in connection with the commercialization of vaccine products
utilizing the Company's technology.
PRODUCT LIABILITY
The testing and marketing of vaccines entail an inherent risk of product
liability attributable to unwanted and potentially serious health effects. If
and when the Company manufactures vaccines which are recommended for routine
administration to children, it is possible that the Company will be required to
participate in the National Vaccine Injury Compensation Program. This program
compensates children having adverse reactions to certain routine childhood
immunizations with funds collected through an excise tax from the manufacturers
of these vaccines.
The Company has clinical trial liability insurance coverage in the amount
of $2 million. However, there can be no assurance that such insurance coverage
is or will continue to be adequate. The Company intends to seek product
liability insurance coverage prior to commercialization of its product
candidates but there can be no assurance that insurance will be available at all
or in sufficient amounts to protect the Company at a reasonable cost. See "Risk
Factors -- Risk of Product Liability; Availability of Insurance."
FACILITIES
The Company currently leases approximately 17,800 square feet of laboratory
and office space in Cambridge, Massachusetts. The lease has a five year term,
which commenced on December 1, 1991, and is extendable at the Company's option
for an additional five years.
HUMAN RESOURCES
As of May 10, 1996, the Company had 45 employees, 37 of whom were engaged
in research and development activities, including 13 Ph.D.'s. The Company's
employees are not governed by any collective bargaining agreement and the
Company believes that its relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
J. Barrie Ward, Ph.D.(1) ................. 57 Chief Executive Officer and Chairman of
the Board
William A. Packer(1)(2)................... 61 President, Chief Financial Officer and
Director
Bryan E. Roberts, Ph.D. .................. 48 Executive Vice President
David H. Ramsdell......................... 45 Vice President, Finance
Constantine E. Anagnostopoulos,
Ph.D.(2)(3)............................. 73 Director
John W. Littlechild(1)(3)................. 44 Director
Alan M. Mendelson(1)(2)................... 48 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
The Board of Directors currently consists of five members. All of the
Company's directors are elected annually by the stockholders and hold office
until their respective successors are duly elected and qualified. Officers are
elected to serve, subject to the discretion of the Board of Directors, until
their successors are appointed. There are no family relationships among any of
the executive officers or directors of the Company.
J. Barrie Ward, Ph.D. has served as Chairman of the Board of Directors and
Chief Executive Officer since joining the Company in July 1994. From 1984 to
June 1994, Dr. Ward served as Director of the Microbiology Division of Glaxo
Research and Development Ltd. ("Glaxo"), a pharmaceutical company, with
responsibility for infectious disease research. Dr. Ward received a Ph.D. in
microbial biochemistry from the University of Bath, Bath, England.
William A. Packer joined the Company in 1992 as President and a Director
and was also elected Chief Financial Officer in March 1996. Prior to joining the
Company, Mr. Packer held various senior management positions with SmithKline
Beecham plc, a pharmaceutical company, from 1964 to 1991, most recently as
Senior Vice President, Biologicals, where he was responsible for the direction
of SB's global vaccine business. Mr. Packer is a Fellow of the Institute of
Chartered Accountants in England and Wales.
Bryan E. Roberts, Ph.D. joined the Company in 1991. Dr. Roberts served as
Research Director from 1991 to 1993 and as Vice President, Research from 1993
until March 1996, when he was appointed Executive Vice President. From 1984 to
1990, Dr. Roberts was the Research Director of Applied BioTechnology, Inc., a
biotechnology company he co-founded. From 1978 to 1986, Dr. Roberts was an
Associate Professor of Biological Chemistry at the Harvard Medical School. Dr.
Roberts received a D.Phil. from the University of Oxford.
David H. Ramsdell joined the Company in August 1993 and has served as Vice
President, Finance since that time. From May 1986 until joining the Company, Mr.
Ramsdell was Vice President, Finance and Chief Financial Officer of ISI Systems,
Inc., a data processing and software development company. Mr. Ramsdell received
an M.B.A. in Finance from the Amos Tuck School of Business at Dartmouth College.
Constantine E. Anagnostopoulos Ph.D. has been a director of the Company
since January 1993. He has been Managing General Partner of Gateway Associates
LP, a venture capital management firm, since June 1987. Gateway Associates L.P.
is the general partner of Gateway Venture Partners III, L.P., a principal
stockholder of the Company. From January 1986 to April 1987, Dr. Anagnostopoulos
was a consultant to Monsanto Company, a producer of pharmaceutical chemicals,
plastics and textiles, and to Alafi Capital, a venture capital firm. From 1952
to 1986, Dr. Anagnostopoulos held various positions at Monsanto Company, having
served most recently as Corporate Vice President. Dr. Anagnostopoulos is also a
director of Genzyme
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Corporation and Dyax, Inc. Dr. Anagnostopoulos received a Ph.D. in organic
chemistry from Harvard University.
John W. Littlechild has been a director of the Company since December 1991.
Since March 1992, Mr. Littlechild has been a general partner of HealthCare
Partners, II L.P. ("HCP II"), HealthCare Partners, III L.P. ("HCP III") and
HealthCare Partners, IV L.P. ("HCP IV"), the general partner, respectively, of
each of HealthCare Ventures II, L.P. ("HCV II"), HealthCare Ventures III, L.P.
("HCV III") and HealthCare Ventures, IV L.P. ("HCV IV"), and a Vice Chairman of
HealthCare Investment Corporation LLC ("HIC"), a venture management company
that, among other things, provides management services to HCV II, HCV III and
HCV IV. HCV II, HCV III and HCV IV are principal stockholders of the Company.
From 1984 to 1991, Mr. Littlechild was a Senior Vice President of Advent
International Corporation, a venture capital company ("Advent") based in Boston
and London. He received a B.Sc. from the University of Manchester and an M.B.A.
from Manchester Business School. Mr. Littlechild serves on the board of
directors of various healthcare and biotechnology companies, including Orthofix
International N.V. and Diacrin, Inc.
Alan M. Mendelson has been a director of the Company since May 1994. Mr.
Mendelson has been a general partner of Axiom Venture Partners, L.P. ("Axiom"),
a stockholder of the Company, since April 1994. Prior to April 1994, Mr.
Mendelson served with Aetna Life & Casualty in Hartford, Connecticut, in various
capacities over a 24-year period, most recently as Vice President -- Investment
Strategy and Policy. In 1988, Mr. Mendelson founded Systemix, Inc., a
biotechnology company, where he initially served as Chief Executive Officer
until the Company was acquired by Sandoz in 1991. Mr. Mendelson is also a
director of Connecticut Innovations, Inc. and Collaborative Clinical Research,
Inc. Mr. Mendelson has a B.A. from Trinity College and a J.D. from the
University of Connecticut.
The Board of Directors established an Executive Committee, Audit Committee
and Compensation Committee in May 1993. The Executive Committee oversees certain
significant transactions in which the Company is engaged and makes
recommendations to the Board with respect to such transactions. The Audit
Committee is authorized to review with the Company's independent auditors the
annual financial statements of the Company prior to publication; to review the
work of, and approve non-audit services performed by, such independent auditors;
and to make annual recommendations to the Board for the appointment of
independent auditors for the ensuing year. The Audit Committee also reviews the
effectiveness of the financial and accounting functions, organization,
operations and management of the Company. The Compensation Committee is
authorized to review and recommend to the Board of Directors the compensation
and benefits of all officers and directors of the Company and to review general
policy matters relating to compensation and benefits of employees of the
Company. The Compensation Committee also administers the issuance of stock
options to the Company's officers, employees and consultants pursuant to the
Company's 1992 Equity Incentive Plan.
Directors receive no cash compensation for their services as directors but
are reimbursed for their expenses incurred in connection with attending meetings
of the Board of Directors. Directors who are not employees of the Company or
affiliated with principal stockholders of the Company are entitled to receive
automatic stock option grants under the Company's 1992 Equity Incentive Plan.
See "-- Stock Options."
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware obligating the Company
to indemnify its officers and directors against certain liabilities to the
fullest extent permitted by the General Corporation Law of Delaware. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and directors. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board currently consists of seven
individuals who have extensive experience in the fields of polymer chemistry,
virology, infectious diseases, immunology, microbiology and molecular genetics.
At the Company's request, the scientific advisors review and evaluate the
Company's
40
<PAGE> 43
research programs and advise the Company about technical matters in the
scientific fields in which the Company is involved. The Company's Scientific
Advisory Board generally meets as a group at least once a year to review and
discuss the Company's progress in research and development, and certain members
of the Scientific Advisory Board meet informally in smaller groups or
individually with Company scientists on a more frequent basis. Each member of
the Scientific Advisory Board has entered into a consulting agreement with the
Company. The consulting agreements are for varying terms and provide for each of
the members to render advice to the Company in the area of the Company's
business and such member's expertise. Members of the Scientific Advisory Board
are entitled to receive annual compensation of up to $10,000 for their services
and may receive options to purchase Common Stock under the Plan. In addition,
Drs. Essex and Mekalanos have separate consulting agreements with the Company
pursuant to which they receive additional compensation. It is possible that any
inventions or processes discovered by the scientific advisors will remain the
property of such persons or of such persons' employers. In addition, the
institutions with which the scientific advisors are affiliated may make
available the research services of their personnel, including the scientific
advisors, to competitors of the Company pursuant to sponsored research
agreements.
The following table sets forth the name and current position of each
scientific advisor:
<TABLE>
<CAPTION>
NAME POSITION
----------------------------------------- -----------------------------------------
<S> <C>
Barry Bloom, M.D. ....................... Retired (Former Executive Vice President,
Pfizer, Inc.)
Robert Langer, Ph.D. .................... The Germeshausen Professor, Department of
Chemical Engineering, Massachusetts
Institute of Technology
Myron Essex, D.V.M., Ph.D. .............. Chairman, Department of Cancer Biology,
Harvard School of Public Health,
Chairman of Harvard AIDS Institute
Brian Mahy, Ph.D., Sc.D. ................ Director of Viral and Rickettsial
Diseases, the Centers for Disease Control
and Prevention
John Mekalanos, Ph.D. ................... Professor, Department of Microbiology and
Molecular Genetics, Harvard Medical
School
Morton Swartz, M.D. ..................... Chief, James Jackson Firm Medical
Services & Infectious Disease Unit of
Massachusetts General Hospital,
Professor, Harvard Medical School
Hans Wigzell, Ph.D., M.D. ............... Professor of Immunology, Karolinska
Institute, Stockholm
</TABLE>
41
<PAGE> 44
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to the three most highly compensated executive officers other than the Chief
Executive Officer whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1995 (collectively, the "named executive officers") for
services rendered during the three fiscal years ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(#)
- ---------------------------------- ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
J. Barrie Ward, Ph.D. ............ 1995 $183,954 $20,000 $ -- --
Chief Executive Officer and 1994 100,288 12,115 10,696 308,334
Chairman of the Board 1993(3) -- -- -- --
William A. Packer................. 1995 159,173 30,000 49,880 --
President, Chief 1994 191,000 -- -- 73,334
Financial Officer 1993 190,000 22,500 -- --
Bryan E. Roberts, Ph.D. .......... 1995 142,104 -- -- --
Executive Vice President 1994 142,738 17,500 -- 54,834
1993 125,160 30,338 -- 16,667
David H. Ramsdell................. 1995 110,811 -- -- --
Vice President, Finance 1994 111,462 -- -- 8,334
1993(4) 41,394 4,725 -- 16,667
</TABLE>
- ---------------
(1) Bonus in this chart may include amounts actually paid to the named executive
officer in the year indicated for services rendered in the prior fiscal
year.
(2) Represents relocation expense reimbursement paid to the named executive
officer.
(3) Dr. Ward commenced employment with the Company on July 11, 1994.
(4) Mr. Ramsdell commenced employment with the Company on August 9, 1993.
STOCK OPTIONS
In October 1992, the Board of Directors of the Company adopted the 1992
Equity Incentive Plan (the "Plan"). Under the Plan, as amended, 1,751,176 shares
of Common Stock may be issued to officers, employees, consultants and directors
of the Company in the form of stock options and awards. As of May 10, 1996,
946,505 shares were available for future grant and options to purchase 798,614
shares at exercise prices ranging from $0.15 to $9.60 (assuming an offering
price of $12.00 per share) were outstanding under the Plan. The Plan provides
for the grant of options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, or options not
intended to qualify as incentive stock options ("nonstatutory stock options").
The Plan is administered by the Compensation Committee (the "Committee") of
the Board of Directors. Effective upon the consummation of this offering, the
Committee will consist of at least two "disinterested" directors as defined in
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"). The maximum number of shares for which options may be
granted to any participant under the Plan during any fiscal year is 250,000
shares. Subject to the limitations set forth in the Plan, the Committee has the
authority to determine to whom options will be granted, the term during which
options granted under the Plan may be exercised, the exercise price of options
and the rate at which options may be exercised and may vest. Nonstatutory stock
options may be granted to all employees and officers of the Company and to
consultants and affiliates capable of contributing significantly to the
successful performance of the Company. Incentive stock options may be granted to
all employees or officers of
42
<PAGE> 45
the Company. The maximum term of each incentive stock option granted under the
Plan is ten years. The exercise price of shares of Common Stock subject to
options qualifying as incentive stock options may not be less than the fair
market value of the Common Stock on the date of the grant (110% of the fair
market value in the case of incentive stock options granted to any stockholder
owning in excess of 10% of the Company's Common Stock, which options must also
expire within five years from the date of grant). Under the Plan, the exercise
price of both incentive stock options and nonstatutory stock options is payable
in cash or, at the discretion of the Committee, in Common Stock or such other
lawful consideration as the Committee may determine. Options granted pursuant to
the Plan will automatically become exercisable in full upon a change of control
(as defined in the Plan).
The Committee, in its discretion, may also award shares of Common Stock to
any employees and officers of and consultants to the Company or any affiliates
capable of contributing significantly to the successful performance of the
Company. The Committee has the authority to impose terms and restrictions upon
the award of any such shares of Common Stock, including the achievement of
certain performance objectives and the continued employment with the Company
through a specified period. Shares of restricted Common Stock so granted under
the Plan may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as permitted by the Committee, until all the applicable terms
and conditions set by the Committee have been fulfilled.
The Plan provides for the automatic grant of nonstatutory stock options
("Director Options") to directors of the Company who are not employees, of the
Company ("Eligible Directors"). Eligible Directors of the Company elected after
consummation of this offering will be granted a Director Option to purchase
10,000 shares of Common Stock on the date such person is first elected or
appointed a director (an "Initial Director Option"). Further, commencing on the
day immediately following the date of the annual meeting of stockholders for the
fiscal year ending December 31, 1997, each Eligible Director, other than
directors who will have received an Initial Director Option since the last
annual meeting, will be granted a Director Option to purchase 2,000 shares of
Common Stock on the day immediately following the date of each annual meeting of
stockholders, as long as such director is a member of the Board of Directors.
The exercise price for each share subject to a Director Option shall be equal to
the fair market value of the Common Stock on the date of grant. Director Options
are exercisable in four equal annual installments, commencing on the date of
grant and will expire on the earlier of the tenth anniversary of the date of
grant or 90 days after the termination of the directors' service on the Board of
Directors.
The Company did not grant any options to the named executive officers
during the fiscal year ended December 31, 1995.
The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1995 by each
of the named executive officers and the number and value of unexercised options
held by such named executive officers as of December 31, 1995:
AGGREGATED OPTION/SAR EXERCISES IN THE
FISCAL YEAR ENDED DECEMBER 31, 1995 AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------- ----------- ------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
J. Barrie Ward, Ph.D. ....... 0 $0 77,084/231,250 $ 212,752/638,250
William A. Packer............ 0 0 80,834/ 75,834 $ 275,602/226,803
Bryan E. Roberts, Ph.D....... 0 0 23,209/ 57,792 $ 72,135/168,805
David H. Ramsdell............ 0 0 10,417/ 14,584 $ 30,000/ 41,500
</TABLE>
- ---------------
(1) Based on the fair market value of $3.75 of the Company's Common Stock on
December 31, 1995, as determined by the Company's Board of Directors.
43
<PAGE> 46
CERTAIN TRANSACTIONS
RELATED PARTIES
HCV II, HCV III and HCV IV are limited partnerships formed to provide
capital to companies in the healthcare field. HCP II, HCP III and HCP IV are
limited partnerships which serve as the general partner of HCV II, HCV III and
HCV IV, respectively, which are controlling stockholders of the Company. HIC is
the management company for each of HCV II, HCV III and HCV IV. Mr. Littlechild,
a director of the Company, is a general partner of each of HCP II, HCP III and
HCP IV and an officer of HIC. See "Principal Stockholders."
Everest Trust ("Everest"), a principal stockholder of the Company, holds
approximately 19% and 88% of the outstanding limited partnership interests in
each of HCV II and HCV IV. An affiliate of Everest is a limited partner of each
of HCP II, HCP III and HCP IV. Everest has informed the Company that it is a
grantor trust which has as its principal beneficiaries Joshua Ruch and Jan
Philipp F. Reemtsma. Messrs. Ruch and Reemtsma may be deemed to have control
over the investment decisions of Everest Trust.
Gateway Venture Partners III, L.P. ("Gateway"), a principal stockholder of
the Company, is a venture capital firm. Constantine E. Anagnostopoulos, a
director of the Company, is the Managing Director of Gateway Associates, L.P.,
the general partner of Gateway.
Axiom Venture Partners, L.P. ("Axiom"), a stockholder of the Company, is an
investment fund which specializes in providing funds to companies in the
medical, healthcare and communication fields. Alan M. Mendelson, a director of
the Company, is a founding general partner of Axiom.
FINANCINGS
In February 1994, the Company borrowed an aggregate of $1,000,000 from
several parties, including HCV III, HCV IV, Concord Partners II ("Concord"),
Gateway and Everest Trust, pursuant to a series of promissory notes bearing
interest at the rate of 8% per annum on the unpaid principal amount of the
notes, which notes, together with accrued interest, were either repaid out of
the proceeds of the sale of the Series C Convertible Preferred Stock or
cancelled in consideration for the issuance of shares of Series C Convertible
Preferred Stock. In connection with these loans, the Company issued warrants to
purchase an aggregate of 33,570 shares of its Common Stock at an exercise price
of $.96 per share, which warrants expire in February 2004.
In April 1994, the Company entered into a convertible preferred stock
purchase agreement, pursuant to which it sold an aggregate of 5,621,535 shares
of Series C Convertible Preferred Stock at a purchase price of $1.60 per share,
to a group of stockholders including HCV III, HCV IV, Gateway, Everest Trust and
Concord, and, at a subsequent closing, Axiom.
In September 1995, the Company entered into a loan agreement with certain
stockholders, including HCV III, HCV IV, Everest, Concord, Gateway and Axiom,
permitting the Company to borrow up to $1,000,000 through March 31, 1996 from
such lenders (the "1995 Bridge Financing"). The Company issued notes in an
aggregate amount of $1,000,000 in connection with such financing (the
"Convertible Notes") which bear interest at the rate of 8% per annum, are due on
September 14, 1997 or earlier upon a request for repayment by lenders holding a
majority of interest in the notes and may be converted, at the option of the
holders, into shares of the Company's Series C Convertible Preferred Stock at a
conversion price of $1.60 (such price subject to adjustment pursuant to certain
anti-dilution provisions). Upon consummation of this offering, the Convertible
Notes will be converted into an aggregate of 208,334 shares of Common Stock
(exclusive of any shares of Common Stock issuable with respect to accrued
interest on the Convertible Notes). In connection with the 1995 Bridge
Financing, the Company also issued warrants to purchase an aggregate of 66,667
shares of Common Stock, subject to certain anti-dilution provisions, at an
exercise price of $1.95 per share to each of the lenders. These warrants expire
in December 2005.
In April 1994, the Company entered into a Second Amended and Restated
Stockholders Agreement with all of the holders of its Preferred Stock (as
subsequently amended in December 1994, September 1995 and
44
<PAGE> 47
January 1996, the "Stockholders Agreement") which grants to such holders certain
demand and piggy-back registration rights with respect to shares of Common Stock
issuable upon conversion of all outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and Preferred Stock warrants. The holders of the warrants granted in connection
with the 1995 Bridge Financing have also been granted similar registration
rights. See "Description of Capital Stock -- Registration Rights."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the capital stock of the Company as of May 10, 1996, by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
capital stock of the Company, (ii) all directors, (iii) each of the named
executive officers and (iv) all directors and executive officers as a group,
prior to this offering and as adjusted to give effect to the sale of 2,300,000
shares offered hereby.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING SHARES
SHARES ---------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
HealthCare Ventures II, L.P. ................................ 1,324,975(3) 20.5% 15.1%
HealthCare Ventures III, L.P. ............................... 1,170,732(3) 18.0% 13.3%
HealthCare Ventures IV, L.P. ................................ 343,799(3) 5.3% 3.9%
Everest Trust................................................ 428,325(4) 6.6% 4.9%
Concord Partners............................................. 1,097,458(5) 17.0% 12.5%
Gateway Venture Partners III, L.P. .......................... 531,201(6) 8.2% 6.1%
J. Barrie Ward, Ph.D. ....................................... 160,826(7) 2.4% 1.8%
William A. Packer............................................ 123,167(8) 1.9% 1.4%
Bryan E. Roberts, Ph.D. ..................................... 59,084(9) * *
David H. Ramsdell............................................ 12,500(10) * *
Constantine E. Anagnostopoulos, Ph.D. ....................... 531,201(11) 8.2% 6.1%
John W. Littlechild.......................................... 2,839,506(12) 43.6% 32.2%
Alan M. Mendelson............................................ 232,075(13) 3.6% 2.7%
All directors and executive officers as a group (7
persons)................................................... 3,958,359(14) 57.7% 43.2%
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Virus Research Institute, Inc., 61 Moulton Street, Cambridge, Massachusetts
02138.
(2) Except as otherwise indicated, each of the parties listed above has sole
voting and investment power over the shares owned.
(3) The address for HCV II, HCV III and HCV IV is Twin Towers at Metro Park,
379 Thornall Street, Edison, New Jersey 08837. The address for Mr.
Littlechild is One Kendall Square, Cambridge, Massachusetts 02138. The
shares beneficially owned by HCV III include 42,980 shares subject to
immediately exercisable warrants. The shares beneficially owned by HCV IV
include 12,622 shares subject to immediately exercisable warrants.
(4) The address for Everest Trust is c/o Rho Management Co., Inc., 767 Fifth
Avenue, New York, New York 10153. Includes 6,176 shares subject to
immediately exercisable warrants. Does not include shares beneficially
owned by HCV IV, of which Everest Trust is the principal limited partner,
and as to which Everest Trust does not have or share voting or dispositive
power. Shares held in the name of Everest Trust are beneficially owned by
Joshua Ruch, Jan Philipp F. Reemtsma and Fero Ventures Limited, who retain
voting and dispositive power over the respective shares beneficially owned
by them, and the right to revoke such shares from trust at any time.
45
<PAGE> 48
(5) The address for Concord Partners is c/o Dillon Read Venture Capital, 555
California Street, San Francisco, CA 94101. Includes: 877,884 shares
(including 17,685 shares subject to immediately exercisable warrants) held
by Concord Partners II, L.P., a private venture capital fund managed by
Dillon, Read & Co. Inc. ("Dillon Read"); 9,181 shares held by Lexington IV,
L.P., a private investment fund managed by Dillon Read for certain Dillon
Read affiliated persons; and 210,393 shares (including 2,684 shares subject
to immediately exercisable warrants) held by Dillon Read as agent for
certain affiliated persons.
(6) The address for Gateway Venture Partners is 8000 Maryland Avenue, Suite
1190, St. Louis, MO 63105. Includes 9,970 shares subject to immediately
exercisable warrants.
(7) Consists of shares of Common Stock issuable upon exercise of options to
purchase Common Stock exercisable within 60 days of May 10, 1996.
(8) Consists of shares of Common Stock issuable upon exercise of options to
purchase Common Stock exercisable within 60 days of May 10, 1996.
(9) Includes 40,084 shares of Common Stock issuable upon exercise of options to
purchase Common Stock exercisable within 60 days of May 10, 1996.
(10) Consists of shares of Common Stock issuable upon exercise of options to
purchase Common Stock exercisable within 60 days of May 10, 1996.
(11) Dr. Anagnostopoulos is the managing general partner of Gateway Associates
L.P., the general partner of Gateway Venture Partners III, L.P. Dr.
Anagnostopoulos does not own any shares of the Company's capital stock in
his individual capacity.
(12) Mr. Littlechild is a general partner of HCP II, HCP III and HCP IV, the
general partners of HCV II, HCV III and HCV IV, respectively. Mr.
Littlechild shares voting and investment control with respect to shares
owned by HCV II, HCV III and HCV IV, with the other general partners of HCP
II, HCP III and HCP IV, respectively. Mr. Littlechild does not own any
shares of the Company's capital stock in his individual capacity.
(13) Consists of shares beneficially owned by Axiom, a stockholder of the
Company, of which Mr. Mendelson is a general partner (including 2,837
shares subject to immediately exercisable warrants). Accordingly, Mr.
Mendelson may be deemed to beneficially own the shares owned by Axiom. Mr.
Mendelson does not own any shares of the Company's capital stock in his
individual capacity.
(14) Includes 336,578 shares of Common Stock issuable upon exercise of options
to purchase Common Stock exercisable within 60 days of May 10, 1996.
46
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share.
COMMON STOCK
At May 10, 1996, there were 6,453,506 shares of Common Stock outstanding
(after giving effect to a one-for-three reverse stock split and assuming
conversion of all outstanding Preferred Stock and the Convertible Notes), held
by 41 stockholders of record. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock have
no preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this offering will be, validly
issued, fully paid and nonassessable. All shares of Common Stock issuable upon
conversion of the outstanding shares of Preferred Stock and upon exercise of
warrants will be, upon such conversion or exercise, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
All outstanding shares of Preferred Stock will automatically convert into
shares of Common Stock upon consummation of this offering on the basis of one
share of Common Stock for each three shares of Preferred Stock. Such shares will
be retired and will not be available for reissuance. See Note G of Notes to
Financial Statements for a description of the currently outstanding Preferred
Stock. Accordingly, following the completion of this offering, no shares of
Preferred Stock will be outstanding and all Preferred Stock warrants will be
converted into warrants to purchase Common Stock.
The Company intends to file an amendment to its Certificate of
Incorporation prior to the consummation of this offering authorizing the
issuance of an additional 5,000,000 shares of Preferred Stock. The Board of
Directors, within the limitations and restrictions contained in the Certificate
of Incorporation and without further action by the Company's stockholders, will
have the authority to issue up to 5,000,000 additional shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
preferred stock.
WARRANTS
At May 10, 1996, the Company had outstanding: (i) warrants to purchase an
aggregate of 33,570 shares of Common Stock at an exercise price of $0.96 per
share, exercisable through February 9, 2004, (ii) warrants to purchase an
aggregate of 66,667 shares of Common Stock at an exercise price of $1.95 per
share, exercisable through December 14, 2005, (iii) warrants to purchase an
aggregate of 16,829 shares of Common Stock at an exercise price of $3.09 per
share and an aggregate of 2,284 shares of Common Stock at an exercise price of
$4.80 per share, all of which will expire upon the closing of this offering if
not exercised prior to such time, and (iv) warrants to purchase an aggregate of
11,000 shares of Common Stock at an exercise price of $9.60 per share (assuming
an initial public offering price of $12 per share), exercisable though April 2,
2001. Certain of these warrants are entitled to the benefit of anti-dilution
protection under certain circumstances.
47
<PAGE> 50
REGISTRATION RIGHTS
The holders of 5,761,906 shares of Common Stock and warrants to purchase
130,350 shares of Common Stock are entitled to demand and "piggyback"
registration rights with respect to such shares. Under the Stockholders
Agreement between the Company and these holders, the holders may request that
the Company file a registration statement under the Securities Act, and, subject
to certain conditions, the Company generally will be required to use its best
efforts to effect any such registration. The Company is not generally required
to effect more than two such registrations, although under certain circumstances
the holders will have the right to request additional registrations. In
addition, if the Company proposes to register any of its securities, either for
its own account or for the account of other stockholders, the Company is
required, with certain exceptions, to notify the holders described above and,
subject to certain limitations, to include in such registration all of the
shares of Common Stock requested to be included by such holders. Each of the
holders described above has waived the right to include shares in this offering.
The Company is generally obligated to bear the expenses, other than underwriting
discounts and sales commissions, of all of these registrations.
Any exercise of such registration rights may hinder efforts by the Company
to arrange future financings of the Company and may have an adverse effect on
the market price of the Company's Common Stock.
BUSINESS COMBINATION PROVISIONS
Section 203 of the General Corporation Law of Delaware (the "DGCL")
prohibits certain transactions between a Delaware corporation and an "interested
shareholder," which is defined as a person who, together with any affiliates
and/or associates of such person, beneficially owns, directly or indirectly, 15
percent or more of the outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value of 10 percent or more of the consolidated assets of the
corporation, and certain transactions that would increase the interested
shareholder's proportionate share ownership in the corporation) between an
interested shareholder and a corporation for a period of three years after the
date the interested shareholder acquired its stock, unless: (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested shareholder acquired the shares; (ii) the interested
shareholder acquired at least 85 percent of the voting stock of the corporation
in the transaction in which it became an interested shareholder or (iii) the
business combination is approved by a majority of disinterested shareholders at
an annual or special meeting. A Delaware corporation, pursuant to a provision in
its certificate of incorporation or by-laws, may elect not to be governed by
Section 203 of the DGCL. The Company will not make such an election and, as a
result, the Company will be subject to the provisions of Section 203 of the DGCL
upon consummation of the offering.
The Restated Certificate of Incorporation provides that after the closing
of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting.
The Restated Certificate of Incorporation further provides that special meetings
of the stockholders may only be called by the Board of Directors or holders of
20% or more of the then outstanding shares of capital stock of the Company.
Under the Company's by-laws, as amended, in order for any matter to be
considered "properly brought" before a meeting, a stockholder holding less than
7.5% of the then outstanding shares of capital stock of the Company must comply
with certain requirements regarding advance notice to the Company.
TRANSFER AGENT
American Stock Transfer & Trust Company serves as Transfer Agent for the
shares of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering the Company will have 8,753,506 shares of
Common Stock outstanding, assuming that the Underwriters' over-allotment option
and other outstanding options and warrants are not exercised. Of these shares,
(and without taking into account the lock-up agreements described below),
approximately 6,135,264 shares, including the 2,300,000 shares of Common Stock
offered hereby, will be immediately eligible for resale in the public market
without restriction under the Act, except that any shares
48
<PAGE> 51
purchased in this offering by "affiliates" of the Company, as that term is
defined in Rule 144 adopted under the Act ("Affiliates"), may generally only be
resold in compliance with applicable provisions of Rule 144. Beginning
approximately 90 days after the date of this Prospectus, approximately 2,541,322
additional shares of Common Stock (including approximately 460,971 shares
covered by options exercisable within the 90-day period following the date of
this prospectus) will become eligible for immediate resale in the public market,
subject to compliance as to certain of such shares with applicable provisions of
Rules 144 and 701.
The Company's officers, directors and securityholders holding in the
aggregate approximately 7,363,751 shares of Common Stock (including at May 10,
1996 922,047 shares of Common Stock that may be acquired pursuant to the
exercise of options or warrants held by them) and the Company have agreed
pursuant to certain agreements that they will not, without the prior written
consent of the Representatives of the Underwriters, offer, sell or otherwise
dispose of any shares of Common Stock beneficially owned by them for a period of
180 days from the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
Affiliates of the Company, is entitled to sell within any three-month period a
number of restricted shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 87,534 shares immediately
after this offering, assuming no exercise of the Underwriters' over-allotment
option), or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding such sale; provided that at least two years
have elapsed since the later of the date such securities were acquired from the
Company or from an Affiliate of the Company. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. However, a person
who is not an Affiliate is entitled to sell such shares under Rule 144(k)
without regard to the volume or other resale requirements provided that at least
three years have elapsed since the later of the date the shares were acquired
from the Company or from an Affiliate of the Company. The Securities and
Exchange Commission has proposed an amendment to Rule 144 which would reduce the
holding period required for shares subject to Rule 144 to become eligible for
sale in the public market from two years to one year, and from three years to
two years in the case of Rule 144(k).
Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans, such as the
Plan, of a company not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. Securities issued pursuant to Rule 701 are defined as
restricted securities for purposes of Rule 144. However, 90 days after the
issuer becomes subject to the reporting provisions of the Exchange Act, the Rule
144 resale restrictions, except for the broker's transaction requirement, are
inapplicable for non-affiliates. Affiliates are subject to all Rule 144
restrictions after this 90-day period, but without a holding period. If all the
requirements of Rule 701 are met, an aggregate of 798,614 shares issuable on
exercise of stock options which are outstanding may be sold pursuant to such
rule, although approximately 791,697 of these shares are subject to the lock-up
agreements described above.
The holders of 5,761,906 shares of Common Stock and warrants to purchase
130,350 shares of Common Stock have certain demand and "piggyback" registration
rights. These holders have waived their registration rights with respect to this
offering and have agreed not to exercise such rights during the period
commencing 180 days from the date hereof without the consent of the
Representatives of the Underwriters. See "Description of Capital
Stock -- Registration Rights."
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made of the effect, if any, that
sales of Common Stock or the availability of Common Stock for sale will have on
the market price of such securities prevailing from time to time. Nevertheless,
sales of significant numbers of shares of Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
49
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Oppenheimer & Co., Inc. and Pacific Growth Equities,
Inc. are acting as Representatives, has severally agreed to purchase from the
Company, the respective number of shares of Common Stock set forth opposite the
name of each Underwriter below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Oppenheimer & Co., Inc. .............................................
Pacific Growth Equities, Inc. .......................................
---------
Total...................................................... 2,300,000
=========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may, from time to time, be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below), if any are taken.
The Company has granted to the Underwriters an option, exercisable for up
to 30 days after the date of this Prospectus, to purchase up to an aggregate of
345,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them bears to the
2,300,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby. The Representatives have advised the
Company that the Underwriters do not intend to confirm sales in excess of 5% of
the shares offered hereby to any account over which they exercise discretionary
authority.
The Company has agreed to indemnify the Representatives of the Underwriters
and the several Underwriters against certain liabilities, including, without
limitation, liabilities under the Securities Act.
The Company's officers and directors and securityholders who own an
aggregate of approximately 7,363,751 shares of Common Stock (including shares
issuable upon exercise of outstanding options and warrants) have agreed that
they will not directly or indirectly, sell, offer, contract to sell, make a
short sale, pledge or otherwise dispose of any shares of Common Stock (or any
securities convertible into or exchangeable or exercisable for any other rights
to purchase or acquire Common Stock other than shares of Common Stock issuable
upon exercise of outstanding options) owned by them, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Oppenheimer & Co., Inc. and Pacific Growth Equities, Inc., subject to certain
limited exceptions. The Company has also agreed not to issue, sell or register
with the Commission for its own account or otherwise dispose of, directly or
indirectly, any equity securities of the Company (or any securities convertible
into or exercisable or exchangeable for equity securities of the Company) for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Oppenheimer & Co., Inc. and Pacific Growth Equities, Inc., subject to
certain limited exceptions.
50
<PAGE> 53
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, capital
structure, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and consideration of the
above factors in relation to market values of companies in related businesses.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York and certain
legal matters will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts. The statements in this Prospectus under the captions "Risk
Factors -- No Assurance of FDA Approval; Government Regulation," "Risk
Factors -- Uncertainty Related to Health Care Reform Measures and Reimbursement"
and "Business -- Government Regulation" and other references herein to FDA
regulatory matters have been passed upon by Hyman, Phelps & McNamara, P.C.,
Washington, D.C., regulatory counsel to the Company in connection with this
offering.
EXPERTS
The balance sheets as of December 31, 1994 and 1995 and the statements of
operations, changes in stockholders' equity and cash flows for the period
February 11, 1991 (inception) to December 31, 1995 and for each of the three
years in the period ended December 31, 1995 included in this Prospectus have
been included herein in reliance upon the report of Richard A. Eisner & Company,
LLP, independent auditors, given on the authority of that firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents, Licenses and Proprietary Rights" (other than
in the fifth, sixth and seventh sentences of the third paragraph and in the
fourth, fifth and sixth sentences of the fourth paragraph), and
"Business -- Patents, Licenses and Proprietary Rights" (other than in the fifth,
sixth and seventh sentences of the sixth paragraph and in the fourth, fifth and
sixth sentences of the seventh paragraph), and other references herein to patent
and licensing matters have been reviewed and approved by Carella, Byrne, Bain,
Gilfillan, Cecchi, Stewart & Olstein, Roseland, New Jersey, patent counsel to
the Company, as experts on patent matters and are included herein in reliance
upon that review and approval. A member of Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein holds a limited partnership interest in each of HCV II
and HCV III.
The statements in the Prospectus contained in the fifth, sixth and seventh
sentences of the third paragraph under "Risk Factors -- Dependence on Patents,
Licenses and Proprietary Rights" and in the fifth, sixth and seventh sentences
of the sixth paragraph under "Business -- Patents, Licenses and Proprietary
Rights" have been reviewed and approved by Fish and Richardson, P.C., Boston,
Massachusetts, as experts on such matters, and are included herein in reliance
upon that review and approval.
The statements in the Prospectus contained in the fourth, fifth and sixth
sentences of the fourth paragraph under "Risk Factors -- Dependence on Patents,
Licenses and Proprietary Rights" and in the fourth, fifth and sixth sentences of
the seventh paragraph under "Business -- Patents, Licenses and Proprietary
Rights" have been reviewed and approved by Dr. Volker Vossius, Munich, Germany,
as an expert on such matters, and are included herein in reliance upon that
review and approval.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
Washington, D.C. with respect to the shares of Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, 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
Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Reports and other information filed by the Company with the Commission
can be inspected and copied at the public reference
51
<PAGE> 54
facilities maintained by the Commission at the following addresses: Room 1024,
Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549; New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and with
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
52
<PAGE> 55
[This page intentionally left blank]
<PAGE> 56
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
-I N D E X -
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited) and Pro
Forma as of March 31, 1996.......................................................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995, for the
period February 11, 1991 (Inception) through December 31, 1995, for the three months
ended March 31, 1995 and 1996 (unaudited) and for the period February 11, 1991
(Inception) through March 31, 1996 (unaudited)...................................... F-4
Statement of Changes in Stockholders' Equity (Deficit) for the period February 11,
1991 (Inception) through December 31, 1995, for the three months ended March 31,
1996 (unaudited) and Pro Forma as of March 31, 1996................................. F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, for the
period February 11, 1991 (Inception) through December 31, 1995, for the three months
ended March 31, 1995 and 1996 (unaudited) and for the period February 11, 1991
(Inception) through March 31, 1996 (unaudited)...................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Virus Research Institute, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheets of Virus Research
Institute, Inc. (a development stage company) as at December 31, 1995 and
December 31, 1994, and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1995, and for the period from February 11,
1991 (inception) through December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Virus Research Institute,
Inc. at December 31, 1995 and December 31, 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, and the period from February 11, 1991 (inception)
through December 31, 1995 in conformity with generally accepted accounting
principles.
Cambridge, Massachusetts
January 29, 1996
With respect to Note A
May 13, 1996
RICHARD A. EISNER & COMPANY, LLP
F-2
<PAGE> 58
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- MARCH 31, 1996
1994 1995 MARCH 31, 1996 (NOTE B(8))
----------- ----------- -------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 5,669,490 $ 1,180,176 $ 704,342 $ 2,704,482
Prepaid expenses............................ 310,654 199,097 308,311 308,311
Advance research payments................... 23,938 -- -- --
Other current assets........................ 8,038 34,845 137,531 137,531
------------ ------------ ------------ ------------
Total current assets.................. 6,012,120 1,414,118 1,150,184 3,150,324
Leasehold improvements and equipment (net of
accumulated depreciation and amortization of
$860,742 at December 31, 1994, $1,342,046 at
December 31, 1995 and $1,510,631 at March
31, 1996) (Note D).......................... 1,619,792 1,205,487 1,060,782 1,060,782
Other assets.................................. 35,451 108,300 91,812 91,812
------------ ------------ ------------ ------------
Total assets.......................... $ 7,667,363 $ 2,727,905 $ 2,302,778 $ 4,302,918
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (Note E)...................... $ -- $ 923,315 $ 934,565 $ 1,000,000
Accounts payable............................ 347,895 372,577 399,732 399,732
Accrued rent................................ 98,750 50,417 36,667 36,667
Accrued consulting and research fees........ 258,630 457,712 625,607 625,607
Other accrued expenses...................... 277,038 259,219 256,385 256,385
Deferred revenues........................... -- -- 312,500 312,500
Current portion of lease obligation payable
(Note F).................................. 173,240 175,090 161,695 161,695
------------ ------------ ------------ ------------
Total current liabilities............. 1,155,553 2,238,330 2,727,151 2,792,586
------------ ------------ ------------ ------------
Lease obligation payable, less current portion
(Note F).................................... 46,838 210,842 181,514 181,514
Commitments (Notes C and F)
Redeemable convertible preferred stock
(Note G).................................... 24,508,053 24,527,073 25,009,239 --
Stockholders' equity (deficit) (Notes A, E, F
and G):
Preferred stock -- $.001 par value;
17,399,351 shares authorized of which
4,049,028, 6,034,483, 6,253,385 and
1,062,455 shares at March 31, 1996 have
been designated as Series A, B, C and D,
respectively.............................. -- -- -- --
Common stock -- $.001 par value; 22,297,312
shares authorized; 687,101 shares issued
at December 31, 1994, 690,004 shares
issued at December 31, 1995, 690,087
shares issued at March 31, 1996, and
6,451,990 shares at March 31, 1996 on a
pro forma basis........................... 687 690 690 6,452
Additional paid-in capital.................. 42,436 134,202 134,225 27,072,507
Deficit accumulated during the development
stage..................................... (18,086,204) (24,383,232) (25,750,141) (25,750,141)
------------ ------------ ------------ ------------
Total stockholders' equity
(deficit)........................... (18,043,081) (24,248,340) (25,615,126) 1,328,818
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit).................... $ 7,667,363 $ 2,727,905 $ 2,302,778 $ 4,302,918
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE> 59
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 11, FEBRUARY 11,
1991 1991
(INCEPTION) THREE MONTHS ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH ------------------------- THROUGH
--------------------------------------- DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue (Note B(1)):
Licensing and option
revenue................... $ -- $ 700,000 $ 770,000 $ 1,470,000 $ -- $ 20,000 $ 1,490,000
Research and development
revenue................... -- 5,000 1,047,500 1,052,500 -- 525,000 1,577,500
Research and development
grants.................... -- 16,269 19,980 36,249 -- -- 36,249
Interest income............. 83,610 163,591 126,249 373,450 65,330 12,427 385,877
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total revenue......... 83,610 884,860 1,963,729 2,932,199 65,330 557,427 3,489,626
Expenses:
Research and development
(Note C).................. 4,205,781 5,756,042 5,734,427 18,746,973 1,639,203 1,346,986 20,093,959
General and
administrative............ 1,452,344 1,887,512 1,854,732 6,636,155 564,560 348,808 6,984,963
Depreciation expense........ 268,391 517,756 583,654 1,444,395 144,752 168,585 1,612,980
Interest expense............ 84,315 52,332 87,944 487,908 6,671 59,957 547,865
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total expenses........ 6,010,831 8,213,642 8,260,757 27,315,431 2,355,186 1,924,336 29,239,767
----------- ----------- ----------- ----------- ----------- ----------- ------------
Net loss...................... $(5,927,221) $(7,328,782) $(6,297,028) $(24,383,232) $(2,289,856) $(1,366,909) $(25,750,141)
=========== =========== =========== =========== =========== =========== ============
Pro forma net loss per
share....................... $(.98) $ (.36) $ (.21)
=========== =========== ===========
Pro forma weighted average
common shares outstanding... 6,390,760 6,390,364 6,425,559
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE> 60
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL DURING
PAR PAID-IN DEVELOPMENT
SHARES VALUE CAPITAL STAGE TOTAL
---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sale of common stock (restated to reflect
change in par value to $.001 from $.01 per
share).................................... 1,667 $ 2 $ 498 $ -- $ 500
Net loss -- February 11, 1991 (inception)
through December 31, 1991................. (862,597) (862,597)
----------- ------- ----------- ------------- -------------
Balance -- December 31, 1991................ 1,667 2 498 (862,597) (862,097)
Sale of common stock -- August 1992......... 607 1 1,819 -- 1,820
Recapitalization, October 1992:
1,000 for 1 stock split................... 2,271,060 2,271 (2,271) -- --
Surrender of common stock by HCV II....... (1,291,667) (1,292) 905 -- (387)
Sale of common stock -- November 1992....... 48,275 48 7,193 -- 7,241
Net loss for the year....................... (3,967,604) (3,967,604)
----------- ------- ----------- ------------- -------------
Balance -- December 31, 1992................ 1,029,942 1,030 8,144 (4,830,201) (4,821,027)
Cancellation of shares pursuant to founders'
plan amendment............................ (282,000) (282) (564) -- (846)
Purchase and cancellation of treasury
shares.................................... (105,917) (106) (2,662) -- (2,768)
Stock options exercised..................... 83 -- 12 -- 12
Net loss for the year....................... (5,927,221) (5,927,221)
----------- ------- ----------- ------------- -------------
Balance -- December 31, 1993................ 642,108 642 4,930 (10,757,422) (10,751,850)
Stock options exercised..................... 1,475 2 321 -- 323
Founder option exercised.................... 43,333 43 37,007 -- 37,050
Stock warrants exercised.................... 185 -- 178 -- 178
Net loss for the year....................... (7,328,782) (7,328,782)
----------- ------- ----------- ------------- -------------
Balance -- December 31, 1994................ 687,101 687 42,436 (18,086,204) (18,043,081)
Stock options exercised..................... 2,903 3 1,766 -- 1,769
Common stock warrants issued in conjunction
with notes payable (Note E)............... 90,000 -- 90,000
Net loss for the year....................... (6,297,028) (6,297,028)
----------- ------- ----------- ------------- -------------
Balance -- December 31, 1995................ 690,004 690 134,202 (24,383,232) (24,248,340)
Stock options exercised..................... 83 123 123
Net loss for the quarter.................... -- (1,366,909) (1,366,909)
----------- ------- ----------- ------------- -------------
Balance -- March 31, 1996 (unaudited)....... 690,087 690 134,325 (25,750,141) (25,615,126)
Pro forma conversion of notes payable to
investors................................. 208,334 208 934,357 -- 934,565
Pro forma conversion of redeemable
convertible preferred stock............... 5,553,569 5,554 26,003,825 -- 26,009,379
----------- ------- ----------- ------------- -------------
Pro forma balance -- March 31, 1996
(unaudited)............................... 6,451,990 $ 6,452 $27,072,507 $(25,750,141) $ 1,328,818
=========== ======= =========== ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE> 61
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FEBRUARY 11, FEBRUARY 11,
1991 1991
(INCEPTION) THREE MONTHS ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH ---------------------------- THROUGH
---------------------------------------- DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1995 1996 1996
---------- ---------- ---------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............. $(5,927,221) $(7,328,782) $(6,297,028) $(24,383,232) $(2,289,856) $(1,366,909) $(25,750,141)
Adjustments to
reconcile net loss
to net cash
(used in) operating
activities:
Depreciation and
amortization..... 268,392 517,756 599,435 1,460,177 144,752 181,835 1,642,012
Conversion of
accrued interest
to preferred
stock............ -- 12,347 -- 12,347 -- -- 12,347
Changes in
operating assets
and liabilities:
(Increase)
decrease in
prepaid
expenses and
other current
assets......... (13,869) (199,379) 112,784 (219,116) (16,643) (195,411) (414,527)
Increase
(decrease) in
accounts
payable and
accrued
expenses....... 275,663 463,317 157,611 1,139,924 (38,174) 178,465 1,318,389
Increase in
deferred
revenue........ -- -- -- -- -- 312,500 312,500
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash (used
in) operating
activities... (5,397,035) (6,534,741) (5,427,198) (21,989,900) (2,199,921) (889,520) (22,879,420)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Cash flows from
investing activities:
Capital
expenditures....... (1,059,694) (528,084) (129,561) (2,564,980) (105,660) (23,879) (2,588,859)
Other................ (2,597) -- -- (46,182) -- -- (46,182)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash (used
in) investing
activities... (1,062,291) (528,084) (129,561) (2,611,162) (105,660) (23,879) (2,635,041)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Cash flows from
financing activities:
Proceeds from notes
payable............ 1,306,067 1,000,000 1,000,000 7,973,668 -- -- 7,973,668
Decrease in bank
overdraft.......... (188,261) -- -- -- -- -- --
Sale and leaseback
related to capital
acquisitions....... 124,999 -- 250,000 751,311 -- -- 751,311
Principal payments on
lease
obligations........ (153,177) (173,171) (183,344) (509,692) (46,508) (44,722) (554,414)
Sale of common
stock.............. 12 37,551 1,769 48,893 162 122 49,015
Sale of preferred
stock.............. 6,411,945 10,982,528 -- 17,758,473 -- 500,000 18,258,473
Preferred stock
offering costs..... (104,325) (68,727) (980) (237,801) (1,477) (17,835) (255,636)
Founders' shares
reacquired......... (846) -- -- (846) -- -- (846)
Purchase of treasury
stock.............. (2,768) -- -- (2,768) -- -- (2,768)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash
provided by
(used in)
financing
activities... 7,393,646 11,778,181 1,067,445 25,781,238 (47,823) 437,565 26,218,803
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net increase (decrease)
in cash and cash
equivalents.......... 934,320 4,715,356 (4,489,314) 1,180,176 (2,353,404) (475,834) 704,342
Cash and cash
equivalents at
beginning of
period............... 19,814 954,134 5,669,490 -- 5,669,490 1,180,176 --
----------- ----------- ----------- ----------- ----------- ------------ ------------
Cash and cash
equivalents at end of
period............... $ 954,134 $5,669,490 $1,180,176 $ 1,180,176 $3,316,086 $ 704,342 $ 704,342
=========== =========== =========== =========== =========== ============ ============
Supplemental disclosure
of cash flow
information:
Interest paid during
the period......... $ 52,945 $ 52,330 $ 61,915 $ 167,190 $ 6,671 $ 10,219 $ 177,409
</TABLE>
See Notes E and F with respect to noncash financing and leasing transactions.
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE> 62
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(NOTE A) -- THE COMPANY:
Virus Research Institute, Inc. (the "Company") is a development stage
company engaged in the discovery and development of vaccine delivery systems and
improved and novel vaccines for adults and children.
The Company has incurred substantial losses since inception while it has
been in the development stage and such losses are expected to continue. As at
December 31 1995, the Company had a working capital deficiency of approximately
$800,000. Subsequent to December 31, 1995, the Company received $1,500,000 from
the sale of additional preferred stock and $2,500,000 in milestone payments from
a collaborator, and the Company borrowed $1,000,000 from a bank at 2% over the
bank's prime rate, which loan is repayable July 31, 1996. In addition, the
Company has agreements with collaborative partners which provide for certain
research support payments based upon the Company achieving certain scientific
and operating milestones. The Company anticipates that it will meet certain
milestones and that sufficient funds will be available to enable it to meet its
obligations through December 31, 1996.
In March 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the
initial public offering of shares of the Company's common stock.
In May 1996, the stockholders approved a one-for-three reverse split of the
outstanding shares of the Company's common stock. All references to common
stock, options, warrants, per share data and the conversion rates of the
convertible preferred stock have been restated to give effect to the reverse
split.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) Revenue recognition:
Nonrefundable, noncreditable licensing and option fees and milestone
payments are recognized when they are earned in accordance with the performance
requirements and contractual terms. Research and development revenues and grants
are recognized over the period of performance under the terms of the related
agreements.
Licensing revenue represents amounts paid by companies for the use of or
access to the Company's proprietary technology. Option revenue represents
payments for the right to evaluate the Company's proprietary technology which
may or may not result in a licensing or collaborative development agreement.
Research and development revenue represents amounts earned by the Company from
collaborative partners for sponsored research activities. Research and
development grants represent grants for research activities of the Company from
such organizations as The National Institutes of Health.
(2) Depreciation and amortization:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using the
straight-line method over the life of the lease.
(3) Patent and licensing costs:
As a result of research and development efforts conducted by the Company,
it has received and applied for, and is in the process of applying for, a number
of patents to protect proprietary inventions and licenses to use certain
intellectual property. Costs incurred in connection with patent applications and
licenses have been expensed as incurred and are reflected as general and
administrative expenses.
F-7
<PAGE> 63
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) Cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less, when acquired, to be cash equivalents.
(5) Income taxes:
Deferred income taxes are recognized for the tax consequences in future
years for 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 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.
(6) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for depreciation and amortization, taxes and
contingencies.
(7) Interim financial statements:
The financial statements as of March 31, 1996 and for the three months
ended March 31, 1996 and 1995, are unaudited. In management's opinion, such
unaudited financial statements include all adjustments necessary for a fair
presentation. Such adjustments were of a normal recurring nature.
(8) Pro forma financial information:
Unaudited pro forma financial information gives effect to the conversion of
all outstanding shares of redeemable convertible preferred stock, including
certain shares issued in 1996 in connection with $1,500,000 of equity investment
in the Company (see Note G), the conversion of notes payable to investors into
208,334 shares of common stock (exclusive of any shares of common stock issuable
with respect to accrued interest on such notes) and the issuance of $1,000,000
of notes payable in April 1996. Pro forma net loss per share is based upon net
loss as adjusted for interest expense reductions attributable to the notes
payable to investors and the weighted average number of common shares and common
share equivalents outstanding during the year, after giving effect to the
conversions as of the later of January 1, 1995 or the date of issuance of the
security. Pursuant to the requirements of the Securities and Exchange
Commission, common shares, or other potentially dilutive instruments issued by
the Company during the twelve months immediately preceding the expected initial
filing of the registration statement for the Company's proposed initial public
offering at prices below the expected public offering price have been included
in the calculation as if they were outstanding for all periods presented.
(NOTE C) -- RESEARCH, LICENSE AND CONSULTING AGREEMENTS:
The Company has entered into various research, license and consulting
agreements to support its research and development activities. These agreements
generally expire over several future years although some are automatically
renewable on an annual basis unless cancelled by either party. Amounts charged
to operations in connection with these agreements for the years ended December
31, 1993, 1994 and 1995 amounted to approximately $1,625,000, $1,565,000 and
$1,255,000, respectively. The Company expects to incur similar expenses in
future years. Some of the above agreements contain provisions for future
royalties to be paid on sales of products developed under the agreements.
F-8
<PAGE> 64
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE D) -- LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Leasehold improvements and equipment, including approximately $533,000
acquired under capital leases, are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Laboratory furniture, fixtures and equipment................ $1,121,390 $1,160,891
Office furniture, fixtures and equipment.................... 217,879 230,405
Leasehold improvements...................................... 1,141,265 1,156,237
---------- ----------
Total............................................. 2,480,534 2,547,533
Less accumulated depreciation and amortization.............. 860,742 1,342,046
---------- ----------
Balance........................................... $1,619,792 $1,205,487
========== ==========
</TABLE>
(NOTE E) -- NOTES PAYABLE:
During 1995, the Company borrowed $1,000,000 from investors. The notes bear
interest at 8% and are due on demand or on September 14, 1997. In connection
with this borrowing, the Company issued warrants for the purchase of 66,670
shares of the Company's common stock with an exercise price of $1.95 per share.
The warrants expire on December 14, 2005. The purchase price per share and the
number of shares to be purchased are subject to adjustment if certain events
occur as defined in the agreement. The value assigned to the warrants, amounting
to $90,000, has been accounted for as debt discount and is being amortized over
the period of time the notes are outstanding. The effective interest rate,
including amortization of the discount, is approximately 12.5%. (See Note B(8)).
(NOTE F) -- COMMITMENTS:
(1) Operating lease:
In December 1991, the Company entered into a five year operating lease for
its office and research facilities. The lease also provides that the Company pay
all real estate taxes levied against the premises. The lease requires minimum
annual rentals in 1996 amounting to approximately $248,000.
Rent expense for 1993, 1994 and 1995 amounted to approximately $245,000,
$267,000 and $269,000, respectively.
(2) Capital lease:
The Company has entered into several capital leases, including sale and
leaseback transactions, for equipment. Future minimum payments under these
leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996.............................................................. $202,429
1997.............................................................. 165,210
1998.............................................................. 69,767
-------
Total................................................... 437,406
Less amount representing interest................................. 51,474
-------
Present value of future lease payments............................ 385,932
Less amounts due within one year.................................. 175,090
-------
Amounts due after one year........................................ $210,842
=======
</TABLE>
F-9
<PAGE> 65
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1992, the Company entered into a leasing agreement whereby the Company
issued a warrant to the lessor for the purchase of 50,485 shares of Series A
convertible preferred stock at a purchase price of $1.03 per share.
During 1995, under a sale and leaseback transaction, the Company sold
certain laboratory equipment for $250,000 and leased it back over a thirty month
lease agreement. In connection with this lease, the Company issued warrants to
the lessor for the purchase of 6,850 shares of Series C convertible preferred
stock at an exercise price of $1.60 per share. The value assigned to the
warrants, amounting to $20,000, has been accounted for as debt discount and is
being amortized over the related lease period.
The Series A and Series C warrants expire on October 30, 2002 and September
7, 2005, respectively, or five years from the effective date of the Company's
initial public offering. However, in the event of the initial public offering or
merger of the Company into another corporation, the warrants will expire upon
the closing of either of those events provided the Company gives the
warrantholders at least 20 days prior written notice of such closing.
(NOTE G) -- CAPITALIZATION:
(1) Preferred stock:
Since inception, the Company has been primarily financed through the sale
of various series of preferred stock in exchange for cash and the conversion of
indebtedness.
All issuances of the convertible preferred shares have a liquidation
preference equal to their original issuance price and are redeemable at the
option of the stockholder subsequent to February 1, 1998 at their original
issuance price plus any declared but unpaid dividends. The shares are
convertible into common shares of the Company on a one-for-three basis, subject
to adjustment based on future issuances of common stock. The redemptions are
subject to limitations as defined in the purchase agreement.
Redeemable convertible preferred stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Series A -- $.001 par value; 4,049,028 shares authorized;
3,883,495 shares issued and outstanding (liquidation preference
$4,000,000) issued October 1992................................. $ 3,884 $ 3,884
Series B -- $.001 par value; 6,034,483 shares authorized;
6,034,483 shares issued and outstanding (liquidation preference
$8,750,000) issued March 1993................................... 6,034 6,034
Series C -- $.001 par value; 6,253,385 shares authorized;
5,621,535 shares issued and outstanding (liquidation preference
$8,994,456) issued April 1994................................... 5,622 5,622
Series D -- $.001 par value; 944,419 shares authorized; 708,314
shares issued and outstanding (liquidation preference
$3,000,419) issued December 1994................................ 708 708
Additional paid-in capital applicable to redeemable preferred
stock........................................................... 24,491,805 24,510,825
----------- -----------
$24,508,053 $24,527,073
=========== ===========
</TABLE>
Subsequent to December 31, 1995, the Company issued 354,141 shares of
Series D convertible preferred stock at a price of $4.236 per share in exchange
for cash of $1,500,140, of which $500,000 was received in January 1996 and
$1,000,140 was received in April 1996. The Series D preferred shares have a
liquidation preference of $4.236 per share and are convertible into common
shares of the Company on a one-for-three
F-10
<PAGE> 66
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
basis, subject to adjustment based on issuances of common stock. The shares are
redeemable at the option of the shareholder subsequent to February 1, 1998 at
their original issuance price plus any declared but unpaid dividends. The
redemption is subject to limitations as defined in the purchase agreement. (See
Note B(8)).
(2) Warrants:
The Company has issued warrants to purchase common and preferred stock in
connection with the issuance of notes payable and the establishment of capital
leases. Warrants outstanding at December 31, 1995 and at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER PRICE
SECURITY OF SHARES PER SHARE EXPIRATION DATE
- --------------------------------------------------- --------- --------- ------------------
<S> <C> <C> <C>
Series A preferred stock........................... 50,485 $1.03 See Note F
Common stock....................................... 33,570 .96 February 9, 2004
Common stock....................................... 66,670 1.95 September 14, 2005
Series C preferred stock........................... 6,850 1.60 See Note F
</TABLE>
The warrant agreements contain antidilution provisions related to future
issuances of stock.
(3) Common stock options:
The Company has adopted an equity incentive plan providing for the issuance
of restricted stock and the granting of options to purchase up to a combined
total of 886,220 shares of common stock. The plan provides for the granting of
both incentive stock options and nonstatutory stock options. The exercise price
for any incentive stock options cannot be less than the fair market value on the
date of the grant, while the exercise price for nonstatutory options will be
determined by the Board of Directors. The vesting period for all options are
determined by the Board of Directors. The Company had the following option
activity during 1993, 1994 and 1995.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- -----------------
<S> <C> <C>
Balance -- December 31, 1992............................ 140,198 $.15
Granted............................................... 79,016 $ .15 to $ .93
Exercised............................................. (83) $.15
Cancelled............................................. (8,583) $.15
-------
Balance -- December 31, 1993............................ 210,548 $ .15 to $ .93
Granted............................................... 542,806 $1.80 to $1.485
Exercised............................................. (1,474) $ .15 to $ .96
Cancelled............................................. (1,660) $ .15 to $1.485
-------
Balance -- December 31, 1994............................ 750,220 $ .15 to $1.485
Granted............................................... 12,142 $1.485 to $3.75
Exercised............................................. (2,903) $ .15 to $1.47
Cancelled............................................. (11,584) $ .15 to $1.485
-------
Balance -- December 31, 1995............................ 747,875 $ .15 to $3.75
Granted............................................... 52,334 $3.90 to $9.60
Exercised............................................. (84) $1.47
-------
Balance -- March 31, 1996 (unaudited)................... 800,125
=======
</TABLE>
F-11
<PAGE> 67
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Options for 258,905 shares are exercisable at December 31, 1995 at an
average price of $.64. At March 31, 1996, there were 81,551 shares available for
future grant.
(NOTE H) -- INCOME TAXES:
Through December 31, 1993, pursuant to provisions of the Internal Revenue
Code, the Company was deferring all start-up costs because operations, as
defined by the Internal Revenue Code, had not commenced. In addition, the
Company elected to defer all research and development costs until revenues were
generated. Effective January 1994, the Company began generating revenues and
commenced operations for tax purposes and is amortizing all costs deferred
through December 31, 1993 over 60 months and from January 1994 forward is
expensing such costs as incurred.
At December 31, 1994 and 1995, the Company had no current or deferred tax
liability.
The components of the Company's net deferred tax asset and the tax effects
of the primary differences giving rise to the Company's deferred tax asset are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 3,100,000 $ 6,500,000
Deferred start-up costs for tax purposes.................. 600,000 550,000
Deferred research and development costs for tax
purposes................................................ 2,100,000 1,750,000
Other..................................................... 300,000 500,000
----------- -----------
Deferred tax asset........................................ 6,100,000 9,300,000
Valuation allowance....................................... (6,100,000) (9,300,000)
----------- -----------
Net deferred tax asset.................................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1995, the Company's net operating loss carryovers for
federal income tax purposes amount to approximately $16,700,000 and expire
through 2010.
The Internal Revenue Code contains provisions which may limit the net
operating loss carryovers available for use in any given year if significant
changes in ownership interest of the Company occur. It is likely that the
Company's planned initial public offering will cause an annual limitation in the
utilization of the net operating loss carryover.
F-12
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. 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 A SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION 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 NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 15
Dividend Policy........................ 15
Capitalization......................... 16
Dilution............................... 17
Selected Financial Data................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 22
Management............................. 39
Certain Transactions................... 44
Principal Stockholders................. 45
Description of Capital Stock........... 47
Shares Eligible for Future Sale........ 48
Underwriting........................... 50
Legal Matters.......................... 51
Experts................................ 51
Additional Information................. 51
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,300,000 SHARES
LOGO
VIRUS RESEARCH
INSTITUTE, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
OPPENHEIMER & CO., INC.
PACIFIC GROWTH EQUITIES, INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
SEC Registration Fee............................................ $ 11,856.90
NASD Filing Fee................................................. 3,938.50
Nasdaq Listing Fee.............................................. 40,000
Printing and Engraving Expenses................................. 200,000
Accounting Fees and Expenses.................................... 75,000
Legal Fees and Expenses......................................... 300,000
Blue Sky Fees and Expenses...................................... 20,000
Transfer Agent's Fees and Expenses.............................. 3,500
Miscellaneous Expenses.......................................... 145,704.60
----------
Total................................................. $ 800,000
==========
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provide that
the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "DGCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's By-laws and the DGCL, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the Company
are to be indemnified against certain liabilities. The Company's Certificate of
Incorporation also limits, to the fullest extent permitted by Delaware law, a
director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care. In addition, the
Company has obtained an insurance policy providing coverage for certain
liabilities of its officers and directors.
Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriters of the Registrant, its
officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued securities to a
limited number of persons, as described below. No underwriter or underwriting
discounts or commissions were involved. There was no public offering in any such
transaction and the Company believes that each transaction was exempt from the
registration requirements of the Securities Act of 1933 (the "Securities Act")
by reason of Sections 3(b) and
II-1
<PAGE> 70
4(2) thereof or Rule 701 promulgated thereunder based on the private nature of
the transactions and the sophistication of the purchasers, all of whom had
access to complete information concerning the Registrant and acquired the
securities for investment and not with a view to the distribution thereof.
Since its inception through May 10, 1996, the Company has granted options
to purchase 826,496 shares of Common Stock to employees, directors, consultants
and advisors at exercise prices ranging from $0.15 to $9.60 and has issued 6,057
shares pursuant to exercise of employee stock options at exercise prices per
share ranging from $0.45 to $1.47.
In February 1994, the Company issued warrants to purchase up to an
aggregate of 33,570 shares of Common Stock at an exercise price of $0.96 per
share to a group of stockholders in connection with the issuance of an aggregate
of $1,000,000 8% Promissory Notes to such stockholders.
In April 1994, the Company sold an aggregate of 5,621,535 shares of Series
C Preferred Stock for a purchase price of $1.60 per share to a group of
stockholders. These shares are convertible into an aggregate of approximately
1,873,845 shares of Common Stock upon completion of this offering.
In December 1994, the Company sold 708,314 of Series D Preferred Stock for
a purchase price of $4.236 per share to Pasteur Merieux. In January 1996, the
Company sold an aggregate of 118,036 shares of Series D Preferred Stock for a
purchase price of $4.236 per share to Pasteur Merieux and OraVax, Inc. In April
1996, the Company sold 236,105 Shares of Series D Preferred Stock for a purchase
price of $4.236 per share to Pasteur Merieux. These shares are convertible into
an aggregate of approximately 354,152 shares of Common Stock upon completion of
this offering.
In September 1995, the Company issued warrants to purchase up to an
aggregate of 66,667 shares of Common Stock at an exercise price of $1.95 per
share to a group of stockholders in connection with the issuance of an aggregate
of $1,000,000 8% Convertible Promissory Notes to such stockholders.
In September 1995 the Company issued warrants to purchase 6,850 of Series C
Preferred Stock at an exercise price of $1.60 per share to Comdisco, Inc. in
connection with a sale and leaseback transaction involving certain laboratory
equipment. Such warrants will be exercisable to purchase 2,284 shares of Common
Stock upon completion of this offering.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
<C> <S>
1.1. Form of Underwriting Agreement*
3.1. Fifth Restated Certificate of Incorporation, as amended*
3.2 Form of Third Certificate of Amendment to Fifth Restated Certificate of
Incorporation*
3.3. By-laws, as amended*
3.4. Form of Fourth Amendment to Fifth Restated Certificate of Incorporation
3.5. Form of Amendment to By-laws
5.1. Opinion of Bachner, Tally, Polevoy & Misher regarding legality of securities
offered
10.1 1992 Equity Incentive Plan, as amended
10.2 Form of Stock Option Agreement*
10.3 Lease dated December 1, 1991, between the Registrant and Moulton Realty Company.*
10.4 Series D Convertible Preferred Stock Purchase Agreement dated December 20, 1994*
10.5 Series D Convertible Preferred Stock Purchase Agreement dated January 5, 1996*
10.5(a) Form of Modification Agreement to Series D Convertible Preferred Stock Purchase
Agreements
10.6 Second Amended and Restated Stockholders Agreement dated April 8, 1994 and
amendments.*
10.6(a) Form of Consent and Agreement to Amend Second Amended and Restated Stockholders
Agreement
10.7 Form of Warrant Agreement dated as of February 10, 1994.*
10.8 Form of Warrant to purchase shares of Common Stock dated February 10, 1994 issued
pursuant to Exhibit 10.7.*
</TABLE>
II-2
<PAGE> 71
<TABLE>
<C> <S>
10.9 Loan Agreement dated as of September 14, 1995 between the Registrant and certain
stockholders, with forms of Convertible Promissory Note and Warrant Agreement
attached.*
10.10 Form of Warrant to purchase shares of Common Stock dated December 14, 1995 issued
pursuant to Exhibit 10.9.*
10.11 Warrants issued to Comdisco, Inc. ("Comdisco") to purchase shares of Series A
Preferred Stock and Series C Preferred Stock.*
10.12 Master Lease Agreement dated as of August 31, 1992, between the Registrant and
Comdisco.*
10.13 License Agreement, dated as of May 1, 1992, between the Registrant and the
President and Fellows of Harvard College ("Harvard") as amended.+*
10.14 License and Clinical Trials Agreement, dated as of February 27, 1995, between the
Registrant and The James N. Gamble Institute of Medical Research (assigned to
Children's Hospital of Cincinnati).+*
10.15 License Agreement, dated as of March 12, 1995, between the Registrant, Harvard and
Dana-Farber Cancer Institute.+*
10.16 License Agreement, dated December 6, 1991, between the Registrant and
Massachusetts Institute of Technology.+*
10.17 License Agreement, dated March 8, 1995, between the Registrant and The Penn State
Research Foundation.+*
10.18 License Agreement, dated as of December 13, 1994, between the Registrant and
Pasteur Merieux Serums & Vaccins S.A. ("Pasteur Merieux").+*
10.19 License Agreement, dated as of August 2, 1995, between the Registrant and Pasteur
Merieux.+*
10.20 Option Agreement, dated as of November 22, 1995, among the Registrant, Pasteur
Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. relating to
PCPP.+*
10.21 Option Agreement dated as of November 22, 1995 among the Registrant, Pasteur
Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. relating to
VibrioVec.+*
10.22 Research Agreement, dated January 10, 1996, between the Registrant and CSL
Limited.+*
10.23 Collaborative Research and License Agreement, dated as of June 22, 1995, between
the Registrant and SmithKline Beecham plc.+*
10.24 Research and Development License and Option for Commercial License Agreement,
dated as of December 28, 1995, between the Registrant and Chiron Corporation.+*
10.25 Warrants to purchase Common Stock issued to Silicon Valley Bank.
11.1 Computation of Pro Forma Loss Per Share
24.1 Consent of Bachner, Tally, Polevoy & Misher LLP (to be included in its opinion
filed as Exhibit 5.1 hereto)
24.2 Consent of Richard A. Eisner & Company, LLP -- Included on Page II-6
24.3 Consent of Carella, Byrne, Baine, Gilfillan, Cecchi, Stewart & Olstein -- Included
on Page II-8
24.4 Consent of Hyman, Phelps & McNamara, P.C.*
24.5 Consent of Fish & Richardson, P.C.*
24.6 Consent of Dr. Volker Vossius -- Included on Page II-7
25.1 Power of Attorney*
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ Subject to confidential treatment request
II-3
<PAGE> 72
ITEM 17. UNDERTAKINGS
Undertakings Required by Regulation S-K, Item 512(f).
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Undertaking Required by Regulation S-K, Item 512(h).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant 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 Act and will be governed by the final adjudication of
such issue.
Undertakings required by Regulation S-K, Item 512(i).
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497 (h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 73
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP is contained in its
opinion filed as Exhibit 5.1 to the Registration Statement.
II-5
<PAGE> 74
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to inclusion in this Registration Statement on Form S-1 of our
report dated January 29, 1996 (May 13, 1996 with respect to Note A). We also
consent to the references to our firm under the captions "Experts" and "Selected
Financial Data" in the Prospectus.
RICHARD A. EISNER & COMPANY, LLP
Cambridge, Massachusetts
May 13, 1996
II-6
<PAGE> 75
CONSENT OF COUNSEL
The undersigned hereby consents to the use of his name, and the statement
with respect to him appearing under the headings "Risk Factors -- Dependence on
Patents, Licenses and Proprietary Rights," "Business -- Patents, Licenses and
Proprietary Rights" and "Experts" included in the Registration Statement. The
undersigned further consents to the incorporation by reference of this consent
pursuant to Rule 439(b) under the Securities Act of 1933, as amended (the
"Securities Act"), into any subsequent registration statement for the same
offering that may be filed pursuant to Rule 462(b) under the Securities Act.
DOCTOR VOLKER VOSSIUS
Munich, Germany
May 13, 1996
II-7
<PAGE> 76
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name, and the statement
with respect to us appearing under the heading "Experts" included in the
Registration Statement. We further consent to the incorporation by reference of
this consent pursuant to Rule 439(b) under the Securities Act of 1933, as
amended (the "Securities Act"), into any subsequent registration statement for
the same offering that may be filed pursuant to Rule 462(b) under the Securities
Act.
CARELLA, BYRNE, BAIN, GILFILLAN
CECCHI, STEWART & OLSTEIN
Roseland, New Jersey
May 13, 1996
II-8
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts on the 13th day of May, 1996.
VIRUS RESEARCH INSTITUTE, INC.
By: J. BARRIE WARD, PH.D.
------------------------------------
J. Barrie Ward, Ph.D.
SIGNATURE
Pursuant to 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 indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <S> <C>
/s/ J. BARRIE WARD, Ph.D. Chief Executive Officer and May 13, 1996
- ------------------------------------------ Chairman of the Board (principal
J. Barrie Ward, Ph.D. executive officer)
/s/ WILLIAM A. PACKER President, Chief Financial Officer May 13, 1996
- ------------------------------------------ and Director (principal financial
William A. Packer officer)
/s/ DAVID H. RAMSDELL Vice President-Finance May 13, 1996
- ------------------------------------------ (principal accounting officer)
David H. Ramsdell
/s/ * Director May 13, 1996
- ------------------------------------------
Costas E. Anagnostopoulos
/s/ * Director May 13, 1996
- ------------------------------------------
John W. Littlechild
/s/ * Director May 13, 1996
- ------------------------------------------
Alan M. Mendelson
/s/ J. BARRIE WARD, PH.D.
- ------------------------------------------
J. Barrie Ward, Ph.D.
*As Attorney-in-fact
</TABLE>
II-9
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
- ------- ----
<C> <S> <C>
1.1. Form of Underwriting Agreement*
3.1. Fifth Restated Certificate of Incorporation, as amended*
3.2 Form of Third Certificate of Amendment to Fifth Restated Certificate of
Incorporation*
3.3. By-laws, as amended*
3.4. Form of Fourth Amendment to Fifth Restated Certificate of Incorporation
3.5. Form of Amendment to By-laws
5.1. Opinion of Bachner, Tally, Polevoy & Misher regarding legality of
securities offered
10.1 1992 Equity Incentive Plan, as amended
10.2 Form of Stock Option Agreement*
10.3 Lease dated December 1, 1991, between the Registrant and Moulton Realty
Company.*
10.4 Series D Convertible Preferred Stock Purchase Agreement dated December 20,
1994*
10.5 Series D Convertible Preferred Stock Purchase Agreement dated January 5,
1996*
10.5(a) Form of Modification Agreement to Series D Convertible Preferred Stock
Purchase Agreements
10.6 Second Amended and Restated Stockholders Agreement dated April 8, 1994 and
amendments.*
10.6(a) Form of Consent and Agreement to Amend Second Amended and Restated
Stockholders Agreement
10.7 Form of Warrant Agreement dated as of February 10, 1994.*
10.8 Form of Warrant to purchase shares of Common Stock dated February 10, 1994
issued pursuant to Exhibit 10.7.*
10.9 Loan Agreement dated as of September 14, 1995 between the Registrant and
certain stockholders, with forms of Convertible Promissory Note and Warrant
Agreement attached.*
10.10 Form of Warrant to purchase shares of Common Stock dated December 14, 1995
issued pursuant to Exhibit 10.9.*
10.11 Warrants issued to Comdisco, Inc. ("Comdisco") to purchase shares of Series
A Preferred Stock and Series C Preferred Stock.*
10.12 Master Lease Agreement dated as of August 31, 1992, between the Registrant
and Comdisco.*
10.13 License Agreement, dated as of May 1, 1992, between the Registrant and the
President and Fellows of Harvard College ("Harvard") as amended.+*
10.14 License and Clinical Trials Agreement, dated as of February 27, 1995,
between the Registrant and The James N. Gamble Institute of Medical
Research (assigned to Children's Hospital of Cincinnati).+*
10.15 License Agreement, dated as of March 12, 1995, between the Registrant,
Harvard and Dana-Farber Cancer Institute.+*
10.16 License Agreement, dated December 6, 1991, between the Registrant and
Massachusetts Institute of Technology.+*
10.17 License Agreement, dated March 8, 1995, between the Registrant and The Penn
State Research Foundation.+*
10.18 License Agreement, dated as of December 13, 1994, between the Registrant
and Pasteur Merieux Serums & Vaccins S.A. ("Pasteur Merieux").+*
10.19 License Agreement, dated as of August 2, 1995, between the Registrant and
Pasteur Merieux.+*
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
- ------- ----
<C> <S> <C>
10.20 Option Agreement, dated as of November 22, 1995, among the Registrant,
Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C.
relating to PCPP.+*
10.21 Option Agreement dated as of November 22, 1995 among the Registrant,
Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C.
relating to VibrioVec.+*
10.22 Research Agreement, dated January 10, 1996, between the Registrant and CSL
Limited.+*
10.23 Collaborative Research and License Agreement, dated as of June 22, 1995,
between the Registrant and SmithKline Beecham plc.+*
10.24 Research and Development License and Option for Commercial License
Agreement, dated as of December 28, 1995, between the Registrant and Chiron
Corporation.+*
10.25 Warrants to purchase Common Stock issued to Silicon Valley Bank.
11.1 Computation of Pro Forma Loss Per Share
24.1 Consent of Bachner, Tally, Polevoy & Misher LLP (to be included in its
opinion filed as Exhibit 5.1 hereto)
24.2 Consent of Richard A. Eisner & Company, LLP -- Included on Page II-6
24.3 Consent of Carella, Byrne, Baine, Gilfillan, Cecchi, Stewart &
Olstein -- Included on Page II-8
24.4 Consent of Hyman, Phelps & McNamara, P.C.*
24.5 Consent of Fish & Richardson, P.C.*
24.6 Consent of Dr. Volker Vossius -- Included on Page II-7
25.1 Power of Attorney*
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
+ Subject to confidential treatment request
<PAGE> 1
Exhibit 3.4
PROVISIONS FOR VRI'S CERTIFICATE OF INCORPORATION
Amend and restate the Corporation's Certificate of Incorporation to
include the following amendments. (Note that the references to "Undesignated
Preferred Stock" relate to the blank-check preferred stock)
1. Stockholder Action. Any action required or permitted to be
taken by the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders and may not be taken or effected by a written
consent of stockholders in lieu thereof.
2. Amendment of By-laws. Except as otherwise provided by law,
the By-laws of the Corporation may be amended or repealed by the Board of
Directors. The By-laws of the Corporation may be amended or repealed at any
annual meeting of stockholders, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the votes
present and entitled to vote on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the votes present and entitled to vote on such
amendment or repeal by holders of voting stock, voting together as a single
class.
Amendment of Certificate of Incorporation. The Corporation reserves the
right to amend or repeal this Amended and Restated Certificate of Incorporation
in the manner now or hereafter prescribed by statute and this Amended and
Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. No amendment or
repeal of this Amended and Restated Certificate of Incorporation shall be made
unless the same is first approved by the Board of Directors pursuant to a
resolution adopted by the Board of Directors in accordance with Section 242 of
the DGCL, and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required, and
in addition to any other vote of holders of voting stock that is required by
this Amended and Restated Certificate of Incorporation or by law, the
affirmative vote of a majority of the total votes eligible to be cast by holders
of voting stock with respect to such amendment or repeal, voting together a
single class, at a duly constituted meeting of stockholders called expressly for
such purpose shall be required to amend or repeal any provisions of this Amended
and Restated Certificate of Incorporation; provided, however, that the
affirmative vote of not less than 80% of the total votes eligible to be cast by
holders of voting stock, voting together a single class, shall be required to
amend or repeal any of the provisions of Article __ (Stockholder Action) or this
Article of this Amended and Restated Certificate of Incorporation.
<PAGE> 1
Exhibit 3.5
PROVISIONS FOR VRI'S BY-LAWS.
Amend and restate the Corporation's By-Laws to include the following
amendments:
1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within the United States which is fixed by the
majority of the Board of Directors, the Chairman of the Board, if one is
elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-Laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, or (b)
otherwise properly brought before the meeting (i) by, or at the direction of,
the Board of Directors, (ii) by any holders of record (as of the record date for
the meeting in question) of an aggregate of not less than 7-1/2% of the shares
of capital stock of the Corporation entitled to vote at such meeting (a "7-1/2%
Stockholder") or (iii) by any other holder of record (both as of the time notice
of such proposal is given by the stockholder as set forth below and as of the
record date for the Annual Meeting in question) of any shares of capital stock
of the Corporation entitled to vote at such Annual Meeting who complies with the
requirements set forth in this Section.
In addition to any other applicable requirements, for
business to be properly brought before an Annual Meeting by a stockholder of
record of any shares of capital stock entitled to vote at such Annual Meeting,
other than a 7-1/2% Stockholder, such stockholder shall: (i) give timely notice
as required by this Section to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of such Annual Meeting or (B) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the anniversary date of the immediately preceding Annual Meeting (the
1
<PAGE> 2
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall
mean: (i) disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service, (ii) a report or other
document filed publicly with the Securities and Exchange Commission (including,
without limitation, a Form 8-K), or (iii) a letter or report sent to
stockholders of record of the Corporation at the time of the mailing of such
letter or report.
Such a stockholder's notice to the Secretary shall set forth
as to each matter proposed to be brought before an Annual Meeting: (i) a brief
description of the business the stockholder desires to bring before such Annual
Meeting and the reasons for conducting such business at such Annual Meeting,
(ii) the name and address, as they appear on the Corporation's stock transfer
books, of the stockholder proposing such business, (iii) the class and number of
shares of the Corporation's capital stock beneficially owned by the stockholder
proposing such business, (iv) the names and addresses of the beneficial owners,
if any, of any capital stock of the Corporation registered in such stockholder's
name on such books, and the class and number of shares of the Corporation's
capital stock beneficially owned by such beneficial owners, (v) the names and
addresses of other stockholders known by the stockholder proposing such business
to support such proposal, and the class and number of shares of the
Corporation's capital stock beneficially owned by such other stockholders, and
(vi) any material interest of the stockholder proposing to bring such business
before such meeting (or any other stockholders known to be supporting such
proposal) in such proposal.
If the Board of Directors or a designated committee thereof
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section or that the information provided
in a stockholder's notice does not satisfy the information requirements of this
Section in any material respect, such proposal shall not be presented for action
at the Annual Meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder proposal
in the manner set forth above, the presiding officer of the Annual Meeting shall
determine whether the stockholder proposal was made in accordance with the terms
of this Section. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this Section or that the information provided in a stockholder's notice does not
satisfy the information requirements of this Section in any material respect,
such proposal shall not be presented for action at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the requirements of this Section, the presiding officer shall so declare at
the Annual Meeting and ballots shall be provided for use at the meeting with
respect to such proposal.
2
<PAGE> 3
Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this By-Law, and
nothing in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
3. Special Meetings. Except as otherwise required by law,
special meetings of the stockholders of the Corporation may be called only by
(a) the Board of Directors pursuant to a resolution approved by the affirmative
vote of a majority of the Directors then in office or (b) holders of record of
not less than 20% of the shares of capital stock of the Corporation entitled to
vote at a meeting of stockholders.
Matters to be Considered at Special Meetings. At any special
meeting of stockholders, only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before such
meeting. To be considered as properly brought before a special meeting of
stockholders, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting (i) by, or at the direction of,
the Board of Directors or (ii) by a 7-1/2% Stockholder.
4. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors, or (b) by (i) a
7-1/2% Stockholder or (ii) any other holder of record (both as of the time
notice of such nomination is given by the stockholder as set forth below and as
of the record date for the Annual Meeting in question) of any shares of the
capital stock of the Corporation entitled to vote at such Annual Meeting who
complies with the timing, informational and other requirements hereinafter set
forth in this Section. Any stockholder who has complied with the timing,
informational and other requirements set forth in this Section and who seeks to
make such a nomination, or his, her or its representative, must be present in
person at the Annual Meeting. Only persons nominated in accordance with the
procedures set forth in this Section shall be eligible for election as directors
at an Annual Meeting.
Nominations, other than those made by, or at the direction
of, the Board of Directors or by a 7-1/2% Stockholder, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation as set forth in
this Section. For the first Annual Meeting following the initial public offering
of common stock of the Corporation, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (A) the
75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day
following the day on which public announcement of the date of such Annual
Meeting is first made by the Corporation. For all subsequent Annual Meetings, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the
3
<PAGE> 4
Corporation at its principal executive office not less than 75 days nor more
than 120 days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
Such a stockholder's notice to the Secretary shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation's capital stock
which are beneficially owned by such person on the date of such stockholder
notice, and (iv) the consent of each nominee to serve as a director if elected.
A stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other stockholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not made in accordance with the
terms of this Section or that the information provided in a stockholder's notice
does not satisfy the informational requirements of this Section in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section in any material respect, then such nomination shall not be considered at
the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
4
<PAGE> 5
Notwithstanding anything to the contrary in the second
sentence of the second paragraph of this Section, in the event that the number
of directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 75 days prior to the Anniversary Date, a stockholder's notice
required by this Section shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if such notice shall
be delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the 15th day following
the day on which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a Director
of the Corporation unless nominated in accordance with the procedures set forth
in this Section. Election of Directors at the annual meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or presiding
officer at such annual meeting. If written ballots are to be used, ballots
bearing the names of all the persons who have been nominated for election as
Directors at the annual meeting in accordance with the procedures set forth in
this Section shall be provided for use at the annual meeting.
5
<PAGE> 1
[BACHNER, TALLY, POLEVOY & MISHER LLP LETTERHEAD]
May 13, 1996
Virus Research Institute, Inc.
61 Moulton Street
Cambridge, Massachusetts 02138
Ladies & Gentlemen:
We have acted as counsel to Virus Research Institute, Inc. (the
"Company") in connection with its filing of a registration statement on Form
S-1 (File No. 333-3378) (the "Registration Statement"), under the Securities
Act of 1933, as amended (the "Act") covering 2,645,000 shares (the "Shares") of
Common Stock, $.001 par value (the "Common Stock"), including 345,000 Shares
subject to an over-allotment option, all as more particularly described in the
Registration Statement.
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation, as amended and By-laws and the minutes
and other corporate proceedings of the Company. With respect to factual
matters, we have relied upon statements and certificates of officers of the
Company. We have also reviewed such other matters of law and examined and
relied upon such other documents, records and certificates as we have deemed
relevant hereto. In all such examinations we have assumed conformity with the
original documents of all documents submitted to us as originals and the
genuineness of all signatures on all documents submitted to us.
On the basis of the foregoing, it is our opinion that the Shares
covered by and included in the Registration Statement have been duly and
validly authorized and will, when sold, paid for and issued as contemplated by
the Registration Statement, be legally issued, fully paid and non-assessable.
<PAGE> 2
BACHNER, TALLY, POLEVOY & MISHER LLP
Virus Research Institute, Inc.
May 13, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
/s/ BACHNER, TALLY, POLEVOY & MISHER LLP
----------------------------------------
BACHNER, TALLY, POLEVOY & MISHER LLP
BTPM/TB/npm
<PAGE> 1
Exhibit 10.1
VIRUS RESEARCH INSTITUTE, INC.
1992 EQUITY INCENTIVE PLAN
AMENDED AND RESTATED AS OF MAY 10, 1996
Section 1. Purpose. The purpose of the Virus Research Institute, Inc.
1992 Equity Incentive Plan, as amended and restated (the "Plan"), is to attract
and retain officers, employees, directors and consultants to provide an
incentive for them to assist the Company to achieve long-range performance goals
and to enable them to participate in the long-term growth of the Company.
Section 2. Definitions.
"Act" means the Securities Exchange Act of 1934, as amended.
"Affiliate" means any business entity in which the Company owns
directly or indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee.
"Award" means any Option or Restricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Change of Control" has the meaning set forth in Section 10.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time and any successor code and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 3.
"Common Stock" or "Stock" means the Common Stock, $0.001 par value, of
the Company, subject to adjustments pursuant to Section 5(b).
"Company" means Virus Research Institute, Inc.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, designated Beneficiary
shall mean the Participant's estate.
"Disinterested Person" means an Independent Director who qualifies as a
"disinterested person" under Rule 16b-3(c)(2)(i) promulgated under the Act, or
any successor definition under said Rule.
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"Fair Market Value" means (i) with respect to Common Stock, (x) if the
Common Stock is listed or admitted for trading on any national securities
exchange, the last sales price or the closing bid price if no sale occurred, of
Common Stock on the principal securities exchange on which such class of stock
is listed, (y) if the Common Stock is not listed or admitted for trading on any
such exchange, the last reported sales price of Common Stock on the Nasdaq Stock
Market, or any similar system of automatic quotation of securities prices then
in common use, if so quoted, or (z) if not so quoted as described in clause (y),
the mean between the high and the low asked quotations for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for such class of
stock on at least five of the ten trading days preceding the day in question; or
(ii) with respect to any other property, the fair market value of such property
as determined by the Committee in good faith or in the manner established by the
Committee from time to time. Notwithstanding the foregoing, the Fair Market
Value of the Common Stock on the effective date of the Company's initial public
offering shall be the offering price to the public of the Common Stock on such
date.
"Incentive Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Independent Director" means a member of the Board who is not also an
employee of the Company.
"Nonstatutory Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Sections 6 or 7 which is not
intended to be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.
"Participant" means a person selected by the Committee to receive an
Award under the Plan.
"Restricted Period" means the period of time selected by the Committee
during which an award of Restricted Stock may be forfeited to the Company.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 8.
Section 3. Administration.
(a) Committee. The Plan shall be administered by a committee
of not less than two Independent Directors as appointed by the Board from time
to time (the "Committee"). Each member of the Committee shall be a Disinterested
Person. On and after the date the Company becomes subject to Section 162(m) of
the Code, each member of the Committee shall also be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder.
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(b) Powers of Committee. The Committee shall have the power
and authority to grant Awards consistent with the terms of the Plan, including
the power and authority:
(i) to select the officers, employees and consultants of the
Company to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Nonstatutory Stock Options and
Restricted Stock Awards or any combination of the foregoing, granted to
any one or more Participants;
(iii) to determine the number of shares of Common Stock to be
covered by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and Participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award and/or include provisions in Awards
providing for such acceleration;
(vi) subject to the provisions of Section 6(c), to extend at
any time the period in which Options may be exercised;
(vii) to determine at any time whether, to what extent, and
under what circumstances Common Stock and other amounts payable with
respect to an Award shall be deferred either automatically or at the
election of the Participant and whether and to what extent the Company
shall pay or credit amounts constituting interest (at rates determined
by the Committee) or dividends or deemed dividends on such deferrals;
and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and the Participants.
(c) Delegation of Authority to Grant Awards. The Committee, in
its discretion, may delegate to the Chief Executive Officer or Chief Financial
Officer of the Company all or part of the Committee's authority and duties with
respect to Awards, including the granting thereof, to individuals who are not
subject to the reporting and other provisions of Section 16 of the Act. The
Committee may revoke or amend the terms of a delegation at any time but
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<PAGE> 4
such action shall not invalidate any prior actions of the Committee's delegate
or delegates that were consistent with the terms of the Plan.
Section 4. Eligibility. All full and part-time officers and employees,
and in the case of Awards other than Incentive Stock Options, consultants of the
Company or any Affiliate capable of contributing significantly to the successful
performance of the Company, other than a person who has irrevocably elected not
to be eligible, are eligible to be Participants in the Plan. Independent
Directors are also eligible to participate in the Plan but only to the extent
provided in Section 7 below.
Section 5. Stock Available for Awards.
(a) Subject to adjustment under subsection (b), Awards may be
made under the Plan for up to 1,751,176 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, including, without limitation the
surrender of shares in payment for the Award or any tax obligation thereon, the
shares subject to such Award or so surrendered, as the case may be, to the
extent of such expiration, termination, forfeiture or decrease, shall again be
available for award under the Plan, subject, however, in the case of Incentive
Stock Options, to any limitation required under the Code. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares. Subject to such overall limitation, shares of Common Stock may
be issued up to such maximum number pursuant to any type or types of Award;
provided, however, that on and after the date the Company is subject to Section
162(m) of the Code, Options with respect to no more than 250,000 shares of
Common Stock may be granted to any one individual Participant during any fiscal
year period.
(b) If the Company effects a stock split, consolidation of
shares or other recapitalization of its stock, the payment of a stock dividend,
or any other increase or reduction in the number of shares of Common Stock
outstanding without receiving compensation therefor in money, services or
property, then at the discretion of the Board (i) the number, class, and price
of shares of Common Stock subject to outstanding Options hereunder shall be
appropriately adjusted by the Board in such a manner as to entitle each Optionee
to receive upon exercise of an Option in full, for the same aggregate
consideration, that number and class of shares which the Optionee would have
received as a result of the event requiring the adjustment had the Optionee
exercised the Option in full immediately prior to such event; and (ii) the
number and class of shares reserved for issuance under the Plan shall be
appropriately adjusted by the Board by substituting that number and class of
shares of stock which stockholders of the Company would have received as a
result of such event if they held all of the reserved shares immediately prior
to such event; provided, however, that outstanding Options and Options to be
issued under the Plan shall not be issued or exercisable for fractional shares,
and the Board may determine in its discretion to adjust outstanding Options or
shares reserved under the Plan to the nearest whole number of shares, or it may
require payment of cash to an Optionee who exercises an Option for a fractional
share in an amount reflecting the fair value of the fractional share as
determined by the Board.
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<PAGE> 5
Section 6. Stock Options Granted to Officers, Employees and
Consultants.
(a) Subject to the provisions of the Plan, the Committee may
award Incentive Stock Options and Nonstatutory Stock Options and determine the
number of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder and to the extent that any Option does not qualify as an Incentive
Stock Option, it shall be deemed a Nonstatutory Stock Option.
(b) The Committee shall establish the option price at the time
each Option is awarded, which price shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of award; provided, however, if an
officer or employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Affiliate and an
Incentive Stock Option is granted to such officer or employee, the option price
of such Incentive Stock Option shall be not less than 110% of the Fair Market
Value on the grant date.
(c) The term of each Option shall be fixed by the Committee,
but no Incentive Stock Option shall be exercisable more than ten years after the
date the option is granted. If an officer or employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or any
Affiliate and an Incentive Stock Option is granted to such officer or employee,
the term of such option shall be no more than five years from the date of grant.
(d) Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may specify in the applicable
Award or thereafter. The Committee may impose such conditions with respect to
the exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable. The Committee may
at any time accelerate the exercisability of all or any portion of any Option.
(e) Options may be exercised in whole or in part, by giving
written notice of exercise to the Company, specifying the number of shares to be
purchased. Payment of the purchase price may be made by one or more of the
following methods:
(i) In cash, by certified, bank or personal check or
other instrument acceptable to the Committee;
(ii) In the form of shares of Common Stock that are
not then subject to restrictions under any Company plan and, unless
otherwise permitted by the Committee, that have been held by the
optionee for at least six months. Such surrendered shares shall be
valued at Fair Market Value on the exercise date;
(iii) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a
check payable and acceptable to the Company to pay the
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<PAGE> 6
purchase price; provided that in the event the optionee chooses to pay
the purchase price as so provided, the optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of
such payment procedure;
(iv) by any other means which the Board determines
are consistent with the purpose of the Plan and with applicable laws
and regulations including, without limitation, the provisions of Rule
16b-3 and Regulation T promulgated by the Federal Reserve Board; or
(v) by any combination of such methods of payment.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Common Stock to be purchased
pursuant to the exercise of an Option will be contingent upon receipt from the
optionee (or a purchaser acting in his or her stead in accordance with the
provisions of the Option) by the Company of the full purchase price for such
shares and the fulfillment of any other requirements contained in the Option or
applicable provisions of laws.
(f) To the extent required for "incentive stock option" treatment under
Section 422 of the Code, the aggregate Fair Market Value (determined as of the
time of grant) of the shares of Common Stock with respect to which Incentive
Stock Options granted under this Plan and any other plan of the Company or its
parent and subsidiary corporations become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. To the extent that
any Option exceeds this limit, it shall constitute a Nonstatutory Stock Option.
Section 7. Stock Options Granted to Independent Directors.
(a) Automatic Grant of Options.
(i) Each Independent Director who is serving as a Director on
the effective date of the Company's initial public offering shall be
granted on such effective date a Nonstatutory Stock Option to acquire
10,000 shares of Common Stock.
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(ii) Each Independent Director who is first elected
to serve as a Director after the effective date of the Company's
initial public offering shall be granted, on the day of his or her
election, a Nonstatutory Stock Option to acquire 10,000 shares of
Common Stock (an "Initial Director Option").
(iii) After each annual meeting of stockholders of
the Company, beginning with the Company's 1998 annual meeting, each
Independent Director who has not received an Initial Director Option
during the preceding year and who is serving as Director of the Company
on the first business day following such annual meeting of stockholders
shall automatically be granted on such day a Nonstatutory Stock Option
to acquire 2,000 shares of Common Stock.
(iv) The exercise price per share for the Common
Stock covered by an Option granted under this Section 7 shall be equal
to the Fair Market Value of the Common Stock on the date the Option is
granted.
(b) Exercise; Termination.
(i) Except as provided in Section 10, an Option
granted to an Independent Director under Section 7 shall be exercisable
in four equal annual installments commencing on the date of grant. An
Option issued under this Section 7 shall not be exercisable after the
expiration of ten years from the date of grant.
(ii) If an Independent Director ceases to be a
Director for any reason, an Option granted under this Section 7 to such
Independent Director shall terminate immediately with respect to all
shares of Common Stock for which it is not then exercisable. With
respect to the remaining shares, such Option shall terminate 90 days
after the date the Independent Director ceases to be a Director or at
the expiration of the stated term of the Option, if earlier; provided,
however, that if the Independent Director dies while a Director or
within such 90-day period after ceasing to be a Director, such Option
may be exercised for such remaining shares by the personal
representative or legatee of the optionee for a period of six months
from the date of death or until the expiration of the stated term of
the Option, if earlier.
(iii) Options granted under this Section 7 may be
exercised only by written notice to the Company specifying the number
of shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 6(e). An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Option
and not as to unexercised Options.
(c) Limited to Independent Directors. The provisions of this
Section 7 shall apply only to Options granted or to be granted to Independent
Directors, and shall not be deemed to modify, limit or otherwise apply to any
other provision of this Plan or to any Option issued under this Plan to a
Participant who is not an Independent Director of the Company. To the extent
inconsistent with the provisions of any other Section of this Plan, the
provisions of this Section 7 shall govern the rights and obligations of the
Company and Independent
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<PAGE> 8
Directors respecting Options granted or to be granted to Independent Directors.
The provisions of this Section 7 which affect the price, date of exercisability,
option period or amount of shares of Common Stock under an Option shall not be
amended more than once in any six-month period, other than to conform with
changes in the Code or ERISA.
Section 8. Restricted Stock.
(a) Subject to the provisions of the Plan, the Committee may
award shares of Restricted Stock and determine the duration of the Restricted
Period during which, and the conditions under which, the shares may be forfeited
to the Company and the other terms and conditions of such Awards. Shares of
Restricted Stock shall be issued at par value or for such other consideration as
established by the Committee.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Committee, deposited by the
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
Section 9. General Provisions Applicable to Awards.
(a) Documentation. Each Award under the Plan shall be
evidenced in writing delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable tax and regulatory laws and accounting principles.
(b) Committee Discretion. Each type of Award may be made
alone, in addition to or in relation to any other type of Award. The terms of
each type of Award need not be identical, and the Committee need not treat
Participants uniformly. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the Committee
at the time of award or at any time thereafter.
(c) Termination of Employment. Unless otherwise provided in
the option agreement or determined by the Committee, upon an optionee's
termination of employment (or other business relationship) with the Company, the
optionee's rights in his or her Options, (i) to the extent not exercisable at
the time of termination, shall automatically expire and (ii) to the extent
exercisable at the time of termination, shall expire 90 days after such
termination of employment or at the expiration of the stated term of the Option,
if earlier; provided, however, that if an optionee's employment was terminated
by reason of death, his or her Options, to the extent exercisable, may be
exercised by the personal representative or legatee of the optionee for a period
of six months from the date of death or until expiration of the stated term of
the Option, if earlier.
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(d) Withholding.
(i) The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of any taxes required by law
to be withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(ii) In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock. A
Participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Common Stock to be issued pursuant to any Award a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Common Stock owned by the Participant with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due. With respect to any Participant who is subject to
Section 16 of the Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding
obligations relating to an Award in the manner permitted by this
Section 9(d)(ii) shall be made either (x) during the period beginning
on the third business day following the date of release of quarterly or
annual summary statements of sales and earnings of the Company and
ending on the twelfth business day following such date, or (y) at least
six months prior to the date as of which the receipt of such an Award
first becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or
disapproval of the Committee; and
(D) the Common Stock withheld to satisfy tax
withholding must pertain to an Award which has been held by the
Participant for at least six months from the date of grant of the
Award.
Notwithstanding the foregoing, the first sentence of Section 9(d)(ii)(A)(x)
shall not be applicable until the Company has been subject to the reporting
requirements of Section 13(a) of the Act for at least a year prior to the
election and has filed all reports and statements required to be filed pursuant
to that Section for that year.
(e) Foreign Nationals. Awards may be made to Participants who
are foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
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(f) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award, including substituting therefor another Award
of the same or a different type, changing the date of exercise or realization
and converting an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be required unless
the Committee determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Non-transferability of Awards. No Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the Award.
Section 10. Change of Control Provisions.
(a) "Change of Control" shall mean the occurrence of any one
of the following events:
(i) any "person," as such term is used in Sections
13(d) and 14(d) of the Act (other than the Company, any of its
subsidiaries, or any trustee, fiduciary or other person or entity
holding securities under any employee benefit plan or trust of the
Company or any of its subsidiaries), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Act) of
such person, shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities having the
right to vote in an election of the Company's Board of Directors
("Voting Securities"); provided, however, that for purposes of this
clause (i) a "Change of Control" shall not be deemed to have occurred
(A) solely as a result of a person who is party to the Company's Second
Amended and Restated Stockholders Agreement, dated as of April 1994 and
amended from time to time thereafter, and who is deemed to beneficially
own at the close of business on the effective date of the Company's
initial public offering 25% or more of the combined voting power of all
then outstanding Voting Securities; (B) as the result of an acquisition
of securities directly from the Company; or (C) as the result of an
acquisition of securities by the Company which, by reducing the number
of shares of Common Stock or other Voting Securities outstanding,
increases the proportionate voting power represented by the Voting
Securities beneficially owned by any person to 25% or more of the
combined voting power of all then outstanding Voting Securities;
provided further however, that if any person referred to in clause (A),
(B) or (C) of this sentence shall thereafter become the beneficial
owner of any additional shares of Voting Securities (other than
pursuant to clauses (B) or (C) or a stock split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to
have occurred for purposes of this clause (i);
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(ii) persons who, as of the effective date of the
Company's initial public offering, constitute the Company's Board of
Directors (the "Incumbent Directors") cease for any reason, including,
without limitation, as a result of a tender offer, proxy contest,
merger or similar transaction, to constitute at least a majority of the
Board, provided that any person becoming a director of the Company
subsequent to such effective date whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director;
(iii) the stockholders of the Company shall approve
(A) any consolidation or merger of the Company or any of its
subsidiaries where the stockholders of the Company, immediately prior
to the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, shares representing
in the aggregate 70% or more of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its
ultimate parent corporation, if any), (B) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company or (C) any plan or
proposal for the liquidation or dissolution of the Company; or
(iv) when any "person" (as defined in (i) above)
commences a tender offer for the outstanding shares of Common Stock of
the Company.
(b) Upon the occurrence of a Change of Control, (i) each
outstanding Option shall automatically become fully exercisable notwithstanding
any provision to the contrary herein and (ii) each Restricted Stock Award shall
be subject to such terms, if any, with respect to a Change of Control as have
been provided by the Committee in connection with such Award.
(c) In the event of a Change of Control by reason of Section
10(a)(iii) above, the Board shall, in its discretion, take one or more of the
following actions with regard to outstanding Options: (i) provide that such
Options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) (provided that any
such options substituted for Incentive Stock Options shall meet the requirements
of Section 424(a) of the Code), such that the Options (or equivalent substituted
options) shall thereafter entitle the holder to receive upon exercise thereof
the aggregate number and kind of securities and property as such holder would
have been entitled to receive upon consummation of such transaction had he or
she exercised the Option immediately prior to effectiveness of the transaction;
(ii) upon prior written notice to the optionees, provide that all unexercised
Options will terminate immediately prior to the consummation of such transaction
unless any such Options are exercised by the optionee within a specified period
following the date of such notice and prior to the consummation of the
transaction; and/or (iii) make or provide for a cash payment to the optionees
equal to the difference between (A) the value (as determined by the Board of
Directors) of the consideration payable per share of Common Stock pursuant to
the transaction (the "Transaction Price") times the number of shares of Common
Stock subject to such outstanding Options (to the extent the exercise prices of
such Options are not in excess
11
<PAGE> 12
of the Transaction Price) and (B) the aggregate exercise price of all such
outstanding Options in exchange for the termination of all outstanding Options.
Section 11. Miscellaneous.
(a) No Right To Employment. No person shall have any claim or
right to be granted an Award, and the grant of an Award shall not be construed
as giving a Participant the right to continued employment. The Company expressly
reserves the right at any time to dismiss a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Common Stock at
the time of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the
stockholders of the Company, the Plan became effective on October 19, 1992 and
the restatement shall become effective on May 10, 1996.
(d) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time; provided, however, that
if and to the extent determined by the Committee to be required by the Act to
ensure that Awards granted under the Plan are exempt under Rule 16b-3
promulgated under the Act, or that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code, Plan amendments shall be
subject to approval by the Company stockholders.
(e) Governing Law. The provisions of the Plan shall be
governed by and interpreted in accordance with the laws of Delaware.
12
<PAGE> 1
Exhibit 10.5(a)
MODIFICATION AGREEMENT
Agreement, dated as of April , 1996, by and among Virus Research
Institute, Inc., a Delaware corporation (the "Corporation"), Pasteur Merieux
Serums & Vaccins, S.A., a French corporation ("Pasteur Merieux"), and OraVax,
Inc., a Delaware corporation ("OraVax").
WHEREAS, pursuant to a Series D Convertible Preferred Stock Purchase
Agreement dated as of December 20, 1994 (the "1994 Series D Purchase
Agreement"), Pasteur Merieux (i) purchased 708,314 shares of the Corporation's
Series D Convertible Preferred Stock, par value $.001 per share ("Series D
Preferred Stock"), and (ii) agreed to purchase 236,105 shares of Series D
Preferred Stock at a Second Closing (as defined in the 1994 Series D Purchase
Agreement);
WHEREAS, pursuant to a Series D Convertible Preferred Stock Purchase
Agreement dated as of January 5, 1996 (the "1996 Series D Purchase Agreement"),
Pasteur Merieux and OraVax each purchased 59,018 shares of Series D Preferred
Stock;
WHEREAS, the Corporation proposes to issue shares of its Common Stock,
par value $.001 per share ("Common Stock") in an underwritten public offering
(the "Public Offering") pursuant to a Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on April 11, 1996, as amended from
time to time, or any registration statement filed by the Corporation pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection
therewith (together, the "Registration Statement");
WHEREAS, Pasteur Merieux and OraVax have certain registration rights,
rights of first offer and other rights with respect to the shares of Series D
Preferred Stock in the 1994 Series D Purchase Agreement and the 1996 Series D
Purchase Agreement; and
WHEREAS, the amendments and waivers contemplated hereby, and by the
Consent and Agreement to Amend to be entered into by the Corporation, OraVax, PM
and certain other parties, will not affect the anti-dilution adjustments that
are applicable to the holders of Series D Preferred Stock;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. In connection with the Public Offering, Pasteur Merieux hereby
waives, effective as of the date hereof, each of the rights granted to it in
Section 8.1 of the 1994 Series D Purchase Agreement.
2. In connection with the Public Offering, each of Pasteur Merieux and
OraVax hereby waives, effective as of the date hereof, each of the rights
granted to each of them in Section 8.1 of the 1996 Series D Purchase Agreement.
<PAGE> 2
3. The Corporation and Pasteur Merieux hereby agree that:
(a) Section 8.1 of the 1994 Series D Purchase Agreement be
amended to include an additional Section 8.1(g) as follows:
"(g) Duration of Covenants. The rights and
obligations of the Corporation and the Investor set forth in
this Section 8.1 shall terminate simultaneously with the
closing of an initial public offering of the Corporation's
Common Stock."
(b) Section 9.4 of the 1994 Series D Purchase Agreement be
amended to add a new sentence as the last sentence of paragraph (a):
"The rights granted under this section, including the
right to receive notice pursuant hereto, shall not apply to an
initial public offering of the Corporation's Common Stock."
4. The Corporation, Pasteur Merieux and OraVax agree that:
(a) Section 8.1 of the 1996 Series D Purchase Agreement be
amended to include an additional Section 8.1(g) as follows:
"(g) Duration of Covenants. The rights and
obligations of the Corporation and the Investors set forth in
this Section 8.1 shall terminate simultaneously with the
closing of an initial public offering of the Corporation's
Common Stock."
(b) Section 9.4 of the 1996 Series D Purchase Agreement be
amended to add a new sentence as the last sentence of paragraph (a):
"The rights granted under this section, including the
right to receive notice pursuant hereto, shall not apply to an
initial public offering of the Corporation's Common Stock."
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement will be binding upon the parties
hereto and their respective successors and assigns. Notwithstanding the
foregoing, this Agreement shall be of no force and effect if the Public Offering
is not consummated on or prior to September 30, 1996.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of
April , 1996.
VIRUS RESEARCH INSTITUTE, INC.
By:
-----------------------------
Name:
Title:
PASTEUR MERIEUX SERUMS & VACCINS,
S.A.
By:
-----------------------------
Name:
Title:
ORAVAX, INC.
By:
-----------------------------
Name:
Title:
-3-
<PAGE> 1
Exhibit 10.6(a)
CONSENT AND AGREEMENT TO AMEND
The undersigned, as holders (the "Holders") of shares of Preferred
Stock ("Preferred Stock") of Virus Research Institute, Inc., a Delaware
corporation (the "Corporation"), or warrants to purchase shares of Common Stock
of the Corporation or Convertible Notes of the Corporation, hereby agree with
the Corporation as follows:
WHEREAS, the Corporation and the Holders have entered into a Second
Amended and Restated Stockholders Agreement, dated as of April 8, 1994, as
amended by an Amendment dated as of December 20, 1994, a Second Amendment dated
as of September 14, 1995, and a Third Amendment dated as of January 5, 1996 (the
"Stockholders Agreement");
WHEREAS, pursuant to the Series B Convertible Preferred Stock Purchase
Agreement dated as of March 23, 1993, certain of the Holders were issued
warrants (the "1994 Warrants") to purchase shares of the Corporation's Common
Stock, par value $.001 per share (the "Common Stock");
WHEREAS, pursuant to a Loan Agreement dated as of September 14, 1995,
certain of the Holders were issued Convertible Promissory Notes of the
Corporation (the "Convertible Notes"), which are convertible into an aggregate
of 625,000 shares of the Corporation's Series C Convertible Preferred Stock
("Series C Preferred Stock") and warrants (the "1995 Warrants") to purchase
shares of the Corporation's Common Stock;
WHEREAS, the Corporation proposes to issue shares of its Common Stockin
an underwritten public offering (the "Public Offering") pursuant to a
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on April 11, 1996, as amended from time to time (the "Registration
Statement"); and
WHEREAS, the Holders have certain registration rights, rights of first
offer and other rights in the Stockholders Agreement;
NOW, THEREFORE, the Corporation and the Holders agree as follows:
1. The Corporation and each of the Holders hereby agree that Section 1
Definitions of the Stockholders Agreement be amended as follows:
(a) The definition of "Transfer" shall be amended in its entirety to
read as follows:
"Transfer shall include any disposition of any Restricted
Securities or of any interest therein which would either constitute a
sale within the meaning of the Securities Act or be exempt from the
registration requirements of the Securities Act."
<PAGE> 2
(b) The definition of "Public Offering" shall be amended in its
entirety to read as follows:
"Public Offering" shall mean the offer and sale of
Common Stock of the Corporation pursuant to the Registration Statement
filed with the Securities and Exchange Commission on April 11, 1996, as
amended from time to time, or any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act in connection
therewith."
2. In connection with the Public Offering, each of the Holders hereby
waives, effective as of the date hereof, (i) the observance of the right of
first refusal specified in Section 2.3 Right of First Refusal of the
Stockholders Agreement with respect to the shares of Common Stock to be issued
in the Public Offering, including the right to receive prior notice of the
Public Offering pursuant to Section 2.3(b), (ii) the right to receive notice of
the filing of the Registration Statement specified in Section 4 of the
Stockholders Agreement and (iii) the right to receive notice pursuant to the
provisions of Article III, Section A.6(c)(i) or Section A.6(c)(ii) of the
Corporation's Fifth Restated Certificate of Incorporation in connection with any
required approval of the Public Offering.
3. The Corporation and each of the Holders hereby agree that the
Section 3.4 Required Registration of the Stockholders Agreement be amended to
include an additional Section 3.4(d) as follows:
"(d) Anything contained herein to the contrary
notwithstanding, the Corporation shall not be obligated to cause to
become effective a registration statement under the Securities Act
pursuant to this Section 3.4 until a date no sooner than six months
from the effective date of the Registration Statement filed by the
Corporation in connection with the Public Offering."
4. The Corporation and each of the Holders hereby agree that Section
3.5 Piggyback Registration of the Stockholders Agreement shall be amended to add
a new sentence as the last sentence of paragraph (a):
"The rights granted under this section, including the right to receive
notice pursuant hereto, shall not apply to the Public Offering."
5. (a) Each of the Holders hereby agrees that upon the closing of the
Public Offering, each Convertible Note will represent the right to receive the
number of shares of Common Stock into which the shares of Series C Preferred
Stock issuable upon conversion of a Convertible Note would have been converted
if it had been converted immediately prior to the closing of the Public
Offering. Each Holder further agrees that promptly following the closing of the
Public Offering, such Holder will deliver to the Corporation any Convertible
Notes which
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<PAGE> 3
were issued to it in order to exchange such Convertible Notes for a like number
of notes convertible into shares of the Corporation's Common Stock.
(b) Each of the Holders hereby waives the right to require the
Corporation to cause the registration of securities underlying any 1994 Warrant
or 1995 Warrant until a date no sooner than six months from the effective date
of the Registration Statement filed by the Corporation in connection with the
Public Offering.
(c) The provisions of any obligations set forth in Sections 2,
5(a) and (b) hereunder shall bind any assignee or transferee of any part of such
Holder's right, title and interest in and under any Preferred Stock, the
Convertible Notes and/or any 1994 Warrant or 1995 Warrant, and such Holder
agrees to require any assignee or transferee, as a precondition to such
assignment or other transfer, to confirm in writing to the Corporation that it
will abide by the terms of Sections 2 and 5 of this Agreement as if it were to
party hereto.
This Consent and Agreement to Amend (the"Agreement") may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement will
be binding upon the Corporation and the Holders and their respective successors,
assigns, heirs and personal representatives. Notwithstanding the foregoing, this
Agreement shall be of no force and effect if the Public Offering is not
consummated on or prior to September 30, 1996.
Except as otherwise provided herein, this agreement shall be effective
immediately prior to the closing of the Public Offering referred to herein.
IN WITNESS HEREOF, the parties have executed this agreement as
of , 1996.
-----------
VIRUS RESEARCH INSTITUTE, INC.
By:
--------------------------------
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<PAGE> 4
HOLDERS OF THE PREFERRED STOCK:
NAME
HEALTHCARE VENTURES II, L.P.
by: HealthCare Partners II, L.P., as
General Partner
By:
---------------------------------
General Partner
HEALTHCARE VENTURES III, L.P.
by: HealthCare Partners III, L.P., as
General Partner
By:
---------------------------------
General Partner
HEALTHCARE VENTURES IV, L.P.
by: HealthCare Partners IV, L.P., as
General Partner
By:
-----------------------------------
General Partner
EVEREST TRUST
By:
---------------------------------
Name:
Title:
-4-
<PAGE> 5
HUDSON TRUST
By:
---------------------------------
Name:
Title:
- ----------------------------------
LAWRENCE ABRAMS, individually
DILLON READ & CO., INC., Agent
By:
---------------------------------
Name:
Title:
GATEWAY VENTURE PARTNERS III, L.P.
By: Gateway Associates III, L.P., General Partner
By:
---------------------------------
Name:
Title:
THE AETNA CASUALTY AND SURETY COMPANY
By:
---------------------------------
Name:
Title:
-5-
<PAGE> 6
LEXINGTON PARTNERS IV, L.P.
By: Dillon, Read & Co, Inc., General Partner
By:
-----------------------------------------------------
Name:
Title:
CONCORD PARTNERS II, L.P.
By: Venture Associates II, L.P., General Partner
By Dillon, Read & Co., Inc., General Partner
By:
---------------------------------
Name:
Title:
AXIOM VENTURE PARTNERS,
LIMITED PARTNERSHIP
By:
---------------------------------
Name:
Title: General Partner
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
---------------------------------
Name:
Title:
-6-
<PAGE> 7
PASTEUR MERIEUX SERUMS
& VACCINS, S.A.
By:
---------------------------------
Name:
Title:
ORAVAX, INC.
By:
---------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.25
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOTE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT
TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Virus Research Institute, Inc., a Delaware corporation
Number of Shares: 11,000
Class of Stock: Common
Initial Exercise Price: The lesser of (i) 80% of the Initial Public Offering
price if an IPO is completed within six (6) months of
the issue date; or (ii) $1.50 per share if an IPO is
not completed within six (6) months of the issue date.
Issue Date: April 12, 1996
Expiration Date: April 12, 2001
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of, the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
<PAGE> 2
1.3 Intentionally Omitted.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in K!
reasonable good faith judgment. The foregoing notwithstanding, d Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant or like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
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<PAGE> 3
1.7.3 Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4 Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares d the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater or lesser amount of common stock, or, if
the Shares are securities other than common stock, subdivides the Shares in a
transaction that increases or decreases the amount of common stock into which
the Shares are convertible, then upon exercise of this Warrant, for each Share
acquired, Holder shall receive, without cost to Holder, the total number and
kind of securities to which Holder would have been entitled had Holder owned the
Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or is successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or
-3-
<PAGE> 4
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Intentionally Omitted.
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) Intentionally Omitted.
-4-
<PAGE> 5
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
ins stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the Company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the dale when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within one hundred and twenty (120) days after
the end of each fiscal year of the Company, the annual audited financial
statements of the Company certified by independent public accountants of
recognized standing and (c) such other financial statements required under and
in accordance with any loan documents between Holder and the Company (or if
there are no such requirements [or if the subject loan(s) no longer are
outstanding]), then within forty-five (45) days after the end of each of the
first three quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights
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<PAGE> 6
as provided for in paragraphs 3.5 and 3.7 of the Stockholders Agreement,
attached hereto.
ARTICLE 4. MISCELLANEOUS
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, H any) shall be imprinted
with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFE6TIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon the exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2 and
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the Securities and
Exchange Commission ("SEC") pursuant to the
-6-
<PAGE> 7
Securities Exchange Act of 1934, the Company shall have the right lo refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys" fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to its principles regarding conflicts of law. Borrower accepts for itself
and in connection with its properties, unconditionally, the non-exclusive
jurisdiction of any state or federal court of competent jurisdiction in the
Commonwealth of Massachusetts in any action, suit, or proceeding of any kind
against it which arises out of or by reason of this Warrant to Purchase Stock;
provided, however, that if for any reason Lender cannot avail itself of the
courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara
County, California.
"Company"
VIRUS RESEARCH INSTITUTE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-7-
<PAGE> 8
3.5 Piggvback Registration.
(a) Each time that the Corporation proposes for any reason to register
any of its securities, either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, under
the Securities Act ("Proposed Registration"), other than pursuant to a
registration statement on Form S-4 or Form S-8 or similar or successor forms
(collectively, "Excluded Forms") the Corporation shall promptly give written
notice of such proposed registration to all holders of Restricted Securities and
shall offer such holders the right to request inclusion of any Restricted Shares
in the Proposed Registration.
(b) Each holder of Restricted Securities shall have 30 days from the
receipt of such notice to deliver to the Corporation a written request
specifying the number of Restricted Shares such holder intends to sell and the
holder's intended method of disposition.
(c) In the event that the Proposed Registration by the Corporation is,
in whole or in part, an underwritten public offering of securities of the
Corporation, the Corporation shall so advise the holders as part of the written
notice given pursuant to Section 3.5(a), and any request under Section 3.5(b)
must specify that the Restricted Shares be included in the underwriting on the
same terms and conditions as the shares of Common Stock, if any, otherwise being
sold through underwriters under such registration.
(d) Upon receipt of a written request pursuant to Section 3.5(b), the
Corporation shall promptly use its best efforts to cause all such Restricted
Shares to be registered under the Securities Act (and included in any related
qualifications under blue sky laws or other compliance), to the extent required
to permit sale or disposition as set forth in the Proposed Registration.
(e) Notwithstanding the foregoing, if the managing underwriter
determines and advises in writing that the inclusion of all Restricted Shares
proposed to be included in the underwritten public offering, together with any
other issued and outstanding shares of Common Stock proposed to be included
therein by holders other than the holders of Restricted Securities (such other
shares hereinafter collectively referred to as the "Other Shares"), would
interfere with the successful marketing of such securities, then the number of
such shares to be included in such underwritten public offering shall be reduced
first, (i) by the shares requested to be included in such registration by the
holders of Other Shares, and second, if necessary, (ii) from the number of
Restricted Shares then owned by each such holder of such Restricted Shares, on a
pro rata basis, based upon the number of Restricted Shares sought to be
registered by each such holder. The shares of Common Stock that are excluded
from the underwritten public offering shall be withheld from the market by the
holders
-8-
<PAGE> 9
thereof for a period, not to exceed 180 days, that the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
3.7 Preparation and Filing. If and whenever the Corporation is under an
obligation pursuant to the provision of this Section 3 to use its best efforts
to effect the registration of any Restricted Shares, the Corporation shall, as
expeditiously as practicable:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective in accordance with Section
3.7(b) hereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective until the earlier of (i) the sale of all Restricted Shares covered
thereby or (ii) the expiration of nine months from the effective date of the
registration statement, and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Restricted Shares covered
by such registration statement;
(c) furnish to each holder whose Restricted Shares are being
registered pursuant to this Section 3 such number of copies of any summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such seller may reasonably request in order to facilitate the public sale or
other disposition of such Restricted Shares;
(d) use its best efforts to register or qualify the Restricted
Shares covered by such registration statement under the securities or blue sky
laws of such jurisdictions as each holder whose Restricted Shares are being
registered pursuant to this Section 3 shall reasonably request and do any and
all other acts or things which may be necessary or advisable to enable such
holder to consummate the public sale or other disposition in such jurisdictions
of such Restricted Shares; provided, however, that the Corporation shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then subject to process, qualify to do business as
a foreign corporation where it would be otherwise required to qualify or submit
to liability for state or local taxes where it is not liable for such taxes;
(e) at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 3.7(b) hereof, notify each
holder whose Restricted Shares are being registered pursuant to this Section 3
of the happening of any event as a result of which the prospectus included in
such registration, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact
-9-
<PAGE> 10
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request of
such seller, as promptly as practicable prepare, file and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing;
(f) if the Corporation has delivered preliminary or final
prospectuses to the selling Stockholders and having done so the prospectus is
amended to comply with the requirements of the Securities Act, the Corporation
shall promptly notify the selling Stockholders and, if requested, the selling
Stockholders shall immediately cease making offers of Restricted Shares and
return all prospectuses to the Corporation. The Corporation shall promptly
provide the selling Stockholders with revised prospectuses and, following
receipt of the revised prospectuses, the selling Stockholders shall be free to
resume making offers of the Restricted Shares;
(g) furnish, at the request of any holder whose Restricted Shares
are being registered pursuant to this Section 3, on the date that such
Restricted Shares are delivered to the underwriters for sale in connection with
,a registration pursuant to this Section 3, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Corporation for the purposes of such registration, in form and
substance as is customarily given to underwriters, if any, and to the holder or
holders making such request, and (ii) a letter dated such date, from the
independent certified public accountants of the Corporation, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the holder or holders making such request; and
(h) furnish to the holders of Restricted Shares for whom such
Restricted Shares are registered or are to be registered an agreement
satisfactory in form and substance to them by the Corporation and each of its
officers, directors and holders of 5% or more of any class of capital stock that
during the 30 days before and up to the 180 days after the effective date of any
underwritten public offering, the Corporation and such officers, directors and
5% security holders shall not offer, sell, contract to sell or otherwise dispose
of any shares of capital stock or securities convertible into capital stock,
except as part of such underwritten public offering and except that gifts may be
made to relatives or their legal representatives or trust beneficiaries and
Transfers may be made to transferees pursuant to Section 3.3 upon the condition
that the donees or other transferees agree in writing to be bound by the
restrictions contained in this clause (h) of Section 3.7.
-10-
<PAGE> 11
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of the Common/ Series
_______ Preferred [strike one] Stock of __________________________ pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into Shares/
cash [strike one] in the manner specified in the Warrant. This conversion is
exercised with respect to ________________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
- ---------------------------
(Name)
- ---------------------------
(Address)
- ---------------------------
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- ---------------------------
(Signature)
- ---------------------
(Date)
------------------------------------
-11-
<PAGE> 1
EXHIBIT 11.1
VIRUS RESEARCH INSTITUTE, INC.
STATEMENT RE: COMPUTATION OF PRO FORMA LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -------------------------
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net loss per historical financial statements............ $ (6,297,028) $(2,289,856) $(1,366,909)
Interest on Convertible Notes........................... 10,249 -- 20,000
----------- ----------- -----------
Pro forma net loss...................................... $ (6,286,779) (2,289,856) (1,346,909)
=========== =========== ===========
Pro forma weighted average common shares outstanding.... 6,103,977 6,103,581 6,138,776
"Cheap" stock issued April 1, 1995 to March 31, 1996.... 286,783 286,783 286,783
----------- ----------- -----------
6,390,760 6,390,364 6,425,559
=========== =========== ===========
Pro forma net loss per share............................ $ (.98) $ (.36) $ (.21)
=========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT ON
FORM S-1.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 704,432
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,150,184
<PP&E> 2,571,413
<DEPRECIATION> 1,510,631
<TOTAL-ASSETS> 2,302,788
<CURRENT-LIABILITIES> 2,727,151
<BONDS> 0
25,009,239
25,009,239
<COMMON> 690
<OTHER-SE> (25,615,916)
<TOTAL-LIABILITY-AND-EQUITY> 2,302,778
<SALES> 0
<TOTAL-REVENUES> 557,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,346,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,957
<INCOME-PRETAX> (1,366,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,366,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,366,909)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
