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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
VION PHARMACEUTICALS, INC.
(NAME OF ISSUER)
VION PHARMACEUTICALS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
CLASS A WARRANTS
CLASS B WARRANTS
(TITLES OF CLASSES OF SECURITIES)
927624 11 4 (CLASS A WARRANTS)
927624 12 2 (CLASS B WARRANTS)
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
JOHN A. SPEARS
VION PHARMACEUTICALS, INC.
4 SCIENCE PARK
NEW HAVEN, CT 06511
(203) 498-4210
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH COPIES TO:
TERENCE JONES, ESQ.
WIGGIN & DANA
ONE CENTURY TOWER
NEW HAVEN, CT 06508
(203) 498-4400
MAY 19, 1998
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION(1) AMOUNT OF FILING FEE(2)
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$11,773,689.90 $2,354.74
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</TABLE>
(1) Calculated on the basis of 4,262,383 Class A Warrants and 3,162,605 Class B
Warrants outstanding which were valued at the average of the high and low
prices on May 13, 1998 of $2.0782 and $0.9219 respectively.
(2) Fee calculated in accordance with Rule 0-11(b)(2) and Rule 0-11(a)(4) under
the Securities Exchange Act of 1934, as amended.
Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing. [ ]
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Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
</TABLE>
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This Schedule 13E-4 relates to an offer by Vion Pharmaceuticals, Inc., a
Delaware corporation (the "Issuer" or the "Company"), upon the terms and
conditions set forth in the Offering Circular dated May 19, 1998 (the "Offering
Circular"), a copy of which is filed as Exhibit (a)(2) hereto, to exchange for
each outstanding Class A Warrant ("Class A Warrants"), at the holder's option,
either (i) 0.438 shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") or (ii) (A) 0.254 shares of Common Stock and (B) $0.66 in
cash (the "Class A Exchange Offer"). This Schedule 13E-4 also relates to an
offer by the Company, upon the terms and conditions set forth in the Offering
Circular to exchange for each outstanding Class B Warrant ("Class B Warrants"),
at the holder's option, either (i) 0.212 shares of Common Stock or (ii) (A)
0.123 shares of Common Stock and (B) $0.32 in cash (the "Class B Exchange
Offer", and together with the Class A Exchange Offer, the "Exchange Offer"). The
Exchange Offer is not conditioned upon the exchange of a minimum number of Class
A Warrants or Class B Warrants (collectively, the "Warrants"). In order to
comply with applicable rules of The Nasdaq Stock Market, the issuance of more
than an aggregate of 2,144,148 shares of Common Stock is contingent upon
approval of the Company's stockholders at a special meeting scheduled to be held
on June 26, 1998 (the "Meeting"). The Company is making the Class A Exchange
Offer and the Class B Exchange Offer simultaneously, as the majority of the
Warrants were issued as part of a unit security and the Company believes there
is significant overlapping ownership of the different classes of Warrants.
Holders of Class A Warrants and Class B Warrants ("Warrantholders")
electing to exchange their Warrants prior to June 29, 1998, or such later
expiration date of the Exchange Offer (the "Expiration Date"), may withdraw such
election, so long as notice of withdrawal is received by American Stock Transfer
& Trust Company (the "Exchange Agent") on or prior to the Expiration Date.
Subject to approval at the Meeting, all Warrants exchanged, and not withdrawn,
on the Expiration Date will be accepted by the Company, and the Common Stock
and/or cash issuable upon the exchange of such Warrants will be delivered to the
respective Warrantholders as soon as practicable after the Expiration Date.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the Company is Vion Pharmaceuticals, Inc. The address of
its principal executive office is 4 Science Park, New Haven, Connecticut 06511.
(b) The securities being sought are any and all of the Company's Class A
Warrants and Class B Warrants. As of May 18, 1998, there were 4,262,383 Class A
Warrants issued and outstanding (and outstanding options to purchase 275,000
Class A Warrants) and 3,162,605 Class B Warrants issued and outstanding (and
outstanding options to purchase 275,000 Class B Warrants). The Company is
offering to exchange for each outstanding Class A Warrant, at the holder's
option, either (i) 0.438 shares of Common Stock or (ii) (A) 0.254 shares of
Common Stock and (B) $0.66 in cash. The Company is offering to exchange for each
outstanding Class B Warrant, at the holder's option, either (i) 0.212 shares of
Common Stock or (ii) (A) 0.123 shares of Common Stock and (B) $0.32 in cash.
Officers, directors and affiliates of the Company may elect to exchange their
respective Warrants pursuant to the Exchange Offer.
The following officers, directors and affiliates of the Company own
Warrants:
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NUMBER OF CLASS A NUMBER OF CLASS B
NAME WARRANTS BENEFICIALLY HELD WARRANTS BENEFICIALLY HELD(1)
---- -------------------------- -----------------------------
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Michael C. Kent(2).................... 9,405 9,405
E. Donald Shapiro(3).................. 18,150 4,400
John A. Spears(4)..................... 7,700 7,700
Thomas E. Klein(5).................... 10,040 16,450
Thomas Mizelle(6)..................... 2,732 7,682
Kalman Renov(7)....................... 130,900 129,800
</TABLE>
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(1) Class B Beneficial Ownership amounts do not include one Class B Warrant
issuable upon exercise of each outstanding Class A Warrant.
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(2) Mr. Kent is a director of the Company. All indicated Warrants are owned by
Mr. Kent's wife, and Mr. Kent disclaims beneficial ownership of these
Warrants.
(3) Mr. Shapiro is a director of the Company.
(4) Mr. Spears is President and Chief Executive Officer of the Company and is
also a director of the Company.
(5) Mr. Klein is Vice President -- Finance and Chief Financial Officer of the
Company. 440 of the indicated Class A Warrants and 2,860 of the indicated
Class B Warrants are owned of record by Mr. Klein's wife and children.
(6) Mr. Mizelle is Vice President -- Operations of the Company. Included are 312
Class A Warrants and 312 Class B Warrants owned of record by Mr. Mizelle's
children.
(7) Consists of (i) 1,100 Class A Warrants owned by a family partnership of
which Mr. Renov is president (ii) 102,300 Class A Warrants and 102,300 Class
B Warrants underlying an option to purchase such Warrants held by Mr.
Renov's wife and (iii) 27,500 Class A Warrants and 27,500 Class B Warrants
underlying an option to purchase such Warrants held by D.H. Blair & Co.,
Inc., an entity of which Mr. Renov and his wife are stockholders.
(c) The Class A Warrants and Class B Warrants are traded on the Nasdaq
SmallCap Market and have been traded on such market since August 1995. Further
information concerning the principal market in which the Warrants are traded and
the trading prices thereof is incorporated herein by reference to the section
captioned "Price Range of Common Stock and Warrants" in the Offering Circular.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration offered by the Company in exchange for the Warrants
consists, at the holder's option, of (i) authorized shares of Common Stock or
(ii) cash and authorized shares of Common Stock. Payments of cash, assuming all
Warrantholders (including holders of options to purchase Warrants) elect to
exchange and elect option (ii) above, will equal $4,094,706. The Company would
pay such amount from its current cash and cash equivalents or revenues.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Except as described below, there are no present plans or proposals which
relate or would result in:
(a) The acquisition by any person, other than the Company, of
additional securities of the Company, or the disposition of any such
securities by any such person, except that, as set forth under "Recent
Developments" in the Offering Circular, the Company has entered into a
letter of intent with regard to a proposed private placement of preferred
stock. However, the Company has not executed definitive agreements
regarding such financing, and there can be no assurance that definitive
agreements will be entered into in the near future, or at all;
(b) Any extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its
subsidiaries;
(c) A sale or transfer of a material amount of assets of the Company
or any of its subsidiaries;
(d) Any change in the present board of directors or management of the
Company, including, but not limited to, any plans or proposals to change
the number or the term of directors, to fill any existing vacancy on the
board or to change any material term of the employment contract of any
executive officer, except that the holders of the preferred stock issuable
in connection with the proposed private placement set forth in subsection
(a), above, would have the right to nominate one of the members of the
Board of Directors of the Company;
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(e) Any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company, other than as described in
Section 3(a), above;
(f) Any other material change in the Company's corporate structure or
business;
(g) Any changes in the Company's charter, by-laws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any person;
(h) Causing a class of equity security of the Company to be delisted
from a national securities exchange or to cease to be authorized to be
quoted in an inner-dealer quotation system of a registered national
securities association; except that if the number of Warrants or
Warrantholders is significantly reduced pursuant to the Exchange Offer, the
Class A Warrants and/or Class B Warrants may no longer meet the NASDAQ
SmallCap Market's quotation guidelines and may cease to be quoted through
the NASDAQ SmallCap Market, as described in the section of the Offering
Circular captioned "Risk Factors -- Possible Absence of Public Market
Following Exchange Offer," incorporated herein by reference;
(i) A class of equity security of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), unless as a result
of the Exchange Offer, the Class A Warrants or Class B Warrants are held of
record by fewer than 300 persons, in which event the registration of Class
A Warrants and/or Class B Warrants is eligible to be terminated; or
(j) The suspension of the Company's obligation to file reports
pursuant to Section 15(d) of the Exchange Act.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Neither the Company nor, to the best knowledge of the Company, any of the
executive officers, directors or affiliates of the Company or any associate of
any of the foregoing, has engaged in any transactions involving the Warrants
during the 40 business days prior to the date hereof.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Neither the Company nor, to the best knowledge of the Company, any of the
executive officers, directors or affiliates is a party to any contract,
arrangement, understanding or relationship relating directly or indirectly to
the Exchange Offer with respect to securities of the Company which would require
disclosure under applicable rules and regulations of the Exchange Act.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No person or class of persons has been employed, retained or is to be
compensated by the Company to make solicitations or recommendations in
connection with the Exchange Offer. The Company has retained Corporate Investor
Communications, Inc. (the "Information Agent") to act as Information Agent and
American Stock Transfer & Trust Company (the "Exchange Agent") to act as
Exchange Agent in connection with the Exchange Offer. The Information Agent may
contact holders of Warrants by mail, telephone, facsimile transmission,
electronic mail and personal interviews and may request brokers, dealers and
other nominee stockholders to forward materials relating to the Exchange Offer
to beneficial owners. The Information Agent and the Exchange Agent will each
receive reasonable and customary compensation for their respective services,
will be reimbursed for reasonable out-of-pocket expenses and will be indemnified
against certain liabilities in connection with their services, including certain
liabilities under the federal securities laws. Neither the Information Agent nor
the Exchange Agent has been retained to make solicitations or recommendations in
their respective roles as Information Agent and Exchange Agent, and the fees to
be paid to them will not be based on the number of Warrants tendered pursuant to
the Exchange Offer.
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ITEM 7. FINANCIAL INFORMATION.
(a)(1) Incorporated by reference to the Company's most recent annual report
on Form 10-KSB, which is included as Appendix A to the Offering Circular and is
incorporated herein by reference.
(a)(2) Incorporated by reference to the Company's most recent quarterly
report on Form 10-QSB, which is included as Appendix B to the Offering Circular
and is incorporated herein by reference.
(a)(3) Not applicable.
(a)(4) The Company's book value per share as of December 31, 1997 was
$1.20, and the Company's book value per share as of March 31, 1998 was $0.91.
(b)(1)-(3) Incorporated by reference to "Selected Financial Information"
set forth in the Offering Circular.
ITEM 8. ADDITIONAL INFORMATION.
(a) Neither the Company nor, to the Company's knowledge, any of its
executive officers, directors or affiliates is a party to any present or
proposed contract, arrangement, understanding or relationship between them and
the Company that is material to a decision by a Warrantholder whether to sell,
tender or hold the Warrants.
(b) The sole regulatory requirement that must be obtained in connection
with the issuance of more than an aggregate of 2,144,148 shares of Common Stock
pursuant to the Exchange Offer is the approval of the Company's stockholders at
a special meeting scheduled to be held on June 26, 1998 (the "Meeting"). The
Meeting is required to comply with the terms of NASDAQ Rule 4310(c)(25)(H)(i)d
which requires stockholder approval of the issuance, under certain
circumstances, of securities representing more than 20% of the then-outstanding
class of such securities.
(c) Not applicable.
(d) None.
(e) Other than the information contained in the Offering Circular, there is
no additional material information which is necessary to make the above required
statements, in light of the circumstances under which they are made, not
materially misleading.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Letter to Warrantholders dated May 19, 1998.
(a)(2) Offering Circular dated May 19, 1998.
(a)(3) Form of Letter of Transmittal.
(a)(4) Form of letter to brokers, dealers, commercial banks, trust
companies and other nominees (collectively, the "Brokers").
(a)(5) Form of letter from the Brokers to customers.
(a)(6) Form of press release issued by the Company.
(a)(7) Notice of Guaranteed Delivery.
(a)(8) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) None.
(e) Not applicable
(f) None.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
VION PHARMACEUTICALS, INC.
By: /s/ JOHN A. SPEARS
------------------------------------
Name: John A. Spears
Title: President and Chief Executive
Officer
Date: May 18, 1998
5
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EXHIBIT INDEX
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EXHIBIT
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(a)(1) Letter to Warrantholders dated May 19, 1998.
(a)(2) Offering Circular dated May 19, 1998.
(a)(3) Form of Letter of Transmittal.
(a)(4) Form of letter to brokers, dealers, commercial banks, trust
companies and other nominees (collectively, the "Brokers").
(a)(5) Form of letter from the Brokers to customers.
(a)(6) Form of press release issued by the Company.
(a)(7) Notice of Guaranteed Delivery.
(a)(8) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</TABLE>
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EXHIBIT (a)(1)
VION PHARMACEUTICALS, INC. LOGO
May 19, 1998
Dear Warrantholder:
After careful consideration and evaluation, the management and Board of
Directors of Vion Pharmaceuticals, Inc. have determined it is in the best
interests of the Company to make a tender offer for the outstanding Class A
Warrants and Class B Warrants. The Board has unanimously endorsed and authorized
Vion management to implement an exchange offer whereby, for a limited period,
both the Class A and Class B Warrants can be exchanged for Vion common stock or
a combination of cash and stock. Specifically, the Company is offering to
exchange for each outstanding Class A Warrant, at the holder's option, either
(A) 0.438 shares of the Company's Common Stock or (B) 0.254 shares of Common
Stock and $0.66 in cash. The Company is also offering to exchange for each
outstanding Class B Warrant, at the holder's option, either (A) 0.212 shares of
Common Stock or (B) 0.123 shares of Common Stock and $0.32 in cash. As an
incentive for Warrantholders to exchange Warrants solely for Common Stock,
instead of cash and stock, the Company's offer includes a 15% premium paid in
additional stock if the "all stock" option is chosen. The Exchange Offer is not
conditioned upon the exchange of a minimum number of Class A Warrants or Class B
Warrants. The exchange offer will expire on June 29, 1998 unless extended.
The purpose of the Exchange Offer is to reduce the number of authorized and
outstanding Warrants, and the number of shares of Common Stock that could be
issued pursuant to an exercise of the Warrants. It has been the Company's
experience that potential investors have been deterred from investing in the
Company due to the substantial market overhang of outstanding unexercised
Warrants, which if fully exercised will result in the issuance of over 11
million additional shares of Common Stock, more than double the number of
outstanding shares as of March 31, 1998. Furthermore, based on discussions with
various investment banking firms, management believes that this potential
dilution has deterred coverage of the Company by investment analysts who
otherwise would be inclined to follow the Company in their reports and
recommendations. The Company's Board of Directors has determined that the
continuing presence of the Class A Warrants and the Class B Warrants has been a
significant impediment to raising additional capital at terms which are in the
best interests of the Company's shareholders.
Substantial acceptance of the Exchange Offer, while resulting in the near
term issuance of additional Common Stock, will substantially reduce the overall
dilution potential caused by the outstanding Warrants and will bring greater
stability and clarity to the Company's capital structure.
We urge you to consider carefully this opportunity to exchange your
Warrants on these terms. The Exchange Offer affords Warrantholders the
opportunity to make an equity investment in the Company on terms more attractive
than those otherwise available. It is important to point out that following the
anticipated successful completion of the Exchange Offer the number of remaining
outstanding Class A and Class B Warrants may be such that public trading of the
Warrants may be substantially reduced, potentially resulting in a delisting of
the securities by Nasdaq. Therefore the liquidity of the Warrants may be
drastically reduced.
The accompanying Offering Circular provides important information about the
Company and the detailed terms of the Exchange Offer. Please read and consider
them carefully. Any Warrantholder electing to tender Warrants pursuant to the
Exchange Offer must complete and sign the Letter of Transmittal, in accordance
with the instructions and forward or hand deliver it, together with certificates
representing the tendered Warrants to the exchange agent at its address set
forth on the back cover page of the Offering Circular. Any beneficial owner of
Warrants whose securities are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee should not use the Letter of
Transmittal, but is instead urged to contact the registered holder(s) of such
securities promptly to instruct the registered holder(s) whether to tender your
securities.
VION LETTERHEAD
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Questions and requests for assistance or for additional copies of the
Offering Circular should be directed to Corporate Investor Communications, Inc.
the Company's information agent, at (888) 210-8932.
Again I urge you to give your careful consideration to the offer described
in the accompanying Offering Circular.
Sincerely yours,
/s/ William R. Miller
William R. Miller
Chairman of the Board
/s/ John A. Spears
John A. Spears
President & CEO
<PAGE> 1
EXHIBIT (a)(2)
OFFERING CIRCULAR
VION PHARMACEUTICALS, INC.
OFFER TO EXCHANGE EACH OUTSTANDING CLASS A WARRANT, AT THE OPTION OF THE HOLDER,
FOR (A) 0.438 SHARES OF COMMON STOCK OR (B) 0.254 SHARES OF COMMON STOCK AND
$0.66 IN CASH
AND
OFFER TO EXCHANGE EACH OUTSTANDING CLASS B WARRANT, AT THE OPTION OF THE HOLDER,
FOR (A) 0.212 SHARES OF COMMON STOCK OR (B) 0.123 SHARES OF COMMON STOCK AND
$0.32 IN CASH
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, JUNE
29, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
Vion Pharmaceuticals, Inc., a Delaware corporation (the "Company" or
"Vion"), hereby offers, upon the terms and conditions set forth in this Offering
Circular (as amended from time to time, the "Offering Circular") and in the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
for each outstanding Class A Warrant ("Class A Warrants"), at the holder's
option, either (A) 0.438 shares of the Company's Common Stock, par value $.01
per share (the "Common Stock") or (B) 0.254 shares of Common Stock and $0.66 in
cash (the "Class A Exchange Offer"). The Company is also offering pursuant to
the Offering Circular and the Letter of Transmittal to exchange for each
outstanding Class B Warrant ("Class B Warrants"), at the holder's option, either
(A) 0.212 shares of Common Stock or (B) 0.123 shares of Common Stock and $0.32
in cash (the "Class B Exchange Offer", and together with the Class A Exchange
Offer, the "Exchange Offer"). The Exchange Offer is not conditioned upon the
exchange of a minimum number of Class A Warrants or Class B Warrants
(collectively, the "Warrants"). The issuance of more than an aggregate of
2,144,148 shares of Common Stock is contingent upon approval of the Company's
stockholders at a special meeting scheduled to be held on June 26, 1998 (the
"Meeting"). See "The Exchange Offer -- Conditions of the Exchange Offer." The
Company's Common Stock, Class A Warrants, and Class B Warrants are currently
traded on the Nasdaq SmallCap Market under the symbols VION, VIONW and VIONZ,
respectively. On May 18, 1998 the last reported sales prices for the Common
Stock, the Class A Warrants and the Class B Warrants were $5,375, $2.00 and
$1.00, respectively.
As of May 18, 1998, there were 4,262,383 Class A Warrants and 3,162,605
Class B Warrants outstanding. The Exchange Offer is being made for all of the
outstanding Warrants. Each Class A Warrant entitles the holder to purchase, at
an exercise price of $4.73, subject to adjustment, one share of Common Stock and
one Class B Warrant, and each Class B Warrant entitles the holder to purchase,
at an exercise price of $6.37, subject to adjustment, one share of Common Stock.
The Warrants are exercisable at any time after issuance through August 13, 2000.
The Warrants are subject to redemption by the company for $.05 per Warrant, upon
30 days' written notice, if the average closing bid price of the Common Stock
exceeds $7.30 per share with respect to the Class A Warrants and $9.80 share
with respect to the Class B Warrants for 30 consecutive business days ending
within 15 days of the date of the notice of redemption. No fractional shares of
Common Stock will be issued in the Exchange Offer. Fractional shares of Common
Stock will be rounded up or down to the nearest whole number shares of Common
Stock.
Subject to applicable securities laws and the terms set forth in this
Offering Circular, the Company reserves the right (i) to waive any and all
conditions to the Exchange Offer, (ii) to extend the Exchange Offer or (iii)
otherwise to amend the Exchange Offer, in any respect.
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NEITHER THIS TRANSACTION NOR THE SECURITIES OFFERED HEREBY HAS 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
FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
American Stock Transfer & Trust Company (the "Exchange Agent") and
Corporate Investor Communications, Inc. (the "Information Agent") have agreed to
provide certain services in connection with the Exchange Offer. If you require
assistance, please contact the Exchange Agent at (718) 921-8200, the Information
Agent at (888) 210-8932, or Thomas E. Klein, Vice President -- Finance of the
Company at (203) 498-4210.
IMPORTANT -- Any beneficial holder of Warrants desiring to tender all or any
portion of his or her Warrants should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it, together with the certificates
representing tendered Warrants and any other required documents, to the Exchange
Agent or tender such Warrants pursuant to the procedure for book-entry transfer
set forth in "The Exchange Offer -- Procedures for Tendering Warrants" or (2)
request his or her broker, dealer, commercial bank, trust company or nominee to
effect the transaction. BENEFICIAL HOLDERS WHOSE WARRANTS ARE REGISTERED IN THE
NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST
CONTACT SUCH PERSON IF THEY DESIRE TO TENDER THEIR WARRANTS. Holders who wish to
tender Warrants and whose certificates representing such Warrants are not
immediately available or who cannot comply with the procedures for book-entry
transfer on a timely basis may tender such Warrants by following the procedures
for guaranteed delivery set forth in "The Exchange Offer -- Procedures for
Tendering Warrants."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CAREFULLY CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
The date of this Offering Circular is May 19, 1998.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Available Information....................................... 2
Incorporation by Reference.................................. 2
Summary..................................................... 3
Risk Factors................................................ 6
Recent Developments......................................... 14
Capitalization.............................................. 16
Dividend Policy............................................. 17
Price Range of Common Stock and Warrants.................... 17
Selected Financial Information.............................. 18
The Exchange Offer.......................................... 21
Certain Federal Income Tax Consequences..................... 27
Description of Securities................................... 29
1997 10-KSB................................................. Appendix A
1998 10-QSB for the Quarter ended March 31, 1998............ Appendix B
</TABLE>
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The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The Company
therefore has made no arrangements for and has no understanding with any dealer,
salesman or other person regarding the solicitation of the holders of the
Warrants, and no person has been authorized by the Company to give any
information or to make any representations in connection with the Exchange Offer
other than those contained herein and, if given or made, such other information
or representations must not be relied upon as having been authorized. The
delivery of this Offering Circular shall not, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof.
This Offering Circular does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities covered
by this Offering Circular, nor does it constitute an offer to sell or a
solicitation of an offer to buy any such securities by any person in any
jurisdiction in which such offer or solicitation would be unlawful.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") an Issuer Tender Offer Statement on Schedule 13E-4, which term
shall encompass any amendments thereto, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with respect to the Exchange Offer. This
Offering Circular does not contain all the information set forth in the Schedule
13E-4 and the exhibits thereto, to which reference is hereby made for further
information about the Company and the Exchange Offer. The Company is subject to
the informational requirements of the Exchange Act and in accordance therewith
files periodic reports, proxy and information statements, and other information
with the Commission. The Schedule 13E-4 and all reports, proxy and information
statements, and other information filed by the Company with the Commission may
be inspected at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, New York, New York 10048, and
Suite 1400, 700 West Madison Street, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Additionally, the Commission maintains an electronic Web Site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, the address of such
Web Site being (http://www.sec.gov). The Warrants and the Common Stock are
quoted on the Nasdaq SmallCap Market, and all reports, proxy and information
statements, and other information filed with the Commission also may be
inspected at the offices of the Nasdaq Stock Market, Inc., Reports Section, 1735
K Street, N.W., Washington, D.C. 20006.
The Company will provide without charge to each person to whom a copy of
this Offering Circular has been delivered, on the written or oral request of
such person, a copy of the Schedule 13E-4. Requests for such copies should be
directed to: Thomas E. Klein, Vice President -- Finance, Vion Pharmaceuticals,
Inc., 4 Science Park, New Haven, Connecticut 06511, telephone (203) 498-4210,
facsimile (203) 498-4211 or e-mail at [email protected].
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference in this Offering Circular: (i)
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997 which is attached as Appendix A hereto (the "1997 Form 10-KSB") and all
exhibits thereto and documents incorporated by reference therein; (ii) the
Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998
which is attached as Appendix B hereto; all of which have been filed with the
Commission (File No. 0-26534). The Company also incorporates herein by reference
all documents and reports subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Offering Circular and prior to termination of this Exchange Offer. Such
documents and reports shall be deemed to be incorporated by reference in this
Offering Circular and to be a part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offering Circular to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded, except as so modified
or superseded, shall not be deemed to constitute a part of this Offering
Circular.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and the pro
forma information appearing elsewhere in this Offering Circular or incorporated
herein by reference. See "Risk Factors" for a discussion of certain factors
investors should consider carefully before exchanging the Warrants.
THE COMPANY
Vion Pharmaceuticals, Inc. is a development stage biopharmaceutical company
principally devoted to the research and development of therapeutic products for
the treatment of cancer and cancer-related disorders. The Company's activities
to date have consisted primarily of research and development sponsored by it
pursuant to two separate license agreements with Yale University, negotiating
and obtaining other collaborative agreements, recruiting management and other
personnel, securing its facilities and raising equity and debt financing. The
Company has not generated any revenues from product sales and has incurred
substantial operating losses from its activities.
PURPOSES OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to reduce the number of authorized and
outstanding Warrants, and the number of shares of Common Stock that could be
issued pursuant to an exercise of the Warrants. The Company's Board of Directors
has determined that the continuing presence of the Class A Warrants and the
Class B Warrants has created a significant impediment to raising additional
capital on terms which are in the best interests of the Company and its
stockholders. It has been the Company's experience that potential investors have
been deterred from investing in the Company due to the uncertainty caused by the
substantial market overhang of outstanding unexercised Warrants, which if fully
exercised will result in the issuance of over 11 million additional shares of
Common Stock more than doubling the number of outstanding shares as of March 31,
1998. Based on discussions with various investment banking firms, management of
the Company believes that this potential dilution has deterred coverage of the
Company by investment analysts who otherwise would be inclined to follow the
Company in their reports and recommendations. The Board of Directors of the
Company also believes that the Exchange Offer will simplify the Company's
capital structure and will facilitate the issuance of additional equity
securities and, to the extent thought desirable by the Board, enable the Company
to raise capital through the issuance of such additional equity securities more
efficiently and economically. Substantial acceptance of the Exchange Offer,
while resulting in the near term issuance of additional Common Stock, will
substantially reduce the overall dilution that may be caused by exercise of the
outstanding Warrants and will simplify the Company's capital structure. The
Company's Board of Directors also believes that substantial acceptance of the
Exchange Offer may stimulate broader investment interest in the Company's Common
Stock. However, it is not possible to predict the exact impact that the Exchange
Offer will have on the trading price of the Company's Common Stock and there can
be no assurances that such trading prices will rise or that any increased
trading price will be maintained for any period of time. See "The Exchange
Offer -- Purposes of the Exchange Offer."
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THE EXCHANGE OFFER
The Offer....................... The Company is offering to exchange for each
outstanding Class A Warrant, at the holder's
option, either (A)0.438 shares of the
Company's Common Stock or (B)0.254 shares of
Common Stock and $0.66 in cash. The Company
is also offering to exchange for each
outstanding Class B Warrant, at the holder's
option, either (A)0.212 shares of Common
Stock or (B)0.123 shares of Common Stock and
$0.32 in cash.
Expiration...................... 5:00 p.m., New York City time, on Monday,
June 29, 1998, unless extended.
Withdrawal Rights............... Tenders of Warrants pursuant to the Exchange
Offer may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Risk Factors.................... Warrantholders who elect to tender their
Warrants in the Exchange Offer and receive
Common Stock should consider certain factors
regarding the Company. See "Risk Factors."
How to Tender the Warrants...... Warrantholders wishing to take part in the
Exchange Offer must complete and sign the
Letter of Transmittal, in accordance with the
instructions contained herein and therein,
and forward or hand deliver such Letter of
Transmittal, together with any signature
guarantees and any other documents required
by the Letter of Transmittal, including
certificates representing the tendered
Warrants, to the Exchange Agent at its
address set forth on the back cover page of
this Offering Circular. Any beneficial owner
of Warrants whose securities are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee is urged
to contact the registered holder(s) of such
securities promptly to instruct the
registered holder(s) whether to tender your
securities. Beneficial holders whose
certificates representing their Warrants are
not immediately available or who cannot
deliver their certificates or any other
required documents to the Exchange Agent
prior to the Expiration Date may tender their
Warrants pursuant to the guaranteed delivery
procedure set forth herein. See "The Exchange
Offer -- Procedures for Tendering
Warrants -- Guaranteed Delivery Procedures."
Delivery of Cash and/or
Securities...................... The Company will deliver the cash and/or
certificates for the shares of Common Stock
issuable upon conclusion of the Exchange
Offer as soon as practicable after the
Expiration Date. See "The Exchange
Offer -- Procedures for Tendering
Warrants -- Acceptance of Warrants and
Payment."
Certain Income Tax
Consequences.................... In general, holders of Warrants who
participate in the Exchange Offer and elect
to receive cash and Common Stock should, for
federal income tax purposes, recognize gain
(but not loss) only to the extent of the cash
consideration received. The cash received
will be treated as "excess principal amount"
within the meaning of Code section 356(d) and
will, thus, be fully taxable. The value of
the stock received will not, however, be
considered
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as excess principal amount and should not be
taxable. Any gain recognized as a result of
the Exchange Offer should be capital gain.
Holders of Warrants who participate in the
Exchange Offer and elect to receive only
Common Stock should, for federal income tax
purposes, not recognize any gain or loss. For
a more detailed discussion of the tax
consequences, see "Certain Federal Income Tax
Consequences."
Securities Outstanding.......... As of May 15, 1998, there were 10,720,740
shares of Common Stock, 4,262,383 Class A
Warrants and 3,162,605 Class B Warrants
issued and outstanding. Prior to this
Exchange Offer, there are 8,524,766 shares of
Common Stock issuable upon the exercise of
the Class A Warrants and the Class B Warrants
underlying the Class A Warrants and 3,162,605
shares of Common Stock issuable upon the
exercise of the currently outstanding Class B
Warrants. See "Description of Securities."
Market Prices................... The Common Stock, Class A Warrants and Class
B Warrants are currently traded on the Nasdaq
SmallCap Market under the symbols VION, VIONW
and VIONZ, respectively. On May 18, 1998 the
last reported sales prices for the Common
Stock, the Class A Warrants and the Class B
Warrants were $5.375, $2.00 and $1.00,
respectively. See "Price Range of Common
Stock and Warrants."
Exchange Agent.................. American Stock Transfer & Trust Company, 40
Wall Street, 46th Floor, New York, New York
10005, telephone (718) 921-8200.
Information Agent............... Corporate Investor Communications, Inc., 111
Commerce Road, Carlstadt, New Jersey 07072,
telephone (888) 210-8932.
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RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk.
Holders of Warrants should carefully consider, among other things, the following
factors before a decision is made to tender their Warrants for shares of Common
Stock.
FORWARD LOOKING STATEMENTS. This Offering Circular contains statements
which constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Offering Circular and include statements regarding the intent,
belief or current expectations of the Company, its directors or officers with
respect to the possible effects of the Exchange Offer, including the effect on
the market price of the Common Stock and the impact on future financing by the
Company. Holders are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. The Company has no intention of
updating these statements following the commencement of the Exchange Offer or
any time thereafter. The information contained in this Offering Circular,
including without limitation the information set forth below, identify important
factors that could cause such differences.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT AND ANTICIPATED FUTURE
LOSSES. The Company is in the development stage and to date has not generated
any ongoing material revenues. At March 31, 1998, the Company had an accumulated
deficit of $25,654,638 and since then significant losses and decreases in
working capital have occurred and are expected to continue for the foreseeable
future. A substantial portion of the Company's losses have been incurred in
connection with research sponsored by it pursuant to an agreement with Yale
University (the "Yale/MelaRx Agreement") on several product candidates, most of
which are not currently being pursued. The Company continues to have substantial
financial commitments to Yale pursuant to such agreement. The Company will be
required to conduct significant research, development, testing and regulatory
compliance activities which, together with projected general and administrative
expenses, are expected to result in operating losses for at least the next
several years, particularly due to the extended time period before the Company
expects to commercialize its principal products, if ever. There can be no
assurance that the Company's research and development activities will result in
any commercially viable products or that the Company will ever realize revenues
from the sale of any of its products.
POSSIBLE ABSENCE OF PUBLIC MARKET FOLLOWING EXCHANGE OFFER. The Warrants
are currently listed on the Nasdaq SmallCap Market. Because the number of
Warrantholders after the consummation of the Exchange Offer may be limited, it
is possible that there will be no significant active trading in the Warrants.
The Company has no intention to request that the Warrants be delisted from the
Nasdaq SmallCap Market, however, there can be no assurance that Nasdaq will not
seek to delist the Warrants.
FEDERAL INCOME TAX CONSEQUENCES OF EXCHANGE OFFER. In general, holders of
Warrants who participate in the Exchange Offer and elect to receive cash and
Common Stock should, for federal income tax purposes, recognize gain (but not
loss) only to the extent of the cash consideration received. The cash received
will be treated as "excess principal amount" within the meaning of Code section
356(d) and will, thus, be fully taxable. Any gain recognized as a result of the
Exchange Offer should be capital gain. Holders of Warrants who participate in
the Exchange Offer and elect to receive only Common Stock should, for federal
income tax purposes, not recognize any gain or loss. Holders of Warrants who do
not participate in the Exchange Offer should not recognize any gain or loss for
federal income tax purposes. DUE TO THE UNCERTAINTIES REGARDING THE TAX
TREATMENT OF THE EXCHANGE OFFER, EACH HOLDER OF OUTSTANDING WARRANTS IS URGED TO
CONSULT HIS PERSONAL TAX ADVISOR. For a more detailed discussion of the tax
consequences, see "Certain Federal Income Tax Consequences."
EARLY STAGE OF PRODUCT DEVELOPMENT. The Company is engaged in research and
development on a variety of technologies, pharmaceutical compounds and other
chemical or biological compositions or processes for therapeutic uses, primarily
in connection with the treatment of cancer. There has been only limited research
on many of the Company's technologies and results obtained in research and
testing conducted to date are not conclusive as to whether compounds being
investigated by the Company will be safe and effective for their proposed use.
Most of the Company's proposed products are in the early developmental stage,
require
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significant further research and development and in many cases lead compounds
have not yet been selected. Most of these proposed products were licensed
pursuant to an agreement with Yale University (the "Yale/ OncoRx Agreement"),
which agreement did not provide for ongoing sponsored research. The Company will
need to develop further its own internal research and development capability to
conduct additional research and development activities with respect to these
product candidates. All of the Company's product candidates require testing and
regulatory clearances or approvals, including but not limited to the Food and
Drug Administration (the "FDA"), prior to their commercial distribution.
Accordingly, the Company expects that most of its products will not be
commercially available for a number of years, if ever. The successful
development of any product is subject to the risks of failure inherent in the
development of products or therapeutic procedures based on innovative
technologies. These risks include the possibilities that any or all of these
proposed products or procedures are found to be ineffective or unsafe, or
otherwise fail to receive necessary regulatory clearances or approvals; that the
proposed products or procedures are uneconomical to market or do not achieve
broad market acceptance; that third parties hold proprietary rights that
preclude the Company from marketing them; or that third parties market a
superior or equivalent product. The Company is unable to predict whether its
research and development activities will result in any commercially viable
products or procedures. Further, due to the extended testing and regulatory
review process required before marketing clearance can be obtained, the time
frames for commercialization of any products or procedures are long and
uncertain.
UNCERTAINTY AND RISKS OF TAPET(TM) TECHNOLOGY. The use of bacteria to
deliver genes or gene products is a new technology, and existing preclinical and
clinical data on the safety and efficacy of this technology are very limited. No
products utilizing the TAPET technology are in human clinical trials, and the
results of preclinical studies do not predict safety or efficacy in humans.
TAPET uses bacteria for delivery of genes or enzymes to tumors. Possible serious
side effects of the Company's TAPET program include bacterial infections,
particularly the risk of sepsis, a serious and often fatal bacterial infection
of the blood. The Company is bioengineering the bacterial vectors used in TAPET
in an effort to eliminate virulence factors and to minimize the risk of such
side effects. However, there can be no assurance that unacceptable side effects
will not be discovered during preclinical and clinical testing of the Company's
potential products.
NEED FOR SIGNIFICANT ADDITIONAL FUNDS AND COLLABORATIVE ARRANGEMENTS;
POTENTIAL DEFAULT UNDER LICENSE AGREEMENTS. The Company believes that its
current cash plus the interest income thereon should be sufficient to enable the
Company to continue funding its operations at currently budgeted spending levels
through December 1998. However, the Company's cash requirements may vary
materially from those now planned because of results of research and
development, results of product testing, relationships with strategic partners,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the regulatory process in the
United States and abroad and other factors. The Company received an opinion from
its auditors, filed as part of its Annual Report for the fiscal year ended
December 31, 1997, expressing substantial doubt as to its ability to continue as
a going concern. The Company intends to address the immediate need for
additional capital by raising funds through a sale of its securities, although
the Company expects to require additional financing to fund its longer-term
activities and may require additional capital for acquisitions and new
development projects.
The Company's working capital is not sufficient to fund the Company's
operations through the commercialization of the first therapeutic products
resulting from its research and development projects. The Company will require
substantial additional funds for its research and product development programs,
for operating expenses and to pursue regulatory clearances. The Company has also
incurred significant financial commitments to academic collaborators in
connection with license and sponsored research agreements and will incur
significant additional financial obligations. Adequate funds for these purposes,
whether through financial markets or collaborative or other arrangements with
corporate partners or from other sources, may not be available when needed. The
Company has no commitments to obtain any additional funds and there can be no
assurance that additional funds can be obtained on terms acceptable to the
Company, if at all. Insufficient funds may require the Company to delay, scale
back or eliminate certain of its research and product development programs or
license third parties to commercialize products or technologies that the Company
would otherwise seek to develop itself. Additionally, if funds are insufficient,
the Company may be
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unable to meet its obligations under its collaboration agreement, license
agreements or research agreements, or make research payments or commercialize
the technologies licensed under such agreements.
In the event that any payments required to be made to academic
collaborators or licensors are not made in a timely fashion, or if the Company
is otherwise in default under agreements with such parties, such parties will
have the right to terminate their research and license arrangements with the
Company. Termination of any such arrangements would have a material adverse
effect on the Company by rendering it unable to continue development of or to
commercialize all or a portion of its product candidates licensed under that
agreement. See "-- Risks Relating to Sponsored Research and License Agreements."
DEPENDENCE ON PATENTS AND TRADE SECRETS; UNCERTAINTY OF PATENT POSITION AND
TRADE SECRETS. The Company's success will depend to a significant extent on its
ability, or the ability of its licensors, to obtain and maintain patent
protection on technologies and products and preserve trade secrets and to
operate without infringing the proprietary rights of others. The patent
situation in the field of biopharmaceutical products generally is highly
uncertain and involves complex legal, scientific and factual questions. To date
there has emerged no consistent policy regarding the breadth of claims allowed
in biopharmaceutical patents. Accordingly, there can be no assurance that patent
applications filed by or on behalf of the Company will result in patents being
issued or that, if issued, the patents will afford protection against
competitors with similar technology. Furthermore, there can be no assurance that
others will not independently develop similar technologies or duplicate any
technology developed by the Company. Because of the extensive time required for
development, testing and regulatory review of a potential product, it is
possible that before any of the Company's potential products can be
commercialized, any related patent may expire, or remain in existence for only a
short period following commercialization, thus reducing any advantage of the
patent. Moreover, composition of matter patent protection may not be available
for certain of the Company's product candidates. Specifically, composition of
matter patent protection is not likely to be available for 3TC, a novel
nucleoside analog licensed pursuant to the Yale/OncoRx Agreement, and is not
available for porfiromycin. While the Company may seek alternative protection,
there can be no assurance that the Company will be able to secure meaningful
proprietary protection for any of its proposed products.
The Company's processes and potential products may conflict with patents
which have been or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's processes and potential products may give rise to
claims that they infringe the patents of others. Such other persons could bring
legal actions against the Company claiming damages and seeking to enjoin
clinical testing, manufacturing and marketing of the affected product or
process. 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 conduct clinical tests, manufacture or market the affected
product or use the affected process. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, if at all. If the Company
becomes involved in litigation, litigation could consume a substantial portion
of the Company's resources.
The Company is aware that patent applications have been filed by and/or
United States patents have been issued to, IAF BioChem International, Inc.,
Emory University, Glaxo Group Limited, University of Georgia Research
Foundation, Inc., and The Wellcome Foundation Limited of Unicorn House that
relate to the subject matter of patent applications licensed to the Company,
namely, 3TC and/or its use as an anti-hepatitis B virus ("HBV") agent. The
Company is also aware that patent applications have been filed by Biochem Pharma
that relate to subject matter licensed to the Company, namely b-L-FddC and its
use as an anti-HBV agent.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of the patents or proprietary rights of others. The Company may
participate in interference proceedings which may in the future be declared by
the United States Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company.
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To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's proposed projects, third parties may own all or part of the
proprietary rights to such information, and disputes may arise as to the
ownership of the proprietary rights to such information which may not be
resolved in favor of the Company. To the extent that the Company requires rights
to any resulting technologies, it may be necessary to negotiate additional
license agreements or the Company may be unable to utilize such technologies.
See "-- Risks Relating to Sponsored Research and License Agreements."
The Company may also rely on trade secrets that it may seek to protect, in
part, through confidentiality agreements with employees and other parties. There
can be 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 to or independently developed by competitors.
RISKS RELATING TO SPONSORED RESEARCH AND LICENSE AGREEMENTS. The Company
has incurred significant financial commitments to academic collaborators in
connection with licenses and sponsored research agreements. In particular,
through December 31, 1997, the Company has paid to Yale approximately $4,800,000
pursuant to the Yale/MelaRx Agreement. The Company continues to have substantial
funding commitments under the Yale/MelaRx Agreement and other sponsored research
agreements, whether or not such research results in suitable product candidates.
Moreover, the Company generally does not have the right to control the research
being conducted pursuant to sponsored research agreements and there can be no
assurance that such research will result in products which the Company will
pursue. In particular, the Company is currently making unrestricted grants to
Yale to support certain research, including research in Dr. Yung-Chi Cheng's
laboratory. There can be no assurance that these funds will be used to conduct
research relating to products which the Company desires to pursue. Additionally,
to the extent that such research results in technologies not licensed to the
Company pursuant to the Yale/OncoRx Agreement, it may be necessary to negotiate
additional license agreements or the Company may be unable to utilize such
technologies.
Certain rights of the Company arise under the Yale/OncoRx Agreement
pursuant to which the Company obtained a license for certain technology
developed in the laboratories of Dr. Alan C. Sartorelli, the Chairman of the
Company's Scientific Advisory Board, and Dr. Yung-Chi Cheng and Dr. James J.
Fischer, members of the Scientific Advisory Board. The Company does not have the
rights to the results of current or future research being performed by Dr.
Sartorelli, Dr. Cheng or Dr. Fischer. There can be no assurance that the Company
will be successful in obtaining the rights to future research performed by Dr.
Sartorelli, Dr. Cheng or Dr. Fischer.
DEPENDENCE UPON KEY PERSONNEL. Because of the specialized scientific nature of
the Company's business, it is dependent upon its ability to attract and retain
qualified management, scientific and technical personnel. The Company is also
dependent upon other key employees, collaborators at other research institutions
and the Company's scientific advisors. John Spears, the Company's President and
Chief Executive Officer, may be considered a key employee. The Company maintains
a key man life insurance policy for the benefit of the Company in the amount of
$2,000,000 on his life. The loss of any individuals upon which the Company is
dependent could have a material adverse effect on the Company.
Competition among biopharmaceutical and biotechnology companies for
qualified employees is intense. The loss of qualified employees, or an inability
to attract, retain and motivate any additional highly skilled employees required
for the expansion of the Company's activities, could adversely affect its
business and prospects. There can be no assurance that the Company will be able
to retain and continue to attract qualified employees.
DEPENDENCE ON OTHERS; NO MANUFACTURING AND MARKETING CAPABILITY. The
Company's strategy for the research, development and commercialization of
certain of its products entails entering into various arrangements with
corporate partners, licensors, licensees and others, and is dependent upon the
subsequent success of these outside parties in performing their
responsibilities. The Company may also rely on its collaborative partners to
conduct research efforts and clinical trials, to obtain regulatory approvals and
to manufacture and to market certain of the Company's products. In particular,
the Company has engaged a
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contract research organization to conduct the Phase III clinical studies of
porfiromycin. Although the Company believes that parties to any such
arrangements would have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities may not be within the control of the Company. There can be
no assurance that such parties will perform their obligations as expected or
that any revenue will be derived from such arrangements. There can also be no
assurance that the Company will be successful in establishing any additional
collaborative arrangements or that, if established, the parties to such
arrangements will be successful in commercializing products.
The Company has no experience in manufacturing or marketing any therapeutic
products. The Company currently does not have the resources to manufacture or
market by itself on a commercial scale any products that it may develop. The
Company currently intends to outsource some or all manufacturing requirements it
may have. While the Company believes that it will be able to enter into contract
manufacturing arrangements, there can be no assurance that it will be able to
enter into suitable arrangements. In the event that the Company decides 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 FDA-mandated good manufacturing
practices ("GMP") applicable to such a facility.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL
PROCESS. The FDA and comparable agencies in foreign countries impose
substantial requirements upon the development, manufacturing and marketing of
drugs, biologics and medical devices through the regulation of laboratory and
clinical testing procedures, manufacturing, labeling, registration,
notification, clearance or approval, marketing, distribution, recordkeeping,
reporting and promotion, and other costly and time-consuming procedures.
Satisfaction of clearance or approval requirements typically takes several years
or more and varies substantially based upon the type, complexity and novelty of
the product. The Company has obtained Orphan Drug status for porfiromycin and
intends to seek Orphan Drug designation for products where appropriate, where no
patent protection is feasible. There can be no assurance that Orphan Drug status
will be obtained for any of the Company's other proposed products.
The effect of government regulation may be to delay marketing of new
products for a considerable or indefinite 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 clearance or approval for any products developed by
the Company will be granted on a timely basis, if at all, or, once granted, that
clearances or approvals will not be withdrawn or other regulatory action taken
which might limit the Company's ability to market its proposed products. Any
such delay in obtaining or failure to obtain or maintain such clearances or
approvals would adversely affect the manufacturing and marketing of the
Company's products and the ability to generate product revenue.
UNCERTAINTY RELATED TO HEALTH CARE REIMBURSEMENT AND REFORM MEASURES. The
Company's success in generating revenue from sales of therapeutic products and
medical devices may depend, in part, on the extent to which reimbursement for
the costs of such products and medical devices and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of newly-approved health care products. There can be no
assurance 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 developing new therapies or products.
Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement of
new therapeutic products and medical devices approved for marketing by the FDA
and by refusing, in some cases, to provide any coverage of uses of approved
products for disease indications other than those for which the FDA has granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for uses of the Company's
therapeutic products and medical devices, the market acceptance of these
products could be adversely affected.
In addition, Congress regularly considers numerous proposals relating to
healthcare reform which, if adopted, could affect the amount paid for
pharmaceutical products and medical procedures. The Company is
10
<PAGE> 13
unable to predict which proposals, if any, will be adopted, or the effect such
proposals may have on the Company's operations. Future changes in federal, state
or local regulation (or in the interpretation of current regulations) could have
a material adverse effect on the Company.
COMPETITION. The Company is engaged in a rapidly evolving field.
Competition from other pharmaceutical companies, biotechnology companies and
research and academic institutions is intense and expected to increase. The
market for cancer products is large and growing rapidly, and will attract new
entrants. Many companies engaged in the biotechnology and biopharmaceutical
sectors have focused on cancer and most of these companies have substantially
greater financial and other resources and development capabilities than the
Company and have substantially greater experience in undertaking pre-clinical
and clinical testing of products, obtaining regulatory approvals and
manufacturing and marketing pharmaceutical products. Accordingly, certain of the
Company's competitors may succeed in obtaining approval for products more
rapidly than the Company. Other companies may succeed in developing and
commercializing products earlier than the Company that are safer and more
effective than those proposed to be developed by the Company. In addition to
competing with universities and other research institutions in the development
of products, technologies and processes, the Company may compete with other
companies in acquiring rights to products or technologies from universities.
There can be no assurance that the Company will develop products that are more
effective or achieve greater market acceptance than competitive products, or
that the Company's competitors will not succeed in developing products and
technologies that are more effective than those being developed by the Company
or that would render the Company's products and technologies less competitive or
obsolete.
RISKS OF TECHNOLOGICAL OBSOLESCENCE. The areas in which the Company is
developing, distributing, and/or licensing products involve rapidly developing
technology. Others may develop products which may render products being
developed, distributed or licensed by the Company obsolete or uneconomical or
result in products superior to the Company's products.
NO PRODUCT LIABILITY INSURANCE. The use or misuse of Company products in
clinical trials and the marketing of any pharmaceutical products it may develop
may expose the Company to product liability claims. The Company does not
currently have any product liability insurance. Although in the future the
Company may seek to obtain product liability insurance, there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms, that such insurance will provide adequate coverage against
potential liabilities or that a product liability claim will not have a material
adverse effect on the Company.
SIGNIFICANT INFLUENCE OF INSIDERS; POTENTIAL ANTI-TAKEOVER PROVISIONS. The
Company's directors and executive officers beneficially own approximately 19.5%
of the outstanding Common Stock of the Company. As a result, such directors and
officers will be able to significantly influence the election of all of the
Company's directors and otherwise influence control of the Company's operations.
The Company's Board of Directors is also authorized to issue from time to time,
without stockholder authorization, shares of preferred stock, in one or more
designated series or classes. The Company is also subject to a Delaware statute
regulating business combinations. Any of these provisions could discourage,
hinder or preclude an unsolicited acquisition of the Company and could make it
less likely that stockholders receive a premium for their shares as a result of
any such attempt.
OUTSTANDING WARRANTS, OPTIONS AND CONVERTIBLE PREFERRED STOCK. The Company
currently has outstanding (i) 4,262,383 Class A Warrants to purchase an
aggregate of 4,262,383 shares of Common Stock and 4,262,383 Class B Warrants;
(ii) 3,162,605 Class B Warrants to purchase 3,162,605 shares of Common Stock;
(iii) Purchase Options granted to the underwriter of the Company's initial
public offering (the "Underwriter") to purchase an aggregate of 1,075,000 shares
of Common Stock, assuming exercise of the underlying warrants; (iv) warrants to
purchase 202,486 shares of Common Stock held by the Underwriter and distributees
of the Underwriter which were granted to the Underwriter in connection with
prior private financings; (v) warrants to purchase 537,775 shares of Common
Stock held by employees of Paramount Capital, Inc. which were granted to
Paramount Capital, Inc. in connection with a private financing; and (vi) options
to purchase 1,480,274 shares of Common Stock, including 1,131,712 shares granted
under its Amended and Restated 1993 Stock Option Plan (the "Plan"). In addition,
the Company has 355,788 shares
11
<PAGE> 14
of Common Stock reserved for issuance upon exercise of options that are
available to be granted under the Plan. Holders of such warrants and options are
likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by warrants and
options. Further, while these warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. In addition, the Company has outstanding 654,228 shares of
Class A Convertible Preferred Stock which are convertible into 1,817,300 shares
of Common Stock and 3,175 shares of Class B Convertible Preferred Stock which
are currently convertible into 826,937 shares of Common Stock.
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET. While the
Company's Common Stock meets the current Nasdaq listing requirements, there can
be no assurance that the Company will meet the criteria for continued listing.
Continued inclusion on Nasdaq generally requires (i) either at least $2,000,000
in net tangible assets, a $35,000,000 market capitalization or net income of at
least $500,000 in two of the three prior years, (ii) at least 500,000 shares in
the public float valued at $1,000,000 or more, (iii) a minimum Common Stock bid
price of $1.00, (iv) at least two active market makers, and (v) at least 300
shareholders of Common Stock. If the Company is unable to satisfy Nasdaq's
maintenance requirements, its securities may be delisted from Nasdaq. In such
event, trading, if any, in the Common Stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company and lower prices
for the Company's securities than might otherwise be attained.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at a redemption price of $.05 per Warrant upon not less
than 30 days' prior written notice if the closing bid price of the Common Stock
shall have averaged in excess of $7.30 per share for the Class A Warrants and
$9.80 per share with respect to the Class B Warrants, for 30 consecutive trading
days ending within 15 days of the notice. Redemption of the Warrants could force
the holders to exercise the Warrants and pay the exercise price therefor at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price which, at the time the Warrants
are called for redemption, is likely to be substantially less than the market
value of the Warrants. See "Description of Securities -- Redeemable Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION TO EXERCISE WARRANTS. Holders of
Warrants will only be able to exercise the Warrants if (i) a current prospectus
under the Securities Act relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken and
intends to use its best efforts to maintain a current prospectus covering the
securities underlying the Warrants, there can be no assurance that the Company
will be able to do so. The value of the Warrants may be greatly reduced if a
prospectus covering the securities issuable upon the exercise of the Warrants is
not kept current or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of Warrants reside. If and
when the Warrants become redeemable by the terms thereof, the Company may
exercise its redemption right even if it is unable to qualify the underlying
securities for sale under all applicable state securities laws. Holders of
Warrants called for redemption residing in states where the underlying
securities have not been qualified for sale would generally still be able to
sell their Warrants at the then market price thereof. See "Description of
Capital Stock -- Warrants."
RISKS OF LOW-PRICED STOCK. If the Company's securities were delisted from
Nasdaq (See "-- Possible Delisting of Securities from the Nasdaq Stock Market"),
they could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers that sell such
securities except in transactions exempted by such Rule, including transactions
meeting the requirements of Rule 505 or 506 of Regulation D under the Securities
Act and transactions in which the purchaser is an institutional accredited
investor (as defined) or an established customer (as defined) of the broker or
dealer. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently,
12
<PAGE> 15
such rule may adversely affect the ability of broker-dealers to sell the
Company's securities and may adversely affect the ability of purchasers in this
offering to sell any of the securities acquired hereby in the secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction by a broker-dealer involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities continue to be listed on Nasdaq and have
certain price and volume information provided on a current and continuing basis
or meet certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will continue to qualify for
exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stocks, the market liquidity for the
Company's securities could be severely adversely affected.
EFFECTS OF SHELF REGISTRATION ON MARKET PRICE. Future sales of Common
Stock, Class A Warrants and Class B Warrants in the public market by existing
stockholders pursuant to the Company's current shelf registration statement or
otherwise, could have an adverse effect on the price of the Company's
securities. 22,027,022 shares of Common Stock, 810,991 Class A Warrants
originally issued in a private placement and 4,812,383 Class B Warrants
underlying outstanding Class A Warrants have been registered under the
Securities Act of 1933, as amended, for resale to the public, which constitute
on a fully diluted basis approximately 78%, 18% and 65% of the Company's Common
Stock, Class A Warrants and Class B Warrants, respectively. As of April 30,
1998, 900,152 shares of Common Stock underlying vested options are eligible for
resale and an additional 580,122 shares may be sold from time to time as
additional outstanding options vest. Sales of Common Stock or other securities,
or the possibility of such sales, in the public market may adversely affect the
market price of the Common Stock or the other securities offered hereby.
Historically, the Company's securities have been thinly traded. This low trading
volume may have had a significant effect on the market price of the Company's
securities, which may not be indicative of the market price in a more liquid
market.
13
<PAGE> 16
RECENT DEVELOPMENTS
PROPOSED FINANCING
The Company has entered into a letter of intent with a potential investor
regarding a proposed private placement of Series 1998 Convertible Preferred
Stock ("Series 1998 Preferred Stock"), which would, if consummated result in
gross proceeds to the Company of $5,000,000 (the "Proposed Private Placement").
However, the Company has not entered into any definitive agreements regarding
the Proposed Private Placement, and there can be no assurance that the Proposed
Private Placement will be consummated on the terms set forth herein, or at all.
A summary description of the rights, preferences and privileges of the
contemplated Series 1998 Preferred Stock, as currently proposed are described
below.
Conversion Price
Each share of the Series 1998 Preferred Stock will be convertible, at the
option of the holder, into shares of Common Stock of the Company, initially at a
price (the "Conversion Price") of $3.60.
Adjustments
The Conversion Price will be subject to adjustment in certain events
including (i) any stock splits, reverse splits, subdivisions or combinations of
the Company's Common Stock or (ii) any payment, issuance or distribution by the
Company to holders of Common Stock of a stock dividend or assets. The Conversion
Price also will be subject to adjustment in the event that the Company issues
Common Stock or Common Stock equivalents convertible into Common Stock for
consideration per share which is less than the then-applicable Conversion Price
(a "Dilutive Issuance"). If a Dilutive Issuance occurs, the Conversion Price
will be adjusted on a "weighted average formula" basis, meaning that the
Conversion Price will be reduced to the weighted average of the purchase price
per share of the Common Stock outstanding or deemed to be outstanding prior to
the Dilutive Issuance and the per share price of the shares issued in the
Dilutive Issuance. The Conversion Price will not be adjusted for issuance of
Common Stock upon the exercise of options or the issuance of stock options to
employees, so long as such options are granted at fair market value.
Mandatory Conversion
The Series 1998 Preferred Stock shall be automatically converted into
Common Stock at the Conversion Price then in effect, on the earlier of (i) the
fifth anniversary of the date of issuance or (ii) the date on which the last
reported sale price of the Company's Common Stock on the Nasdaq SmallCap Market
has been greater than $7.20 for 20 consecutive trading days (prior to any
adjustments for stock splits, dividends and the like).
Dividend
The Series 1998 Preferred Stock provides for a dividend of 5% per annum,
payable in kind, of the stated value of the Series 1998 Preferred Stock on a
cumulative basis.
Voting Rights
The holders of the Series 1998 Preferred Stock shall be entitled to
nominate one of the members of the Board of Directors, but shall otherwise not
vote on any matters brought before the stockholders, except as otherwise
required by law. Delaware General Corporation Law provides for a separate class
vote in the event of an amendment to the Certificate of Incorporation adversely
affecting a specific class of shares.
Restrictive Covenants
As long as any shares of the Series 1998 Preferred Stock issued in the
Preferred Stock Exchange Offer is outstanding, the Company may not, without the
consent of two-thirds (2/3) of the then outstanding shares of Series 1998
Preferred Stock, take certain actions, including, without limitation:
authorizing or issuing any
14
<PAGE> 17
class or series of equity security having equal or superior rights as to payment
upon liquidation, dissolution or winding up; transfer or sell any assets of the
Company, except in the ordinary course of business, consistent with past
practices; redeem or repurchase outstanding stock; engage in any extraordinary
act including a merger, change in control, sale of all or substantially all of
its assets, or declaration of bankruptcy or insolvency; create any subsidiaries;
declare or pay any dividends on any common or preferred stock other than
non-cash dividends payable to the Class A Preferred Stock and Class B Preferred
Stock in the ordinary course of business consistent with past practices; or
incur any indebtedness except accounts payable incurred in the ordinary course
of business, consistent with past practices.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998, and as adjusted to reflect the exchange of 100% of the Warrants
(assuming 75% of the Class A Warrant holders and Class B Warrant holders elect
to receive Common Stock only and 25% elect to receive Common Stock and cash),
with reduction for estimated fees and expenses relating to the Exchange Offer,
as if the transaction has occurred on such date.
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
--------------------------------
ACTUAL(1) AS ADJUSTED(2)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short Term Debt:
Current obligation under capital lease.................... $ 274,853 $ 274,853
============ ============
Long Term Debt:
Long term obligation under capital lease.................. 392,521 392,521
------------ ------------
Stockholders' Equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized
as follows:
Class A Convertible Preferred Stock, $.01 par value;
3,500,000 shares authorized; 757,632 shares issued and
outstanding actual and as adjusted..................... 7,576 7,576
Class B Convertible Preferred Stock, $.01 par value; 5,000
shares authorized; 3,477 shares issued and outstanding
actual and as adjusted................................. 35 35
Class C Convertible Preferred Stock, $.01 par value;
25,000 shares authorized; no shares issued and
outstanding actual and as adjusted..................... -- --
Common Stock, $.01 par value; 35,000,000 shares
authorized; 10,275,588 issued and outstanding actual
and 12,547,331 as adjusted............................. 102,756 125,473
Additional paid-in capital.................................. 34,848,128 33,869,109
Deficit accumulated during the development stage............ (25,654,638) (25,654,638)
------------ ------------
Total stockholders' equity................................ 9,303,857 8,347,555
------------ ------------
Total capitalization...................................... $ 9,696,378 $ 8,740,076
============ ============
</TABLE>
- ---------------
(1) Does not include shares of Common Stock issuable upon the exercise of the
Warrants and other outstanding options and warrants.
(2) Does not include shares of Common Stock issuable upon the exercise of
outstanding options and warrants other than the Warrants.
16
<PAGE> 19
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Certificate
of Designations for the Company's Class A Convertible Preferred Stock precludes
the Company from paying cash dividends on the Company's Common Stock so long as
shares of Class A Preferred Stock are outstanding, without the consent of
holders of a majority of the Class A Preferred Stock. The Company currently
intends to retain any future earnings to finance the growth and development of
the business.
PRICE RANGE OF COMMON STOCK AND WARRANTS
The Common Stock, Class A Warrants and Class B Warrants are each traded on
the Nasdaq SmallCap Market under the symbols "VION", "VIONW" and "VIONZ",
respectively. The following tables set forth for the periods indicated the high
and low bid prices for the Common Stock, Class A Warrants and Class B Warrants
as reported by Nasdaq. This information is based upon closing bid prices as
reported by the Nasdaq Stock Market and such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
COMMON STOCK ---- ---
<S> <C> <C>
1996
First Quarter............................................. $4.75 $3.00
Second Quarter............................................ $7.75 $3.50
Third Quarter............................................. $5.25 $3.75
Fourth Quarter............................................ $8.69 $2.88
1997
First Quarter............................................. $6.25 $3.00
Second Quarter............................................ $5.13 $3.38
Third Quarter............................................. $5.44 $3.63
Fourth Quarter............................................ $6.00 $2.81
1998
First Quarter............................................. $3.88 $2.88
Second Quarter (through May 18)........................... $5.31 $3.38
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
CLASS A WARRANTS ---- ---
<S> <C> <C>
1996
First Quarter............................................. $2.00 $0.50
Second Quarter............................................ $3.13 $1.00
Third Quarter............................................. $2.31 $1.31
Fourth Quarter............................................ $2.38 $1.69
1997
First Quarter............................................. $2.94 $1.63
Second Quarter............................................ $2.44 $1.75
Third Quarter............................................. $2.38 $1.69
Fourth Quarter............................................ $2.31 $1.25
1998
First Quarter............................................. $1.81 $0.81
Second Quarter (through May 18)........................... $2.25 $1.25
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
HIGH LOW
CLASS B WARRANTS ---- ---
<S> <C> <C>
1996
First Quarter............................................. $0.63 $0.25
Second Quarter............................................ $1.50 $0.50
Third Quarter............................................. $1.06 $0.75
Fourth Quarter............................................ $0.81 $0.50
1997
First Quarter............................................. $1.13 $0.50
Second Quarter............................................ $0.84 $0.50
Third Quarter............................................. $0.88 $0.50
Fourth Quarter............................................ $0.88 $0.47
1998
First Quarter............................................. $0.63 $0.31
Second Quarter (through May 18)........................... $1.00 $0.50
</TABLE>
On May 18, 1998, there were approximately 236, 56 and 16 holders of record
of the Common Stock, Class A Warrants and Class B Warrants, respectively.
SELECTED FINANCIAL INFORMATION
The audited financial statements as of December 31, 1996 and 1997 and for
each of the years in the three year period ended December 31, 1997 and for the
period from May 1, 1994 (inception) to December 31, 1997 and the report thereon
is incorporated herein by reference to the financial statements contained in the
1997 Form 10-KSB attached hereto as Appendix A. The unaudited financial
statements as of March 31, 1997 and 1998 and for the period from May 1, 1994
(inception) to March 31, 1998 are incorporated herein by reference to the
financial statements contained in the 1998 Form 10-QSB for the quarter ended
March 31, 1998 attached hereto as Appendix B. The following data sets forth the
statement of operations for the year ended December 31, 1997 and 1996 and the
quarter ended March 31, 1998 and 1997 and the balance sheet of the Company as at
March 31, 1998 and as adjusted to give pro forma effect to the issuance of
2,271,743 shares of Common Stock upon the assumed tender of all of the Warrants
(assuming 75% of the Class A Warrantholders and Class B Warrantholders elect to
receive Common Stock only and 25% elect to receive Common Stock and cash). The
unaudited pro forma balance sheet data has been prepared as if the Exchange
Offer had occurred at the end of the period presented. Such unaudited pro forma
financial information should be read in conjunction with the Company's Financial
Statements and the related notes thereto included in this Offering Circular.
18
<PAGE> 21
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENT(1) BALANCE SHEET
------------ ------------- -------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents...................... $ 3,015,191 -- $ 2,058,889
Short-term investments......................... 6,045,950 -- 6,045,950
Other current assets........................... 458,088 -- 458,088
------------ ------------
Total current assets................... 9,519,229 -- 8,562,927
Property and equipment, net.................... 1,201,479 -- 1,201,479
Other assets................................... 451,839 -- 451,839
------------ ------------
Total assets........................... $ 11,172,547 -- $ 10,216,245
============ ====== ============
Current Liabilities:
Obligation under capital lease-current......... $ 274,853 -- $ 274,853
Accounts payable and accrued expenses.......... 1,201,316 -- 1,201,316
------------ ------------
Total current liabilities.............. 1,476,169 -- 1,476,169
Obligation under capital lease -- long term.... 392,521 -- 392,521
------------ ------------
Total Liabilities...................... 1,868,690 -- 1,868,690
Shareholders' equity
Preferred stock, $0.01 par value -- 5,000,000
shares authorized consisting of:
Class A convertible preferred stock, $0.01 par
value, authorized: 3,500,000 shares; issued and
outstanding actual and as adjusted: -- 757,632
shares......................................... 7,576 -- 7,576
Class B convertible preferred stock, $0.01 par
value, authorized: 100,000 shares; issued and
outstanding actual and as adjusted: -- 3,477
shares......................................... 35 -- 35
Class C convertible preferred stock, $0.01 par
value, authorized: 25,000 shares; issued and
outstanding actual and as adjusted: 0 shares... -- -- --
Common stock, $0.01 par value, authorized:
35,000,000 shares; issued and outstanding
actual and as adjusted: -- 10,275,588 shares
and 12,547,331 shares.......................... 102,756 -- 125,473
Additional paid-in-capital....................... 34,911,598 33,932,579
Deferred compensation............................ (63,470) -- (63,470)
Accumulated deficit.............................. (25,654,638) -- (25,654,638)
------------ ------------
9,303,857 -- 8,347,555
Total liabilities and shareholders'
equity............................... $ 11,172,547 -- $ 10,216,245
============ ============
</TABLE>
- ---------------
(1) As a result of the Class A Exchange Offer and the Class B Exchange Offer,
the adjustment reflects the issuance of 1,671,159 and 600,584 shares of the
Company's Common Stock and $703,293 and $253,008 in cash paid by the
Company, respectively.
19
<PAGE> 22
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------- ----------------------------
1997 1996 1998 1997
----------- ----------- ------------ ------------
HISTORICAL (1) HISTORICAL (1)
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Contract research grants............... $ 48,221 $ 51,779 $ 0 $ 39,740
Research support....................... 1,222,912 0 274,842 0
Technology license revenues............ 4,000,000 0 0 0
----------- ----------- ----------- -----------
Total revenues................. 5,271,133 51,779 274,842 39,740
Operating expenses:
Research and development............... 7,675,486 5,975,089 2,273,522 1,521,779
General and administrative............. 2,639,486 2,133,077 631,709 491,534
Nonrecurring collaboration
restructuring fee................... 600,000 0 0 0
Purchased research and development....... 0 0 0 0
Amortization of finance charges.......... 0 0 0 0
Interest Income.......................... (343,911) (437,993) (142,874) (99,234)
Interest Expense......................... 43,666 10,285 18,705 11,058
----------- ----------- ----------- -----------
Net Loss............................... $(5,343,594) $(7,608,679) $(2,506,220) $(1,885,397)
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) The Exchange Offer does not affect the Company's historical Condensed
Statements of Operations shown above. Therefore, there are no pro forma
adjustments and the pro forma amounts would not differ from the historical
amounts.
20
<PAGE> 23
THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to reduce the number of authorized and
outstanding Warrants, and the number of shares of Common Stock that could be
issued pursuant to the exercise of the Warrants. The Company's Board of
Directors has determined that the continuing presence of the Class A Warrants
and the Class B Warrants has created a significant impediment to raising
additional capital on terms which are in the best interests of the Company and
its stockholders. It has been the Company's experience that potential investors
have been deterred from investing in the Company due to the uncertainty caused
by the substantial market overhang of outstanding unexercised Warrants, which if
fully exercised will result in the issuance of over 11 million additional shares
of Common Stock, more than doubling the outstanding shares of Common Stock.
Based on discussions with various investment banking firms, management of the
Company believes that this potential dilution has deterred coverage of the
Company by investment analysts who otherwise would be inclined to follow the
Company in their reports and recommendations. The Board of Directors of the
Company also believes that the Exchange Offer will simplify the Company's
capital structure and will facilitate the issuance of additional equity
securities and, to the extent thought desirable by the Board, enable the Company
to raise capital through the issuance of such additional equity securities more
efficiently and economically. However, there can be no assurance that any
offering will be attempted or, if attempted, that it will be successful.
Substantial acceptance of the Exchange Offer, while resulting in the near term
issuance of additional Common Stock, will substantially reduce the overall
dilution that may be caused by exercise of the outstanding Warrants and will
simplify the Company's capital structure.
The Board of Directors believes that investors in the capital markets may
be more interested in the Company's Common Stock, if the overall number of
outstanding Warrants is substantially reduced. However, it is not possible to
predict the exact impact that the Exchange Offer will have on the trading price
of the Company's Common Stock and there can be no assurances that such trading
prices will rise or that any increased trading price will be maintained for any
period of time.
Under the Company's present capital structure, as the Warrants near their
expiration date of August 13, 2000, if the trading price of a share of the
Company's Common Stock were to reach $6.37 or higher, there would be a strong
potential that the holders of the 4,262,383 Class A Warrants and 3,162,605 Class
B Warrants currently outstanding would exercise their Warrants and thereby flood
the securities markets with an additional 11,687,371 shares of the Company's
Common Stock. This would more than double the present number of outstanding
shares of the Company's Common Stock. Alternatively, if the trading price of a
share of Common Stock were to exceed $4.73 but was below $6.37, there would be a
strong potential that exercise of the Class A Warrants (but not the Class B
Warrants) would result in the issuance of an additional 4,262,383 shares of
Common Stock.
The Company hopes that by giving the holders of the Warrants an immediate
incentive to tender their Warrants for shares of the Company's Common Stock
and/or cash, it will substantially reduce the number of Warrants. The Company
believes that the opportunity to exchange the Warrants for the Company's Common
Stock will appeal to holders of the Warrants because ownership of the shares of
Common Stock does away with the risk that the Warrants will expire "out of the
money", and because ownership of shares of Common Stock may be a more liquid
investment than continued ownership of the Warrants. The Company also believes
that many holders of the Warrants will be willing to exchange their Warrants at
a premium to their current market price if they can receive a premium payable in
Common Stock (See option (A), "Terms of the Offer"). The closing bid price of
the Common Stock on May 18, 1998 was $5.25.
While the Exchange offer may significantly reduce the maximum potential
capital raised by the Company from an exercise of all outstanding Warrants, the
Board of Directors believes that the reduction in the potential dilution caused
by the Warrants should allow the Company to raise additional capital on more
favorable terms than would otherwise be available, which may in turn better
enable the Company to execute its business plan to the benefit of all
stockholders, although there can be no assurance that this will be the case.
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<PAGE> 24
The Board of Directors believes that the interests of the Company are best
served by foregoing the possibility that capital could be raised by a
large-scale exercise of the Warrants and taking steps now to better allow the
Company to otherwise raise additional capital.
TERMS OF THE OFFER
The Company is hereby offering, upon the terms and conditions set forth
herein and in the Letter of Transmittal, to exchange for each outstanding Class
A Warrant, at the holder's option, either (A) 0.438 shares of the Company's
Common Stock or (B) 0.254 shares of Common Stock and $0.66 in cash. The Company
is also offering hereby and pursuant to the Letter of Transmittal to exchange
for each outstanding Class B Warrant, at the holder's option, either (A) 0.212
shares of Common Stock or (B) 0.123 shares of Common Stock and $0.32 in cash.
The Exchange Offer is not conditioned upon the exchange of a minimum number of
Class A Warrants or Class B Warrants. The issuance of more than an aggregate of
2,144,148 shares of Common Stock is contingent upon approval of the Company's
stockholders at a special meeting scheduled to be held on June 26, 1998 (the
"Meeting"). See "-- Conditions of the Exchange Offer." If the Company does not
receive approval at the Meeting, it intends to amend the Exchange Offer to
provide for the pro rata issuance of the maximum number of shares of Common
Stock issuable without stockholder approval.
THE OFFICERS AND DIRECTORS OF THE COMPANY WHO PRESENTLY HOLD CLASS A
WARRANTS AND/OR CLASS B WARRANTS PRESENTLY INTEND TO TENDER THEIR WARRANTS IN
THIS OFFERING FOR ALL STOCK CONSIDERATION.
PROCEDURES FOR TENDERING WARRANTS
The acceptance by a Warrantholder of the Exchange Offer pursuant to one of
the procedures set forth below will constitute an agreement between the Holder
and the Company in accordance with the terms and subject to the conditions set
forth in this Offering Circular and in the Letter of Transmittal.
For a Holder validly to tender Warrants pursuant to the Exchange Offer, the
Holder must either (i) deliver the Warrants, together with a properly completed
and duly executed Letter of Transmittal or facsimile thereof and any other
documents required by the Letter of Transmittal, to the Exchange Agent at the
address set forth below under "-- Exchange Agent" on or prior to the Expiration
Date, or (ii) comply with the guaranteed delivery procedures set forth below.
Nominees or other record holders of Warrants that hold Warrants for more
than one beneficial owner are entitled to make multiple elections pursuant to
the Letter of Transmittal that reflect the election of each of the beneficial
owners for whom they are tendering Warrants. In order to make such multiple
elections, nominees or other record holders should properly complete the
applicable table in the Letter of Transmittal.
NO LETTERS OF TRANSMITTAL AND NO WARRANTS SHOULD BE SENT TO THE COMPANY OR
TO THE INFORMATION AGENT.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Warrants
tendered pursuant thereto are tendered (i) by a Record Holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the relevant Letter of Transmittal or (ii) for the account of
an Eligible Institution. If Warrants are registered in the name of a person
other than the signer of a Letter of Transmittal or a notice of withdrawal, as
the case may be, then the Warrants must be endorsed by the Record Holder, or be
accompanied by a written instrument or instruments of transfer or exchange in
form satisfactory to the Company duly executed by the Record Holder, and in the
case of a Letter of Transmittal with signature guaranteed by an Eligible
Institution. If signatures on a Letter of Transmittal are required to be
guaranteed, such guarantees must be by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., by a commercial bank or trust company having an office in the United
States, a credit union, or a savings association (each of which is an "Eligible
Institution").
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The method of delivery of Warrants and all other required documents to the
Exchange Agent is at the election and risk of the Holder tendering Warrants,
but, if sent by mail, registered mail with return receipt requested, properly
insured, is recommended.
Unless the Warrants being tendered are deposited with the Exchange Agent
prior to the relevant Expiration Date (accompanied by a properly completed
Letter of Transmittal and any other documents required by the Letter of
Transmittal), or tendered pursuant to the guaranteed delivery procedures set
forth below, the Company may, at its option, reject such tender. Issuance of
Common Stock and/or cash in exchange for Warrants will be made only against
deposit of the tendered Warrants. If less than all the Warrants evidenced by a
submitted certificate are tendered, the tendering Holder should fill in the
number of shares tendered in the appropriate box on the relevant Letter of
Transmittal with respect to the deposit being made, but only to the extent of
Warrants being tendered. The Exchange Agent will then return to the tendering
holder, as promptly as practicable following the Expiration Date, the number of
Warrants equal to the delivered Warrants not tendered. All Warrants represented
by any certificate deposited with the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Holders who are not Record Holders of, and who seek to tender, Warrants
should (i) obtain a properly completed Letter of Transmittal from the Record
Holder with signatures guaranteed by an Eligible Institution, or (ii) obtain and
include with the relevant Letter of Transmittal Warrants properly endorsed for
transfer by the registered holder or accompanied by a properly completed stock
power from the Record Holder, with signatures on the endorsement or power
guaranteed by an Eligible Institution or (iii) effect a record transfer of such
Warrants and comply with the requirements applicable to Record Holders for
tendering Warrants prior to the Expiration Date. Any Warrants properly tendered
prior to the Expiration Date accompanied by a properly completed Letter of
Transmittal will be transferred of record by the transfer agent either prior to
or as of the Expiration Date at the discretion of the Company. The Company has
no obligation to transfer any Warrants from the name of the Record Holder
thereof if the Company does not accept for exchange any of such Warrants.
If a Holder desires to tender Warrants pursuant to the Exchange Offer but
is unable to locate the Warrants to be tendered, such Holder should write to or
telephone American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005, telephone 718-921-8200, about procedures for obtaining replacement
certificates for Warrants or arranging for indemnification.
Each tendering Holder must complete the Substitute Form W-9 provided in the
relevant Letter of Transmittal and either (i) provide his correct taxpayer
identification number (social security number, for individuals) and certify that
the taxpayer identification number provided is correct (or that such holder is
awaiting a taxpayer identification number) and that (A) the holder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding as a result of failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder that he is no longer
subject to backup withholding or (ii) provide an adequate basis for exemption
from backup withholding. Holders who do not satisfy these conditions may be
subject to a $50 (or greater) penalty imposed by the Internal Revenue Service
and may be subject to backup withholding (as discussed below). Exempt holders
(including, among others, corporations and certain foreign individuals) are not
subject to these requirements if they satisfactorily establish their status as
such. Certain foreign Holders may be required to provide a Form W-8 or Form 1001
in order to avoid or reduce withholding tax.
By tendering Warrants pursuant to the Exchange Offer, a Holder that does
not comply with the conditions described in the preceding paragraph authorizes
the Exchange Agent, the Company or its paying agents, as the case may be, to
withhold cash or sell Common Stock withheld in an amount sufficient to enable it
to satisfy its backup or other withholding obligations.
Pursuant to the backup withholding provisions of federal income tax law,
unless the conditions described above are satisfied, the Exchange Agent, the
Company or their paying agents, as the case may be, will withhold (i) an amount
of any cash proceeds payable to a tendering Holder pursuant to the Exchange
Offer, and (ii) and any Common Stock such that the sum of such cash and Common
Stock withheld will enable the Exchange Agent, the Company or its paying agents,
as the case may be, after selling such Common Stock so
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<PAGE> 26
withheld, to remit the appropriate amount of backup withholding due to the
Internal Revenue Service with respect to such exchange. Upon any such sale, the
Exchange Agent, the Company or its paying agents, as the case may be, will be
entitled to seek reimbursement for the costs, fees or expenses of such sale
incurred by it. Alternatively, the Exchange Agent, the Company or their paying
agents, as the case may be, may require such a Holder to remit a payment (in
cash or certified check) sufficient to cover the Holder's backup withholding tax
liability prior to the release of any cash or Common Stock withheld from such
Holder. Any Common Stock sold pursuant to this paragraph shall be treated for
tax reporting purposes as if it was delivered to the exchanging Holder and sold
on its behalf. Backup withholding is applied at a 31% rate. Amounts paid as
backup withholding do not constitute an additional tax and generally will be
credited against the Holder's federal income tax liabilities. Different
withholding rates and rules may apply in the case of certain foreign Holders.
All questions as to the form of all documents and the validity (including
time of receipt), eligibility, acceptance and withdrawal of tendered Warrants
will be determined by the Company, in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders not in proper form or the acceptance of which would, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer or any defect or irregularity in the tender of any of the
Warrants. Neither the Company, the Exchange Agent, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. Any Warrants received by the Exchange Agent that are not
properly tendered and as to which irregularities have not been cured or waived
will be returned by the Exchange Agent to the appropriate tendering Holder as
soon as practicable. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the Instructions
thereto) will be final and binding on all parties.
Guaranteed Delivery Procedures
If a Holder desires to tender Warrants and the Holder's Warrants are not
immediately available or time will not permit the Holder's Warrants or other
required documents to reach the Exchange Agent before the Expiration Date, a
tender may be effected if:
(a) the tender is made through an Eligible Institution; and
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed Notice of Guaranteed
Delivery (by telegram, telex, facsimile transmission, mail or hand
delivery) substantially in the form provided by the Company which sets
forth the name and address of the Holder and the number of Warrants
tendered, states that the tender is being made thereby and guarantees that
within three Nasdaq SmallCap Market trading days after the Expiration Date,
the relevant Letter of Transmittal (or facsimile thereof) together with the
Warrants and any other documents required by such Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) all tendered Warrants, as well as all other documents required by
the relevant Letter of Transmittal, shall be received by the Exchange Agent
within three Nasdaq SmallCap Market trading days after the Expiration Date.
Acceptance of Warrants and Payment
The acceptance for exchange and payment of Warrants validly tendered and
not withdrawn and delivery of the Common Stock and, if applicable, payment of
cash will be made as promptly as practicable after the Expiration Date. The
Company, however, expressly reserves the right to delay acceptance of any of the
Warrants or terminate the Exchange Offer and not accept for exchange any
Warrants not theretofore accepted if any of the conditions set forth under
"-- Conditions of the Exchange Offer" shall not have been satisfied or waived by
the Company. For purposes of the Exchange Offer, the Company will be deemed to
have accepted for exchange validly tendered Warrants if, as and when the Company
gives oral or written notice thereof to the
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<PAGE> 27
Exchange Agent. Subject to the terms and conditions of the Exchange Offer,
delivery of shares of Common Stock and, if applicable, payment of cash for
Warrants accepted pursuant to the Exchange Offer, will be made by the Exchange
Agent as soon as practicable after the Expiration Date. The Exchange Agent will
act as agent for the tendering Holders for the purposes of receiving Common
Stock from the Company and transmitting the Common Stock and cash to the
tendering Holders. Tendered Warrants not accepted for exchange by the Company,
if any, will be returned without expense to the tendering Holder as promptly as
practicable following the Expiration Date.
All tendering Holders, by execution of the Letter of Transmittal (or
facsimile thereof), waive any right to receive notice of acceptance of their
Warrants for exchange.
Withdrawal Rights
Tenders of Warrants are irrevocable, except that tendered Warrants may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. Holders who wish to exercise their right of withdrawal must give notice of
withdrawal in writing or by telegram, telex or facsimile transmission, which
notice must be timely received by the Exchange Agent at one of its addresses set
forth on the back cover page of this Offering Circular. Any such notice of
withdrawal must specify the name of the person who tendered Warrants to be
withdrawn and the number of Warrants to be withdrawn. If Warrants have been
delivered or otherwise identified to the Exchange Agent, the name of the
registered holder and the serial numbers of the particular Warrants to be so
withdrawn must also be furnished to the Exchange Agent prior to the physical
release of the withdrawn Warrants. Such notice of withdrawal must be signed by
the Record Holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Warrants.
Any permitted withdrawals of tenders of Warrants may not be rescinded, and
any Warrants withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer; however, withdrawn Warrants may be re-tendered
by following one of the procedures described herein at any time on or prior to
the Expiration Date.
All questions as to validity, form and eligibility (including time of
receipt) of the notice of withdrawal will be determined by the Company in its
sole discretion, which determination will be final and binding. None of the
Company, the Exchange Agent, the Information Agent, or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or will incur any liability for failure to give any such
notification.
EXCHANGE AGENT
American Stock Transfer & Trust Company will act as Exchange Agent for the
Exchange Offer. All correspondence in connection with the Exchange Offer and the
Letters of Transmittal should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Mail, Hand By Facsimile:
or Overnight Courier: (718) 234-5001
40 Wall Street
46th Floor
New York, New York 10005 Telephone:
Attention: Reorganization Dept. (718) 921-8200
</TABLE>
INFORMATION AGENT
Corporate Investor Communications, Inc. has been appointed as Information
Agent for the Exchange Offer. All inquiries relating to the Exchange Offer
should be directed to the Information Agent at the address and telephone number
set forth below.
By Mail, Hand or Overnight Courier:
Corporate Investor Communications, Inc.
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<PAGE> 28
111 Commerce Road
Carlstadt, New Jersey 07072
Attention: Foster Bartko
Telephone:
(888) 210-8932
EXPIRATION DATE; EXTENSIONS
The Exchange Offer will expire at 5:00 p.m., New York City time, on Monday,
June 29, 1998, unless extended. The Company reserves the right to extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer so extended shall
expire. During any such extension, all Warrants previously tendered and not
withdrawn will remain subject to the Exchange Offer, subject to the right of a
tendering Warrantholder to withdraw such Warrantholder's Warrants.
Any extension or expiration of the Exchange Offer will be followed as soon
as practicable, but in no event later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date, by public
announcement thereof, and any amendment of the Exchange Offer will be followed
as soon as practicable by public announcement. Without limiting the manner by
which the Company may choose to make such public announcement, the Company shall
not, unless otherwise required by law, have any obligation to publish, advertise
or otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service.
If the Company decides to waive, modify or amend a material provision of
this Exchange Offer, it may do so at any time, or from time to time, provided
that it gives notice thereof in the manner specified above and extends such
Exchange Offer to the extent required by the Exchange Act. With respect to the
percentage of the class of securities being sought or a change in the
consideration offered, Rule 13e-4(f)(1) under the Exchange Act generally
requires that a tender offer remain open for at least 10 business days from the
date that notice of such change is first published or sent or given to security
holders. The minimum period during which an offer must remain open following
other material changes in the terms of the offer or information concerning the
offer will depend upon the facts and circumstances, including the relative
materiality of the change in the terms of information. Any amendment to the
Exchange Offer will apply to all Warrants, regardless of when or in what order
the Warrants are tendered. The term "business day" shall mean a day other than
Saturday, Sunday or a federal holiday and shall consist of the time period from
12:01 a.m. through 12:00 p.m., New York City time.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company may
cancel, modify or terminate the Exchange Offer and is not required to accept for
exercise any Warrants pursuant to the Exchange Offer if prior to the Expiration
Date:
(i) there shall be pending, instituted or threatened any legal action
or administrative proceeding before any court or government agency, by any
government agency or any other person, prohibiting, restricting or delaying
the Exchange Offer;
(ii) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any governmental authority, which would
prohibit or materially restrict or delay consummation of the Exchange
Offer, or
(iii) there shall have occurred (and the adverse effect of such
occurrence will be continuing): (a) any general suspension of, or
limitation on prices for trading on, the Nasdaq SmallCap Market or in the
other over-the-counter markets; (b) a declaration of a banking moratorium
by United States, New York or Connecticut authorities, or (c) a
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States of America
which
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<PAGE> 29
would reasonably be expected to affect materially and adversely (or to
delay materially) the consummation of the Exchange Offer.
In the event that the Company terminates the Exchange Offer pursuant to any
of the conditions set forth above, the Exchange Agent will promptly return the
applicable Warrants to the holders thereof.
The Company reserves the absolute right to waive satisfaction of any
conditions and compliance with any terms of the Exchange Offer. The Company
further reserves the absolute right to reject any and all tenders not in proper
form. The Company will accept any and all Warrants which are properly tendered,
subject to the conditions stated herein.
The issuance of more than an aggregate of 2,144,148 shares of Common Stock
is contingent upon approval of the Company's stockholders at a special meeting
scheduled to be held on June 26, 1998 (the "Meeting"). The issuance of such
shares is subject to stockholder approval pursuant to the Rules of the National
Association of Securities Dealers, Inc. ("NASD") applicable to companies whose
securities are traded on the Nasdaq SmallCap Market. Rule 4310(c)(25)(H)(i)d of
the NASD (the "20% Rule") requires companies that are listed on the Nasdaq
SmallCap Market to obtain stockholder approval prior to issuing common stock (or
shares convertible into common stock) in a transaction other than a public
offering at a price less than the market value of the common stock, where the
amount of common stock to be issued (or issuable upon conversion) is or will be
greater than 20% of the common stock or voting power of the Company outstanding
prior to the issuance. If the Company does not receive approval of at the
Meeting, it intends to amend the Exchange Offer to provide for the pro rata
issuance of the maximum number of shares of Common Stock issuable without
stockholder approval.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES
Any holder whose certificates evidencing Warrants have been mutilated,
lost, stolen or destroyed should contact the Exchange Agent at its address set
forth herein for further information.
EXPENSES
The Company will not make any payments to any brokers, dealers or persons
for soliciting Warrant tenders pursuant to the Exchange Offer. The Company will,
however, pay the Exchange Agent and the Information Agent reasonable and
customary fees for their services and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith. The Company will also reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Offering
Circular and related documents to the beneficial owners of Warrants and in
handling or forwarding tenders on behalf of their customers. The Company will
also pay all legal, accounting, printing, listing, filing and other similar fees
and expenses in connection with the Exchange Offer.
OTHER MATTERS
The Offering Circular is being sent to persons who were holders of record
in the Warrants at the close of business on May 19, 1998.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the transactions to be accomplished pursuant to the Exchange
Offer to a person who tenders Warrants pursuant to the Exchange Offer. This
summary is based upon existing statutes, as well as judicial and administrative
interpretations thereof, all of which are subject to change, including changes
which may be retroactive. No opinion of counsel or ruling from the Internal
Revenue Service ("IRS") will be requested by the Company on any tax issue
connected with the Exchange Offer. Accordingly, no assurance can be given that
the IRS will not challenge certain of the tax positions described herein or that
such a challenge would not be successful.
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<PAGE> 30
The discussion below does not address the foreign, state or local tax
consequences of the transactions to be accomplished pursuant to the Exchange
Offer, nor does it specifically address the tax consequences to taxpayers
subject to special treatment under the federal income tax laws (including
dealers in securities, foreign persons, life insurance companies, tax-exempt
organizations, financial institutions and taxpayers subject to the alternative
minimum tax). The discussion below assumes that the Warrants are or will be held
as a capital asset within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code") by Holders at the Expiration Date of the
Exchange Offer. In the following discussion, the term "should" is used to denote
the more likely of possible characterizations in situations where more than one
characterization is reasonably likely.
THE FOLLOWING SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTIONS TO BE ACCOMPLISHED PURSUANT TO THE EXCHANGE OFFER IS NOT A
SUBSTITUTE FOR OBTAINING INDIVIDUAL TAX ADVICE AND WARRANT HOLDERS ARE NOT TO
CONSTRUE ANY OF THE CONTENTS OF THIS OFFERING CIRCULAR AS TAX ADVICE.
ACCORDINGLY, EACH HOLDER OF OUTSTANDING WARRANTS IS URGED TO CONSULT HIS OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF WARRANTS
The Exchange Offer should be treated as a "recapitalization" of the Company
within the meaning of Code Section 368(a)(1)(E). As a result of this
characterization, the Exchange Offer should have the tax consequences described
below.
Holders of Warrants who participate in the Exchange Offer and elect to
receive cash and Common Stock consideration should recognize gain (but not loss)
only to the extent of the cash consideration received. In accordance with
Treasury Regulation 1.356-3, if a holder of a warrant receives both cash and
stock in exchange for a warrant, the cash received will be treated as "excess
principal amount" within the meaning of Code section 356(d) and will thus be
fully taxable. The value of the stock received will not, however, be considered
as excess principal amount and should not be taxable. Any gain recognized as a
result of the Exchange Offer should be capital gain.
Holders of Warrants who participate in the Exchange Offer and elect to
receive only Common Stock consideration should not recognize any gain or loss.
The tax basis of the Common Stock received by a Holder pursuant to the
Exchange Offer should be equal to such Holder's adjusted tax basis in the
Warrants transferred in exchange therefor, decreased by the amount of cash
consideration received and increased by the amount of gain recognized. The
holding period of the Common Stock received should include the period during
which the Holder held the Warrants exchanged therefor.
Holders of Warrants who do not participate in the Exchange Offer should not
recognize any gain or loss as a result of other holders of Warrants
participating in the Exchange Offer.
FEDERAL INCOME TAX CONSEQUENCES TO COMPANY
As the result of Warrant holders participating in the Exchange Offer, (a)
the Company should not recognize any gain or loss and (b) the Company's ability
to use its net operating losses and certain other tax attribute carryovers and
certain built-in losses should not be affected.
BACKUP WITHHOLDING AND REPORTING
Holders of Warrants who participate in the Exchange Offer may be subject to
backup withholding at the rate of 31% with respect to "reportable payments"
which should include the cash portion of the consideration received pursuant to
the Exchange Offer. The payor will be required to deduct and withhold the
prescribed amounts if (a) the payee fails to furnish a taxpayer identification
number ("TIN") to the payor in the manner required, (b) the IRS notifies the
payor that the TIN furnished by the payee is incorrect, (c) there has been a
28
<PAGE> 31
"notified payee underreporting" described in Code Section 3406(c), or (d) there
has been a failure of the payee to certify under penalty of perjury that the
payee is not subject to withholding under Code Section 3406(a)(1)(C). In
general, if any one of the events listed above occurs, the Company may be
required to withhold at a rate of 31%. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the Warrantholder's
federal income tax liabilities, so long as the required information is provided
to the IRS. The Company will report to the Warrantholders and to the IRS the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to payment on the securities.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 35,000,000 shares
of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01
par value.
COMMON STOCK
Common Stock. Holders of Common Stock have the right to cast one vote for
each share held of record on all matters submitted to a vote of holders of
Common Stock, including the election of directors. Holders of Common Stock are
entitled to receive such dividends, pro rata based on the number of shares held,
when, as and if declared by the Board of Directors, from funds legally available
therefor, subject to the rights of holders of any outstanding preferred stock.
In the event of the liquidation, dissolution or winding up of the affairs of the
Company, all assets and funds of the Company remaining after the payment of all
debts and other liabilities, subject to the rights of the holders of any
outstanding preferred stock, shall be distributed, among the holders of the
Common Stock. Holders of Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant at an exercise price
of $4.73 at any time until 5:00 p.m., New York City time, on August 13, 2000.
The Class A Warrants are redeemable by the Company on 30 days' written notice at
a redemption price of $.05 per Class A Warrant if the "closing price" of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $7.30 per share. "Closing
price" shall mean the closing bid price if listed in the over-the-counter market
on Nasdaq or otherwise or the closing sale price if listed on the Nasdaq
National Market or a national securities exchange. All Class A Warrants must be
redeemed if any are redeemed.
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $6.37 at any time
after issuance until 5:00 p.m. New York City Time, on August 13, 2000. The Class
B Warrants are redeemable by the Company on 30 days' written notice at a
redemption price of $.05 per Class B Warrant, if the closing price of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $9.80 per share. All Class B
Warrants must be redeemed if any are redeemed.
General. The Class A Warrants and Class B Warrants were issued pursuant to
a warrant agreement (the "Warrant Agreement") among the Company, D.H. Blair
Investment Banking Corp. and American Stock Transfer & Trust Company, New York,
New York, as warrant agent, and are evidenced by warrant certificates in
registered form. The Warrants provide for adjustment of the exercise price and
for a change in the number of shares issuable upon exercise to protect holders
against dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuance of shares of Common Stock
at prices lower than the market price of the Common Stock, with certain
exceptions.
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A Warrant may be exercised upon surrender of the Warrant certificate on or
prior to its expiration date (or earlier redemption date) at the offices of
American Stock Transfer & Trust Company, New York, New York, the warrant agent,
with the form of "Election to Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified or bank check payable to the order of the
Company) for the number of shares with respect to which the Warrant is being
exercised. Shares issued upon exercise of Warrants and payment in accordance
with the terms of the Warrants will be fully paid and non-assessable.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
TRANSFER AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under the law, a corporation may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person became an interested stockholder
unless certain conditions are satisfied. The statute contains provisions
enabling a corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute and, therefore,
the restrictions imposed by such statute apply to the Company.
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Appendix A
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1997
Commission File No. 0-26534
VION PHARMACEUTICALS, INC.
(Name of Small Business Issuer as specified in its charter)
DELAWARE 13-3671221
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4 SCIENCE PARK
NEW HAVEN, CONNECTICUT 06511
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (203) 498-4210
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS
Units
Common Stock, $0.01 par value
Class A Warrants
Class B Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes[X]
No[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [X]
The Registrant's revenues for the most recent fiscal year were: $5,271,133.
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of December 31, 1997 based upon of the last sale price of such
stock on that date as reported by the NASDAQ SmallCap(SM) Market was
$30,580,218. The number of shares of the Registrant's Common Stock outstanding
as of December 31, 1997 was 9,833,934.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Proxy Statement for its Annual Meeting of Stockholders
to be held on May 19, 1998 are incorporated by reference in Part III of this
Report. Except as expressly incorporated by reference, Registrant's Proxy
Statement shall not be deemed to be part of this Form 10-KSB.
<PAGE> 34
PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Vion Pharmaceuticals, Inc. (the 'Company') is a development stage
biopharmaceutical company which has sponsored research projects and is engaged
primarily in research and development of therapeutic products for the treatment
of cancer. Pursuant to a license agreement entered into with Yale University
('Yale') in August 1994 (the 'Yale/OncoRx Agreement'), the Company has acquired
the rights to certain oncology and antiviral related patents and technology. The
Company believes that the licensed rights include several novel technologies
which provide a broad technology base for the future development of therapeutic
products.
Research and Development. The Company's strategy is two-fold. First,
the Company intends to engage principally in research and development with
respect to anticancer and antiviral technologies through in-house research and
through collaborative and sponsored research agreements. The Company's initial
research and development will focus on the following core technologies: (i)
porfiromycin (Promycin(R)), a hypoxic cancer cell therapeutic which targets
oxygen-depleted cells that are otherwise resistant to radiation therapy, (ii)
alkylating agent prodrugs, which are designed to be activated in cancer cells or
the surrounding area and destroy cancer cells, (iii) novel nucleoside analogs
which inhibit the Hepatitis B virus, (iv) ribonucleotide reductase inhibitors
such as Triapine(TM), which may block the formation of the precursors of DNA and
thereby inhibit the replication of cancer cells and (v) Tumor Amplified Protein
Expression Therapy, or TAPET(TM), a novel gene therapy vector for the treatment
of cancer. In addition to its core technologies, the Company has rights to
several additional product candidates, including MelasynTM, a synthetic form of
melanin. The Company's early research and development efforts were performed by
academic collaborators. Since its initial public offering in August, 1995, the
Company has recruited a scientific staff which is engaged directly in research
and development although the Company also expects to continue to sponsor
academic collaborators.
The Company has developed small molecular weight, pharmaceutical agents
with known mechanisms of activity. The Company initially intends to target
projects for such agents based upon (i) the likelihood that commercially-viable
products can successfully be developed using technology currently available to
the Company with no additional acquisition or licensing costs, (ii) the
potential commercial market for the product and (iii) the projected time to
market of the product.
Strategic Partnerships. Second, the Company has concluded and will
continue to pursue strategic partnerships with other companies to more
effectively develop and eventually market technologies in its portfolio. In
November, 1997, the Company and Boehringer Ingelheim International GmbH of
Germany entered into an exclusive worldwide licensing agreement for the
development and marketing of Promycin(R) (porfiromycin), Vion's lead anti-cancer
agent. If the Company's TAPET program proves its ability to deliver
growth-inhibiting therapy to tumor tissue, the Company intends to further
develop TAPET as a platform technology in several ways. The Company intends to
select existing effective anti-cancer agents for delivery using TAPET, and the
Company may also contract with other pharmaceutical companies to use TAPET to
deliver new, proprietary anti-cancer agents. Other technologies which are
candidates for strategic partnerships include Triapine, (beta)-L-Fd4C and
Melasyn.
OVERVIEW OF CANCER
Cancer is characterized by uncontrolled cell division resulting in the
development of a mass of cells, commonly known as a tumor, and invasion and
spread (metastasis) of the cells. Cancerous tumors can arise in almost any
tissue or organ within the human body. Cancer is believed to occur as a result
of a number of factors, such as genetic predisposition, chemical agents, viruses
and irradiation. These factors may result in genetic changes affecting the
ability of cells to normally regulate their growth and differentiation. When a
normal cell becomes cancerous
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it can spread (metastasize) to various sites in the body. Cancer is a
devastating disease with tremendous unmet medical needs. It has been estimated
by the American Cancer Society that there were 1.38 million new cases of cancer
and 560,000 deaths from cancer in 1997 in the United States. Sixty percent of
new cases of cancer are expected to result in death within five years. Cancer is
the second leading cause of death in the U.S., exceeded only by heart disease.
Since 1990, approximately 4 million Americans have died from cancer. The market
for cancer therapeutics was approximately $6 billion in 1992 and is projected to
total approximately $14 billion by the year 2000.
Although several types of tumors can now be effectively treated with
drugs, it is only in recent years that we have begun to see improvement in the
survival rates for the most common tumors. The Company believes that recent
developments in the understanding of the processes that regulate the
proliferation and metastasis of malignant cells provides opportunities to
discover and develop innovative products and approaches to treat cancer.
The three most common methods of treating patients with cancer are
surgery, radiation therapy and chemotherapy. A cancer patient often receives a
combination of two or all three of these modalities. Surgery and radiation
therapy are particularly effective in patients in which the disease is localized
and has not yet spread to other tissues or organs. Surgery involves the removal
of the tumor and adjacent tissue. In many cases where metastases have not yet
occurred, however, surgery still cannot be performed because of the inaccessible
location of the tumor or the danger of removing too much normal tissue along
with the cancerous tissue.
Radiation therapy involves the exposure of the tumor and surrounding
tissue to ionizing radiation. The objective of radiation therapy is to kill the
cancer cells with certain ionized molecules (free radicals) that are created in
the parts of the body exposed to the ionizing radiation. Radiation, however,
also kills or damages normal cells. Radiation therapy can result in varying
levels of effectiveness, as well as in patient weakness, loss of appetite,
nausea and vomiting, and loss of normal body functions, which may include bone
marrow depression, gastrointestinal complications, kidney damage and damage to
the peripheral nervous system. In some cases, radiation-induced mutations in
bone marrow cells can lead to new secondary cancers, such as leukemia, years
after treatment for other forms of cancer.
Chemotherapy is the principal approach used for tumors that have
metastasized. Chemotherapy seeks to interfere with the molecular and cellular
processes that control the development, growth and survival of malignant tumor
cells. Chemotherapy involves the administration of cytotoxic drugs designed to
kill cancer cells or the administration of hormone analogs to either reduce the
production of, or block the action of, certain hormones such as estrogens and
androgens which affect the growth of certain tumors. In many cases, chemotherapy
consists of the administration of several different drugs in combination.
In recent years, there have been significant advances in molecular
biology, immunology and other related fields of biotechnology which have led to
a better understanding of how malfunctioning genes can result in the formation
of tumors. It is anticipated that these advances in biotechnology will lead to
better ways to diagnose cancer and to prevent tumors from forming or becoming
malignant. Other research has focused on mechanisms to efficiently deliver
therapies to tumors. Ultimately, these emerging technologies may lead to
genetic-based therapies aimed specifically at the genes which have malfunctioned
and caused the cancer to form or spread, and to therapies that can selectively
deliver antineoplastic agents to tumors.
The Company believes that, for the foreseeable future, the principal
means of combating cancer will continue to be through the surgical removal of
tumors and the destruction of malignant cells through radiation therapy and
chemotherapy, delivered systemically or in ways that make anticancer agents
selectively more toxic to tumors. Therefore, the Company intends to take a
balanced approach in its research and development efforts. It will continue to
develop chemically defined small molecules based upon unique cellular targets
discovered through biotechnology, while also pursuing development of vectors to
deliver therapeutic agents to tumors.
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RESEARCH AND DEVELOPMENT
The Company is currently focusing on the following principal areas of
research: (i) hypoxic cancer cell therapeutics, (ii) alkylating agent prodrugs,
(iii) novel nucleoside analogs, (iv) ribonucleotide reductase inhibitors and (v)
Tumor Amplified Protein Expression Therapy, or TAPET. All of these technologies
were licensed by the Company pursuant to the Yale/OncoRx Agreement and/or the
Yale/MelaRx Agreement and are in the early development stage and require
significant further research, development, testing and regulatory clearances.
The Company's current research and development efforts were initiated by
academic collaborators at Yale University and are being pursued at the Company
and Yale with Company sponsorship.
Hypoxic Cancer Cell Therapeutics. Solid tumors have been shown to
contain cells with severe oxygen depletion known as hypoxic cells. The Company
believes that one possible explanation for the failure of radiation therapy is
the existence within tumors of hypoxic cells, although there is no direct proof
in humans. The hypoxic tumor cells can often constitute 1-15% of the malignant
cells contained in a tumor. Because radiation therapy requires oxygenation of
the tissue in order to be effective, hypoxic cells are less susceptible to
radiation therapy and tend to form a therapeutically resistant group within
solid tumors. Even small quantities of hypoxic cells within a tumor provide the
basis for tumor cells to survive and proliferate after most of the non-hypoxic
malignant cells in the tumor have been eradicated by radiation treatment.
Hypoxic cells also exhibit resistance to most standard chemotherapeutic agents.
Investigators in Dr. Alan C. Sartorelli's laboratory at Yale have
sought to develop chemotherapeutic agents which by virtue of their chemical and
metabolic properties could be selectively toxic to hypoxic cells. One such agent
identified by Dr. Sartorelli was Promycin, a bioreductive alkylating agent.
Laboratory studies indicated that Promycin destroyed a greater percentage of
hypoxic cells relative to oxygenated cells than other agents being tested. A
Phase I/II trial was conducted at Yale on a limited number of people. In this
initial study, of the 21 patients treated with radiation (and, in some cases,
surgery) in conjunction with Promycin for certain types of cancer of the head
and neck, seven remained alive with no evidence of the disease or the cancer
after a median follow-up of 60 months. The Company believes that these results
are better than would have been expected without the use of Promycin, although
there can be no assurance that Promycin will prove to be efficacious in a more
extensive study. Based on these findings, a Phase III trial has been initiated
of Promycin in patients with head and neck cancer, which is designed to
determine the efficacy of Promycin as an adjunct to radiation therapy for these
conditions. The Phase III trial was initially conducted at Yale and the Company
has expanded the Phase III program to include additional sites in Europe and the
United States. The Company also plans to evaluate Promycin in other tumor types.
The Company has obtained an exclusive license from Yale for the data
regarding Yale's research on Promycin and the clinical studies of Promycin
conducted by Yale. Because composition of matter patent protection is
unavailable for Promycin, the Company has received Orphan Drug status with
respect to the use of Promycin to treat head and neck cancer. In March, 1997,
the Company also received Orphan Drug status with respect to the use of Promycin
to treat cervical cancer.
Alkylating Agent Prodrugs. Alkylating agents are used to treat a
variety of cancers, with different alkylating agents being used to treat
different malignancies. These drugs are highly reactive (i.e., react with a
number of different types of cells) and, as a consequence, cause undesirable
side effects. This reactivity may be controlled by converting alkylating agents
to prodrug forms. This conversion is accomplished by the attachment of a prodrug
component to the alkylating agent so as to block the reactivity of the compound.
The prodrug component can be designed to be released by a variety of enzymes
found predominantly in tumors or in the area surrounding the tumor cells.
Cleavage of the prodrug component from the alkylating agent, so as to restore
the reactivity of the alkylating agent, occurs within the target tumor or in the
area
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surrounding the tumor, thus permitting greater tumor selectivity and activity
and lowering the potential for toxicity.
The Company has licensed several classes of alkylating agent prodrugs
from Yale, including certain prodrugs which are the subject of three issued
patents. Each of these alkylating agent prodrugs may target a unique property of
a cancer cell, thereby destroying it. The Company is in the process of
evaluating several lead candidates for development. The Company intends to
extend its preclinical studies, which will include analytical studies,
formulation and toxicological evaluation, and, if successful, intends to file an
Investigational New Drug Application (IND).
Novel Nucleoside Analogs. Antimetabolites are anticancer and antiviral
agents which resemble natural cellular metabolites and therefore interfere with
natural metabolic processes. Certain of the more significant antimetabolites
inhibit the function of enzymes which are necessary for the synthesis of
nucleotides (which are the building blocks of DNA and RNA) and therefore inhibit
cell growth. Pursuant to the Yale/OncoRx Agreement, the Company has licensed
from Yale a patent application relating to the nucleoside analog 3TC and its use
as an anti-hepatitis B virus ('HBV') agent, and several patent applications
relating to the nucleoside analogs (beta)-L-FddC and (beta)-L-Fd4C and their use
as anti-HBV agents. These nucleoside analogs are antimetabolites and have shown,
in preclinical studies, the ability to inhibit the replication of HBV. HBV is a
causative agent of both acute and chronic forms of hepatitis which affects about
300 million people worldwide. HBV also predisposes its victims to the
development of liver cancer. At present, no clinically useful drug is on the
market for the treatment of HBV infections.
The Company is aware of numerous patent applications and/or patents
owned by third parties that also relate to 3TC and (beta)-L-FddC, and/or their
uses as anti-HBV agents. The Company cannot predict whether its or its
competitors' patent applications will result in valid patents being issued. See
'--Patents, Licenses and Trade Secrets.' In October 1996 the U.S. Patent and
Trademark Office issued a patent to Yale University covering the composition of
matter and method of use of (beta)-L-Fd4C for treating HBV, and Yale has
licensed to the Company exclusive worldwide rights to the patent including the
use of (beta)-L-Fd4C for the treatment of HBV and AIDS. Due to the resources
required, the Company intends to seek a strategic partner to further develop
these anti-HBV agents.
Ribonucleotide Reductase Inhibitors. The conversion of ribonucleotides
to deoxyribonucleotides, which is catalyzed by ribonucleotide reductase, is a
critical step in the synthesis of DNA in cells. If DNA is not synthesized, cells
can replicate. The Company believes that a strong inhibitor of ribonucleotide
reductase which targets cancer cells could act as a therapeutic agent. The
Company has initiated a program to develop inhibitors of ribonucleotide
reductase based on technology developed by Dr. Sartorelli and licensed under the
Yale/OncoRx Agreement. The Company has licensed from Yale patented technology
related to ribonucleotide reductase inhibitors. The Company has completed animal
studies necessary to determine the pharmacological and toxicological profiles of
its lead compound, Triapine (previously known as 3-AP or OCX-0191) . Triapine
has demonstrated significant in vitro and in vivo activity against murine L1210
leukemia, the murine M109 lung carcinoma, and the human A2780 ovarian carcinoma.
The Company filed an Investigational New Drug (IND) application for Triapine in
December, 1997 and received clearance one month later from the FDA to proceed
with Phase I clinical trials. The Company is in the process of initiating these
studies at the University of Miami Hospital and Miami VA Hospital. Triapine's
target indications are for solid tumors such as lung, breast, and colorectal
cancer, and melanoma.
TAPET. TAPET stands for Tumor Amplified Protein Expression Therapy, an
enabling platform technology featuring a novel gene therapy vector for the
treatment of cancer. Originated at Yale University and advanced at Vion and Yale
with Vion's sponsorship, the TAPET system uses genetically-engineered bacteria
as vectors to effectively target cancerous tumors, amplify within tumors and
deliver prodrug converting enzymes and genes that are capable of regulating cell
growth in tumor tissue. Screened for their significant activity in tumors, TAPET
organisms selectively target and infect tumors, rapidly multiplying in them by
several orders of magnitude relative to normal tissue. Bacteria from the
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genus Salmonella, attenuated for virulence, were chosen because they multiply
rapidly, can be easily modified genetically and have been found to grow under
both aerobic (air) and anaerobic (lack of air) conditions, such as those that
occur within solid tumors. The microorganisms have been designed to be highly
selective for tumor tissue, greater than in normal tissue, and as an additional
safeguard, the possibility for infection of normal tissue has been attenuated by
bioengineering the organisms. In addition, TAPET vectors are designed to remain
fully sensitive to antibiotics. This sensitivity allows for greater control
since the vector can be cleared from the body in the presence of an antibiotic
at any time during therapy. Tumor localization has been shown in animal models
using TAPET strains in 12 tumor models including models of melanoma, breast,
lung, colon, renal and liver cancer. Having developed this vector, the
expression of multiple genes that are capable of regulating prodrug converting
enzymes has been achieved. For example, the program has demonstrated in vivo
activity for a bacterial strain which expresses the herpes simplex virus
thymidine kinase gene for the conversion of ganciclovir to its toxic
phosphorylated forms. To Vion's knowledge, the TAPET discovery effort is the
only vector-based research program currently underway that is studying the use
of bacterial as opposed to viral vectors for the treatment of cancer. Whereas
viral vectors are delivered locally, TAPET bacterial vectors are delivered
systemically, allowing for the potential treatment of tumors throughout the body
whether their location is known or not. As a platform technology, Vion is
developing a portfolio of TAPET organisms for itself and potential partners to
deliver prodrug converting enzymes and/or cytokines to tumors. The Company
believes that TAPET is unique in its ability to target solid tumor tissue and
the vector's ability toreproduce at high levels within tumor tissue. Vion is
developing TAPET in preclinical studies.
Other Programs. The Company also intends to pursue other research and
development projects leading to the development of anticancer therapeutics. The
Company intends to seek collaborations with academic institutions, including
additional arrangements with Yale, to obtain additional rights. The Company
believes that its relationship with Dr. Sartorelli and Dr. Yung-Chi Cheng of
Yale, both of whom are on the Company's Scientific Advisory Board, may provide
the Company with the ability to obtain rights in connection with work being done
in their laboratories. However, the Yale/OncoRx Agreement only granted to the
Company rights to specific technologies and the Company does not have any right
to obtain a license to any of the work being conducted in their laboratories and
any such rights would be subject to reaching an agreement with Yale as to the
terms of such license.
OTHER POTENTIAL PRODUCT CANDIDATES
Melasyn(TM). Pursuant to a license agreement with Yale (the "Melasyn
License"), the Company has obtained rights to a synthetic form of melanin which
the Company has named Melasyn. Melanin is a pigment formed by cells in the skin
which gives skin its color and protects it from sun damage by absorbing
ultraviolet rays. Melasyn is a readily soluble form of melanin making it a novel
and useful ingredient for formulation of skin care products and cosmeceuticals.
In February, 1998 Vion agreed to license its Melasyn technology in an exclusive
worldwide agreement with San Mar Laboratories, a leading manufacturer of private
label cosmetics and pharmaceuticals. Under the terms of the agreement, Vion will
grant an exclusive worldwide license to San Mar for the manufacture and sales of
products containing Melasyn. Vion will receive a royalty on products sold by San
Mar with guaranteed annual royalties over an initial three year period.
The Company has also funded research projects relating to compounds to
control pigmentation and chemotherapeutic products for treating melanoma. To
date, such research has not provided any other products or product candidates
which the Company presently plans to pursue, although the Company still has
substantial financial commitments to Yale pursuant to such agreement. See
'--Sponsored Research and License Agreements.'
Termination of Berkeley Agreement. In October, 1997 the Company
terminated a research agreement with The Regents of the University of California
on behalf of the Berkeley Campus with regard to certain microfiltration
technology and decided not to pursue negotiations to obtain
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licenses or options to obtain licenses for certain inventions resulting from
this research. There are no continuing liabilities to the Company stemming from
prior funding of this research.
COLLABORATIVE ARRANGEMENTS
The Company is seeking collaborative agreements with pharmaceutical or
biotechnology companies to develop certain of its product candidates. The
Company believes that these arrangements will permit the Company to develop
certain of its product candidates without incurring the substantial costs
associated with development and may also provide an additional source of
financing.
In November, 1997 Boehringer Ingelheim International GmbH of Ingelheim,
Germany and the Company announced that the two companies entered into an
exclusive worldwide licensing agreement for the development and marketing of
Promycin (porfiromycin), the Company's lead anti-cancer agent. Promycin, a
bioreductive alkylating agent, is currently being investigated in Phase III
clinical trials for use in combination with radiation therapy for solid tumors
of the head and neck.
The strategic agreement provides the Company with exclusive
co-promotion rights to Promycin in North America. Roxane Laboratories, Inc. (a
subsidiary of Boehringer Ingelheim) in the U.S. and the Company will co-promote
Promycin in the United States. Boehringer Ingelheim will have exclusive
worldwide rights to market and sell Promycin outside North America. In exchange
for these rights, Boehringer Ingelheim paid the Company up front licensing fees,
and is obligated to pay development milestones and royalties on future sales of
Promycin outside North America.
Both Boehringer Ingelheim and the Company will share in worldwide
development costs. In addition, Boehringer Ingelheim made an equity investment
in Vion at a premium to the then current market price. Vion will manufacture and
supply Promycin for all territories.
SPONSORED RESEARCH AND LICENSE AGREEMENTS
Yale/OncoRx Agreement. Pursuant to a License Agreement dated August 31,
1994, as amended, Yale granted to Vion an exclusive, non-transferable, worldwide
license to make, have made, use, sell and practice certain inventions and
research for therapeutic and diagnostic purposes. The licensed technology
includes several of the core technologies on which the Company initially intends
to focus. See '--Research and Development.' The term of the license is the
expiration of any patents relating to any inventions or, with respect to
non-patented inventions or research, 17 years. Yale has retained the right to
make, use and practice the inventions and research for non-commercial purposes.
The Yale/OncoRx Agreement also provides that if Yale, pursuant to its own
research, identifies potential commercial opportunities for the inventions and
research, Yale will give the Company a first option to negotiate a commercial
license for such commercial opportunities. Pursuant to the Yale/OncoRx
Agreement, the Company issued to Yale 159,304 shares of common stock, granted
certain registration rights to Yale with respect to these shares of Common Stock
and made a payment of $50,000. In addition, Yale is entitled to royalties on
sales, if any, of resulting products and sub-licensing revenues and, with regard
to one patent, milestone payments based on the status of clinical trials and
regulatory approvals. In July 1997 the Company and Yale amended this license
agreement and the Yale/MelaRx Agreement to reduce certain amounts payable by the
Company under such agreements. As a result, the Company issued an additional
150,000 shares of common stock to Yale. The Company has agreed with Yale that
the Company will plan and implement appropriate research and development with
respect to commercialization of products based on the licensed inventions and
research. In the event that the agreement is terminated for breach, all rights
under licenses previously granted terminate. Accordingly, a default as to one
product could affect the Company's rights in other products.
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Subsequent to entering into the Yale/OncoRx Agreement, the Company paid
$345,000 as unrestricted grants to fund certain research at Yale, including
research in Dr. Cheng's laboratory. The Company made additional unrestricted
grants to Yale of $345,000 in November 1995 and November 1996, and $86,250 in
September 1997 for continued support of this research. There can be no assurance
that these funds will be used to conduct research relating to products which the
Company desires to pursue. Additionally, to the extent that such research
results in technologies not covered by the Yale/OncoRx Agreement, the Company
may be unable to utilize such technologies unless it negotiates additional
license agreements.
Yale/MelaRx Agreement. Pursuant to a Research Agreement dated September
23, 1988, as amended and restated as of August 1, 1992, Yale has agreed to
perform a research program under the supervision of Dr. John Pawelek, while he
is employed by Yale. The research program has primarily involved synthetic
melanin and products designed to control the effects of ultraviolet radiation.
In addition, under the Company's TAPET program, Dr. Pawelek is conducting
certain research regarding the use of a bacterial vector in connection with
genetic therapy for melanoma. The Company has agreed to reimburse Yale for its
direct and indirect costs in connection with the research program in an amount
currently equal to $899,023 per year. Except to the extent of inventions made
solely by the Company's employees, Yale will be the owner of any inventions
resulting from the research and the Company will have an option to obtain an
exclusive license (to the extent Yale has the right to grant such a license)
with respect to the inventions. The Company and Yale entered into a License
Agreement dated December 15, 1995 pursuant to which the Company received a
non-transferable worldwide exclusive license to three inventions relating to
gene therapy for melanoma. Pursuant to this agreement the Company paid Yale a
$100,000 fee and has agreed to make milestone payments based on the status of
clinical trials and regulatory approvals. In addition, Yale is entitled to
royalties on sales, if any, of resulting products and sub-licensing revenues.
The Yale/MelaRx Agreement is for a term ending June 30, 1998, subject to earlier
termination by the Company if Dr. John W. Pawelek is no longer the principal
investigator. The Company is in discussions with Yale to extend this agreement.
Pursuant to the Yale/MelaRx Agreement, Yale and the Company have
entered into five license agreements which grant the Company exclusive licenses
to make, use, sell and practice the inventions covered by certain patents. Each
such license agreement requires the Company to pay to Yale royalties based on a
percentage of net sales of the products covered and sublicensing income. In
addition, the licenses provide that they are terminable in the event the Company
does not exercise due diligence in commercializing the licensed technology.
COMPETITION
Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors, the availability of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. Moreover, the
biopharmaceutical industry is characterized by rapidly evolving technology that
could result in the technological obsolescence of any products developed by the
Company. The Company competes with specialized biopharmaceutical firms in the
United States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Most of the Company's competitors have substantially greater financial,
technical and human resources than the Company and may be better equipped to
develop, manufacture and market products. In addition, many of these companies
have extensive experience in preclinical testing and human clinical trials and
in obtaining regulatory approvals. These companies, as well as academic
institutions, governmental agencies and private research organizations, also
compete with the Company in recruiting and retaining highly qualified scientific
personnel and consultants.
Existing therapies to treat cancer have varying degrees of success.
Many products are under development by competitors for the treatment of cancer,
some of which may compete directly with the Company's proposed products. Some of
these product candidates may be in advanced stages of clinical trials. The
existence of these products, or other products or treatments
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<PAGE> 41
of which the Company is not aware, or products or treatments that may be
developed in the future, may adversely affect the marketability of products
developed by the Company. There can be no assurance that research and
development by others will not render the Company's potential products obsolete
or uneconomical or result in treatments or cures superior to any therapy
developed by the Company, or that any therapy developed by the Company will be
preferred to any existing or newly developed technologies.
The timing of market introduction of some of the Company's potential
products or of competitor's products may be an important competitive factor.
Accordingly, the relative speed with which the Company can develop products,
complete preclinical testing, clinical trials and regulatory approval processes
and supply commercial quantities to market are expected to be important
competitive factors. In addition, the Company may apply for Orphan Drug
designation by the FDA for its proposed products. To the extent that a
competitor of the Company develops and receives Orphan Drug designation and
marketing approval for a drug to treat the same indication prior to the Company,
the Company may be precluded from marketing its product for a period of seven
years. See '--Government Regulation.'
PATENTS, LICENSES AND TRADE SECRETS
The Company's policy is to protect its technology by, among other
things, filing patent applications for technology which it considers important
to the development of its business. The Company intends to file additional
patent applications, when appropriate, relating to new developments or
improvements in its technology and other specific products that it develops. The
Company also relies on trade secrets and improvements, unpatented know-how and
continuing technological innovation to develop and maintain its competitive
position.
In connection with the Yale/MelaRx Agreement, the Company is the
exclusive licensee of a number of filed patent applications relating to the
Company's TAPET platform technology which provide for methods for diagnosing
and/or treating various solid tumor cancers, including but not limited to
melanoma, lung cancer, breast cancer and colon cancer. The Company is also the
exclusive licensee of issued United States and foreign utility patents and
pending patent applications relating to synthetic melanins and methods for using
synthetic melanins, such as, for sunscreening or self-tanning agents. Of the
United States patents and patent applications, however, only two pending patent
applications are relevant to the Company's Melasyn product(s). The Company has
filed or plans to file corresponding applications relevant to the Melasyn
products for patent protection in foreign countries.
In connection with the Yale/OncoRx Agreement, the Company is the
exclusive licensee of four issued and one pending United States patents relating
to its alkylating agent prodrug technology, including patents relating to novel
sulfonylhydrazine methylating agents and their use for treatment of
trypanosomiasis and cancer and to novel 1-alkyl-2-acyl-1,2-disulfonylhydrazines
and their use for controlling neoplastic cell growth. The Company is also the
exclusive licensee of a number of issued and pending United States and foreign
patent applications relating to (beta)-L-Fd4C and (beta)-L-FddC, their
composition and use for the treatment of HIV and HBV infections and their use in
combination with other anti AIDS agents, a pending United States patent
application relating to 3TC and its use for the treatment of hepatitis B virus
(HBV) infection, as well as issued patents and patent applications related to
Triapine(TM) and other ribonucleotide reductase inhibitors.
Competitors or potential competitors have filed applications for, or
have been issued, patents and may obtain additional patents and proprietary
rights relating to compounds or processes competitive with those of the Company.
Accordingly, there can be no assurance that the patent applications licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology; nor can
there be any assurance that others will not obtain patents that the Company
would need to license or circumvent.
The U.S. Patent and Trademark Office has issued patents to Yale
University covering the composition of matter and method of use of (beta)-L-Fd4C
and of (beta)-L-FddC for treating HBV and
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<PAGE> 42
HIV, and Yale has licensed to the Company exclusive worldwide rights to the
patents including the use of (beta)-L-Fd4C for the treatment of HBV and AIDS. In
addition Yale has also licensed to the company rights to a pending patent
application covering the use of these agents in combination with other
nucleoside anti-HIV drugs.
With respect to (beta)-L-FddC, the Company is aware that patent
applications have been filed by Biochem Pharma, Inc. that relate to
(beta)-L-FddC and its use as an anti-HBV agent. These patent application(s)
claim priority to a United Kingdom patent application having a filing date
earlier than the filing dates of all the applications and issued patents
relating to (beta)-L-FddC that have been licensed to the Company. In the event
that an interference were to be declared the Company believes that it may be
able to prove that it is entitled in its licensed, issued patent to priority of
invention for claims directed to the composition and use of (beta)-L-FddC as an
anti-HBV agent. However, there is a risk that the Company will not prevail in
proving that it is so entitled, and that others will be awarded patent
protection for such claims.
The Company is aware that patent applications, some of which have
issued as patents, have been filed by IAF Biochem International, Inc., Emory
University, Glaxo Group Limited and the University of Georgia Research
Foundation, that relate to, enantiomerically enriched racemic mixtures
containing 3TC, methods of preparation, and use of 3TC or racemic mixtures
containing 3TC as an antiviral agent. Some of these patent applications have
earlier filing dates than the patent applications licensed to the Company, and
thus may prevent the Company from obtaining patent protection in the
applications it has licensed. The Company believes that it may be able to prove
that it is entitled in its licensed applications to priority of invention for
claims directed to the use of 3TC as an anti-HBV agent. However, there is a
substantial risk that the Company will not prevail in proving that it is so
entitled, and that others will be awarded patent protection for such claims. The
patent applications filed by third parties that relate to 3TC will likely
prevent the Company from obtaining product claims to 3TC in the patent
applications it has licensed. If the Company were able to obtain a patent with
claims directed to the use of 3TC as an anti-HBV agent, it would have the right
to exclude only from using 3TC as an anti-HBV agent. Other third parties, in
addition to those described above, may also have filed patent applications
relating to 3TC, (beta)-L-FddC and (beta)-L-Fd4C and/or their uses as anti-HBV
agents.
The Company or its licensors is prosecuting the patent applications
licensed to the Company with the United States Patent and Trademark Office but
the Company does not know whether any of its applications will result in the
issuance of any patents or, if any patents are issued, whether any issued patent
will provide significant proprietary protection or will be circumvented or
invalidated. During the course of patent prosecution, patent applications are
evaluated, inter alia, for utility, novelty, nonobviousness and enablement. The
United States Patent and Trademark Office may require that the claims of an
initially filed patent application be amended if it is determined that the scope
of the claims include subject matter that is not useful, novel, nonobvious or
enabled. Furthermore, in certain instances, the practice of a patentable
invention may require a license from the holder of dominant patent rights. In
cases where one party believes that it has a claim to an invention covered by a
patent application or patent of a second party, the first party may provoke an
interference proceeding in the United States Patent and Trademark Office or such
a proceeding may otherwise be declared by the Patent & Trademark Office. In
general, in an interference proceeding, the Patent and Trademark Office would
review the competing patents and/or patent applications to determine the
validity of the competing claims, including but not limited to determining
priority of invention. Any such determination would be subject to appeal in the
appropriate United States federal courts.
There can be no assurance that additional patents for the Company's
products will be obtained, or that issued patents will provide substantial
protection or be of commercial benefit to the Company. The issuance of a patent
is not conclusive as to its validity or enforceability, nor does it provide the
patent holder with freedom to operate without infringing the patent rights of
others. A patent could be challenged by litigation and, if the outcome of such
litigation were adverse to the patent holder, competitors could be free to use
the subject matter covered by the patent, or the patent holder may license the
technology to others in settlement of such litigation.
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The invalidation of key patents owned by or licensed to the Company or
non-approval of pending patent applications could create increased competition,
with potential adverse effects on the Company and its business prospects. In
addition, there can be no assurance that any application of the Company's
technology will not infringe patents or proprietary rights of others so that, as
a result of such infringement, licenses that might be required for the Company's
processes or products would be available on commercially reasonable terms, if at
all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of others proprietary rights. The Company may participate in
interference proceedings that may in the future be declared by the United States
Patent and Trademark Office to determine priority of invention, which could
result in substantial cost to the Company. There can be no assurance that the
outcome of any such litigation or interference proceedings will be favorable to
the Company or that the Company will be able to obtain licenses to technology
that it may require or that, if obtainable, such technology can be licensed at a
reasonable cost.
The patent position of biotechnology and biopharmaceutical firms
generally is highly uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in biotechnology and biopharmaceutical patents. Accordingly, there can
be no assurance that patent applications owned or licensed by the Company will
result in patents being issued or that, if issued, the patents will afford
protection against competitors with similar technology.
The Company also expects to rely 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 the providing of 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
Overview. Regulation by state and federal governmental authorities in
the United States and foreign countries is a significant factor in the
manufacture and marketing of the Company's products and in its ongoing research
and product development activities. All the Company's products will require
regulatory clearances or approvals prior to commercialization. In particular,
drugs, biologicals and medical devices are subject to rigorous preclinical
testing and other approval requirements by the FDA pursuant to the Federal Food,
Drug and Cosmetic Act (the 'FDC Act') and the Public Health Service (PHS) Act
and regulations promulgated thereunder, as well as by similar health authorities
in foreign countries. Various federal statutes and regulations also govern or
influence the testing, manufacturing, safety, labeling, packaging, advertising,
storage, registration, listing and recordkeeping related to marketing of such
products. The process of obtaining these clearances or approvals and the
subsequent compliance with appropriate federal statutes and regulations require
the expenditure of substantial resources. Any failure by the Company or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the manufacturing and marketing of products
being developed by the Company and its ability to receive product or royalty
revenues. There can be no assurance that any required FDA or other regulatory
approval will be granted or, if granted, will not be withdrawn.
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<PAGE> 44
Drugs and Biologicals. Preclinical development of diagnostic and
therapeutic drugs and biological products is generally conducted in the
laboratory to evaluate the safety and the potential efficacy of a compound by
relevant in vitro (e.g., cell culture) and in vivo (e.g., animal model) testing.
When a product is tested prospectively to determine its safety for purposes of
obtaining FDA approvals or clearances, such testing must be performed in
accordance with good laboratory practices for nonclinical studies. The results
of preclinical testing are submitted to the FDA as part of an investigational
new drug application (IND). The IND must become effective, informed consent must
be obtained from clinical subjects, and the study must be approved by an
institutional review board (IRB) before human clinical trials can begin.
Regulatory approval often takes a number of years and involves the
expenditure of substantial resources. Approval time also depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Typically, clinical evaluation involves a three-phase process. In Phase
I, clinical trials are conducted with a small number of subjects to determine
the tolerated drug dose, early safety profile, proper scheduling, the pattern of
drug distribution, absorption and metabolism. In Phase II, clinical trials are
conducted with groups of patients afflicted with a specific disease in order to
determine efficacy, dose-response relationships and expanded evidence of safety.
In Phase III, large-scale, multi-center, controlled clinical trials are
conducted in order to (1) provide enough data for statistical proof of safety
and efficacy, (2) compare the experimental therapy to existing therapies, (3)
uncover any unexpected safety problems, such as side-effects, and (4) generate
product labeling. In the case of drugs for cancer and other life-threatening
diseases, the initial human testing is generally conducted in patients rather
than in healthy volunteers. Because these patients are already afflicted with
the target disease, it is possible that such studies will provide results
traditionally obtained in Phase II trials. These trials are referred to as
'Phase I/II' trials.
The results of the preclinical and clinical testing are submitted to
the FDA either as part of a New Drug Application ('NDA') (for drugs) or a
Product License Application ('PLA') (for biologics) for approval to commence
commercial distribution. For a biological, the manufacturer generally must also
obtain approval of an establishment license application (ELA). In responding to
an NDA or PLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. A minimum of several years is
generally required to obtain approval after submission of an NDA or PLA. There
can be no assurance that approvals will be granted on a timely basis, if at all.
The FDA also normally conducts a pre-approval inspection and other occasional
inspections of an applicant's facilities to assure compliance with current good
manufacturing practices. Further, stringent FDA regulatory requirements continue
after a product is approved for marketing, and changes to products or labeling
can require additional approvals. If products are approved for marketing, the
Company will be subject to stringent post-marketing requirements, and there can
be no assurance that regulatory or enforcement action will not occur, which
would potentially limit the Company's ability to market its products.
The Company also will be subject to widely varying foreign regulations
governing clinical trials and pharmaceutical sales. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. The Company intends, to the extent possible, to rely on foreign
licensees to obtain regulatory approval for marketing its products in foreign
countries.
Orphan Drug Designation. Under the Orphan Drug Act, a sponsor may
obtain designation by the FDA of a drug or biologic as an 'orphan' drug for a
particular indication. Orphan Drug designation is granted to drugs for rare
diseases or conditions, including many cancers, with a prevalence of less than
200,000 cases in the U.S. The sponsor of a drug that has obtained Orphan Drug
designation and which is the first to obtain approval of a marketing application
for such drug is entitled to marketing exclusivity for a period of seven years
for the designated indication. This
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<PAGE> 45
means that no other company can market the same Orphan Drug for the same
indication approved by the FDA for seven years after approval unless such
company proves its drug is clinically superior or the approved Orphan Drug
marketer cannot supply demand for the drug. Legislation is periodically
considered which could significantly affect the Orphan Drug law. The Company
received Orphan Drug designation for Promycin in September, 1995 to treat head
and neck cancer and in May, 1997 received FDA approval of its request for orphan
drug status for the use of Promycin to treat cervical cancer. It intends to seek
this designation for other products where appropriate. There can be no assurance
that future changes to the Orphan Drug Act would not diminish the value of any
orphan drug designation obtained by the Company.
Drugs for Life Threatening Illnesses. FDA regulatory procedures
established in 1988 are intended to speed further the availability of new drugs
intended to treat life-threatening and severely debilitating illnesses. These
procedures provide for early and continuous consultation with the FDA regarding
preclinical and clinical studies necessary to gain marketing approval. This
regulatory framework also provides that if Phase I results are promising, Phase
II clinical trials may be designed that obviate the need for lengthy, expensive
Phase III testing. Notwithstanding the foregoing, approval may be denied by the
FDA or traditional Phase III studies may be required. The FDA may also seek the
Company's agreement to perform post-approval Phase IV studies.
The FDA has announced that the accelerated approval concept is being
expanded for cancer drugs. The proposed changes are designed to speed drug
approvals by requiring less extensive preapproval testing in some circumstances.
Specifically, the FDA has stated that it may approve these drugs based on the
basis of surrogate markers. 'Partial responses,' such as a drug's effectiveness
at short-term tumor shrinkage, that the FDA believes are clear indicators of
therapeutic effect, would be sufficient to demonstrate efficacy for these drugs.
This is in contrast to requiring the traditional 'full-endpoint' measures of
improved survival or quality of life. Other provisions of the new initiatives
include proactive solicitation by the FDA of expanded access filings for
foreign-approved cancer agents and greater patient representation on the FDA's
Oncology Drugs Advisory Committee. Although agency officials have estimated that
the changes will reduce by as much as a year the normal development time for
most cancer drugs, it is uncertain whether and how these initiatives will
actually be implemented by FDA and whether they will have a significant impact
on the approval process for cancer drugs.
MANUFACTURING AND MARKETING
The Company has no experience in manufacturing or marketing products
and has not yet commercially introduced any products. The Company does not now
have resources to manufacture or market on a commercial scale any products that
it may develop. To be successful, the Company's products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. Initially, the Company intends to manufacture products through
contracts with manufacturers and believes that contract manufacturing will be
readily available. In the event that the Company decides 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 GMP regulations mandated by FDA which are applicable
to such a facility.
Upon FDA approval of one of the Company's product candidates, the
Company would develop a sales force targeting oncology doctors and clinics to
market its products. The Company currently has no marketing or sales staff and
there can be no assurance that the Company will be able to establish such a
sales force or be successful in gaining market acceptance for its products.
HUMAN RESOURCES
As of December 31, 1997, the Company had 31 full-time employees,
including 22 scientists and technicians. The Company has plans to hire 11
additional employees over the next 12 months to support continuing progress in
both research and development. The Company's employees are not covered by any
collective bargaining agreement.
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<PAGE> 46
ITEM 2. PROPERTIES
The Company is currently leasing approximately 19,000 square feet of
office and laboratory space on three floors of a building at 4 Science Park, New
Haven, Connecticut. The lease is for a three-year term ending in 1999 at a
rental of $164,245 per year, with a right to renew for an additional three
years. The Company believes that its current space will meet the Company's
requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There is no material legal proceeding pending against the Company or
any of its property, nor was any such proceeding terminated during the fourth
quarter of the year ended December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of Vion
Pharmaceuticals, Inc. during the fourth quarter of fiscal year 1997.
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<PAGE> 47
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The Common Stock of the Company has traded on The Nasdaq SmallCap
Market(SM) under the symbol VION since April 29, 1996. From August 14, 1995 to
April 26, 1996 the Common Stock traded on The Nasdaq SmallCap Market(SM) under
the symbol OCRX. The following table reflects the range of high and low bid
prices of the Company's Common Stock for each of the calendar quarters in 1996
and 1997. This information is based on closing bid prices as reported by The
Nasdaq Stock Market(SM) and such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
1996 1997
---------------------------- -------------------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter 4-3/4 3 6-1/4 3
Second Quarter 7-3/4 3-1/2 5-1/8 3-3/8
Third Quarter 5-1/4 3-3/4 5-7/16 3-5/8
Fourth Quarter 4-11/16 2-7/8 6 2-13/16
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
On August 20, 1997, the Company completed a private placement of 4,850
shares of Class B Convertible Preferred Stock, at $1,000 per share, resulting in
net proceeds to the Company of $4,481,450. Shares of the Class B Preferred Stock
may also be eligible, under certain circumstances, to receive dividends paid in
Class C Preferred Stock. At year-end, 3,903 shares of Class B Convertible
Preferred Stock were convertible into 987,766 shares of the Company's common
stock, including an accretion of 8% per annum. In addition, 689 shares of Class
B Convertible Preferred Stock were convertible into 225,700 shares of the
Company's common stock, including an accretion of 8% per annum and dividends.
The Class C Preferred Stock is convertible into shares of common stock at the
average closing bid price of the Company's common stock for thirty consecutive
business days ended on the closing date and is not entitled to dividends.
The sale of the shares described above were private transactions not
involving a public offering and were exempt from the registration provisions of
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
sale of these securities was without the use of an underwriter.
On November 24, 1997, the Company and Boehringer Ingelheim
International GmbH of Germany entered into an exclusive worldwide licensing
agreement for the development and marketing of Promycin. In connection with this
transaction, the Company received net proceeds of $2,869,801 from the sale of
448,336 shares of common stock to Boehringer Ingelheim International GmbH at a
premium to the then current market price.
HOLDERS
At February 10, 1998 there were approximately 220 holders of record of
common stock.
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<PAGE> 48
DIVIDENDS
The Company has paid no cash dividends and does not expect to pay cash
dividends in the foreseeable future. The certificate of designations for the
Company's Class A Convertible Preferred Stock ('Class A Preferred Stock')
precludes the Company from paying cash dividends on the Common Stock so long as
shares of Class A Preferred Stock are outstanding, without the consent of
holders of a majority of the Class A Preferred Stock. The holders of the
outstanding Class A Preferred Stock are entitled to receive semi-annual
dividends, on a cumulative basis, equal to five percent (5%) (on a per annum
basis) of the Class A Preferred Stock held by such holder, payable, in arrears,
in additional shares of Class A Preferred Stock. If and when the Company
declares any dividend or distribution on the Common Stock (other than a stock
dividend), the Company is required to declare a like dividend or distribution on
the number of shares of Common Stock into which shares of Class A Preferred
Stock is then convertible.
The certificate of designations for the Company's Class B Convertible
Preferred Stock (`Class B Preferred Stock') provides that holders of Class B
Preferred Stock may receive a special dividend payable in Class C Convertible
Preferred Stock if they convert their Class B Preferred Stock into the Company's
common stock under certain circumstances. Payment of such dividends is dependent
upon the holding period of the Class B Preferred Stock. The holders of the Class
C Convertible Preferred Stock are not entitled to receive dividends on the Class
C Convertible Preferred Stock.
The Company currently intends to retain any future earnings to finance
the growth and development of its business.
ITEM 6. PLAN OF OPERATIONS
GENERAL
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company's revenues consist of research grants, technology
license fees and reimbursements for research expenses. The Company has not
generated any revenues from product sales and has incurred substantial operating
losses from its activities.
The Company intends to use a substantial portion of the net proceeds of
its August, 1997 private financing, equity investment, initial payments and
reimbursed cost sharing from the November 24, 1997 exclusive worldwide licensing
agreement with Boehringer Ingelheim International GmbH to fund its plan of
operations, which includes the following elements through December 1998:
- - Continue to develop internal research and development capabilities and
conduct research and development with respect to the Company's core
technologies and other product candidates which may be identified by the
Company. The Company expects to incur substantial expenditures for research
and development expenses. During the next twelve months, the Company plans
to hire eleven additional employees primarily in research and development
positions.
- - Conduct Phase III clinical studies in the U.S. and Europe of Promycin for
treatment of cancer of the head and neck.
- - Continue to support research and development being performed at Yale
University and by other collaborators and seek additional collaborative
agreements.
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<PAGE> 49
- - Seek to acquire, generally through in-licensing, oncology-related products
that can be marketed without significant additional development activities.
The Company currently estimates that anticipated revenues, the
remaining net proceeds of its private placement in August, 1997, equity
investment, initial payments and reimbursed cost sharing from the agreement with
Boehringer Ingelheim International GmbH and its existing cash and equivalents
will be sufficient to fund its planned operations until approximately December
1998. In the event of delays or unexpected problems in product development, cost
overruns, or other unanticipated expenses commonly associated with a company in
an early stage of development, the Company will require additional funds. In
addition, the Company will need substantial additional financing, beyond this
period to fund further research and development and the Company's working
capital requirements. As of December 31, 1997 the Company estimates that the
amount required to fund operations for the next twelve months is at
approximately $15,400,000, of which approximately $6,100,000 is subject to
reimbursement under the terms of a collaboration agreement. However, the
Company's cash requirements may vary materially from those now planned because
of results of research and development, results of product testing,
relationships with strategic partners, changes in focus and direction of the
Company's research and development programs, competitive and technological
advances, the regulatory process in the United States and abroad and other
factors.
The Company has not made an assessment of its Year 2000 issues,
although the Company believes that there will not be a material impact on its
operations.
FORWARD-LOOKING STATEMENTS - CAUTIONARY FACTORS
Statements included in this Form 10-KSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Company's future business prospects,
plans, objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the Company's products or procedures are found to
be ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude the Company from marketing its products, and the
possibility that third parties will market a product equivalent or superior to
the Company's product candidates.
ITEM 7. FINANCIAL STATEMENTS
This information appears in a separate section of this report following
Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated herein by reference to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders to be held in 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
2.1 -- Agreement and Plan of Merger among MelaRx Pharmaceuticals, Inc.,
OncoRx Research Corp. and OncoRx, Inc. dated as of April 19, 1995(1)
2.2 -- Certificate of Merger, dated April 20, 1995(1)
3.1 -- Restated Certificate of Incorporation of the Registrant, as
amended(2)
3.2 -- By-laws of the Registrant(1)
4.1 -- Form of Bridge Note(1)
4.2 -- Form of Warrant Agreement for Warrants issued in connection with the
bridge financing(1)
4.3 -- Form of Underwriter's Unit Purchase Option(1)
4.4 -- Form of Placement Agent's Warrant(1)
4.5 -- Form of Warrant Agreement for Class A and Class B Warrants(1)
10.1 -- License Agreement between Yale University and Old OncoRx,
dated as of August 31, 1994(1)
10.2 -- Letter Agreement between Yale University and Old OncoRx
dated August 19, 1994(1)
10.3 -- Extension Agreement between Yale University and MelaRx
Pharmaceuticals, Inc., dated as of July 1, 1992(1)
10.4 -- Form of License Agreement between Yale University and MelaRx
Pharmaceuticals, Inc.(1)
10.5 -- Letter Agreement between Yale University and MelaRx
Pharmaceuticals, Inc., dated as of February 2, 1995(1)
10.6 -- Research Agreement between The Regents of the University of
California and MicroFab Biosystems, Inc., dated as of July 25, 1994
(1)
18
<PAGE> 51
10.7 -- Option Agreement between The Regents of the University of California
and MicroFab Biosystems, Inc. dated as of July 25, 1994(1)
10.8 -- Consulting Agreement between Mauro Ferrari and MicroFab Biosystems,
Inc., dated as of July 25,1994(1)
10.9 -- Option Agreement between MelaRx Diagnostics Inc. and Response
Biomedical Corp., dated as of March 30, 1995(1)
10.10 -- Distribution Agreement between MelaRx Diagnostics Inc. and Response
Biomedical Corp., dated April 4, 1995(1)
10.11 -- Employment Agreement between the Registrant and John A. Spears, dated
as of January 16, 1995(1)
10.12 -- 1995 Stock Option Plan of Old OncoRx(1)
10.13 -- Stock Option Agreement between Old OncoRx and John A. Spears, dated
February 2, 1995(1)
10.14 -- Employment Letter from MelaRx Pharmaceuticals, Inc. to Thomas
Mizelle, dated as of July 29, 1994(1)
10.15 -- Marketing Services Agreement between MelaRx Pharmaceuticals, Inc.
and Creative Polymers, Inc. dated as of March 21, 1994(1)
10.16 -- Amended and Restated 1993 Stock Option Plan of the Registrant(3)
10.17 -- Lease Agreement between Science Park Development Corporation and
Vion Pharmaceuticals, Inc., dated as of February 1, 1996
10.18 -- Option Agreement between the Registrant and PMP, Inc., dated April
27, 1995(1)
10.19 -- Agreement between MelaRx Pharmaceuticals, Inc. and certain
shareholders, dated February 17, 1995(1)
10.20 -- Consulting and Finder's Agreement between MelaRx Pharmaceuticals,
Inc. and Jacob A. Melnick, dated June 4, 1992, as amended by
Agreement dated February 17, 1995(1)
10.21 -- Form of Indemnification Agreement(1)
10.22 -- Letter Agreement between Yale University and OncoRx, Inc. (formerly
MelaRx Pharmaceuticals, Inc.), dated July 5, 1995(1)
10.23 -- Lease between Science Park Development Corporation and OncoRx, Inc.
dated August 10, 1995(4)
10.24 -- Master Lease Agreement between Citicorp Leasing, Inc. and OncoRx,
Inc. dated September 27, 1995(4)
10.25 -- Sale and Leaseback Agreement and Master Equipment Lease Agreement
between FINOVA Technology Finance, Inc. and Vion Pharmaceuticals,
Inc. dated as of October 17, 1996 (5)
10.26 -- Clinical Development Agreement between Vion Pharmaceuticals, Inc.
Covance Clinical Research Unit Ltd. and Covance Inc. (Confidential
treatment has been granted with regard to certain provisions of this
exhibit) (6)
10.27 -- Amendment No. 1 to License Agreement between Yale University and Vion
Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of June 12, 1997
(6)
10.28 -- Amendment No. 2 to License Agreement between Yale University and Vion
Pharmaceuticals, Inc. (f/k/a OncoRx, Inc.) dated as of June 12, 1997
(6)
10.29 -- Collaborative Development and Distribution Agreement between
Boehringer Ingelheim International GmbH and Vion Pharmaceuticals,
Inc. dated November 24, 1997 (Confidential treatment has been
requested with regard to certain provisions of this exhibit)
10.30 -- Sale and Leaseback Agreement between FINOVA Technology Finance, Inc.
and Vion Pharmaceuticals, Inc. dated as of December 10, 1997
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Ernst & Young L.L.P.
27.1 -- Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-93468), effective August 14, 1995.
19
<PAGE> 52
(2) Incorporated by reference to the Company's Quarterly Report on form 10-QSB
for the quarterly period ended September 30, 1997.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 333-39407), effective November 4, 1997.
(4) Incorporated by reference to the Quarterly Report on form 10-QSB for the
quarter ended September 30, 1995.
(5) Incorporated by reference to the Annual Report on form 10-KSB for the fiscal
year ended December 31, 1996.
(6) Incorporated by reference to the Quarterly Report on form 10-QSB for the
quarter ended June 30, 1997.
(b) Reports on Form 8-K.
During the final quarter of the Company's 1997 fiscal year, the
Company filed with the Commission on December 1, 1997 a Current Report on
Form 8-K dated November 28, 1997 regarding consummation of its strategic
partnership with Boehringer Ingelheim International GmbH.
20
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 11, 1998 VION PHARMACEUTICALS, INC.
--------------
By: /S/ THOMAS E. KLEIN
-------------------
Thomas E. Klein
Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ WILLIAM R. MILLER Chairman of the Board March 11, 1998
- --------------------------
William R. Miller
/S/ JOHN A. SPEARS Director, President and Chief March 11, 1998
- --------------------------
John A. Spears Executive Officer (Principal
Executive Officer)
/S/ THOMAS E. KLEIN Vice President--Finance and March 11, 1998
- --------------------------
Thomas E. Klein Chief Financial Officer (Principal
Financial and Accounting Officer)
/S/ MICHEL C. BERGERAC Director March 11, 1998
- --------------------------
Michel C. Bergerac
/S/ FRANK T. CARY Director March 11, 1998
- --------------------------
Frank T. Cary
/S/ A. E. COHEN Director March 11, 1998
- --------------------------
A. E. Cohen
21
<PAGE> 54
SIGNATURE TITLE DATE
/S/ JAMES FERGUSON Director March 11, 1998
- --------------------------
James Ferguson
/S/ MICHAEL C. KENT Director March 11, 1998
- --------------------------
Michael C. Kent
/S/ ALAN C. SARTORELLI Director March 11, 1998
- --------------------------
Alan C. Sartorelli
/S/ E. DONALD SHAPIRO Director March 11, 1998
- ---------------------------
E. Donald Shapiro
/S/ WALTER WRISTON Director March 11, 1998
- ---------------------------
Walter Wriston
22
<PAGE> 55
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Audited Consolidated Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors...............................................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheet...................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Changes in Shareholders' Equity...................F-4
Consolidated Statements of Cash Flows........................................F-5
Notes to Consolidated Financial Statements...................................F-6
<PAGE> 56
Report of Independent Auditors
The Board of Directors and Shareholders
Vion Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet of Vion
Pharmaceuticals, Inc. as of December 31, 1997 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
ended December 31, 1997 and 1996 and the period from May 1, 1994 (inception) to
December 31, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vion
Pharmaceuticals, Inc. at December 31, 1997 and the consolidated results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
the period from May 1, 1994 (inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Vion Pharmaceuticals, Inc. will continue as a going concern. As more fully
described in Note 1, since commencement of operations, the Company has incurred
recurring operating losses and requires substantial amounts of additional
funding to continue its operations. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
or classification of liabilities that may result from the outcome of this
uncertainty.
Ernst & Young LLP
Hartford, Connecticut
February 6, 1998
F-1
<PAGE> 57
CONSOLIDATED BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,890,621
Short-term investments (Includes $2,777,088 restricted) 7,088,540
Accounts receivable 728,899
Other current assets 118,752
------------
Total current assets 11,826,812
Property and equipment, net 1,301,680
Security deposits 34,894
Research contract prepayments 416,945
------------
Total assets $ 13,580,331
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current $ 274,853
Accounts payable and accrued expenses 1,008,210
------------
Total current liabilities 1,283,063
Obligation under capital lease - long term 472,578
------------
Total Liabilities 1,755,641
------------
Shareholders' equity:
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 757,632 shares 7,576
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 4,592 shares 46
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: 0 shares 0
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 9,833,934 98,339
Additional paid-in capital 34,903,191
Deferred compensation (72,128)
Accumulated deficit (23,112,334)
------------
11,824,690
------------
Total liabilities and shareholders' equity $ 13,580,331
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 58
CONSOLIDATED STATEMENTS OF OPERATIONS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1994
(INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- ------------
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Contract research grants $ 48,221 $ 51,779 $ 100,000
Research support 1,222,912 0 1,222,912
Technology license revenues 4,000,000 0 4,000,000
------------ ------------ ------------
Total revenues 5,271,133 51,779 5,322,912
Operating expenses:
Research and development 7,675,486 5,975,089 16,783,775
General and administrative 2,639,486 2,113,077 6,837,882
Nonrecurring collaboration restructuring fee 600,000 0 600,000
Purchased research and development 0 0 4,481,405
Amortization of finance charges 0 0 345,439
Interest income (343,911) (437,993) (865,948)
Interest expense 43,666 10,285 99,113
------------ ------------ ------------
Net loss $( 5,343,594) $( 7,608,679) $(22,958,754)
============ ============ ============
Basic and diluted net loss per share $ (0.62) $ (1.00)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 59
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER"S EQUITY
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
----------------- --------------- ------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 0 $0 0 $0 $2,693,244 $26,932
Common stock issued for services - August 1994 159,304 1,593
Net loss
---------- -------- --------- --- --------- ------
Balance - December 31, 1994 0 0 0 0 2,852,548 28,525
Stock options issued for compensation -
February 1995
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 2,000,000 20,000
Shares repurchased pursuant to
employment agreements - April 1995 (274,859) (2,749)
Private placement of common stock - April 1995 76,349 763
Warrants issued with bridge notes - April 1995
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 2,875,000 28,750
Issuance of common stock 1,250 13
Receipts from sale of unit purchase option
Net loss
---------- -------- --------- --- --------- -------
Balance at December 31, 1995 0 0 0 0 7,530,288 75,302
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Issuance of common stock 29,418 294
Class A convertible preferred stock dividend 21,998 220
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
---------- ------- -------- --- ---------- -------
Balance at December 31, 1996 1,107,028 $11,070 0 $0 8,017,961 $80,178
---------- ------- -------- --- ---------- -------
Conversion of Class A convertible preferred stock (396,988) (3,970) 1,102,757 11,028
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Compensation associated with stock options grants
Extension/reissuance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Accretion of dividend payable on Class B convertible
preferred stock
Amortization of deferred compensation
Net loss
---------- ------- -------- --- ---------- -------
Balance at December 31, 1997 757,632 $7,576 4,592 $46 $9,833,934 $98,339
---------- ------- -------- --- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-In Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
<S> <C> <C> <C> <C>
Common stock issued for cash - July 1994 $0 $0 ($19,877) $7,055
Common stock issued for services - August 1994 (1,176) 417
Net loss $0 $0 (475,946) (475,946)
----------- -------- ---------- ----------
Balance - December 31, 1994 0 0 (496,999) (468,474)
Stock options issued for compensation -
February 1995 540,000 540,000
Reverse acquisition of MelaRx
Pharmaceuticals, Inc. - April 1995 4,300,000 4,320,000
Shares repurchased pursuant to
employment agreements - April 1995 2,029 (720)
Private placement of common stock - April 1995 205,237 206,000
Warrants issued with bridge notes - April 1995 200,000 200,000
Initial public offering of units of one common share,
one Class A warrant and one Class B warrant at
$4.00 per unit - August 1995 and September 1995 9,667,460 9,696,210
Issuance of common stock 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
----------- -------- ----------- -----------
Balance at December 31, 1995 14,913,435 0 (10,025,505) 4,963,232
Issuance of Class A convertible preferred stock 11,518,552 0 11,531,052
Conversion of Class A convertible preferred stock (2,932) 0
Issuance of common stock 102,426 102,720
Class A convertible preferred stock dividend (220) 0
Compensation associated with stock option grants 190,407 (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
----------- -------- ----------- -----------
Balance at December 31, 1996 $26,721,888 ($106,760) ($17,634,404) $9,071,972
----------- -------- ----------- -----------
Conversion of Class A convertible preferred stock (7,058) 0
Conversion of Class B convertible preferred stock (644) 0
Compensation associated with stock options grants 55,643 55,643
Extension/reissuance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Class A convertible preferred stock dividend (476) 0
Issuance of Class B convertible preferred stock 4,481,801 4,481,850
Accretion of dividend payable on Class B convertible
preferred stock (133,860) (133.860)
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
----------- --------- ----------- -----------
Balance at December 31, 1997 $34,903,191 ($72,128) ($23,112,334) $11,824,690
----------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 60
CONSOLIDATED STATEMENTS OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MAY 1, 1994
(INCEPTION) THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- ------------
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,343,594) $ (7,608,679) $(22,958,754)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development 0 0 4,481,405
Amortization of financing costs 0 0 345,439
Depreciation and amortization 303,746 125,838 455,206
(Increase) in other current assets (741,016) (87,810) (846,665)
Decrease/(Increase) in other assets 192,670 (176,906) (450,124)
Increase in accounts payable and
accrued expenses 514,083 185,054 973,678
Accretion on Class B preferred stock (133,860) 0 (133,860)
Extension/reissuance of placement agent warrants 168,249 0 168,249
Stock issued for services 600,000 0 600,417
Stock options issued for compensation 90,275 83,647 713,922
------------ ------------ ------------
Net cash used in operating activities (4,349,447) (7,478,856)) (16,651,087)
------------ ------------ ------------
Cash flows used for investing activities:
Purchase of marketable securities (8,121,720) (11,796,338) (22,209,166)
Maturities of marketable securities 5,661,626 9,459,000 15,120,626
Acquisition of fixed assets (299,131) (262,907) (812,453)
Cash portion of MelaRx acquisition 0 0 4,061
------------ ------------ ------------
Net cash used in investing activities (2,759,225) (2,600,245) (7,896,932)
------------ ------------ ------------
Cash flows provided by financing activities:
Initial public offering 0 0 9,696,210
Net proceeds from issuance of common stock 2,889,801 2,720 3,206,077
Net proceeds from issuance of preferred stock 4,481,850 11,531,052 16,012,902
Repurchase of common stock 0 0 (720)
Net proceeds from bridge financing 0 0 1,704,269
Repayments of bridge financing 0 0 (2,000,000)
Advances from stockholders 0 0 250,000
Repayments to stockholders 0 0 (250,000)
Exercise of warrants (3) 0 (3)
Receipts from sale of unit purchase option 0 0 250
Repayment of equipment capital lease (160,724) (17,235) (180,345)
------------ ------------ ------------
Net cash provided by financing activities 7,210,924 11,516,537 28,438,640
------------ ------------ ------------
Net increase in cash 102,252 1,437,436 3,890,621
Cash and cash equivalents at beginning of year 3,788,369 2,350,933 0
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,890,621 $ 3,788,369 $ 3,890,621
============ ============ ============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
- - Capital lease obligations of $239,866 and $593,489 were incurred for the years
ended December 31, 1996 and December 31, 1997, respectively, when the Company
entered into leases for laboratory and office equipment.
- - An investor of the Company did not exercise the option to require the Company
to repurchase shares of preferred stock for $100,000, and the investor received
23,859 shares of common stock during 1996, which had been converted from
previously held preferred stock.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 61
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements
1. THE COMPANY
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
In April 1995, the Company merged into OncoRx Research Corp. a previously
unaffiliated company ("Research"). The stockholders of the Company were issued
shares of common and preferred stock of MelaRx Pharmaceuticals Inc. ("MelaRx"),
the 100% owner of Research, in exchange for all of the outstanding shares of the
Company. In August 1995, the Company completed an initial public offering
("IPO") (see Note 5) resulting in net proceeds to the Company of approximately
$9,696,000. On April 20, 1995, the Company merged into OncoRx Research Corp., a
wholly-owned subsidiary of MelaRx, which was renamed OncoRx, Inc. after the
merger. The stockholders of the Company were issued 2,654,038 common and 23,859
preferred shares of MelaRx in exchange for 2,000,000 shares of common stock of
the Company valued at $2.16 per share (fair value).
As the shareholders of the Company obtained a majority interest in the merged
company for accounting purposes, the Company is treated as the acquirer.
Therefore, the transaction is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
The accompanying financial statements are prepared assuming the Company will
continue as a going concern; however, at its current and planned rate of
spending, the Company's cash, cash equivalents and short term investments are
not sufficient to allow it to continue operations through the 1998 calendar
year. The Company requires substantial new revenues and other sources of capital
in order to meet such budgeted expenditures and to continue its operations
throughout the year. The Company is seeking to enter into significant strategic
partnerships with pharmaceutical companies for the development of its core
technologies, through which it would anticipate receiving some of the
substantial revenues and financing required to continue operations beyond the
year end. The Company has entered into discussions with several major
pharmaceutical companies concerning such strategic alliances, but there can be
no assurance that the Company will be successful in achieving such alliances,
nor can the Company predict what funds might be available to it if it can
achieve such alliances. The Company is also seeking to raise funds through
additional means, including (1) private placements and recapitalization of its
securities; (2) spin-off, refinancing, or partial sale or disposition of its
rights to certain of its non-core technologies; and (3) equipment lease
financing. No assurance can be given that the Company will be successful in
arranging financing through any of these alternatives.
Failure to obtain such financing will require the Company to delay, renegotiate,
or omit payment on its outside research funding commitments causing it to
substantially curtail its operations, resulting in a material adverse effect on
the Company.
F-6
<PAGE> 62
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
FAIR VALUE AND CONCENTRATION OF CREDIT RISKS
The estimated fair value of amounts reported in the financial statements have
been determined by using available market information and appropriate valuation
methodologies. All current assets and current liabilities are carried at cost,
which approximates fair value, because of their short-term nature.
SHORT-TERM INVESTMENTS
The Company accounts for short-term investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company's investments in debt securities, which
typically mature in one year or less, are classified as trading and are carried
at fair value. The aggregate cost of the debt securities at December 31, 1997
was $6,978,680.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation of equipment is computed
under the straight-line method over the estimated useful lives of the assets
(three to seven years).
INCOME TAXES
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under this method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of assets and liabilities.
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan (the "Plan") that covers all
employees who meet the eligibility conditions set forth in the Plan. Employee
contributions to the Plan are voluntary and are based on eligible compensation,
as defined therein. In accordance with the terms of the Plan, no Company
contributions are made to the Plan.
SMALL BUSINESS INNOVATION RESEARCH GRANT
On September 27, 1996 the Company was awarded a Small Business Innovation
Research ("SBIR") grant for the Inhibitors of Ribonucleotide Reductase program.
The award was for reimbursable direct costs of up to $100,000.
F-7
<PAGE> 63
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The SBIR grant expired on March 30, 1997. The Company recognized $48,221 and
$51,779 of revenue from the SBIR grant for reimbursement of expenses incurred
for the years ended December 31, 1997 and 1996, respectively.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Certain 1996 amounts have been
reclassified to conform to the 1997 presentation.
PER SHARE DATA
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Numerator:
Net loss ($5,343,594) ($7,608,679)
Numerator for basic and diluted
net loss per share ($5,343,594) ($7,608,679)
----------- -----------
Denominator:
Denominator for basic and diluted
net loss per share 8,670,717 7,641,546
----------- -----------
Basic and diluted net loss per share ($ 0.62) ($ 1.00)
----------- -----------
</TABLE>
For additional disclosures regarding warrants and Class A and B Convertible
Preferred Stock see Note 5. For additional disclosures regarding stock options
see Note 6. These potentially dilutive securities were not included in diluted
net loss per share as the effect would be antidilutive.
F-8
<PAGE> 64
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Office equipment $ 177,331
Furniture and fixtures 163,251
Laboratory equipment 202,762
Leasehold improvements 285,765
Leased equipment under capital lease 927,777
-----------
1,756,886
Less accumulated depreciation (455,206)
-----------
Net property and equipment $ 1,301,680
===========
</TABLE>
4. RESEARCH AND LICENSE AGREEMENTS
BOEHRINGER INGELHEIM AGREEMENT
On November 24, 1997, the Company and Boehringer Ingelheim International GmbH of
Germany ("BI") entered into an exclusive worldwide licensing agreement for the
development and marketing of Promycin(R) (porfiromycin), Vion's most advanced
anticancer agent. The agreement provides the Company with exclusive co-promotion
rights to Promycin in the United States and Canada. BI will have exclusive
worldwide rights to market and sell Promycin outside the United States and
Canada. The Company is responsible for the manufacturing and supply of Promycin
for all territories.
In exchange for these rights, the Company received $4.0 million from upfront
technology access fees and net proceeds of $2,869,801 from the sale of 448,336
shares of common stock at a premium to the then current market price. BI will
also reimburse the Company for certain initial development costs to date and
will share in future worldwide development costs.
The Company has cash equivalents and short-term investments of $10,979,161 at
December 31,1997. This balance includes $2,777,088 of restricted investments for
Promycin development expenses. Pursuant to the BI Agreement the Company must use
the BI license fee of $4.0 million exclusively for Promycin development
expenses. Including permitted earlier expenses and expenses incurred subsequent
to November 24, 1997, the Company recorded $1,222,912 of Promycin development
expenses as revenue under the agreement during 1997.
COVANCE AGREEMENT
During the quarter ended June 30, 1997, the Company entered into a Clinical
Development Agreement (the "Agreement") with Covance Clinical Research Unit Ltd.
and Covance Inc. ("Covance"). Pursuant to the Agreement the Company is
contracting to Covance the selection and management of clinical sites and the
preparation of clinical trial reports arising from clinical trials performed by
Covance regarding the Company's
F-9
<PAGE> 65
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
product candidate Promycin for the inclusion in a regulatory submission. The
Company has incurred expenses of $1,633,974 for the year ended December 31, 1997
under this agreement which has been expensed as incurred as research and
development.
YALE/MELARX AGREEMENT
Pursuant to a License Agreement between the Company and Yale University
("Yale"), as amended and restated as of August 1, 1992, the Company has obtained
rights to a synthetic form of melanin which the Company has named Melasyn. The
Company has entered into an agreement with Creative Polymers pursuant to which
Creative Polymers has agreed to be the exclusive selling agent for Melasyn and
will be entitled to 20% of the net sales of Melasyn.
The Company has an option to obtain an exclusive license for any inventions that
result from research projects by Yale which are relating to synthetic melanin
funded by the Company. The Company has agreed to reimburse Yale for its costs in
connection with the research projects in an amount currently equal to $899,023
per year (subject to increase by up to 5% per year). The agreement is for a term
ending June 30, 1998, subject to earlier termination as defined.
The Company and Yale entered into a License Agreement dated December 15, 1995
pursuant to which the Company received a nontransferable worldwide exclusive
license, expiring over the lives of the patents, to three inventions relating to
gene therapy for melanoma. Pursuant to this agreement, the Company has paid Yale
a $100,000 fee, and has agreed to pay milestone payments based on the status of
clinical trials and regulatory approvals. In addition, Yale is entitled to
royalties on sales, if any, of resulting products and sublicensing revenues.
YALE/ONCORX AGREEMENT
Pursuant to a License Agreement dated August 31, 1994, as amended, Yale granted
the Company an exclusive, nontransferable, worldwide license to make, have made,
use, sell and practice certain inventions and research for therapeutic and
diagnostic purposes. The term of the license is the expiration of any patents
relating to any inventions or, with respect to nonpatented inventions or
research, 17 years. Yale is entitled to royalties on sales, if any, of resulting
products and sublicensing revenues and, with regard to one patent, milestone
payments based on the status of clinical trials and regulatory approvals.
YALE SUBSCRIPTION ASSIGNMENT AND ASSUMPTION AGREEMENT
On June 4, 1992, the Company entered into a Subscription, Assignment and
Assumption Agreement (the "SAAA") with Yale. Pursuant to the agreement as
amended and extended, the Company is to provide funding for certain research in
the field of dermatology by Yale. The agreement expires in June 1998 and
provides for quarterly payments to Yale in accordance with agreed upon annual
budgets. The payments are recorded as expense when incurred. The Company was
granted exclusive licenses to inventions in countries where patents are
effective and nonexclusive licenses elsewhere expiring over the lives of the
patents and 20 years, respectively. The Company is obligated to pay royalties on
sales of licensed products.
F-10
<PAGE> 66
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
BERKELEY AGREEMENT
In October 1997, the Company terminated a research agreement with The Regents of
the University of California on behalf of the Berkeley Campus with regard to
certain microfiltration technology and decided not to pursue negotiations to
obtain licenses or options to obtain licenses for certain inventions resulting
from this research. There are no continuing liabilities to the Company stemming
from prior funding of this research.
5. SHAREHOLDERS' EQUITY
On April 20, 1995, 2,000,000 shares of common stock valued at $2.16 per share
were issued in conjunction with the merger with MelaRx (see Note 1). Shortly
prior to the consummation of the Merger, the Company issued 76,349 shares of
common stock for net proceeds of $206,000 after deducting placement fees of
$14,000.
On August 17, 1995 and September 6, 1995, the Company completed an IPO of
2,875,000 units, consisting of an aggregate of 2,875,000 shares of common stock,
2,875,000 redeemable Class A Warrants and 2,875,000 redeemable Class B Warrants
at a price of $4.00 per unit. Each Class A Warrant entitles the holder to
purchase one share of common stock and one Class B Warrant. Each Class B Warrant
entitles the holder to purchase one share of common stock. These warrants are
exercisable through August 13, 2000. The net proceeds to the Company of the IPO
were approximately $9,696,000 before repayment of the bridge financing noted
below.
In conjunction with the Company's IPO, the Company granted the underwriter an
option, exercisable over a period of three years commencing two years from the
date of the offering, to purchase up to 250,000 units at $5.20 per unit, subject
to adjustment.
BRIDGE FINANCING
In April 1995, the Company issued $2,000,000 in 10% promissory notes and
warrants to purchase 1,000,000 shares of common stock at $3.00 per share for net
proceeds of $1,704,000. The promissory notes were recorded net of a discount of
$200,000, attributable to the fair value of the bridge warrants. The notes were
paid at the closing of the IPO of the Company's securities described above and
the warrants, which are exercisable over four years, were converted into Class A
Warrants at that time.
F-11
<PAGE> 67
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. SHAREHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENT OF CLASS A CONVERTIBLE PREFERRED STOCK
On May 22, 1996, the Company completed a private placement of 1,250,000 shares
of Class A Convertible Preferred Stock, at $10.00 per share, resulting in net
proceeds to the Company of $11,531,052. Each share of Class A Preferred Stock is
initially convertible into 2.777777 shares of the Company's common stock and is
entitled to vote on all matters on an "as if" converted basis. In connection
with the foregoing transaction, the Company also issued to the placement agent
warrants to purchase an aggregate of 546,875 shares of the Company's common
stock. The shares of Class A Preferred Stock pay semi-annual dividends of 5% per
annum, payable in additional shares of Class A Preferred Stock, and a 15% one
time dividend payable in additional Class A Preferred Stock if the Company
redeems the issue within 3 years. The issue also contains a provision for a
special dividend after 2 years under certain conditions if the Company's common
stock price falls below the conversion price of the Class A Preferred Stock. The
issuance of the Class A Preferred Stock at closing also triggered certain
antidilution adjustment provisions of the Company's outstanding warrants,
resulting in the issuance of additional warrants.
ANTIDILUTION ADJUSTMENT
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
Convertible Preferred Stock, and pursuant the Warrant Agreement governing the
rights of the Class A Warrants and the Class B Warrants, an adjustment was made
to the exercise price of the Class A Warrants and the Class B Warrants and there
was a corresponding distribution of additional Class A Warrants and Class B
Warrants. Specifically, on July 12, 1996 (the "Payment Date") each holder of a
Class A Warrant at the close of business on July 3, 1996 (the "Record Date") was
issued an additional 0.1 Class A Warrant and the exercise price of the Class A
Warrants was reduced from $5.20 to $4.73. In addition, on the Payment Date each
holder of a Class B Warrant on the close of business on the Record Date was
issued an additional 0.1 Class B Warrant and the exercise price of the Class B
Warrants was reduced from $7.00 to $6.37.
PRIVATE PLACEMENT OF CLASS B CONVERTIBLE PREFERRED STOCK
On August 20, 1997, the Company completed a private placement of 4,850 shares of
non-voting Class B Convertible Preferred Stock, at $1,000 per share, resulting
in net proceeds to the Company of $4,481,450. Shares of Class B Preferred Stock
are convertible into shares of common stock including an accretion of 8% per
annum. Shares of the Class B Preferred Stock may also be eligible, under certain
circumstances, to receive dividends paid in Class C Preferred Stock. The Class C
Preferred Stock is convertible into shares of common stock at the average
closing bid price of the Company's common stock for thirty consecutive business
days ending on the private placement closing date and is not entitled to
dividends.
ISSUANCE OF COMMON STOCK TO YALE UNIVERSITY
Effective July 24, 1997, the Company and Yale amended two license agreements
between the parties pursuant to which Yale agreed to reduce certain amounts
payable by the Company under such agreements. As a result, the Company issued
150,000 shares of common stock to Yale valued at $600,000.
F-12
<PAGE> 68
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. SHAREHOLDERS' EQUITY (CONTINUED)
ISSUANCE AND EXTENSION OF PLACEMENT AGENT WARRANTS
In connection with its role as placement agent for two private financings of the
Company's predecessor MelaRx, Inc., D.H. Blair Investment Banking Corporation
was issued warrants to purchase 56,504 and 11,929 shares of common stock at
$3.56 per share, expiring August 20, 1997 and November 1, 1997, respectively,
and warrants to purchase 23,632 shares at $4.44 per share, expiring March 3,
1998. The warrants to purchase 56,504 shares of common stock at $3.56 per share
expired, however on October 31, 1997 the Company agreed to reissue the expired
warrants and extend the expiration date of all such warrants to July 5, 1998.
The extension which was approved by the Board of Directors resulted in an
expense of $168,249.
6. EMPLOYEE STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In July 1995, the Board of Directors of the Company adopted the Amended and
Restated 1993 Stock Option Plan (the "Option Plan"). The Option Plan originally
provided for the granting of incentive stock options or non-qualified stock
options to employees, officers, directors, and consultants of the Company, to
purchase up to an aggregate of 534,750 shares of common stock. On January 31,
1996, the Board of Directors adopted, subject to stockholder approval, an
amendment to the plan increasing the number of shares which may be issued under
the plan from 534,750 to 1,000,000. The amendment to the plan was adopted by the
stockholders at the Company's annual meeting on April 18, 1996. On January 29,
1997, the Board of Directors adopted an amendment to the Plan increasing the
number of shares which may be issued under the Plan from 1,000,000 to 1,500,000
which was approved by the stockholders at the Company's annual meeting on April
16, 1997. Incentive options granted under the Option Plan are exercisable for a
period of up to ten years from the date of grant at an exercise price which is
not less than the fair market value of the common stock on the date of the grant
except that the term of an incentive option granted under the Option Plan to a
stockholder owning more than 10% of the outstanding voting power may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Stock on the date of grant. Options granted under the Option
Plan become exercisable in no less than four equal annual installments
commencing no earlier than the first anniversary of the date of grant. No option
may be granted under the Option Plan after April 14, 2003.
Through December 31, 1996 and 1997, options to purchase an aggregate of 896,750
and 1,033,050 shares, respectively had been granted under the plan. The Company
recognized $55,643 of compensation expense in
F-13
<PAGE> 69
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
1997 for options granted under the plan which was a result of stock options
granted to non-employees. The Company recognized $83,647 of compensation expense
in 1996 for options granted under the plan which was a result of stock options
granted to non-employees and the issuance of certain stock options subject to
approval by the shareholders of the Company resulting in compensation expense of
$51,907 and $31,740, respectively.
The provisions of the Option Plan provide for the automatic grant of
non-qualified stock options to purchase shares of common stock ("Director
Options") to directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors"). Eligible Directors of the
Company elected subsequent to the public offering are granted a Director Option
to purchase 20,000 shares of common stock on the date such person is first
elected or appointed a director (an "Initial Director Option"). Each Eligible
Director, other than directors who received an Initial Director Option since the
last annual meeting, is granted a Director Option to purchase 5,000 shares of
Common Stock ("Automatic Grant") 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 one year from the date of grant. Director Options expire the earlier
of ten years after the date of grant or ninety days after the termination of the
director's service on the Board of Directors.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options granted under the Option Plan was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1997, respectively: risk-free interest
rates of 6.28% and 5.77%; volatility factors of the expected market price of the
Company's common stock of .563 and .490; and a weighted-average expected life of
the option of 7 years. The Company has assumed no dividend yield in 1996 and
1997 because it did not pay cash dividends on its common stock and does not
expect to pay cash dividends in the foreseeable future.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-14
<PAGE> 70
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Pro forma net loss $ (7,824,863) $ (5,650,169)
Pro forma basic and diluted loss
per share: $ (1.02) $ (0.65)
------------- -------------
</TABLE>
A summary of the Company's stock option activity under the Option Plan, and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding - beginning
of year 533 $3.86 885 $3.93
Granted 364 4.06 136 4.53
Exercised -- --
Forfeited (12) 4.25 (40) 4.26
----- ----- ----- -----
Outstanding - end of year 885 $3.93 981 $4.00
----- ----- ----- -----
Exercisable at end of year 221 $3.71 422 $3.83
----- ----- ----- -----
Weighted-average fair
value of options granted
during the year $2.60 $2.65
----- ----- ----- -----
</TABLE>
F-15
<PAGE> 71
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
A summary of the Company's ranges of exercise prices and weighted-average
remaining contractual life of options outstanding and of weighted-average
exercise price of options currently exercisable under the Option Plan as of
December 31, 1997 follows:
<TABLE>
<CAPTION>
WEIGHT-AVERAGE
NUMBER OF NUMBER OF WEIGHTED-AVERAGE REMAINING CONTRACTUAL
OUTSTANDING WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OF LIFE OF
SHARES EXERCISE PRICE OF EXERCISABLE OPTIONS EXERCISABLE OPTIONS OUTSTANDING
RANGE (000) OPTIONS OUTSTANDING (000)
<S> <C> <C> <C> <C> <C>
$3.625- $5.625 932 $ 4.18 373 $ 4.24 7.88 years
$2.40 6 2.40 6 2.40 2.67 years
$.40 43 .40 43 .40 2.67 years
</TABLE>
A summary of the Company's stock option activity outside the Option Plan, and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------ -------------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding - beginning
of year 404 $.21 398 $.21
Granted -- --
Exercised (6) .40 (50) .40
Forfeited -- --
---- ---- ---- ----
Outstanding - end of year 398 $.21 348 $.18
---- ---- ---- ----
Exercisable at end of year 398 $.21 348 $.18
---- ---- ---- ----
</TABLE>
F-16
<PAGE> 72
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
6. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
A summary of the Company's ranges of exercise prices and weighted-average
remaining contractual life of options outstanding and of weighted-average
exercise price of options currently exercisable outside the Option Plan as of
December 31, 1997 follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF WEIGHT-AVERAGE
OUTSTANDING WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE REMAINING CONTRACTUAL
SHARES EXERCISE PRICE OF EXERCISABLE EXERCISE PRICE OF LIFE OF
RANGE (000) OPTIONS OUTSTANDING (000) OPTIONS EXERCISABLE OPTIONS OUTSTANDING
<S> <C> <C> <C> <C> <C>
$ 5.00 .5 $ 5.00 .5 $ 5.00 2.67 years
$ .40 62 .40 62 .40 2.67 years
$ .13 286 .13 286 .13 1.08 years
</TABLE>
7. INCOME TAXES
At December 31, 1997, the Company has available for federal income tax purposes
net operating loss carryforwards of approximately $2,390,000 and a general
business credit of $346,000 expiring in 2010 through 2013. The difference
between the deficit accumulated during the development stage for financial
reporting purposes and the net operating loss carryforwards for tax purposes is
primarily due to certain costs which are not currently deductible for tax
purposes and differences in accounting and tax basis resulting from the merger
described in Note 1. The ability of the Company to realize a future tax benefit
from a portion of its net operating loss carryforwards and general business
credits may be limited due to changes in ownership of the Company. The U.S.
statutory rate is 34%; however, the Company has recorded no provision or benefit
for income taxes in the financial statements due to recurring losses.
Accordingly, the Company has provided a full valuation reserve against its
deferred tax assets.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997
-----------
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 988,629
Research and development costs 6,110,481
General business tax credit 346,407
-----------
Total deferred tax assets 7,445,517
Valuation allowance for deferred tax assets (7,445,517)
-----------
Net deferred tax assets 0
-----------
Total net deferred tax assets (liabilities) $ 0
===========
</TABLE>
F-17
<PAGE> 73
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
The Company is the lessee of equipment under capital leases expiring in 2000.
Effective February 1, 1996, the Company entered into a noncancelable operating
lease for its facility expiring in 1999. Effective April 1, 1996, the Company
entered into noncancelable operating leases for laboratory and office equipment
expiring in 2000. The future minimum lease payments under the capital and
operating leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- ---------
<S> <C> <C>
Year ending December 31:
1998 $326,312 $216,600
1999 337,694 36,648
2000 177,626 1,616
Thereafter -- --
-------- --------
Total minimum lease payments 841,632 254,864
========
Less amount representing interest 94,201
--------
Present value of minimum lease payments $747,431
========
</TABLE>
The cost of assets under capital leases amounted to $927,777 at December 31,
1997. Accumulated amortization relating to the leased equipment amounted to
$185,204 at December 31, 1997. Amortization expense included in depreciation
expense, relating to the leased equipment, amounted to $159,791, $20,692, and
$185,204 for the year ended December 31, 1997, the year ended December 31, 1996,
and the period from May 1, 1994 (commencement of operations) through December
31, 1997, respectively.
Rent expense amounted to $249,799, $181,093 and $468,657 for the year ended
December 31, 1997, the year ended December 31, 1996, and the period from May 1,
1994 (commencement of operations) through December 31, 1997, respectively.
On December 10, 1997 the Company entered into a sale and leaseback agreement
with FINOVA Technology Finance, Inc. ("FINOVA") The cost of assets under the
capital lease is $360,284 which is being depreciated over the lease term of 3
years.
Under the terms of an employment agreement, the Company is obligated to pay the
chief executive officer of the Company an annual salary of $180,000, increased
annually by an amount no less than an annual cost-of-living adjustment, through
January 1998.
A former director of the Company is a party to a Consulting and Finder's
Agreement ("Agreement") with the Company. This Agreement entitles him to receive
an annual fee equal to 10% of the net after-tax profits of the
F-18
<PAGE> 74
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company attributable to the sale or licensing of products or technology licensed
pursuant to the Company's agreement with Yale (see Note 4), until the cumulative
total of such fees equal $3,000,000. Such fee continues to be payable not
withstanding the director's death or incapacity until the $3,000,000 has been
paid.
The Company has various commitments relating to its research agreements (see
Note 4).
9. RELATED PARTY TRANSACTIONS
A director of the Company is a principal of a management consulting firm that
has rendered various consulting services for the Company. The Company paid the
firm $120,000 and $60,000 for services rendered for the years ended December 31,
1996 and 1997, respectively.
The Company and one of its directors, who is affiliated with Yale University,
entered into a five year consulting agreement on September 29, 1995 which is
renewable for one additional year, providing for various advisory services.
Under the agreement, the director receives an annual fee of $48,000.
F-19
<PAGE> 75
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY INCORPORATED IN
MicroFab Biosystems, Inc. Delaware
<PAGE> 76
Appendix B
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from _______________ to ________________
Commission file number 0-26534
VION PHARMACEUTICALS, INC.
--------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3671221
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4 Science Park, New Haven, CT 06511
-----------------------------------
(Address of Principal Executive Offices)
(203) 498-4210
--------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's sole class of common
equity, as of March 31, 1998 is: 10,275,588 shares of common stock, $.01 par
value.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 77
<TABLE>
<CAPTION>
Part 1 - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
March 31,
1998 December 31,
(Unaudited) 1997
- ----------------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,015,191 $ 3,890,621
Short-term investments 6,045,950 7,088,540
Accounts receivable 363,019 728,899
Other current assets 95,069 118,752
---------------------- --------------------
Total current assets 9,519,229 11,826,812
Property and equipment, net 1,201,479 1,301,680
Security deposits 34,894 34,894
Research contract prepayment 416,945 416,945
---------------------- --------------------
Total assets $ 11,172,547 $ 13,580,331
---------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current $ 274,853 $ 274,853
Accounts payable and accrued expenses 1,201,316 1,008,210
---------------------- --------------------
Total current liabilities 1,476,169 1,283,063
Obligation under capital lease - long term 392,521 472,578
---------------------- --------------------
Total Liabilities 1,868,690 1,755,641
---------------------- --------------------
Shareholders' equity
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 1998 and 1997 - 757,632 shares 7,576 7,576
Class B convertible preferred stock, $0.01 par value, authorized:
100,000 shares; issued and outstanding: 1998 - 3,477 shares 1997
4,592 shares 35 46
Class C convertible preferred stock, $0.01 par value, authorized:
25,000 shares; issued and outstanding: 0 shares - -
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1998 - 10,275,588 shares 1997 - 9,833,934 shares 102,756 98,339
Additional paid-in-capital 34,911,598 34,903,191
Deferred compensation (63,470) (72,128)
Accumulated deficit (25,654,638) (23,112,334)
--------------------- -------------------
9,303,857 11,824,690
--------------------- -------------------
Total liabilities and shareholders' equity $ 11,172,547 $ 13,580,331
===================== ===================
</TABLE>
The accompanying notes and an integral part of these financial statements.
Page 2
<PAGE> 78
<TABLE>
<CAPTION>
Consolidated Statement of Operations
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
For The Period
From May 1, 1994
Three Months Ended (Inception) through
March 31, March 31, March 31,
-------------------------------------------------------------------
1998 1997 1998
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract research grants $ 0 $ 39,740 $ 100,000
Research support 274,842 0 1,497,754
Technology license revenues 0 0 4,000,000
--------------------------------------------------------------------
Total revenues 274,842 39,740 5,597,754
Operating expenses:
Research and development 2,273,522 1,521,779 19,057,297
General and administrative 631,709 491,534 7,469,591
Nonrecurring collaboration restructuring fee 0 0 600,000
Purchased research and development 0 0 4,481,405
Amortization of finance charges 0 0 345,439
Interest Income (142,874) (99,234) (1,008,822)
Interest Expense 18,705 11,058 117,818
---------------------------------------------------------------------
Net Loss $ (2,506,220) $ (1,885,397) $ (25,464,974)
=====================================================================
Basic and diluted net loss per share $ (0.25) $ (0.23)
---------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE> 79
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 0 0 0 0 7,530,288 75,302
-------------------------------------------------------------------------------
Issuance of Class A convertible preferred stock 1,250,000 12,500
Conversion of Class A convertible preferred stock (164,970) (1,650) 458,255 4,582
Class A convertible preferred stock dividend 21,998 220
Issuance of common stock 29,418 294
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------------
Balance at December 31, 1996 1,107,028 $11,070 0 $0 8,017,961 $80,178
-------------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B convertible
preferred stock
Extension/reissuance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------------
Balance at December 31, 1997 757,632 $7,576 4,592 $46 9,833,934 $98,339
-------------------------------------------------------------------------------
Conversion of Class B convertible preferred stock (1,115) (11) 441,654 4,417
Accretion of dividend payable on Class B convertible
preferred stock
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
-------------------------------------------------------------------------------
Balance at March 31, 1998 757,632 $7,576 3,477 $35 10,275,588 $102,756
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity (cont'd)
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
------------------------------------------------------------------
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 14,913,435 0 (10,025,505) 4,963,232
------------------------------------------------------------------
Issuance of Class A convertible preferred stock 11,518,552 11,531,052
Conversion of Class A convertible preferred stock (2,932) 0
Class A convertible preferred stock dividend (220) 0
Issuance of common stock 102,426 102,720
Compensation associated with stock option grants 190,407 (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
------------------------------------------------------------------
Balance at December 31, 1996 $26,721,888 ($106,760) ($17,634,404) $9,071,972
------------------------------------------------------------------
Conversion of Class A convertible preferred stock (7,058) 0
Class A convertible preferred stock dividend (476) 0
Issuance of Class B convertible preferred stock 4,481,801 4,481,850
Conversion of Class B convertible preferred stock (644) 0
Accretion of dividend payable on Class B convertible
preferred stock (133,860) (133,860)
Extension/reissuance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
------------------------------------------------------------------
Balance at December 31, 1997 $34,903,191 ($72,128) ($23,112,334) $11,824,690
------------------------------------------------------------------
Conversion of Class B convertible preferred stock (4,406) 0
Accretion of dividend payable on Class B convertible
preferred stock (36,084) (36,084)
Compensation associated with stock option grants 12,813 12,813
Amortization of deferred compensation 8,658 8,658
Net loss (2,506,220) (2,506,220)
------------------------------------------------------------------
Balance at March 31, 1998 $34,911,598 ($63,470) ($25,654,638) $9,303,857
------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE> 80
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
For the period
from May 1, 1994
For The Three Months (inception) through
Ended March 31, March 31,
-----------------------------------------------------------
1998 1997 1998
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from operating activities:
<S> <C> <C> <C>
Net loss $ (2,506,220) $ (1,885,397) $ (25,464,974)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development 0 0 4,481,405
Amortization of financing costs 0 0 345,439
Depreciation and amortization 122,438 57,276 577,644
(Increase) in other current assets 389,563 (26,016) (457,102)
(Increase) in other assets 0 192,669 (450,124)
Increase in accounts payable and
accrued expense 193,106 (41,003) 1,166,784
Accretion on Class B preferred stock (36,084) 0 (169,944)
Extension/reissuance of placement agent warrants 0 0 168,249
Stock issued for services 0 0 600,417
Stock options issued for compensation 21,471 25,862 735,393
-----------------------------------------------------------
Net cash (used in) operating activities (1,815,726) (1,676,609) (18,466,813)
-----------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities 0 (1,139,610) (22,209,166)
Maturities of marketable securities 1,042,590 1,723,000 16,163,216
Cash portion of MelaRx acquisition 0 0 4,061
Acquisition of fixed assets (22,238) (25,924) (834,691)
-----------------------------------------------------------
Net cash provided by (used in) investing activities 1,020,352 557,466 (6,876,580)
-----------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering 0 0 9,696,210
Net proceeds from issuance of common stock 0 0 3,206,077
Net proceeds from issuance of preferred stock 0 0 16,012,902
Repurchase of common stock 0 0 (720)
Net proceeds from bridge financing 0 0 1,704,269
Repayments of bridge financing 0 0 (2,000,000)
Advances from stockholders 0 0 250,000
Repayments to stockholders 0 0 (250,000)
Exercise of warrants 0 (3) (3)
Receipts from sale of unit purchase option 0 0 250
Repayment of equipment capital lease (80,056) (37,497) (260,401)
-----------------------------------------------------------
Net cash provided by (used in) financing activities (80,056) (37,500) 28,358,584
-----------------------------------------------------------
Net increase (decrease) in cash (875,430) (1,156,643) 3,015,191
Cash and cash equivalents at beginning of period 3,890,621 3,788,369 0
-----------------------------------------------------------
Cash and cash equivalents at end of period $ 3,015,191 $ 2,631,726 $ 3,015,191
===========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE> 81
VION PHARMACEUTICALS, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Note A) - The Company:
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
In April 1995, the Company merged into OncoRx Research Corp., a
previously unaffiliated company ("Research"). The stockholders of the Company
were issued shares of common and preferred stock of MelaRx Pharmaceuticals Inc.
("MelaRx"), the 100% owner of Research, in exchange for all of the outstanding
shares of the Company. On April 20, 1995, the Company merged into OncoRx
Research Corp., a wholly-owned subsidiary of MelaRx, which was renamed OncoRx,
Inc. after the merger. The stockholders of the Company were issued 2,654,038
common and 23,859 preferred shares of MelaRx in exchange for 2,000,000 shares of
common stock of the Company valued at $2.16 per share (fair value).
As the shareholders of the Company obtained a majority interest in the
merged company for accounting purposes, the Company is treated as the acquirer.
Therefore, the transaction is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately. In August 1995, the Company completed
an initial public offering ("IPO") resulting in net proceeds to the Company of
approximately $9,696,000.
(Note B) - Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report for the fiscal year ended December 31, 1997 on Form
10-KSB (File No.
0-26534).
Page 6
<PAGE> 82
(Note C) - Private Placement of Class A Convertible Preferred Stock:
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A Convertible Preferred Stock, at $10.00 per share, resulting in
net proceeds to the Company of $11,531,052. Each share of Class A Preferred
Stock is initially convertible into 2.777777 shares of the Company's common
stock and is entitled to vote on all matters on an "as if converted" basis. In
connection with the foregoing transaction, the Company also issued to the
placement agent warrants to purchase an aggregate of 546,875 shares of the
Company's common stock. The shares of Class A Preferred Stock pay semi-annual
dividends of 5% per annum, payable in additional shares of Class A Preferred
Stock, and a 15% one time dividend payable in additional Class A Preferred Stock
if the Company redeems the issue within 3 years. The issue also contains a
provision for a special dividend after 2 years under certain circumstances if
the Company's common stock price falls below the conversion price of the Class A
Preferred Stock. The issuance of the Class A Preferred Stock at closing also
triggered certain antidilution adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
(Note D) - Antidilution Adjustment:
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
Convertible Preferred Stock, and pursuant the Warrant Agreement governing the
rights of the Company's Class A Warrants and the Class B Warrants, an adjustment
was made to the exercise price of the Class A Warrants and the Class B Warrants
and there was a corresponding distribution of additional Class A Warrants and
Class B Warrants. Specifically, on July 12, 1996 (the "Payment Date") each
holder of a Class A Warrant at the close of business on July 3, 1996 (the
"Record Date") was issued an additional 0.1 Class A Warrants and the exercise
price of the Class A Warrants was reduced from $5.20 to $4.73. In addition, on
the Payment Date each holder of a Class B Warrant on the close of business on
the Record Date was issued an additional 0.1 Class B Warrants and the exercise
price of the Class B Warrants was reduced from $7.00 to $6.37.
(Note E) - Private Placement of Class B Convertible Preferred Stock:
On August 20, 1997, the Company completed a private placement of 4,850
shares of non-voting Class B Convertible Preferred Stock, at $1,000 per share,
resulting in net proceeds to the Company of $4,481,450. Shares of Class B
Preferred Stock are convertible into shares of common stock including an
accretion of 8% per annum. Shares of the Class B Preferred Stock may also be
eligible, under certain circumstances, to receive dividends paid in Class C
Preferred Stock. The Class C Preferred Stock is convertible into shares of
common stock at the average closing bid price of the Company's common stock for
thirty consecutive business days ending on the private placement closing date
and is not entitled to dividends.
(Note F) - Boehringer Ingelheim Agreement
On November 24, 1997, the Company and Boehringer Ingelheim
International GmbH of Germany ("BI") entered into an exclusive worldwide
licensing
Page 7
<PAGE> 83
agreement for the development and marketing of Promycin(R) (porfiromycin),
Vion's most advanced anticancer agent. The agreement provides the Company with
exclusive co-promotion rights to Promycin in the United States and Canada. BI
will have exclusive worldwide rights to market and sell Promycin outside the
United States and Canada. The Company is responsible for the manufacturing and
supply of Promycin for all territories.
In exchange for these rights, the Company received $4,000,000 in
upfront technology access fees and net proceeds of $2,869,801 from the sale of
448,336 shares of common stock at a premium to the then current market price. BI
has also reimbursed the Company for certain initial development costs to date
and will share in future worldwide development costs.
The Company has cash equivalents and short-term investments of
$9,061,141 at March 31, 1998. This balance includes $2,502,827 of restricted
investments for Promycin development expenses. Pursuant to the BI Agreement the
Company must use the BI license fee of $4,000,000 exclusively for Promycin
development expenses. The Company recorded $274,842 of reimbursed Promycin
development expenses as revenue during the first quarter of 1998.
(Note G) - Covance Agreement:
During the quarter ended June 30, 1997, the Company entered into a
Clinical Development Agreement (the "Agreement") with Covance Clinical Research
Unit Ltd. and Covance Inc. ("Covance"). Pursuant to the Agreement the Company is
contracting to Covance the selection and management of clinical sites and the
preparation of clinical trial reports arising from clinical trials performed by
Covance regarding the Company's product candidate Promycin for the inclusion in
a regulatory submission. During the twelve months ending December 31, 1998, the
Company estimates it will make payments of $5,500,000 to Covance under the
Agreement. For the quarter ended March 31, 1998, the Company has incurred
$548,610 under this agreement which has been expensed as incurred.
Page 8
<PAGE> 84
(Note H) - Per Share Data
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
- --------------------------------------- -------------------- -------------------
<S> <C> <C>
Numerator:
- --------------------------------------- -------------------- -------------------
Net loss ($2,506,220) ($1,885,397)
Numerator for basic and diluted
net loss per share ($2,506,220) ($1,885,397)
- --------------------------------------- -------------------- -------------------
Denominator:
- --------------------------------------- -------------------- -------------------
Denominator for basic and diluted
net loss per share 9,891,509 8,209,237
- --------------------------------------- -------------------- -------------------
Basic and diluted net loss per share ($0.25) ($0.23)
- --------------------------------------- -------------------- -------------------
</TABLE>
For additional disclosures regarding warrants and Class A and B Convertible
Preferred Stock see Note C, D and E. These potentially dilutive securities were
not included in diluted net loss per share as the effect would be antidilutive.
Under the Financial Accounting Standards Board Statement No. 128, which the
Company has adopted, the dilutive effect of stock options has been excluded.
Page 9
<PAGE> 85
ITEM 2. PLAN OF OPERATION.
General
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company's revenues consist of research grants, technology
license fees and reimbursements for research expenses. The Company has not
generated any revenues from product sales and has incurred substantial operating
losses from its activities.
The Company intends to use a substantial portion of the net proceeds of
its August, 1997 private financing, the equity investment, initial payments and
reimbursed cost sharing from the November 24, 1997 exclusive worldwide licensing
agreement with BI to fund its plan of operations, which includes the following
elements for the next 12 months:
- Continue to develop internal research and development
capabilities and conduct research and development with respect to
the Company's core technologies and other product candidates
which may be identified by the Company. The Company expects to
incur substantial expenditures for research and development
expenses. During the next twelve months, the Company plans to
hire seven additional employees.
- Conduct Phase III clinical studies in the U.S. and Europe of
Promycin for treatment of cancer of the head and neck.
Conduct Phase I clinical studies in the U.S. of the Company's
anticancer agent Triapine(TM) for safety and pharmocokinectics.
File Investigational New Drug application(s) with the FDA and
conduct Phase I clinical studies in the U.S. for the safety,
tumor targeting and pharmacokinectics of several bacterial
constructs using the Company's TAPET(TM) cancer therapy delivery
technology.
- Continue to support research and development being performed at
Yale University and by other collaborators and seek additional
collaborative agreements.
The Company currently estimates that anticipated revenues, the
remaining net proceeds of its private placement in August, 1997, the equity
investment, initial payments and reimbursed cost sharing from the agreement with
BI and its existing cash and equivalents will be sufficient to fund its planned
operations for approximately the next 9 months. In the event of delays or
unexpected problems in product development, cost overruns, or other
unanticipated expenses commonly associated with a company in an early stage of
development, the Company will sooner require additional funds. In addition,
Page 10
<PAGE> 86
the Company will need substantial additional financing, beyond this period to
fund further research and development and the Company's working capital
requirements. As of March 31, 1998 the Company estimates that the amount
required to fund operations for the next twelve months is at approximately
$18,000,000, of which approximately $8,400,000 is subject to reimbursement under
the terms of the BI collaboration agreement. However, the Company's cash
requirements may vary materially from those now planned because of results of
research and development, results of product testing, relationships with
strategic partners, changes in focus and direction of the Company's research and
development programs, competitive and technological advances, the regulatory
process in the United States and abroad and other factors.
The Company has not made an assessment of its Year 2000 issues,
although the Company believes that there will not be a material impact on its
operations.
The Company received an opinion from its auditors for the fiscal year
ended December 31, 1997, expressing substantial doubt as to its ability to
continue as a going concern. The Company intends to address the immediate need
for additional capital by raising funds through a private placement of its
securities and/or sale of stock to and upfront payments from a strategic
partner, although the Company expects to require additional financing to fund
its longer-term activities and may require additional capital to fund its
operations, acquisitions and new development projects.
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $8,043,060. The
Company's most recent principal sources of funds through March 31, 1998 have
been $4,000,000 from upfront technology access fees and net proceeds of
$2,869,801 from the sale of 448,336 shares of common stock at a premium to the
then current market price related to the BI agreement and $4,481,850 net
proceeds from private financing through issuance of 4,850 shares of Class B
Convertible Preferred Stock.
The Company used the proceeds of its initial public offering to repay a
previous bridge financing and used the remaining funds and the proceeds of its
sales of convertible preferred stock to implement its business plan, which
included hiring of additional personnel; capital expenditures for the purchase
of equipment, principally for laboratory facilities; costs of research and
development; payment of license fees due under sponsored research agreements;
and grants to Yale University to fund certain research. During the twelve months
ending December 31, 1998, the Company will be required to make payments of an
aggregate of $1,706,776 to Yale University under sponsored research and license
agreements.
The Company requires substantial new revenues and other sources of
capital in order to meet such budgeted expenditures and to continue its
operations beyond the current year. The Company is seeking to enter into one or
more significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing. The Company has
entered into discussions with several major pharmaceutical companies concerning
such strategic alliances, but there can be no assurance that the
Page 11
<PAGE> 87
Company will be successful in achieving such alliances, nor can the Company
predict what funds might be available to it if it can achieve such an alliance.
The Company may be required to seek to raise funds through additional means,
including (1) public or private placements and recapitalization of its
securities; (2) spin-off, refinancing, or partial sale or disposition of its
rights to certain of its non-core technologies; and (3) equipment lease
financing. No assurance can be given that the Company will be successful in
arranging financing through any of these alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
Forward-Looking Statements - Cautionary Factors
Statements included in this Form 10-QSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Company's future business prospects,
plans, objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the Company's products or procedures are found to
be ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude the Company from marketing its products, and the
possibility that third parties will market a product equivalent or superior to
the Company's product candidates.
Page 12
<PAGE> 88
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Article 5 Financial Data Schedule for first quarter 1998.
(b) Reports on Form 8-K.
None
Page 13
<PAGE> 89
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
--------------------
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: May 7, 1998
Page 14
<PAGE> 90
The Exchange Agent for the Exchange Offer:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C>
By Mail: By Hand:
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
Attn: Reorganization Department New York, New York 10005
</TABLE>
Telephone:
(718) 921-8200
Facsimile:
(718) 234-5001
The Information Agent for the Exchange Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
<TABLE>
<S> <C>
By Mail: By Hand:
111 Commerce Road 111 Commerce Road
Carlstadt, New Jersey 07072 Carlstadt, New Jersey 07072
</TABLE>
Telephone:
(888) 210-8932
Holders of Warrants who require information about procedures for tendering
the Warrants should contact the Exchange Agent. Requests for general information
or additional copies of this Offering Circular should be directed to the
Information Agent.
Any requests for information from the Company concerning the Exchange Offer
may be made to Thomas E. Klein, Vice President -- Finance, Vion Pharmaceuticals,
Inc., 4 Science Park, New Haven, Connecticut 06511, telephone (203) 498-4210,
facsimile (203) 498-4211 or e-mail at [email protected].
<PAGE> 1
EXHIBIT (a)(3)
LETTER OF TRANSMITTAL
TO EXCHANGE
CLASS A WARRANTS AND/OR CLASS B WARRANTS
(THE "WARRANTS") OF
VION PHARMACEUTICALS, INC.
PURSUANT TO THE OFFERING CIRCULAR
DATED MAY 19, 1998 OF
VION PHARMACEUTICALS, INC.
(THE "COMPANY")
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, JUNE
29, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
TO: the Exchange Agent for the Exchange Offer:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
Attn: Reorganization Department New York, New York 10005
Telephone:
(718) 921-8200
Facsimile (for Eligible Institutions Only):
(718) 234-5001
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. EXCEPT AS OTHERWISE
PROVIDED HEREIN, ALL SIGNATURES ON THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED
IN ACCORDANCE WITH THE PROCEDURES SET FORTH HEREIN. SEE INSTRUCTION 1.
<PAGE> 2
HOLDERS WHO WISH TO TENDER THEIR WARRANTS MUST COMPLETE COLUMNS (1) THROUGH
(3) IN THE BOX HEREIN ENTITLED "DESCRIPTION OF CLASS A WARRANTS TENDERED" AND/OR
"DESCRIPTION OF CLASS B WARRANTS TENDERED" AND SIGN IN THE APPROPRIATE BOX
BELOW. IF ONLY THOSE COLUMNS ARE COMPLETED, THE HOLDER WILL BE DEEMED TO HAVE
TENDERED ALL THE WARRANTS, LISTED IN THE TABLE. IF A HOLDER WISHES TO TENDER
LESS THAN ALL OF SUCH WARRANTS, COLUMN (4) MUST BE COMPLETED IN FULL, AND SUCH
HOLDER SHOULD REFER TO INSTRUCTION 5.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF CLASS A WARRANTS TENDERED
(ATTACH SEPARATE SIGNED LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------
TOTAL NO. NUMBER OF
NAME(S) AND ADDRESS(ES) OF HOLDER(S) OF WARRANTS CLASS A
(PLEASE FILL IN, IF BLANK, EXACTLY REPRESENTED BY WARRANTS
AS NAME(S) APPEARS ON WARRANTS) CERTIFICATE NO. CERTIFICATE TENDERED*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
* Unless otherwise specified, it will be assumed that the entire number of shares represented by the
Warrants described above is being tendered. See Instruction 5.
- ---------------------------------------------------------------------------------------------------------
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER ____________ CLASS A WARRANTS FOR ALL STOCK CONSIDERATION (AS DEFINED BELOW)
AND/OR
[ ] I ELECT TO TENDER ____________ CLASS A WARRANTS FOR STOCK PLUS CASH
CONSIDERATION (AS DEFINED BELOW)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF CLASS B WARRANTS TENDERED
(ATTACH SEPARATE SIGNED LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------
TOTAL NO. NUMBER OF
NAME(S) AND ADDRESS(ES) OF HOLDER(S) OF WARRANTS CLASS B
(PLEASE FILL IN, IF BLANK, EXACTLY REPRESENTED BY WARRANTS
AS NAME(S) APPEARS ON WARRANTS) CERTIFICATE NO. CERTIFICATE TENDERED*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
* Unless otherwise specified, it will be assumed that the entire number of shares represented by the
Warrants described above is being tendered. See Instruction 5.
- ---------------------------------------------------------------------------------------------------------
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER ____________ CLASS B WARRANTS FOR ALL STOCK CONSIDERATION (AS DEFINED BELOW)
AND/OR
[ ] I ELECT TO TENDER ____________ CLASS B WARRANTS FOR STOCK PLUS CASH
CONSIDERATION (AS DEFINED BELOW)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used only if Warrants of the Company
are to be physically delivered to the Exchange Agent or if delivery of the
Warrants is to be made by book-entry transfer to the Exchange Agent's account at
The Depository Trust Company (the "Book Entry Transfer Facility") pursuant to
the procedures set forth in the Offering Circular of the Company dated May 19,
1998 (as the same may be amended or supplemented from time to time, the
"Offering Circular") under the heading "The Exchange Offer -- Procedures for
Tendering Warrants."
<PAGE> 4
(BOX BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
<TABLE>
<S> <C>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------------
Account No.
------------------------------------------------------------
Transaction Code No.
------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------------------------------
Name of Institution that Guaranteed Delivery
-----------------------------------------------------
If delivery is by book-entry transfer: Name of Tendering
Institution: ------------------------------
Account No. ------------------------------ at DTC
Transaction Code No.
------------------------------------------------------------
</TABLE>
<PAGE> 5
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned hereby acknowledges he has received
and reviewed the accompanying Offering Circular and this Letter of Transmittal
relating to the Company's offer to exchange upon the terms and subject to the
conditions set forth therein, for each outstanding Class A Warrant, at the
holder's option, either (A) 0.438 shares of the Company's Common Stock or (B)
0.254 shares of Common Stock and $0.66 in cash (the "Class A Exchange Offer").
The Company is also offering to exchange for each outstanding Class B Warrant,
at the holder's option, either (A) 0.212 shares of Common Stock or (B) 0.123
shares of Common Stock and $0.32 in cash (the "Class B Exchange Offer", together
with the Class A Exchange Offer, the "Exchange Offer").
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Warrants indicated above and
elects to have such Warrants converted, upon consummation of the Exchange Offer,
into the right to receive the Company's Common Stock and/or cash, as applicable.
The undersigned understands that the obligation of the Company to consummate the
Exchange Offer is subject to several conditions as set forth in the Offering
Circular under "The Exchange Offer -- Conditions to the Exchange Offer."
The undersigned acknowledges that all the foregoing conditions are for the
sole benefit of the Company and may be asserted by the Company regardless of the
circumstances giving rise to such conditions and may be waived by the Company,
in whole or in part, at any time and from time to time, in the sole discretion
of the Company. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. If any of the conditions set forth in this section shall not
be satisfied, the Company may, subject to applicable law, (i) terminate the
Exchange Offer and return all Warrants tendered pursuant to the Exchange Offer
to tendering holders; (ii) extend the Exchange Offer and retain all tendered
Warrants until the Expiration Date for the extended Exchange Offer; (iii) amend
the terms of the Exchange Offer or modify the consideration to be provided by
the Company pursuant to the Exchange Offer; or (iv) waive the unsatisfied
conditions with respect to the Exchange Offer and accept all Warrants tendered
pursuant to the Exchange Offer. Notwithstanding anything to the contrary, the
Company may extend the period of the Exchange Offer in its sole discretion. In
any such event, the tendered Warrants not accepted for exchange will be returned
to the undersigned without cost to the undersigned as soon as practicable
following the date on which the Exchange Offer is terminated or expires without
any Warrants being purchased thereunder, at the address shown below the
undersigned's signature(s).
Subject to, and effective upon, the acceptance by the Company of the
Warrants tendered hereby for exchange pursuant to the terms of the Exchange
Offer, the undersigned hereby irrevocably sells, assigns and transfers to, or
upon the order of, the Company, all right, title and interest in and to, and any
and all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Warrants tendered hereby, waives any
and all rights with respect to the Warrants tendered hereby and releases and
discharges any obligor or parent of any obligor of the Warrants from any and all
claims the undersigned may have now, or may have in the future, arising out of
or related to the Warrants. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent (with full knowledge that the Exchange Agent also
acts as agent of the Company) as the true and lawful agent and attorney-in-fact
of the undersigned with respect to such Warrants, with full power of
substitution (such power-of-attorney being deemed to be an irrevocable power
coupled with an interest) to (a) deliver such Warrants and to receive on behalf
of the undersigned in exchange for the shares represented thereby, any
Certificates for the Company's shares of Common Stock and/or cash issuable
pursuant to the Exchange Offer to be forwarded to the undersigned, (b) present
such Warrants for transfer on the books of the Company, and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Warrants, all in accordance with the terms of the Exchange Offer.
<PAGE> 6
The undersigned hereby represents and warrants that (i) the undersigned has
full power and authority to tender, sell, assign and transfer the Warrants
tendered hereby, and that when such Warrants are accepted for exchange by the
Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
that none of such Warrants will be subject to any adverse claim or right; (ii)
the undersigned owns the Warrants being tendered hereby and is entitled to
tender such Warrants as contemplated by the Exchange Offer, all within the
meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (iii) the tender of such Warrants complies with Rule 14e-4.
The undersigned, upon request, will execute and deliver all additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the sale, assignment and transfer of the Warrants tendered hereby.
The undersigned understands that tenders of Warrants pursuant to any of the
procedures described in the Offering Circular under the caption "The Exchange
Offer -- Procedures for Tendering Warrants" and in the instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Exchange Offer. The Company's acceptance of such Warrants for exchange pursuant
to the terms of the Exchange Offer will constitute a binding agreement between
the undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer. The undersigned has read and agrees to all terms and
conditions of the Exchange Offer. Delivery of the enclosed Warrants shall be
effected, and risk of loss and title of such Warrants shall pass, only upon
proper delivery thereof to the Exchange Agent.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned and every
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives. WARRANTS TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. See the information set
forth under the heading "The Exchange Offer -- Withdrawal of Tenders" in the
Offering Circular.
Please issue the applicable consideration with respect to Warrants accepted
for exchange, and return any Warrants not tendered or not accepted for exchange,
in the name(s) of the registered holder(s) appearing in the box entitled
"Description of Class A Warrants Tendered" and/or "Description of Class B
Warrants Tendered." Similarly, please deliver the applicable consideration with
respect to Warrants accepted for exchange, together with any Warrants not
tendered or not accepted for exchange (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing in the box
entitled "Description of Class A Warrants Tendered" and/or "Description of Class
B Warrants Tendered."
PLEASE COMPLETE THE SUBSTITUTE FORM W-9 BELOW.
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF WARRANTS
REGARDLESS OF WHETHER WARRANTS ARE BEING PHYSICALLY DELIVERED HEREWITH)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY
Dated:
- --------------------------------------------------------------------------------
, 1998
Must be signed by the registered holder(s) of the Warrants tendered hereby
exactly as their name(s) appear(s) on such Warrants, or by person(s) authorized
to become registered holder(s) by endorsements and documents transmitted with
this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent or
other person acting in a fiduciary or representative capacity, please provide
the following information and see Instruction 6.
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone Number
- ---------------------------------------------------------------------------
Tax Identification or Social Security No.
- ---------------------------------------------------------------------
SIGNATURE GUARANTEE
(SEE INSTRUCTIONS 1 AND 6 BELOW)
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
ELIGIBLE INSTITUTION)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
by a commercial bank or trust company having an office or correspondent in the
United States or by any other "Eligible Guarantor Institution" as such term is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended
(each of the foregoing being registered referred to herein as an "Eligible
Institution") unless (a) this Letter of Transmittal is signed by the holder of
the Warrants tendered herewith or (b) such Warrants are tendered for the account
of an Eligible Institution. See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND WARRANTS. This Letter of
Transmittal is to be used only if Warrants tendered hereby are to be physically
delivered to the Exchange Agent. All physically tendered Warrants, together with
a properly completed and validly executed Letter of Transmittal (or facsimile or
electronic copy thereof or an electronic agreement to comply with the terms
thereof) and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at one of its addresses set forth on the cover
page hereof prior to the Expiration Date. If Warrants are forwarded to the
Exchange Agent in multiple deliveries, a properly completed and validly executed
Letter of Transmittal must accompany each such delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, WARRANTS AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE TENDERING HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES,
THE MAILING SHOULD BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE, TO
PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE. NO ALTERNATIVE,
CONDITIONAL OR CONTINGENT TENDERS OF WARRANTS WILL BE ACCEPTED. BY EXECUTION OF
THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), ALL TENDERING HOLDERS WAIVE
ANY RIGHT TO RECEIVE ANY NOTICE OF THE ACCEPTANCE OF THEIR WARRANTS FOR PAYMENT.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Class A Warrants Tendered" or "Description of Class B Warrants Tendered" is
inadequate, the Warrant number(s) and the number of shares tendered should be
listed on a separate schedule and attached hereto.
4. WITHDRAWAL OF TENDERS. Tenders of Warrants may be withdrawn at any
time until the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after the expiration of 40 business days from the
commencement of the Exchange Offer unless accepted for exchange prior to that
date.
Holders who wish to exercise their right of withdrawal with respect to the
Exchange Offer must give written notice of withdrawal, delivered by mail or hand
delivery or facsimile transmission, to the Exchange Agent at one of its
addresses set forth on the cover page of this Letter of Transmittal prior to the
Expiration Date or at such other time as otherwise provided for herein. In order
to be effective, a notice of withdrawal must specify the name of the person who
deposited the Warrants to be withdrawn (the "Depositor"), the name in which the
Warrants are registered, if different from that of the Depositor, and the number
of shares to be withdrawn prior to the physical release of the Warrants to be
withdrawn. The notice of withdrawal must be signed by the registered holder of
such Warrants in the same manner as the applicable Letter of Transmittal
(including any required signature guarantees), or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of such Warrants. Withdrawals of tenders of Warrants
may not be rescinded, and any Warrants withdrawn will be deemed not validly
tendered thereafter for purposes of the Exchange Offer. However, properly
withdrawn Warrants may
<PAGE> 9
be tendered again at any time prior to the Expiration Date by following the
procedures for tendering not previously tendered Warrants described elsewhere
herein. If the Company is delayed in its acceptance for exchange and payment for
any Warrants or is unable to accept for conversion or convert any Warrants
pursuant to the Exchange Offer for any reason, then, without prejudice to the
Company's rights hereunder, tendered Warrants may be retained by the Exchange
Agent on behalf of the Company and may not be withdrawn (subject to Rule
13e-4(f)(5) under the Exchange Act, which requires that the issuer making the
tender offer pay the consideration offered, or return the tendered securities,
promptly after the termination or withdrawal of a tender offer), except as
otherwise permitted hereby.
5. PARTIAL TENDERS. The aggregate number of shares evidenced by the
Warrants delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If tenders of Warrants are made with respect to less
than the entire number of shares evidenced by the Warrants delivered herewith,
Warrants for the number of shares not tendered will be issued and sent to the
registered holder.
6. SIGNATURES ON WARRANT LETTER OF TRANSMITTAL; STOCK POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
holder(s) of the Warrants tendered hereby, the signature(s) must correspond with
the name(s) as written on the face of such Warrants without alteration,
enlargement or any other change whatsoever. If any Warrants tendered hereby are
owned of record by two or more persons, all such persons must sign this Letter
of Transmittal. If any Warrants tendered hereby are in the names of different
holders, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal, and any necessary accompanying documents, as there are
different registrations of such Warrants.
If this Letter of Transmittal is signed by a person other than the
holder(s) of the Warrants tendered hereby, the Warrants must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the holder(s) appear(s) on the certificates representing such
Warrants. Signatures on such Warrants and stock powers must be guaranteed by an
Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any Warrants or stock powers are signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of such person's authority so to act must be submitted with this
Letter of Transmittal.
7. TRANSFER TAXES. The Company will pay all transfer taxes with respect
to the delivery and exchange of Warrants pursuant to the Exchange Offer.
8. TAXPAYER IDENTIFICATION NUMBER. Each tendering holder is required to
provide the Exchange Agent with the holder's correct taxpayer identification
number ("TIN"), generally, the holders' social security or federal employer
identification number, on Substitute Form W-9, which is provided under
"Important Tax Information" below, and to certify whether such person is subject
to backup withholding of federal income tax.
A holder must cross out Item (2) of Part 2 in the Certification box of
Substitute Form W-9 if such holder is subject to backup withholding. Failure to
provide the information on the Substitute Form W-9 may subject the tendering
holder to 31% federal income tax backup withholding on the reportable payments
made to the holder or other payee with respect to Warrants exchanged pursuant to
the Exchange Offer. The box in Part 3 of the form should be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 3 is checked and the
Exchange Agent is not provided with a TIN within 60 days, thereafter the
Exchange Agent will hold 31% of all reportable payments until a TIN is provided
to the Exchange Agent.
9. CONFLICTS. In the event of any conflict between the terms of the
Offering Circular and the terms of this Letter of Transmittal, the terms of the
Offering Circular will control.
10. MUTILATED, LOST, STOLEN OR DESTROYED WARRANTS. Any holder of
Warrants, whose Warrants have been mutilated, lost, stolen or destroyed, should
contact the Exchange Agent at the address and telephone number indicated on the
back cover page of the Offering Circular for further instructions.
<PAGE> 10
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Exchange Agent at its address set forth below. Additional
copies of the Offering Circular, this Letter of Transmittal and the Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 may
be obtained from the Information Agent.
12. DETERMINATION OF VALIDITY. All questions as to the form of all
documents, the validity (including time of receipt) and acceptance of tenders of
the Warrants will be determined by the Company, in its sole discretion, the
determination of which shall be final and binding. Alternative, conditional or
contingent tenders of Warrants will not be considered valid. The Company
reserves the absolute right to reject any or all tenders of Warrants that are
not in proper form or the acceptance of which, in the Company's opinion, would
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Warrants. If the Company
waives its right to reject a defective tender of Warrants, the holder will be
entitled to the applicable consideration. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding. Any defect or irregularity in
connection with tenders of Warrants must be cured within such time as the
Company determines, unless waived by the Company. Tenders of Warrants shall not
be deemed to have been made until all defects and irregularities have been
waived by the Company or cured. None of the Company, the Exchange Agent or any
other person will be under any duty to give notice of any defects or
irregularities in tenders of Warrants, or will incur any liability to holders
for failure to give any such notice.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a holder whose tendered Warrants are
accepted for exchange is required by law to provide the Exchange Agent (as
payer) with such holders' correct TIN on Substitute Form W-9 below. If such
holder is an individual, the TIN is his or her social security number. If the
Exchange Agent is not provided with the correct TIN, a $50 penalty may be
imposed by the Internal Revenue Service, and payments of applicable
consideration may be subject to backup withholding.
Certain holders (including, among others, corporations) are not subject to
these backup withholdings and reporting requirements. Exempt holders should
indicate their exempt status on Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, such individual must submit a
statement, signed under penalties of perjury, attesting to such individual's
exempt status. Forms of such statements can be obtained from the Exchange Agent.
See the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9" for additional instruction.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any reportable payments made to the holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on reportable payments made with respect to
Warrants accepted for exchange pursuant to the Warrant Exchange Offer, the
holder is required to notify the Exchange Agent of such holder's correct TIN by
completing the form below, certifying that the TIN provided on the Substitute
Form W-9 is correct (or that such holder is awaiting a TIN) and that (a) such
holder is exempt from backup withholding, (b) such holder has not been notified
by the Internal Revenue Service that he is subject to backup withholding as a
result of a failure to report all interest or dividends or (c) the Internal
Revenue Service has notified such holder that such holder is no longer subject
to backup withholding.
<PAGE> 11
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the holder of the Warrants
tendered hereby. If the Warrants are held in more than one name or are not held
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE Social security number OR
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number
DATING BELOW. ----------------------------
--------------------------------------------------------------------------------
Department of the Treasury PART 2--CERTIFICATION--Under penalties of
Internal Revenue Service perjury, I certify that:
PAYER'S REQUEST FOR (1) The number shown on this form is my correct Taxpayer Identification
TAXPAYER Number (or I am waiting for a number to be issued to me) and
IDENTIFICATION
NUMBER (TIN) (2) I am not subject to backup withholding either because (a) I am exempt
from backup withholding, (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends or (c) the
IRS has notified me that I am no longer subject to backup withholding.
--------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must PART 3-
cross out item (2) above if you have been
notified by the IRS that you are
currently subject to backup withholding AWAITING TIN [ ]
because of underreporting interest or
dividends on your tax return. However, if
after being notified by the IRS that you
are subject to backup withholding, you
received another notification from the
IRS that you are no longer subject to
backup withholding, do not cross out such
item (2).
THE INTERNAL REVENUE SERVICE DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
SIGNATURE --------------------- DATE
-----------
NAME (Please Print)
--------------------------------
ADDRESS (Please Print)
-----------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN THE
SUBSTITUTE FORM W-9 INDICATING YOU HAVE APPLIED FOR, AND ARE AWAITING RECEIPT
OF, YOUR TIN.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and that I mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
(or I intend to mail or deliver an application in the near future). I
understand that if I do not provide a taxpayer identification number to
the payor, 31 percent of all payments made to me pursuant to this offer
shall be retained until I provide a tax identification number to the payor
and that, if I do not provide my taxpayer identification number within
sixty (60) days, such retained amounts shall be remitted to the IRS as
backup withholding and 31 percent of all reportable payments made to me
thereafter will be withheld and remitted to the IRS until I provide a
taxpayer identification number.
<TABLE>
<S> <C>
Signature Date ---------------------------
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 12
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C>
By Mail: By Hand:
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
Attn: Reorganization Department New York, New York 10005
</TABLE>
Telephone:
(718) 921-8200
Facsimile:
(718) 234-5001
The Information Agent for the Exchange Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
<TABLE>
<S> <C>
By Mail: By Hand:
111 Commerce Road 111 Commerce Road
Carlstadt, New Jersey 07072 Carlstadt, New Jersey 07072
</TABLE>
Telephone:
(888) 210-8932
<PAGE> 1
EXHIBIT (a)(4)
VION PHARMACEUTICALS, INC.
OFFER TO EXCHANGE EACH OUTSTANDING CLASS A WARRANT,
AT THE OPTION OF THE HOLDER, FOR (A) 0.438 SHARES OF COMMON
STOCK OR (B) 0.254 SHARES OF COMMON STOCK AND $0.66 IN CASH
AND
OFFER TO EXCHANGE EACH OUTSTANDING CLASS B WARRANT, AT THE OPTION OF THE HOLDER,
FOR (A) 0.212 SHARES OF COMMON STOCK OR (B) 0.123 SHARES OF COMMON STOCK AND
$0.32 IN CASH
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, JUNE
29, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
May 19, 1998
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by Vion Pharmaceuticals, Inc. (the "Company" or
"Vion"), to act as Information Agent in connection with its offer, upon the
terms and conditions set forth in an Offering Circular dated May 19, 1998 (as
amended from time to time, the "Offering Circular") and the related Letter of
Transmittal (the "Letter of Transmittal"), to exchange for each outstanding
Class A Warrant ("Class A Warrants"), at the holder's option, either (A) 0.438
shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock") or (ii) (B) 0.254 shares of Common Stock and $0.66 in cash (the "Class A
Exchange Offer"). The Company is also offering pursuant to the Offering Circular
and the Letter of Transmittal to exchange for each outstanding Class B Warrant
("Class B Warrants"), at the holder's option, either (A) 0.212 shares of Common
Stock or (B) 0.123 shares of Common Stock and $0.32 in cash (the "Class B
Exchange Offer", and together with the Class A Exchange Offer, the "Exchange
Offer").
THE EXCHANGE OFFER IS NOT CONDITIONED UPON THE EXCHANGE OF A MINIMUM NUMBER
OF CLASS A WARRANTS OR CLASS B WARRANTS (COLLECTIVELY, THE "WARRANTS").
We are asking you to contact your clients for whom you hold Warrants
registered in your name or in the name of your nominee. Please bring the
Exchange Offer to the attention of your clients as promptly as possible.
For your information, we are enclosing herewith the following materials:
1. Offering Circular dated May 19, 1998.
2. Letter to Warrantholders of the Company from John A. Spears,
President and Chief Executive Officer of the Company, dated May 19, 1998.
3. A Letter of Transmittal for your use and for the information of
your clients.
4. Notice of Guaranteed Delivery to be used to tender in the Exchange
Offer if the Warrants and all other required documents are not immediately
available or cannot be delivered to the Exchange Agent by the Expiration
Date of if the procedure for book-entry transfer cannot be completed prior
to the Expiration Date.
<PAGE> 2
5. A printed form of letter which may be sent to customers for whose
account you hold Warrants registered in your name or in the name of your
nominee, with space provided for obtaining such customers' instructions
with regard to the Exchange Offer.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
7. Envelopes addressed to American Stock Transfer & Trust Company,
the Exchange Agent, to be used by you to return the Warrants.
WE URGE YOU TO CONTACT YOUR CUSTOMERS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE EXCHANGE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY,
JUNE 29, 1998, UNLESS EXTENDED.
The Company will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Warrants pursuant to the Exchange Offer,
and no such solicitation shall be made. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. The Company will pay all transfer taxes, if any,
applicable to the transfer and exchange of Warrants to them or their order.
Questions or requests for additional copies of the enclosed materials
should be directed to the Information Agent, Corporate Investor Communications,
Inc., 111 Commerce Road, Carlstadt, New Jersey, 07072, Telephone No. (888)
210-8932.
Very truly yours,
CORPORATE INVESTOR COMMUNICATIONS, INC.
NOTHING CONTAINED HEREIN OR IN THE DOCUMENTS ENCLOSED HEREWITH SHALL
CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT FOR THE COMPANY, THE EXCHANGE AGENT
OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM WITH RESPECT TO THE EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND
THE STATEMENTS SPECIFICALLY SET FORTH THEREIN.
<PAGE> 1
EXHIBIT (a)(5)
VION PHARMACEUTICALS, INC.
OFFER TO EXCHANGE EACH OUTSTANDING CLASS A WARRANT, AT
THE OPTION OF THE HOLDER, FOR (A) 0.438 SHARES OF COMMON
STOCK OR (B) 0.254 SHARES OF COMMON STOCK AND $0.66 IN CASH
AND
OFFER TO EXCHANGE EACH OUTSTANDING CLASS B WARRANT, AT
THE OPTION OF THE HOLDER, FOR (A) 0.212 SHARES OF COMMON
STOCK OR (B) 0.123 SHARES OF COMMON STOCK AND $0.32 IN CASH
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, JUNE
29, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
May 19, 1998
To Our Clients:
Enclosed for your consideration is an Offering Circular and form of Letter
of Transmittal (the "Letter of Transmittal") relating to the offer of Vion
Pharmaceuticals, Inc., a Delaware corporation (the "Company") to exchange for
all their outstanding Class A Warrants and Class B Warrants, upon the terms and
subject to the conditions set forth in the Offering Circular and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), the consideration set forth below:
For each Class A Warrant, exchanging holders will receive, at the holder's
option, either:
(A) 0.438 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock") (the "All Stock Consideration"); or
(B) 0.254 shares of Common Stock and $0.66 in cash (the "Stock Plus
Cash Consideration").
For each Class B Warrant, exchanging holders will receive, at the holder's
option, either:
(A) 0.212 shares of the Company's Common Stock (the "All Stock
Consideration"); or
(B) 0.123 shares of Common Stock and $0.32 in cash (the "Stock Plus
Cash Consideration").
This material is being forwarded to you as the beneficial owner of Warrants
carried by us in your account but not registered in your name.
A TENDER OF WARRANTS MAY BE MADE ONLY BY US AS THE RECORD HOLDER AND
PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
YOUR INFORMATION ONLY AND CAN NOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender
any or all Warrants held by us for your account pursuant to the terms and
conditions set forth in the enclosed Offering Circular and the Letter of
Transmittal.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Warrants in accordance with the provisions of the
Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time,
on Monday June 29, 1998, unless extended by the Company.
If you wish to have us tender any or all of your Warrants held by us for
your account, please so instruct us by completing, executing and returning to us
the instruction form which appears below in this letter. The accompanying Letter
of Transmittal is furnished for your information only and may not be used by you
to tender Warrants held by us for your account.
<PAGE> 2
INSTRUCTION FORM
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of the Company
relating to the Warrants.
This will instruct you to tender the Warrants indicated below held by you
for the account of the undersigned, pursuant to the terms and conditions set
forth in the Offering Circular and the Letter of Transmittal.
CLASS A WARRANTHOLDERS:
[ ] Please tender Class A Warrants held by you for my account. I have
identified in the box below the number of Class A Warrants to be
tendered if I wish to tender less than all my Class A Warrants.
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER FOR ALL STOCK CONSIDERATION
OR
[ ] I ELECT TO TENDER FOR STOCK PLUS CASH CONSIDERATION
Number of Class A Warrants to be Tendered (FILL IN ONLY IF LESS THAN ALL OF YOUR
CLASS A WARRANTS ARE BEING TENDERED -- DO NOT FILL IN IF YOU ARE TENDERING ALL
OF YOUR CLASS A WARRANTS PURSUANT TO YOUR ELECTION ABOVE): ____________________
[ ] Please do not tender any Class A Warrants held by you for my account.
CLASS B WARRANTHOLDERS:
[ ] Please tender Class B Warrants held by you for my account. I have
identified in the box below the number of Class B Warrants to be
tendered if I wish to tender less than all my Class B Warrants.
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER FOR ALL STOCK CONSIDERATION
OR
[ ] I ELECT TO TENDER FOR STOCK PLUS CASH CONSIDERATION
<PAGE> 3
Number of Class B Warrants to be Tendered (FILL IN ONLY IF LESS THAN ALL OF YOUR
CLASS B WARRANTS ARE BEING TENDERED -- DO NOT FILL IN IF YOU ARE TENDERING ALL
OF YOUR CLASS B WARRANTS PURSUANT TO YOUR ELECTION ABOVE): ____________________
[ ] Please do not tender any Class B Warrants held by you for my account.
- ---------------------------------------------------------
SIGNATURE(S)
- ---------------------------------------------------------
PLEASE PRINT NAME(S) HERE
- ---------------------------------------------------------
- ---------------------------------------------------------
PLEASE PRINT ADDRESS HERE
Date:
- --------------------------------------------------
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR
SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF YOUR
OUTSTANDING WARRANTS FOR ALL STOCK CONSIDERATION.
<PAGE> 1
EXHIBIT (a)(6)
<TABLE>
<S> <C> <C>
Contact: Thomas E. Klein Corporate Investor Communications, Inc.
Vice President Finance & CFO (888)210-8932
Vion Pharmaceuticals, Inc.
(203)498-4210
[email protected]
</TABLE>
FOR IMMEDIATE RELEASE
WARRANT EXCHANGE OFFER LAUNCHED BY VION PHARMACEUTICALS
NEW HAVEN, CT, MAY 19, 1998 -- In a move designed to drastically reduce the
potential dilution of its shares and simplify its capital structure, VION
PHARMACEUTICALS, INC. (NASDAQ: VION) today announced it has launched a tender
offer for all of its outstanding Class A and Class B Warrants. Holders of Class
A Warrants are being offered a choice of either 0.438 shares of common stock, or
0.254 shares of common stock and $0.66 in cash. Holders of Class B Warrants are
being offered a choice of either 0.212 shares of common stock, or 0.123 shares
of common stock and $0.32 in cash. In a filing with the Securities and Exchange
Commission, the Company noted that the overhang from its Class A Warrants
(NASDAQ: VIONW) and Class B Warrants (NASDAQ: VIONZ) would, if exercised, more
than double the number of common shares currently outstanding. At the same time,
the Company noted that it believes that the opportunity to exchange the warrants
for common stock will appeal to holders of the warrants because ownership of the
shares of common stock does away with the risk that the warrants will expire
"out of the money", and because common stock may be a more liquid investment
than continued ownership of the warrants.
"Vion's stock price has only recently recovered to where it was last
November in spite of a string of favorable developments", said John Spears,
president and chief executive officer. "These include the corporate
collaboration with Boehringer Ingelheim International GmbH for our Phase III
anticancer agent Promycin(R), and the licensing of Melasyn(R) synthetic melanin
to San Mar Laboratories. We also filed an IND for an anticancer drug
Triapine(TM), received several SBIR research grants, and reported preclinical
advances with our enabling platform technology, TAPET(TM), which centers around
a novel gene therapy vector for the treatment of cancer. The Company is
optimistic about its research and development and a capital restructuring
conveys this."
"Discussions with investment bankers have led us to believe that the
potential dilution from the warrants has deterred coverage of the Company by
investment analysts and may have had the effect of creating a resistance level
to the trading price of the Company's stock", said Thomas E. Klein, vice
president finance and chief financial officer of Vion. "A simplified capital
structure after this exchange should enable the Company to raise capital more
efficiently and economically to finance continued research and new clinical
trials."
Vion Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the
discovery, development and commercialization of novel products and technologies
for the treatment of cancer and viral diseases. The Company has an extensive
research and development pipeline focused on five principal projects:
Promycin(R) (porfiromycin), a hypoxic cancer cell therapy currently being tested
in a Phase III clinical trial; TAPET (Tumor Amplified Protein Expression
Therapy), the Company's platform cancer treatment technology; Triapine(TM), a
ribonucleotide reductase inhibitor anticancer agent; SS-L-FD4C, a novel
nucleoside analog for the treatment of viral diseases; and alkylating agent
prodrugs, for the treatment of cancer. For additional information on Vion and
its research and product development programs, visit the Company's Internet web
site http://www.vionpharm.com.
<PAGE> 2
Statements included in this press release which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Vion Pharmaceuticals' future business
prospects, plans, objectives, stock prices, expectations and intentions are
subject to certain risks, uncertainties and other factors that could cause
actual results to differ materially from those projected or suggested in the
forward-looking statements, including, but not limited to those contained in the
Vion Pharmaceuticals' Schedule 13E-4 filed on May 19, 1998.
On May 18, 1998, the closing bid prices for the common stock, Class A
Warrants and Class B Warrants were $5.25, $2.00 and $0.96875, respectively.
Terms, documentation and information for the tender offer may be obtained from
the Company's information agent, Corporate Investor Communications, Inc., tel.
(888) 210-8932.
<PAGE> 1
EXHIBIT (a)(7)
VION PHARMACEUTICALS, INC.
NOTICE OF GUARANTEED DELIVERY
OF CLASS A WARRANTS
AND/OR
CLASS B WARRANTS
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept Vion Pharmaceuticals, Inc.'s (the "Company") offer
to exchange, at the holder's option, either (A) 0.438 shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock") or (B) 0.254 shares
of Common Stock and $0.66 in cash (the "Class A Exchange Offer"). The Company is
also offering to exchange for each outstanding Class B Warrant ("Class B
Warrants"), at the holder's option, either (A) 0.212 shares of Common Stock or
(B) 0.123 shares of Common Stock and $0.32 in cash (the "Class B Exchange
Offer", and together with the Class A Exchange Offer, the "Exchange Offer"), if
(a) certificates representing the Warrants are not immediately available, (b)
the procedures for book-entry transfer cannot be completed prior to the
Expiration Date (as defined), or (c) time will not permit the Warrants and all
other required documents to reach the Exchange Agent prior to the Expiration
Date. Choices (A), above, are referred to herein as "All Stock Consideration"
and Choices (B), above, are referred to as "Stock Plus Cash Consideration". This
form may be delivered by an Eligible Institution by mail or hand delivery or
transmitted, via facsimile, telegram or telex to the Exchange Agent as set forth
below. All capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in the Offering Circular dated May 19, 1998
of the Company (as the same may be amended or supplemented from time to time,
the "Offering Circular").
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE
29, 1998, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (SUCH TIME AND
DATE, AS EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS OF WARRANTS
MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand:
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
Attn: Reorganization Department New York, New York 10005
Telephone:
(718) 921-8200
Facsimile (for Eligible Institutions Only):
(718) 234-5001
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OR TELEX, OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to Vion Pharmaceuticals, Inc. (the
"Company"), upon the terms and subject to the conditions set forth in the
Offering Circular and the Letter of Transmittal, receipt of which is hereby
acknowledged, the Class A Warrants and/or Class B Warrants set forth below,
pursuant to the guaranteed delivery procedures set forth in the Offering
Circular under the heading "The Exchange Offer -- Procedures for Tendering
Warrants -- Guaranteed Delivery Procedures."
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
CLASS A WARRANTHOLDERS:
[ ] Please tender ________ Class A Warrants held by you for my account.
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER FOR ALL STOCK CONSIDERATION
OR
[ ] I ELECT TO TENDER FOR STOCK PLUS CASH CONSIDERATION
CLASS B WARRANTHOLDERS:
[ ] Please tender ________ Class B Warrants held by you for my account.
PLEASE CHECK ONE OF THE TWO BOXES BELOW:
[ ] I ELECT TO TENDER FOR ALL STOCK CONSIDERATION
OR
[ ] I ELECT TO TENDER FOR STOCK PLUS CASH CONSIDERATION
<TABLE>
<S> <C>
- ----------------------------------------------------- -----------------------------------------------------
(NAME OF RECORD HOLDER(S)) (AUTHORIZED SIGNATURE(S))
</TABLE>
- ----------------------------------------
(ADDRESS)
- ----------------------------------------
(CITY, STATE, ZIP CODE)
- ----------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated: ____________________, 1998
Certificate No(s). of Warrants (if
available):
- ----------------------------------------
If Warrants will be delivered by
book-entry transfer, check box below:
[ ] The Depository Trust Company
Trust Company Account No.:
________________
<PAGE> 3
GUARANTEE
The undersigned, a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the Untied
States which is a participant in an approved Signature Guarantee Medallion
Program, hereby guarantees the delivery to the Exchange Agent in proper form for
transfer (or confirmation of a book-entry transfer of the Warrants delivered
electronically) together with a properly completed and duly executed Letter(s)
of Transmittal (or facsimiles thereof), with any required signature guarantees
and any other required documents, all within three NASDAQ Stock Market trading
days after the Expiration Date.
<TABLE>
<S> <C>
- ----------------------------------------------------- -----------------------------------------------------
(NAME OF FIRM) (AUTHORIZED SIGNATURE)
- ----------------------------------------------------- Name: ----------------------------------------------
(ADDRESS) (PLEASE TYPE OR PRINT)
- ----------------------------------------------------- Title: ----------------------------------------------
(CITY, STATE, ZIP CODE)
- -----------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated: ------------------------------, 1998
</TABLE>
DO NOT SEND WARRANTS WITH THIS FORM. WARRANTS SHOULD
BE SENT TO THE EXCHANGE AGENT, TOGETHER WITH A PROPERLY
COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT (a)(8)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent
minor or incompetent person person(3)
7. a. The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under State law
8. Sole proprietorship account The owner(4)
============================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
9. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax- The organization
exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding includes the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including the exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding.
FILE SUBSTITUTE FORM W-9 WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION
NUMBER, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
(4) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends or
patronage dividends in gross income and such failure is due to negligence, a
penalty of 20% is imposed on any portion of an underpayment attributable to that
failure.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
