<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1998
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYTOCLONAL PHARMACEUTICS INC.
(Name of Small Business Issuer in its Charter)
Delaware 75-2402409
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(214) 353-2922
(Address and Telephone Number of Principal Executive Offices)
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9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(Address of Principal Place of Business or Intended Principal Place of Business)
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Arthur P. Bollon, Ph.D.
Chairman and Chief Executive Officer
Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(214) 353-2922
(Name, Address and Telephone Number of Agent for Service)
-----------
<PAGE>
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Copies to:
Robert H. Cohen, Esq.
Philip Magri, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
(212) 735-8600
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Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / X /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Maximum Proposed Amount
Title of Each Class of Amount to Offering Price Aggregate of
Securities to be Registered be Registered Per Security Offering Price Registration Fee
--------------------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value $.01
per share(1) 671,035 $4.69(6) $3,147,154 $875
Shares of Common Stock, par value $.01
per share(2) 335,540 $10.08(7) $3,382,243 $940
Shares of Common Stock, par value $.01
per share(3) 134,199 $8.40(7) $1,127,272 $313
Shares of Common Stock, par value $.01
per share (4) 67,101 $10.08(7) $676,378 $188
Shares of Common Stock, par value $.01
per share(5) 37,500 $7.00(7) $262,500 $73
Shares of Common Stock, par value $.01
per share(5) 12,500 $8.00(7) $100,000 $28
Shares of Common Stock, par value $.01
per share(5) 25,000 $9.00(7) $225,000 $63
--------- ---------- ------
Total ............................... 1,282,875 - $8,920,547 $2,480
--------- ---------- ------
--------- ---------- ------
</TABLE>
- ----------
(1) The Company is registering these shares of Common Stock for resale by the
stockholders who are listed in the prospectus (the "Selling Stockholders")
who bought the shares of Common Stock in the Company's private placement of
Units completed in April 1998 (the "1998 Private Placement").
(2) The Company is registering these shares of Common Stock for resale by the
Selling Stockholders issuable upon the exercise of 335,540 Class E Warrants
purchased by the Selling Stockholders in the 1998 Private Placement (the
"Class E Warrants").
(3) The Company is registering these shares of Common Stock for resale by a
certain Selling Stockholder, Janssen- Myers Associates, L.P. ("JMA"),
issuable upon the exercise of a unit purchase option granted to JMA for its
services as placement agent in the 1998 Private Placement (the "JMA
Option").
(4) The Company is registering these shares of Common Stock for resale by JMA
issuable upon the exercise of the 67,101 Class E Warrants underlying the
JMA Option.
(5) The Company is registering these shares of Common Stock for resale by a
certain Selling Stockholder, Synergy Group, L.P. ("Synergy"), issuable upon
the exercise of a warrant issued to Synergy pursuant to a financial
consultant agreement (the "Synergy Warrant").
(6) Represents the average of the closing bid and asked prices of the Company's
Common Stock as quoted on the Nasdaq SmallCap Market System on October 15,
1998 in compliance with Rule 475(c) of the Securities Act of 1933, as
amended (the "Securities Act").
(7) Computed in compliance with Rule 475(g) of the Securities Act.
-----------
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions of the Class E Warrants, JMA
Option and Synergy Warrant.
-----------
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
Subject to completion dated October 22, 1998
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
CYTOCLONAL PHARMACEUTICS INC.
1,282,875 Shares of Common Stock
The stockholders listed in this prospectus under the section entitled,
"Selling Stockholders" are offering and selling a total of 1,282,875 shares of
our company's common stock, $.01 par value per share (the "Common Stock"), which
they own or have the right to acquire from time to time. 671,035 of the shares
of Common Stock included in this offering were purchased by certain of the
Selling Stockholders in our private placement of Units in April 1998 (the "1998
Private Placement"). Each Unit consisted of Common Stock and Class E Warrants to
purchase Common Stock. 335,530 of the shares of Common Stock are shares which
may be issued to the same certain Selling Stockholders if and when they exercise
their Class E Warrants. 134,199 of the shares of Common Stock are shares which
may be issued to Janssen-Meyers Associates, L.P. ("JMA") if and when it
exercises the unit purchase option we granted to it for its services as
placement agent in our 1998 Private Placement (the "JMA Option"). 67,101 of the
shares of Common Stock are shares which may be issued to JMA if and when it
exercises the 67,101 Class E Warrants underlying the JMA Option. 75,000 of the
shares of Common Stock included in this offering are shares which may be issued
if and when one of our financial consultants, Synergy Group, L.L.C. ("Synergy"),
exercises warrants issuable to it under a financial consulting agreement.
The Selling Stockholders may offer their shares of Common Stock through
public or private transactions at current market prices, or at previously
negotiated prices. We will not receive any proceeds from the Selling
Stockholders' sale of the shares of Common Stock. We will, however, receive
proceeds when certain of the Selling Stockholders exercise their warrants and
options to acquire a total of up to 611,840 of the shares of Common Stock
included in this offering.
Our Common Stock, Class C Warrants and Class D Warrants are currently
quoted on the Nasdaq SmallCap Market System. Our Common Stock is quoted under
the symbol, "CYPH." Our Class C Warrants are quoted under the symbol, "CYPHW."
Our Class D Warrants are quoted under the symbol, "CYPHZ."
---------------
See "Risk Factors" beginning on page 7 of this prospectus and "Dilution."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is October ______, 1998.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are a public company. We file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange
Act of 1934 until the Selling Stockholders sell all of their shares of Common
Stock. This prospectus is part of a registration statement we filed with the
SEC.
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997;
2. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1998;
3. Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31,
1998;
4. Current Report on Form 8-K, dated June 12, 1998, filed with the SEC on
September 9, 1998;
5. Proxy statement filed with the SEC on August 5, 1998 pursuant to
Regulation 14A under the Exchange Act of 1934 ("the Exchange Act");
and
6. The description of our Common Stock set forth in our Registration
Statement filed under Section 12 of the Exchange Act on Form 8-A on
October 2, 1995, and any amendment or report filed for the purpose of
updating any such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
Attention: Daniel Shusterman, Esq.
Telephone: (214) 353-2922
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The Selling Stockholders will
not make an offer of these shares of Common Stock in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement is accurate as of any date other than the date on the front of
those documents.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
prospectus carefully. Unless we otherwise say so, when we discuss outstanding
securities of the Company, we exclude all of the shares of Common Stock issuable
upon the exercise of the Company's currently outstanding warrants and options
and the conversion of the Company's convertible securities.
Cytoclonal Pharmaceutics Inc.
We are a biopharmaceutical company located in Dallas, Texas. Our goal is to
develop products to identify, treat and prevent cancer and other diseases. We
were formed in September 1991 and since that date, we have devoted our resources
solely to research and development activities relating to several products which
are at various developmental stages. We have several license agreements with
various biopharmaceutical companies and research institutions which own approved
and pending patents covering certain drugs and therapeutic technologies.
Strategy
Through our research and development efforts and agreements with other
research institutions and biotechnology companies, we have acquired and
developed rights to certain technology. At the present time, we our focusing our
attention and resources on our collaboration agreement with Bristol-Myers Squibb
Company, Inc. ("Bristol-Myers Squibb") for Paclitaxel production (the "BMS
License Agreement"). Paclitaxel is a drug which has proven to be effective in
treating refractory ovarian and breast cancers. In addition, Paclitaxel has
shown potential in treating refractory non-small cell lung cancer and certain
other cancer indications in preliminary clinical trials. Presently, Paclitaxel
is made from the inner bark and needles of the slow-growing Pacific yew tree.
Our scientists are working in cooperation with the inventors of the fungal
Paclitaxel technology to develop a system for manufacturing Paclitaxel in
commercial quantities and at lower costs compared to currently available
production methods. We are also focusing on possible Paclitaxel treatment of
Polycystic Kidney Disease, our gene discovery program for the early diagnosis
and treatment of lung cancer and our vaccine program. Other programs, which
involve potential anti-leukemia drugs and drugs called "anti-sense
therapeutics," are being pursued at modest levels, and may help us develop
future products or alternatives to our main programs if unforeseen problems
develop. "Anti-sense therapeutics" are drugs designed to essentially "turn off"
genes involved in different diseases and to prevent such genes from growing or
duplicating. See "Risk Factors-Our Dependence Upon Agreements and Licenses with
Other Companies and Institutions; -Our Obligations to Pay Royalty Fees and the
Possibility of Losing Our Patents or Other Rights; -No Assurance of FDA
Approval; Government Regulation; and -Our Dependence upon Bristol-Myers Squibb."
To date, our strategy has been to license technologies in their early
development stages from research and educational institutions and further
develop such technologies to the point where we can then sublicense them to
commercial entities, as we have done with our Paclitaxel production system to
Bristol-Myers Squibb. In the event we decide to expand our strategy to
include developing acquired technologies to commercial stages, which we have
not done to date, we would require significant additional money to complete
development of and obtain regulatory approvals for our proposed products
which, if ever received, may take several years. See "Risk Factors-Our Need
for Substantial Additional Funds; and -No Assurance of FDA Approval;
Government Regulation."
Key License Agreements
In August 1998, we entered into an exclusive world-wide license agreement
with the University of California, Los Angeles for domestic and foreign patents
and patents pending based upon and including any subject matter claimed in or
covered by a U.S. patent pending entitled, "Peptide Antiestrogen Compositions
and Methods for Treating Breast Cancer." The agreement grants us the right to
(i) make, use, sell, offer for sale, import certain
3
<PAGE>
products and practice any process or method involving the patents and (ii)
sublicense these rights to third parties. Under this agreement, we have to pay
up-front fees, maintenance fees, royalties and milestone payments. See "Risk
Factors-Our Obligations to Pay Royalty Fees and the Possibility of Losing our
Patent and Other Rights."
In June 1998, we entered into the BMS License Agreement where we
sublicensed to them the technologies we had licensed from RDI and WSURF (see the
next two paragraphs for a further description of these two agreements) relating
to the production of Paclitaxel, the active ingredient in Bristol-Myers Squibb's
largest-selling cancer product, Taxol(TM). Under this agreement, Bristol-Myers
Squibb has to pay us fees, milestone payments, research and development support
and minimum and sales-based royalties. See "Risk Factors-Our Obligations to Pay
Royalty Fees and the Possibility of Losing our Patent and Other Rights; and -Our
Dependence upon Bristol-Myers Squibb."
In June 1993, we entered into an exclusive world-wide license agreement
with the Research & Development Institute, Inc. at Montana State University
("RDI") to use patented fungal technology to manufacture Paclitaxel. In May
1998, we amended this agreement to require us to pay a percentage of royalties
received with respect to the manufacture, use or sale of the inventions by
sublicensees and all up-front, milestone and royalty payments we may receive
under the BMS License Agreement. See "Risk Factors-Our Obligations to Pay
Royalty Fees and the Possibility of Losing our Patent and Other Rights"
In July 1996, we entered into an exclusive, world-wide license agreement
with the Washington State University Research Foundation ("WSURF") to use and
sublicense patented technology or prospective patented technology related to
genes and associated products for the manufacturing of Paclitaxel from the yew
tree. In June 1998, we amended this agreement to cover additional patents,
patent applications and genes for enzymes which are expected to be the subject
of future patent filings and allow us to license any of the technology as it is
developed until July 2006. See "Risk Factors-Our Obligations to Pay Royalty Fees
and the Possibility of Losing our Patent and Other Rights."
In June 1996, we entered into an exclusive license agreement with the
University of Texas System to allow us to manufacture, have manufactured, use,
sell and sublicense products related to a U.S. Patent Application entitled, "A
Method for Ranking Sequences to Select Target Sequence Zones of Nucleus Acids."
The technology has identified specific areas within genes which would be
receptive to anti-sense products. A Notice of Allowance of patent claims was
received in June 1998. This discovery has potentially broad applications to many
human and viral genes involved in human disease. See "Risk Factors-Our
Obligations to Pay Royalty Fees and the Possibility of Losing Our Patent and
Other Rights."
In February 1996, we obtained exclusive rights to a technology and then
pending patent developed at the University of California, Los Angeles for the
Paclitaxel treatment of Polycystic Kidney Disease. The Patent and Trademark
Office ("PTO") allowed such patent in August 1997. See "Risk Factors-Our
Obligations to Pay Royalty Fees and the Possibility of Losing our Patent and
Other Rights."
Financial History
Until the fiscal year ended December 31, 1997, we had not generated any
sales revenues. For the six month period ended June 30, 1998, we, for the first
time, generated $789,000 in revenues from the $1,250,000 we had received from
Bristol-Myers Squibb with the remaining $461,000 of the $1,250,000 to be applied
to the third and fourth quarters of 1998. We, however, have experienced
operating losses of $2,319,000 for the fiscal year ended December 31, 1995;
$3,106,000 for the fiscal year ended December 31, 1996; and $3,357,000 for the
fiscal year ended December 31, 1997. We have also experienced operating losses
of $1,575,000 for the six month period ended June 30, 1997 and $1,044,000 for
the six month period ended June 30, 1998. Since our formation in 1991, we have
incurred significant net operating losses, and we cannot predict when, if ever,
this trend will end. See "Risk Factors-Our Accumulated Deficit and Loss per
Share of Common Stock; Our History of Significant Losses and Expected Future of
Significant Losses."
4
<PAGE>
Organizational History
We were originally incorporated in the state of Texas in September 1991.
Our name was Bio Pharmaceutics, Inc. In November 1991, we changed our name to
Cytoclonal Pharmaceutics Inc. We were then reincorporated in the state of
Delaware by merger into a wholly-owned Delaware subsidiary in January 1992. Our
executive offices are located at 9000 Harry Hines Boulevard, Suite 330, Dallas,
Texas 75235 and our telephone number is (214) 353-2922.
The Offering
<TABLE>
<S> <C>
Common Stock outstanding before this offering 10,208,441 shares
as of October 21, 1998(1)
Common Stock offered: 1,282,875 shares
Common Stock that will be outstanding after 11,491,316
this offering is completed (1):
Selling Stockholders: See the section entitled, "Selling Stockholders," included in this
prospectus.
Risk Factors: Investment in these securities is uncertain and risky. See "Risk
Factors."
Use of Proceeds: We will not receive any proceeds from the sale of the Common
Stock being sold in this offering. Some of the Common Stock,
however, will be received by the Selling Stockholders only when
they exercise warrants. We will receive the proceeds when the
warrants are exercised. We intend to utilize the net proceeds from
the exercise of the warrants to fund our research and development
activities (including paying royalties and licensing fees), and for
general working capital purposes and operating expenses. See "Use
of Proceeds."
Dividend Policy: We currently intend to retain all future earnings to fund the
development and growth of our business. We do not anticipate
paying cash dividends. See "Dividend Policy."
Nasdaq SmallCap Market ticker symbols (3): Common Stock - CYPH
Class C Warrants - CYPHW
Class D Warrants - CYPHZ
</TABLE>
(1) Does not include as of the date hereof the possible issuance of (i)
1,593,700 shares of Common Stock reserved for issuance upon exercise of
options granted or available for grant under our 1992 Stock Option Plan and
1996 Stock Option Plan; (ii) 746,864 shares of Common Stock issuable upon
the conversion of our currently outstanding Series A Convertible Preferred
Stock; (iii) 800,000 shares of Common Stock reserved for issuance upon
exercise of an option granted to the underwriter of our initial public
offering completed in November 1995; (iv) 205,000 shares of Common Stock
issuable upon exercise of options granted as compensation for professional
services; (v) 36,000 shares of Common Stock issuable upon the exercise of
warrants granted for research and development; (vi) 2,006,073 shares of
Common Stock issuable upon the exercise of the outstanding Class C Warrants
issued in our initial public offering in November 1995 (the "IPO"); (vii)
2,510,927 shares of Common Stock issuable upon the exercise of the
outstanding Class D Warrants issued in the IPO; (viii) 2,006,073 shares
of Common Stock issuable upon the exercise of the Class D Warrants
underlying the outstanding Class C Warrants issued in the IPO; (ix)
125,000 shares of Common Stock issuable upon the exercise of currently
outstanding Class A Warrants; (x) 193,088 shares of Common Stock
issuable upon the exercise of currently outstanding Class B Warrants;
and (xi) 202,500 shares of Common Stock issuable upon the exercise of
warrants issued as compensation for professional services.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
1997 1996 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Licensing and Research
Collaborative Agreement
Revenue ...................... -- -- $ 789,000 --
Research and development
expenses ....................... $ 1,469,000 $ 1,576,000 822,000 $ 688,000
General and administrative
expenses ....................... 1,888,000 1,530,000 1,011,000 887,000
Net interest expense (income) ..... (105,000) (216,000) (85,000) (58,000)
----------- ----------- ----------- -----------
Net loss .......................... (3,252,000) (2,890,000) (959,000) (1,517,000)
Basic and diluted loss per share of
common stock ...................... $ (.42) $ (.42) $ (.11) $ (.21)
Weighted average number of
shares outstanding-Basic and
diluted loss per share ......... 8,268,000 7,640,000 9,286,000 8,073,000
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of the Company's Common
Stock being offered by the Selling Stockholders.
Our Accumulated Deficit and Loss per Share of Common Stock.
We had an accumulated deficit of $15,104,000 as of the fiscal year ended
December 31, 1997 and $16,063,000 as of the quarter ended June 30, 1998 (which
has not been audited by our auditors). Our statement of operations for the
fiscal year ended December 31, 1997 shows net losses of $3,252,000, which means
a loss of $.42 per share of Common Stock. Our statement of operations for the
six month period ended June 30, 1998 (which has not been audited by our
auditors) shows net losses of $959,000, which means a loss of $.11 per share of
Common Stock. See "-Our History of Significant Losses and Expected Future of
Significant Losses."
Our History of Significant Losses and Expected Future of Significant Losses.
From our formation in 1991 until the six month period ended June 30, 1998,
we were considered to be a "development stage" company, which is what they call
companies which have not yet generated any sales revenues. However, because we
had revenues of $789,000 in the six month period ended June 30, 1998 from the
BMS License Agreement, we are no longer considered to be a "developmental stage"
company. However, from our formation in 1991 to the date of this prospectus, we
have had substantial operating losses and expect to have them for the next
several years, if not more, due to our research and development activities and
general and administrative expenditures. Although we had revenue in the third
quarter of 1998, we cannot say with any certainty that we will any have future
revenue, or that even if we do have revenue, that we will be profitable. See
"-Our Accumulated Deficit and Loss per Share of Common Stock."
Our Need for Substantial Additional Funds.
Since our formation in 1991, we have experienced negative cash flows from
our operations which means we are spending more money than we are receiving. We
also expect to experience negative cash flows in the foreseeable future. Since
our formation in 1991, we have relied on loans, private financings, and our IPO
completed in November 1995 to allow us to continue our operations. Our cash
requirements in the future may be significantly different from our current
estimates because of changes in our research and development programs, increased
competition, advances in technology and other factors.
We do not have any commitments or arrangements to obtain any additional
funding besides the BMS License Agreement and our agreement with RDI. We cannot
say with any certainty that required financing will be available to us on terms
favorable, if at all. Although we plan to seek funding for some of our product
development efforts by entering into research and development partnerships and
obtaining government grants and research contracts, we cannot say with any
amount of certainty that we will be able to enter into any additional agreements
on favorable terms, if at all. If we decide to raise additional money by issuing
more of our securities, stockholders at the time of the issuance will experience
a dilution to the value of their securities.
Our Dependence upon Agreements and Licenses with Other Companies and
Institutions.
Our strategy is to develop, test, manufacture and eventually commercialize
our products. This will require us to enter into agreements with other companies
and institutions. If we enter into additional agreements, we will rely upon the
other parties to honor their responsibilities and perform their obligations
under the agreements. In March 1992, we entered into a collaborative research,
development and license agreement (the "Enzon Agreement") with Enzon, Inc., a
research, development and manufacturing company which had developed certain
pharmaceutical products and technology relating to polypeptides and antigen
binding protein products ("Enzon"). Pursuant to the Enzon Agreement, we granted
Enzon a license to develop certain protein strains using certain of our
7
<PAGE>
technology until March 2005. Besides the Enzon Agreement and our agreement with
RDI, we have entered into several other research and license agreements, and we
are continually seeking to enter into additional arrangements with other
companies and institutions. However, we cannot say with any certainty that our
current agreements or any future agreements will allow us to develop products
with commercial potential or to obtain proprietary rights or licenses for
proprietary rights with respect to any technology developed in connection with
these arrangements or that we will be able to guarantee the confidentiality of
any proprietary rights and information developed under such collaborative
arrangements or prevent their public disclosure. See "-Our Competition; and -Our
Uncertain Ability to Protect Our Technology."
In general, our collaborative agreements with other companies and research
institutions provide that the agreements may be terminated under certain
circumstances. We cannot give any assurance that we will be able to extend any
of our collaborative agreements upon their termination or expiration, or that we
will be able to enter into new collaborative agreements with existing or new
partners in the future. To the extent we decline or are unable to enter into any
additional collaborative arrangements, we would require substantially greater
funding to continue our current activities. In addition, if we are unable to
enter into additional collaborative agreements, we might be significantly
delayed in introducing our proposed products into certain commercial markets, or
we may even find that our development, manufacture or sale of our proposed
products is greatly hurt.
We Might Experience Problems in Developing Our Products.
We cannot say with any certainty that our research and development
activities will enable us to produce any products able to withstand competition.
Our development of each product is subject to the risks of failure commonly
experienced in the development of products based upon innovative technologies
and the expense and difficulty of obtaining approvals from regulatory agencies.
All of our potential products currently under development will require
significant additional funding and development and pre-clinical and clinical
testing before we are able to submit them to any of the regulatory agencies for
approval for commercial use. We cannot say with any certainty that we will be
able to license any technologies or proposed products or to complete
successfully any of our research and development activities. Even if we do
complete them, we cannot say with any certainty that we will be able to market
successfully any of the products or that we will be able to obtain the necessary
regulatory approval or that customers will like our products. We also face the
risk that any or all of our products will not work as intended or that they will
be toxic, or that, even if they do work and are safe, that our products will be
difficult to manufacture or market on a large scale. We also face the risk that
the rights of other persons or entities will stop us from marketing any of our
products or that other persons or entities might market their products as well
as we market our products or even better. See "-Our Competition; -No Assurance
of FDA Approval; Government Regulation; -Our Dependence upon Others for
Manufacturing; Our Lack of Manufacturing Experience; and -Our Dependence upon
Others for Marketing; Our Lack of Marketing Experience."
Our Obligations to Pay Royalty Fees and the Possibility of Losing Our Patents
or Other Rights.
RDI.
Under our license agreement with RDI (the "RDI Agreement") relating to the
production of Paclitaxel, we have to pay RDI a minimum royalty fee of $100,000
no later than June 10th of every year as long as the RDI Agreement is in effect.
We have paid RDI royalty payments of $100,000 on June 10, 1997 and $100,000 on
June 10, 1998. Also, under the RDI Agreement, we have to pay RDI royalties on
sales of products which use the technology we have licensed under the RDI
Agreement. The royalty percentage is higher if a patent for the technology has
been issued by the PTO. In May 1998, we amended the RDI Agreement to require us
to pay RDI (i) a percentage of royalties received by us from sublicensees who
manufacture, use or sell products using the technology licensed to us under the
RDI Agreement, which royalty rate will be reduced if we are required to pay
royalties to other parties, and (ii) payments we might receive under the BMS
License Agreement. Our business would be significantly hurt if we lost the RDI
Agreement. See "-Our Dependence upon Bristol-Myers Squibb."
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WadTech.
Under our agreement with WadTech where we purchased certain of their
technology (the "Wadley Technology"), we are required to pay WadTech a royalty
fee of 6.25% of the gross selling prices of products which use any of the Wadley
Technology until we have paid to WadTech a total of $1,250,000. After that, the
royalty rate will drop to 3.75%. We have paid WadTech royalty fees of $31,250
for the year beginning October 1, 1996 and $62,500 for the year beginning
October 1, 1997. We have to pay WadTech $125,000 for each year after that.
WadTech has a perfected security interest in the Wadley Technology to secure the
payment of the first $1,250,000 of royalties. WadTech still has the right to
license the WadTech Technology to other parties or sell it if we do not satisfy
obligations. We have to pay a royalty fee of 3% on sales of products produced
through a system involving technology concerning yeast which was assigned to us
when we purchased the Wadley Technology. Our business would be significantly
hurt if we lost the WadTech Technology.
WSURF.
Under our license agreement with WSURF, we are required to pay WSURF an
annual license fee every year, beginning July 1, 1997, as well as royalty and
sublicensing fees. We have paid last year's annual license fee. Our business
would be significantly hurt if we lost the technology under this license
agreement with WSURF. See "-Our Dependence upon Bristol-Myers Squibb."
Enzon.
Under the Enzon Agreement, if we and Enzon decide to develop any products
together, the costs and profits of the development will be split equally. The
agreement also says that if we are unable to pay our share of the costs, we will
lose our rights to any of the products which are developed and we will not have
the right to split the profits from any of the products which are developed. We
will only be entitled to a royalty fee. Our business would be significantly hurt
if we lost the Enzon Agreement. See "-Our Dependence upon Agreements and
Licenses with Other Companies and Institutions."
University of Texas.
Under our agreement with the University of Texas, we have paid the
University $231,563 of the $285,240 which we owe them as of June 30, 1998 when
we and the university amended the agreement to grant us the right to develop and
commercialize any intellectual property under the original agreement and which
requires that we and the University negotiate a royalty fee which is less than
8% of the net sales of any commercialized products. We also entered into a
Patent License Agreement with the Board of Regents of the University of Texas
which requires us to pay Regents licensing and sublicensing fees. Our business
would be significantly hurt if we lost any of our agreements with the University
of Texas.
University of California, Los Angeles.
We have three separate license agreements with the University of
California, Los Angeles ("UCLA"). Under our first license agreement with UCLA,
we have paid them $5,000, and have agreed to pay an additional $10,000 upon
issuance of a patent. Under our second license agreement with UCLA, we have paid
them a $5,000 license issuance fee, and we have agreed to pay an additional
$5,000 upon the issuance of a patent. Under our third license agreement with
UCLA, we have agreed to pay them a $20,000 license issuance fee, an additional
$25,000 fee upon the issuance of a patent, annual maintenance fees which
increase every year and minimum annual royalty payments. Our business would be
substantially hurt if we lose any of our agreements with UCLA.
Our Competition.
We are in the rapidly changing, competitive and heavily regulated
biotechnology industry which makes it difficult for us to predict our risks and
expenses with any amount of certainty. Many of our competitors have more
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financial, technical, human and other resources than us. Also, many of our
competitors have significantly more experience than us in performing
pre-clinical testing and human clinical trials of new products and obtaining
approvals from the United States Food and Drug Administration ("FDA"), PTO and
other regulatory agencies. It is a possibility that our competitors may receive
FDA or PTO approval before us and at less cost. Also, our employees and
management have little or no experience producing and selling any pharmaceutical
or biological products. Investors should be aware that in June 1991, the
National Cancer Institute ("NCI") entered into a Collaborative Research and
Development Agreement ("CRADA") with Bristol-Myers Squibb to develop Paclitaxel
and granted Bristol-Myers Squibb the exclusive use of NCI's clinical data
relating to Paclitaxel in seeking approval from the FDA until December 1997,
which significantly shortened the approval process and prevented any other party
from obtaining FDA approval using the NCI data. Although Bristol-Myers Squibb
has since lost its right of exclusivity under the CRADA, it has patented its
method of delivering Paclitaxel intravenously to a patient. Such patent has in
fact kept Bristol-Myers Squibb's use of the NCI data exclusive. Other companies
are currently contesting the exclusivity in the courts. Bristol-Myers Squibb
also received FDA approval for commercial sale of its Paclitaxel for refractory
ovarian cancer in December 1992, refractory breast cancer in August 1994,
Kaposi's Sarcoma in August 1997 and lung cancer in 1998. Since December 1992,
Bristol-Myers Squibb has been the sole source of Paclitaxel for commercial
purposes. We think that Bristol-Myers Squibb is currently conducting clinical
trials in order to get FDA approval for treating other types of cancer. See "-No
Assurance of FDA Approval, Government Regulation; -Our Dependence upon
Bristol-Myers Squibb; -Our Dependence upon Others for Manufacturing; Our Lack of
Manufacturing Experience; -Our Dependence upon Other for Marketing; Our Lack of
Marketing Experience; and -Our Dependence upon Key Personnel and Collaborators;
Our Limited Management Team."
Our Uncertain Ability to Protect Our Technology.
Our success will depend, in part, on our ability to get patent protection
for our products and processes in the United States and elsewhere. We have filed
and intend to continue to file patent applications as we need them. We cannot
say with any certainty, however, that any additional patents will issue from any
of these applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. Also, we cannot say with any
certainty that any patents issued to us or licensed by us can withstand
challenges made by others or that we will able to protect our rights. See "-Our
Competition; and -Our Dependence upon Key Personnel and Collaborators; Our
Limited Management Team."
We are aware of patent applications and issued patents belonging to our
competitors, and we are uncertain whether any of these, or of any patent
applications which we do not know about, will require us to alter or cease our
potential products or processes. We cannot say with any certainty that we will
be able to obtain any licenses to technology that we will require or, if
obtainable, that the cost of them will be reasonable. Our failure to obtain any
necessary licenses to any technology could substantially hurt our business.
Expensive and drawn-out litigation may also be necessary for us to assert any of
our rights or to determine the scope and validity of rights claimed by other
parties. Litigation could be too expensive for us to pursue without great cost
and uncertainty as to the outcome. Our failure to pursue litigation could result
in the loss of our rights which could substantially hurt our business. See "-Our
Competition; and -Our Dependence upon Key Personnel and Collaborators; Our
Limited Management Team."
We also rely on trade secrets and confidential information which we try to
protect by entering into confidentiality agreements with other parties. We
cannot say with any certainty that any of the confidentiality agreements will
honored, or, if breached, we would have enough remedies to protect the
confidential information, or that our competitors will not independently learn
our trade secrets. The loss of our trade secrets would substantially hurt our
business. See "-Our Competition; and -Our Dependence upon Key Personnel and
Collaborators; Our Limited Management Team."
No Assurance of FDA Approval; Government Regulation.
The FDA and other similar agencies in foreign countries have substantial
requirements for therapeutic and diagnostic pharmaceutical and biological
products. Such requirements often involve lengthy and detailed laboratory
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and clinical testing procedures, sampling activities and other costly and
time-consuming procedures. It often takes companies several years to satisfy
these requirements, depending on the complexity and novelty of the product. The
review process is also extensive which may delay the approval process even more.
These regulatory requirements could substantially hurt our ability to clinically
test and manufacture our potential products. Government regulation could also
delay our marketing of new products for a considerable period of time, impose
costly procedures upon our activities and give our competitors an advantage. We
cannot say with any certainty that the FDA or other regulatory agency will grant
us approval for any of our products on a timely basis, if at all. Any delay in
obtaining, or failure to obtain, such approvals could substantially hurt our
marketing of any proposed products and our ability to earn product revenue.
Further, regulation is subject to change. Any additional regulation could limit
or restrict our ability to use any of our technologies which could substantially
hurt our operations. See "-Our Competition."
We also have to comply with the Occupational Safety and Health
Administration ("OSHA"), Environmental Protection Agency ("EPA"), Toxic
Substances Control Act, Resource Conservation and Recovery Act and other
regulatory laws. In the future, we could also be subject to other federal, state
or local regulations. OSHA or the EPA may establish regulations which could
affect our research and development programs. We are unable to predict whether
any agency will adopt any rule which could substantially hurt our business. See
"-Our Competition."
Uncertainty Related to Health Care Reimbursement and Reform Measures.
Our success in developing our products may depend, in part, on whether we
will be reimbursed by government health administration authorities, private
health insurers and other organizations. There is significant uncertainty if
costs associated with newly-approved health care products will be reimbursed. We
cannot say with any certainty whether sufficient insurance coverage will be
available for us to establish and maintain price levels sufficient to realize an
appropriate return on developing new products. Government and other third-party
payers are attempting to contain health care costs more every day by limiting
both coverage and the level of reimbursement of new therapeutic and diagnostic
products approved for marketing by the FDA and by refusing, in some cases, to
provide any coverage of uses of approved products for disease indications for
which the FDA has not granted marketing approval. If adequate coverage and
reimbursement levels are not provided by government and third-party payers for
uses of our products, it will make it very difficult for us to market our
products to doctors and hospitals because their patients might not be able to
pay for the products without any insurance coverage or reimbursement. See "-Our
Competition; and -No Assurance of FDA Approval, Government Regulation."
Our Dependence upon Bristol-Myers Squibb.
In June 1998, we entered into the BMS License Agreement and a Sponsored
Research Agreement (the "R&D Agreement") with Bristol-Myers Squibb. Under the
BMS License Agreement, we granted Bristol-Myers Squibb an exclusive sublicense
under the RDI Agreement (the "BMS License Agreement-RDI Sublicense Agreement")
and the WSURF Agreement. Under the RDI Agreement, we acquired a license to
certain patents and technology relating to the use of microorganisms to produce
Paclitaxel and other taxanes and components. Under the WSURF Agreement, we
acquired a license to certain patents and technology relating to genes receptive
to enzymes involved in the production of Paclitaxel and other taxanes. The BMS
License Agreement requires Bristol-Myers Squibb to pay royalties based on the
amount of sales and lump sum payments when certain events occur. Under the BMS
License Agreement, Bristol-Myers Squibb has the right to negotiate with us
before anyone else does, an exclusive, world-wide right to license or sublicense
any of the technology licensed to us under the RDI Agreement and WSURF Agreement
and potentially new anti-cancer drugs from microorganisms supplied by us. The
term of the BMS License Agreement shall end until the occurrence of later of (i)
ten (10) years from the first commercial sale of the licensed products or (ii)
such time as neither the making, use nor sale at the time by Bristol-Myers
Squibb, its affiliates or sublicensees in such country of the licensed product
does not infringe (a) any U.S. or foreign patents or patent applications,
including reissues, renewals, extensions, continuations or
continuations-in-part, copyrights or trademarks owned and licensed by RDI to us
under the RDI Agreement, (b) certain U.S. and foreign patents or patent
applications owned by WSURF and licensed by WSURF to us under the WSURF
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Agreement and (c) other licensed property together with all patent rights
pertaining thereto, to the extent that such patent rights are not already part
of the RDI Agreement and WSURF Agreement. Bristol-Myers Squibb can terminate the
BMS License Agreement after December 12, 1998, after they have given us ninety
(90) days notice, in which event the Bristol-Myers Squibb sublicense under the
RDI Agreement and WSURF Agreement will terminate, although any payment
obligations would survive termination. We cannot say with any certainty that
Bristol-Myers Squibb will successfully manufacture or market the licensed
property, if it does at all, or that we will be able to maintain the RDI
Agreement or the WSURF Agreement. See "-Our Dependence upon Agreements and
Licenses with Other Companies and Institutions."
Bristol-Myers Squibb can renew the R&D Agreement for continuous one-year
periods only if the BMS License Agreement is still in effect. The R&D Agreement
contemplates, without assurance, a program to develop microbial fermentation and
genetic engineering technologies for the production of Paclitaxel and other
taxanes. See "-Our Dependence upon Agreements and Licenses with Other Companies
and Institutions."
Our Dependence upon Others for Manufacturing; Our Lack of Manufacturing
Experience.
We currently do not have facilities or personnel capable of manufacturing
any products in commercial quantities. If we develop fungal Paclitaxel and
obtain regulatory approval of it, we intend to contract outside parties to
manufacture it for us. We cannot say with any certainty whether we will be able
to enter into any arrangements with outside manufacturers on terms favorable to
us, if at all. In the future, we may, if it becomes economically attractive to
do so, establish our own manufacturing facilities to produce other products that
we may develop. Building and operating production facilities would require
substantial additional funds and other resources. We cannot say with any
certainty, however, whether such funds would be available on favorable terms to
us, if at all. Also, we cannot say with any certainty whether we will be able to
shift successfully our operations to commercial development. See "-Our
Dependence upon Agreements and Licenses with Other Companies and Institutions."
Our Dependence upon Others for Marketing; Our Lack of Marketing Experience.
We currently have no marketing and sales personnel and no experience in
marketing pharmaceutical products. We would have to spend significant funds and
dedicate a significant amount of management resources to develop our own sales
force. We cannot say with any certainty that any funds or resources to develop
our own sales force will be available. Further, we cannot say with any certainty
that, with a sales force, we would successfully penetrate the markets for any of
our products. For certain products under development, we may seek to enter into
marketing agreements with other entities which would grant them exclusive
marketing rights in return for royalties based on sales, if any. Under some of
these agreements, the other entity may have the responsibility for all or a
significant part of the development and obtaining regulatory approval. In the
event that the marketing and development partner fails to develop a marketable
product or fails to successfully market a product, our business could be
substantially hurt. The sale of certain products outside the United States will
also be dependent upon the successful completion of arrangements with future
partners, licensees or distributors in each territory. We cannot give any
assurance, however, that we will successfully establish any additional
collaborative arrangements, or that, if established, such future partners will
successfully commercialize any products, if at all.
Our Dependence upon Key Personnel and Collaborators; Our Limited Management
Team.
Much of our success depends upon the continued contributions of our
executive officers, scientific and technical personnel and consultants. We are
particularly dependent upon Arthur P. Bollon, Ph.D., our Chairman of our Board
of Directors, Chief Executive Officer and President, and Daniel Shusterman, our
Vice President of Operations, Treasurer and Chief Financial Officer, as well as
our senior scientists, Susan L. Berent, Ph.D., Hakim Labidi, Ph.D., Rajinder S.
Sidhu, Ph.D. and Richard M. Torczynski, Ph.D. As of October 6, 1998, we had 16
full-time employees, 13 of whom are engaged directly in research and development
activities and 3 of whom are in executive and administrative positions. Our
employees are not governed by any collective bargaining agreement, and we
believe that our relationship with our employees is good. We currently have an
employment agreement with
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Dr. Bollon which expires on November 6, 2003. Although we maintain "key person"
life insurance which provides that upon the death or incapacity of Dr. Bollon,
we will receive $2 million, Dr. Bollon's death or incapacity could substantially
hurt our business. During our limited operating history, many important
responsibilities within the Company have been assigned to a relatively small
number of individuals. The competition for qualified personnel is intense, and
the loss of services of certain key personnel could substantially hurt the
Company.
Our scientific collaborators and advisors are employed by companies and
institutions other than us, and some of them have consulting or other advisory
arrangements with other entities and institutions which could conflict or
compete with their obligations to us. Inventions or processes discovered by such
persons will not necessarily become the property of us but may remain the
property of such persons or of such persons' full-time employers.
Product Liability Insurance.
Our products, either when using them in clinical trials or when marketing
them, could expose us to product liability claims. Although we intend to obtain
product liability insurance for our ongoing clinical trials, we cannot say with
any certainty that we will be able to obtain, maintain or increase our insurance
coverage in the future on terms favorable to us, if at all, or that any claims
against us will not be greater than the amount of such coverage. Furthermore,
certain distributors of pharmaceutical and biological products require minimum
product liability insurance coverage as a condition before they start purchasing
or accepting products for distribution. Our failure to satisfy such insurance
requirements could decrease our ability to achieve broad distribution of our
proposed products, which could substantially hurt our business.
Control of the Company; Ability to Direct Management.
Our current officers, directors and stockholders who own more than 5% of
our securities beneficially own or control approximately 49.5% of our
outstanding shares of Common Stock, which represents approximately 46.7% of our
total outstanding voting securities. Such officers, directors and principal
stockholders may, therefore, be able to elect all of our directors, to determine
the outcome of most corporate actions requiring stockholder approval, and
otherwise to control the direction of our business. Such control could prevent
another party from trying to acquire a majority position in our business which
could potentially otherwise cause the price of our securities to increase. In
addition, our Board of Directors is authorized to issue from time to time shares
of preferred stock, without stockholder authorization, in one or more designated
series or classes. See "-Possible Restriction on 'Market Making' Activities in
the Company's Securities; Illiquidity; -Description of Securities; and "Selling
Stockholders."
Our Dividend Policy.
Since our formation in 1991, we have not paid any dividends on our Common
Stock. We intend to retain future earnings, if any, to provide funds for the
operation of our business and, accordingly, do not anticipate paying any cash
dividends on our Common Stock in the future. Furthermore, the terms of our
outstanding Series A Preferred Stock do not allow for the payment of cash
dividends on the Common Stock unless and until all accrued and unpaid dividends
on the Series A Preferred Stock shall have been paid or set apart for payment.
Indemnification of Officers and Directors.
We are currently a Delaware corporation. Our Certificate of Incorporation
includes certain provisions permitted under the Delaware General Corporation Law
("DGCL") whereby our officers and directors are indemnified against certain
liabilities. Our Certificate of Incorporation also limits, to the fullest extent
permitted by the DGCL, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence,
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except liability for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) the unlawful payment of a dividend or unlawful stock
purchase or redemption and (iv) any transaction from which the director derives
an improper personal benefit. The DGCL does not eliminate a director's duty of
care and this provision has no effect on the availability of equitable remedies
such as injunction or rescission based upon a director's breach of the duty of
care. In addition, an insurance policy, which provides for coverage for certain
liabilities of its officers and Directors has been issued to us.
Possible Restriction on "Market Making" Activities in the Company's Securities;
Illiquidity.
Upon the completion of this offering, Bruce Meyers and Peter Janssen will
beneficially own approximately 11.6% and 10.2%, respectively, of the outstanding
shares of Common Stock, which represents approximately 10.9% and 9.6%,
respectively, of the total outstanding voting securities. Messrs. Meyers and
Janssen are the principals of the corporate general partner of JMA. If JMA or
its affiliates are deemed to have control of our business, regulatory
requirements of the SEC, Nasdaq and the New York Stock Exchange, Inc. could
prevent JMA from engaging in market-making activities relating to our
securities. If JMA is unable to make a market in our securities because it is
deemed to have effective voting control or if, for any other reason, it chooses
not to or is unable to make a market in our securities, there can be no
assurance that any other broker-dealers would make a market in our securities.
Without market-makers, it would be very difficult for holders of our securities
to sell their securities in the secondary market, and the market prices for such
securities would be substantially harmed. Also, we cannot give any assurances
that an active trading market for our securities be maintained whether or not
JMA makes a market in our securities. In the absence of such a market, investors
may be unable to liquidate their investment. See "-Absence of Public Market;
Possible Volatility of Common Stock and Warrant Prices; and -Selling
Stockholders."
Possible Delisting of Our Securities from the Nasdaq SmallCap Market System.
Our Common Stock, Class C Warrants and Class D Warrants are currently
quoted on the Nasdaq SmallCap Market System. Our Common Stock is quoted under
the symbol, "CYPH." Our Class C Warrants are quoted under the symbol, "CYPHW."
Our Class D Warrants are quoted under the symbol, "CYPHZ." Nasdaq has certain
requirements that every company must meet in order to have their securities
first quoted on the Nasdaq SmallCap Market System, and has another set of
requirements that a company must meet to continue to have their securities
quoted on the Nasdaq SmallCap System. Although we currently meet Nasdaq's
criteria for continued listing, we cannot say with any certainty that we will
continue to meet such criteria. For continued inclusion on the Nasdaq SmallCap
Market System, a company has to maintain (i) either (A) net tangible assets of
$2 million, (B) market capitalization of $35 million or (C) net income of
$500,000 in the most recently completed fiscal year or in two of the last three
most recently completed fiscal years; (ii) a minimum bid price of $1.00 per
share; (iii) in the case of a convertible debt security, a principal amount
outstanding of at least $5 million; (iv) in the case of common stock, at least
300 round lot holders and (v) 500,000 publicly held shares having a market value
of at least $1 million. If we are unable to meet the continued listing criteria
of the Nasdaq SmallCap Market System any time in the future due to our continued
operating losses or otherwise, and our securities are delisted, trading, if at
all, of our securities, if any, would be conducted in the over-the-counter
market in the so-called "pink sheets" or, if available, the NASD's "Electronic
Bulletin Board." As a result, investors could find it more difficult to dispose
of, or to obtain accurate quotations as to the value of, our securities. See
"-Our Accumulated Deficit and Loss per Share of Common Stock; Our History of
Significant Losses and Expected Future of Significant Losses; and -Our Need for
Substantial Additional Funds."
Risk of Low-Priced Stocks; "Penny Stock" Regulations.
If our securities are delisted from the Nasdaq SmallCap Market System, they
may become subject to Rule 15g-9 under the Exchange Act of 1934, which imposes
additional sales practice requirements on broker-dealers that sell such
securities. There are exceptions to Rule 15g-9 and they include transactions
meeting the safe-harbor requirements of Rules 505 or 506 under Regulation D of
the Securities Act, and transactions in which the purchaser
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is an institutional accredited investor (as defined in the Securities Act) or an
established customer (as defined in the Securities Act) of the broker-dealer.
For transactions which have to comply with the requirements of Rule 15g-9 under
the Exchange Act of 1934, a broker-dealer must determine whether or not the
purchaser meets a special suitability standard, and the broker-dealer must
receive the purchaser's written consent to the transaction before the sale.
These requirements could make broker-dealers unwilling or even unable to sell
our securities which could make it more difficult for our investors to resell
their securities to other parties. See "-Possible Delisting of Our Securities
from the Nasdaq SmallCap Market System."
Also, the SEC defines a "penny stock" to be any equity security that has a
market price (as therein defined) under $5.00 per share or has an exercise price
under $5.00 per share, subject to certain exceptions. Unless exempt, the rules
require the delivery, prior to any transaction in a penny stock, of SEC material
telling the purchaser certain information about the penny stock. Purchasers must
also be told about the commissions that the broker-dealers and the registered
representatives will get and they must be told about the securities current
prices. Finally, purchasers must also be given statements every month which have
to tell the purchaser about his or her securities' recent prices and about the
limitations of the penny stock market. These penny stock restrictions will not
apply to our securities if they stay quoted on the Nasdaq SmallCap Market
System, and if they have certain price and volume information provided on a
current and continuing basis or if they meet certain minimum net tangible assets
or average revenue criteria. We cannot say with any certainty, however, that our
securities will continue to meet the Nasdaq SmallCap Market requirements in the
future and if we do not, the prices of our securities could decrease and
investors could find it difficult to sell their securities. Anyway, even if we
remain exempt from the penny-stock restrictions, we still have to comply with
Section 15(b)(6) under the Exchange Act of 1934, which gives the SEC the
authority to stop any person who breaks the law when selling penny stock from
selling any more penny stock or from working with any broker-dealer. See
"-Possible Delisting of Our Securities from the Nasdaq SmallCap Market System;
and -Risk of Low-Priced Stocks; 'Penny Stock' Regulations."
Shares Eligible for Future Sale; Registration Rights and Dilution.
The market price of our Common Stock, Class C Warrants and Class D Warrants
could drop as a result of a large number of shares of Common Stock in the market
after the offering, or the perceptions that such sales could occur. These
factors also could make it more difficult for us to raise funds through future
offerings of our securities. See "-Possible Delisting of Our Securities from
the Nasdaq SmallCap Market System; and -Risk of Low-Priced Stocks; 'Penny
Stock' Regulations."
There will be 11,491,316 registered shares of our Common Stock outstanding
upon the completion of this offering. All of these shares will be freely
transferrable without restriction if we continue to comply with the SEC and
certain states' registration requirements. Certain of our other outstanding
securities are not registered with the SEC, and are considered to be,
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and may only be sold in certain circumstances. See "-Possible Delisting of
Our Securities from the Nasdaq SmallCap Market System; and -Risk of Low-Priced
Stocks; 'Penny Stock' Regulations."
We have also granted certain of our investors who are holding restricted
stock, certain rights to have their Common Stock registered with the SEC which
would lift the selling restrictions of Rule 144 under the Securities Act. The
rights are known as either "demand registration rights" and "piggy-back
registration rights." "Demand registration rights" are rights given to investors
to require us to register their Common Stock at our expense. We have usually
limited how many times investors can exercise these demand registration rights
and have asked for a minimum number of shares of Common Stock before we incur
the expense of registration. "Piggy-back registration rights" are rights given
to investors to ask that we include their Common Stock in any registration
statement we are preparing to file with the SEC. These piggy-back registration
rights can be exercised only if the registration statement is on an appropriate
form; and if it is an underwritten offering, the underwriter of the offering
does not object. The holders of the option granted during our initial public
offering have certain demand registration rights beginning November 2, 1998 for
the shares of Common Stock issuable upon the exercise of such option Holders of
(i) 2,000,000 shares of Common Stock outstanding, (ii) options to purchase
200,000 shares of Common Stock, (iii)
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764,003 shares of Series A Preferred Stock convertible into the same number of
shares of Common Stock and (iv) options to purchase 100,000 shares of Series A
Preferred Stock convertible into the same number of shares of Common Stock (we
will refer to the Common Stock mentioned in (i) through (iv) as the "Registrable
Securities") have demand registration rights and piggy-back registration rights
for Registrable Securities from now until November 7, 2000. The holders of more
than 50% of the Registrable Securities may request that we file a registration
statement under the Securities Act, and, subject to certain conditions, we
generally will be required to use our best efforts to have the SEC declare the
registration statement to be effective. In addition, if we propose to register
any of our securities, either for sale by us or by other investors, we are
required, with certain exceptions, to notify the holders described above and,
subject to certain limitations, to include in the first two such registration
statements filed after December 7, 1996 and before November 7, 2000, all of the
Registrable Securities requested to be included by such holders. In addition, we
have (i) registered our Class A Warrants and the 520,588 shares of Common Stock
issuable upon the exercise of such warrants; (ii) registered 150,000 shares of
Common Stock issuable upon the exercise of warrants we had issued to the
placement agent for its services rendered to the us during our private placement
completed in 1992; (iii) registered 873,700 shares of Common Stock issuable
upon the exercise of options granted and which we have the right to grant under
our 1992 Stock Option Plan and 1996 Stock Option Plan; (iv) granted certain
"piggy-back" registration rights to the holders of 20,000 shares of Common Stock
issued by us in connection with our formation of a joint venture with Pestka
Biomedical Laboratories, Inc.; and (v) granted the holders of options and
warrants to purchase a total of 175,000 shares of Common Stock certain
"piggyback" registration rights for providing us with financial advisory and
public relations services rendered to us and pursuant to a license agreement. We
will have to pay for the expense of registration if one or more of these groups
exercise their demand registration rights or "piggy-back" registration rights.
The expense could be high. Also, because there would be a high number of shares
outstanding, we could find it more difficult to obtain future financing. See
"-Possible Delisting of Our Securities from the Nasdaq SmallCap Market System;
- -Risk of Low-Priced Stocks; 'Penny Stock' Regulations; and Description of
Securities."
The sale, or availability for sale, of substantial amounts of Common Stock
in the public market pursuant to Rule 144 or registration could cause the market
price of the Common Stock and our other securities to decrease which could hurt
our ability to raise additional money through the sale of our securities or
through debt financing. Also, to the extent that outstanding options and
warrants are exercised, investors' ownership interest will drop. Also, if, and
to the extent, that we reduce the exercise price of outstanding warrants or
options, our stockholders could experience additional dilution. See "-Possible
Delisting of Our Securities from the Nasdaq SmallCap Market System; and -Risk
of Low-Priced Stocks; 'Penny Stock' Regulations."
Absence of Public Market; Possible Volatility of Common Stock and Warrant
Prices.
Our Common Stock, Class C Warrants and Class D Warrants are currently
quoted on the Nasdaq SmallCap Market System. We cannot say with any certainty
that the market for our securities will continue to be active. We are in the
biopharmaceutical industry and the market prices of securities of newly-formed
health care companies have been very unpredictable. Announcements of biological
or medical discoveries or technological innovations by us or our competitors,
developments concerning proprietary rights, including patents and litigation
matters, regulatory developments in both the United States and foreign
countries, public concern as to the safety of new technologies, general market
conditions, quarterly fluctuations in our financial condition and other factors
could cause the market price of our securities to drop.
Potential Anti-takeover Effects.
Certain provisions of our Certificate of Incorporation could make it more
difficult for a third party to acquire control of our business, even if such
change in control would be beneficial to stockholders. Our Certificate of
Incorporation allows our Board of Directors to issue preferred stock without
stockholder approval. Such issuance could make it more difficult for a third
party to acquire our business. In addition, certain provisions contained in
16
<PAGE>
each of the employment agreements with each of Dr. Arthur P. Bollon, our
Chairman, President and Chief Executive Officer, and Mr. Daniel Shusterman, our
Vice President of Operations, Treasurer and Chief Financial Officer, obligate us
to make certain salary payments if their employment is terminated without just
cause or due to a Disability (as defined therein). See "-Possible Adverse and
Anti-Takeover Effect of Preferred Stock; and Description of Securities."
Possible Adverse and Anti-takeover Effects of Preferred Stock.
Our Certificate of Incorporation authorizes our Board of Directors to issue
a maximum of 10,000,000 shares of preferred stock on terms which may be
determined by them without getting stockholder approval. Of these 10,000,000
shares, 4,000,000 shares have already been designated as Series A Preferred
Stock. The Series A Preferred Stock are not registered with the SEC or quoted on
the Nasdaq SmallCap Market System or any other exchange. They can, however, be
converted by the holder into an equal number of shares of Common Stock. Also,
the terms of the Series A Preferred Stock include dividend and liquidation
preferences which could also hurt the rights of holders of the Common Stock
being offered hereby. In addition, each share of Series A Preferred Stock is
entitled to one vote on all matters on which the Common Stock has the right to
vote. Holders of Series A Preferred Stock are also entitled to vote as a
separate class on any proposed adverse change in their rights, preferences or
privileges and any increase in the number of authorized shares of Series A
Preferred Stock. Further, the terms of any additional series of preferred stock,
which may also include priority claims to assets and dividends, as well as
special voting rights, could hurt the rights of the holders of the Common Stock
being offered hereby. Other than 1,663,143 shares of Series A Preferred Stock,
of which 916,279 have been converted into Common Stock as of October 21, 1998,
we have not issued any other preferred stock, and we do not plan to issue any
additional preferred stock other than payment-in-kind dividends. Payment-in-kind
dividends are when you give the stockholder who is entitled to receive a
dividend of more stock instead of cash. Since we want to use all of our funds to
continue our various projects but have to pay the holders of the Series A
Preferred Stock a dividend at the end of every fiscal year, we typically choose
to pay them by giving them more shares of Series A Preferred Stock instead of
money.
Investors should also know that if too much preferred stock is outstanding,
it could make it more difficult for a third party to take control of our
business or to remove our Board of Directors and executive officers. Hostile
bids for control of a company usually result in the market prices for a
company's securities to increase. It would also dilute or subordinate the rights
of holders of Common Stock and cause the market price of the Common Stock to
drop. See "Description of Securities."
Current Prospectus and State Registration Required to Resell Common Stock.
The Common Stock in this offering can be resold by the Selling Stockholders
only if a current registration statement relating to them in effect under the
Securities Act and if the Common Stock is qualified for resale or exempt from
qualification under the applicable securities or "blue sky" laws of the states
in which the Selling Stockholders reside. We cannot say with any certainty that
we will be able to meet the SEC and states' registration requirements. If we
cannot meet the requirements, the Selling Stockholders will be unable to resell
their Common Stock. See "Selling Stockholders; Description of Securities; and
Plan of Distribution."
USE OF PROCEEDS
We will not receive any of the proceeds from the Selling Stockholders' sale
of their Common Stock. However, certain of the Selling Stockholders hold
warrants exercisable for Common Stock. We will receive the proceeds when those
Selling Stockholders exercise their warrants. We will use the proceeds we
receive when the Selling Stockholders exercise their warrants for research and
development and general corporate purposes.
17
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders are offering and selling a total of up to
1,282,875 shares of our Common Stock. 671,035 of the shares of Common Stock
included in this offering were purchased by certain Selling Stockholders in the
1998 Private Placement and 335,530 of the shares of Common Stock included in
this offering are shares which may be issued to the same Selling Stockholders if
and when they exercise their Class E Warrants which they also purchased in the
1998 Private Placement. 75,000 of the shares of Common Stock included in this
offering are shares which may be issued if and when Synergy exercises its
warrants granted to it under its financial consulting agreement with us.
JMA is a market-maker in our securities and is a Selling Stockholder who
holds an aggregate of 201, 300 of the shares of Common Stock included in this
offering. 134,199 of which are issuable upon the exercise of the JMA Option and
67,101 of which are issuable upon the exercise of the Class E Warrants
underlying the JMA Option. JMA is also deemed to beneficially own the securities
held by Bruce Meyers and Peter Janssen, each a 50% stockholder, executive
officer and director of the corporate general partner of JMA. JMA has also acted
as private placement agent for our private placement completed in 1995 (the
"1995 Private Placement") and 1998 Private Placement and was one of the
syndicate managers in our IPO. As of October 21, 1998, there were 10,208,441
shares of Common Stock and 746,864 shares of Series A Preferred Stock
outstanding. JMA beneficially owns a total of 2,312,397 shares of Common Stock,
which represents 21.1% of the total number of outstanding Common Stock before
the completion of this offering. JMA will beneficially own 2,062,237 shares of
Common Stock, which will represent 17.2% of the total number of outstanding
shares of Common Stock upon the completion of this offering. JMA also
beneficially owns 22,000 shares of our Series A Preferred Stock, which
represents 2.9% of the total number of outstanding Series A Preferred Stock.
When combining JMA's ownership of Common Stock and Series A Preferred Stock, JMA
beneficially owns 19.8% of all of our outstanding voting securities before the
completion of this offering and will own 16.2% of all our outstanding voting
securities upon the completion of this offering.
Synergy is a Selling Stockholder and beneficially owns 75,000 shares of the
Common Stock included in this offering. We entered into a financial advisory
contract with Synergy in August 1998. Under the agreement, we are obligated to
pay fees. Also under the agreement, we issued to Synergy five-year warrants to
purchase an aggregate of 75,000 shares of our Common Stock (the "Synergy
Warrants"). Synergy Warrants to acquire 50,000 of the shares of Common Stock
vest no later than December 31, 1998 and 25,000 vest upon our retention of an
investment banking firm introduced to us by Synergy. 37,500 of the Synergy
Warrants are exercisable at $7.00 per share of Common Stock. 12,500 of the
Synergy Warrants are exercisable at $8.00 per share of Common Stock. 25,000 of
the Synergy Warrants are exercisable at $9.00 per share of Common Stock. Synergy
beneficially owns less than 1% of our outstanding shares of Common Stock.
Besides JMA and Synergy and if not otherwise indicated below by footnote,
we have no material relationships with any of the Selling Stockholders nor have
any such material relationships existed within the past three years.
18
<PAGE>
<TABLE>
<CAPTION>
Percentage (%) of
Common Common Stock
Common Common Stock Stock owned upon completion
Stock owned being offered upon completion of this offering
prior to this pursuant to this of this if greater than
Selling Stockholder offering(1) Prospectus offering(2) 1%(3)
------------------- ------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Alloy, Mark 13,175 13,175 0 --
Arace, Mario F 4,413 4,413 0 --
Argonaut Capital Mgmt
c/o David Gerstenhaber 36,675 36,675 0 --
Berg, Kenneth 17,565 17,565 0 --
Berger, Robert 2,987 2,987 0 --
Binns, James J 4,586 4,586 0 --
Brout, Joan 8,825 8,825 0 --
Burdette, John N 1,733 1,733 0 --
Burgay, Matthew 3,365 3,365 0 --
Buzi, Gloria M. 1,733 1,733 0 --
Cali, Brant 4,586 4,586 0 --
Caruso, John 2,184 2,184 0 --
Caruso, Joseph 4,392 4,392 0 --
Clements, Robert E. 45,845 45,845 0 --
Colbert, Douglas M.
Profit Sharing Plan c/o
Douglas M. Colbert,
TTEE 5,295 5,295 0 --
Davimos, John L. 10,707 9,170 1,537 --
Davimos, Marilyn 4,307 4,307 0 --
Davimos, Richard Jr. 18,390 9,170 9,220 --
Davimos, Richard H.
Trust
c/o Richard H.
Davimos TTEE 73,564 36,675 36,889 --
Davimos, Robert S. 61,364 36,675 24,689 --
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Percentage (%) of
Common Common Stock
Common Common Stock Stock owned upon completion
Stock owned being offered upon completion of this offering
prior to this pursuant to this of this if greater than
Selling Stockholder offering(1) Prospectus offering(2) 1%(3)
------------------- ------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Davis, Philip R. 8,661 8,661 0 --
Dietl, Richard 9,170 9,170 0 --
F & MWL Enterprises,
L.L.C.
c/o Walter Levine 14,670 14,670 0 --
FCS FBO
Ulene, Arthur IRA 11,259 11,259 0 --
FCS FBO --
Ulene, Priscilla IRA 11,259 11,259 0
Feurring, Douglas R. and 8,825 8,825 0 --
Beverly S. Feurring, JTE
First Financal Trust as
Agent for Phoenix Capital
c/o Joseph Giovino 18,338 18,338 0 --
Gabrielli, Erminio 4,331 4,331 0 --
Geensburg, Cary 3,446 3,446 0 --
Goddard, Collin and
Anna Marie S. Goddard,
JTE 4,392 4,392 0 --
Goodman, James 9,170 9,170 0 --
Gordon, Joel I. 8,612 8,612 0 --
Harpel Partners, L.P. 45,845 45,845 0 --
Howe, Osmond C. 4,586 4,586 0 --
Huntley, Daniel L. and
Christine Huntley, JTE 6,177 6,177 0 --
Janssen, Peter(4) 1,250,746 45,845 1,204,901 10.2%(5)
Jaroslawicz, David 17,565 17,565 0 --
Karpf, Douglas B. 8,783 8,783 0 --
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Percentage (%) of
Common Common Stock
Common Common Stock Stock owned upon completion
Stock owned being offered upon completion of this offering
prior to this pursuant to this of this if greater than
Selling Stockholder offering(1) Prospectus offering(2) 1%(3)
------------------- ------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Khutorsky, Leonid 8,783 8,783 0 --
Koral, Richard 8,783 8,783 0 --
Lehman, Joseph L. 8,917 8,917 0 --
Lundeen, David 13,236 13,236 0 --
Lutz, William 2,859 2,859 0 --
Majnemer, Jacob 6,177 6,177 0 --
Meyers, Bruce(6) 1,459,589 91,688 1,367,901 11.6%(7)
Miller, Carol 6,500 6,500 0 --
Miller, Wade N. 4,413 4,413 0 --
Millstein, Gerald Jay 5,544 5,544 0 --
Millward, Thomas 8,825 8,825 0 --
Nachlas, Nathan 8,825 8,825 0 --
Noden, Warren A. Trust
c/o Warren A. Noden,
TTEE 1,733 1,733 0 --
Novof, Ilya I. 8,748 8,748 0 --
Pensenstadler, Travis 1,587 1,587 0 --
Pensenstadler, Wayne J.
IRA 10,894 10,894 0 --
Perkins, James N. and
Judith W. Perkins,
JTROS 4,413 4,413 0 --
Pharaon Commercial
Investment Group, LTD. 88,236 88,236 0 --
Pictet Bank & Trust for
Oil Agent, Inc. c/o Eric
Messmer 17,565 17,565 0 --
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Percentage (%) of
Common Common Stock
Common Common Stock Stock owned upon completion
Stock owned being offered upon completion of this offering
prior to this pursuant to this of this if greater than
Selling Stockholder offering(1) Prospectus offering(2) 1%(3)
------------------- ------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Pinhasi, Haim 3,513 3,513 0 --
Rhodes, James R. 26,234 26,234 0 --
Satre, Wendell J. 5,198 5,198 0 --
Shnitkin, Mark 8,783 8,783 0 --
Smith, Colon H. 5,295 5,295 0 --
Smith, Malcolm E., Jr. 8,825 8,825 0 --
Spanier, Jonathan 8,783 8,783 0 --
Stone, Michael 4,586 4,586 0 --
Stringer, Joe D. and
Wanda L. Stringer, JTE 4,413 4,413 0 --
Strougo, Robert I. 4,413 4,413 0 --
Title/Greenspan
Revocable Trust
c/o Deana Title 18,338 18,338 0 --
The Tail Wind Fund Ltd. 69,285 69,285 0 --
Attention: Sherrill
Peltscher
Wechsler & Co.
c/o Jay Mittentau 4,586 4,586 0 --
Werner, Harvey L.
Revocable Trust c/o
Harvey L. Werner, TTEE 6,728 6,728 0 --
Witkoff, Steven C.
c/o The Witkoff Group 18,338 18,338 0 --
Zendell, David 2,910 2,910 0 --
Zorella, William A. 4,331 4,331 0 --
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Percentage (%) of
Common Common Stock
Common Common Stock Stock owned upon completion
Stock owned being offered upon completion of this offering
prior to this pursuant to this of this if greater than
Selling Stockholder offering(1) Prospectus offering(2) 1%(3)
------------------- ------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Total............... 3,651,712 1,006,575 2,645,137 --
</TABLE>
- ----------
(1) Assumes the exercise of the Class E Warrants held by the Selling
Stockholders.
(2) Assumes all of the shares of Common Stock offered by this prospectus are
sold.
(3) Upon the completion of this offering, there will be 11,491,316 shares of
Common Stock outstanding.
(4) Peter Janssen's address is c/o Janssen-Meyers Associates, L.P., 17 State
Street, New York, New York 10004. Peter Janssen is a 50% stockholder, an
executive officer and director of the corporate general partner of JMA. Mr.
Janssen is considered to beneficially own the shares held by JMA. Includes
(i) 718,063 shares of Common Stock, (ii) 15,282 shares of Common Stock
issuable upon the exercise of currently exercisable Class E Warrants, (iii)
134,199 shares of Common Stock issuable upon the exercise of currently
exercisable JMA Option (iv) 67,101 shares of Common Stock issuable upon the
exercise of the Class E Warrants underlying the JMA Option, (v) 119,463
shares of Common Stock issuable upon the exercise of the IPO Unit Purchase
Option held by Mr. Janssen exercisable within 60 days hereof and (vi)
196,638 shares of Common Stock issuable upon the exercise of the IPO Unit
Purchase Option held by JMA exercisable within 60 days hereof.
(5) Assumes JMA's sale of the 134,199 shares of Common Stock issuable upon the
exercise of the JMA Option and 67,101 shares of Common Stock issuable upon
the exercise of the Class E Warrants underlying the JMA Option. Mr. Janssen
is deemed to be the beneficial owner of the JMA Option and the securities
issuable upon the exercise thereof.
(6) Bruce Meyers' address is c/o Janssen-Meyers Associates, L.P., 17 State
Street, New York, New York 10004. Bruce Meyers is a 50% stockholder, an
executive officer and director of the corporate general partner of JMA. Mr.
Meyers is considered to own the shares owned by JMA. Includes (i) 851,625
shares of Common Stock, (ii) 38,000 shares of Common Stock held by The
Joseph, Rita & Bruce Meyers Family Foundation for Life, Inc., (iii) 30,563
shares of Common Stock issuable upon the exercise of currently exercisable
Class E Warrants, (iv) 134,199 shares of Common Stock issuable upon the
exercise of the JMA Option, (v) 67,101 shares of Common Stock issuable upon
the exercise of Class E Warrants underlying the JMA Option, (vi) 22,000
shares of Common Stock issuable upon the conversion of currently
convertible Series A Preferred Stock, (vii) 119,463 shares of Common Stock
issuable upon the exercise of the IPO Unit Purchase Option held by Mr.
Meyers and (viii) 196,638 shares of Common Stock issuable upon the exercise
of the IPO Unit Purchase Option held by JMA exercisable within 60 days
hereof.
(7) Assumes JMA's sale of the 134,199 shares of Common Stock issuable upon the
exercise of the JMA Option and 67,101 shares of Common Stock issuable upon
the exercise of the Class E Warrants underlying the JMA Option. Mr. Meyers
is deemed to be the beneficial owner of the JMA Option and the securities
issuable upon the exercise thereof.
We will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders. We will, however, receive proceeds from the exercise
of (i) a total of 335,540 Class E Warrants purchased by the above-listed Selling
Stockholders in our 1998 Private Placement, (ii) the JMA Option to acquire
134,199 shares of Common Stock, (iii) the Class E Warrants underlying the JMA
Option to acquire 67,101 shares of Common Stock and (iv) the Synergy Warrant to
acquire 75,000 shares of Common Stock.
23
<PAGE>
DESCRIPTION OF SECURITIES
Besides the shares held by JMA and Synergy, the shares of Common Stock
being offered pursuant to this prospectus were purchased by the Selling
Stockholders in a private placement of 56.3 Units we completed in April 1998
under Rule 506 of Regulation D and Section 4(2) of the Securities Act (the "1998
Private Placement"). Each Unit consisted of Common Stock and Class E Warrants.
The number of shares of Common Stock each Selling Stockholder purchased was
determined by dividing the price of a Unit, $100,000, by the 30-day average
closing bid price of the Common Stock as reported by the Nasdaq SmallCap Market.
The average closing bid price ranged from $8.18 to $9.46 during the eight
separate closings of the 1998 Private Placement. The number of Class E
Warrants each Selling Stockholder purchased was equal to one-half the number of
shares of Common Stock each stockholder purchased in the same closing having an
exercise price equal to 120% of the purchase price of the Common Stock. Each
Class E Warrant entitles the holder to purchase one share of Common Stock at any
time until April 2, 2003, 5:00 p.m. (EST). See "Risk Factors--Possible
Restriction on 'Market Making' Activities in the Company's Securities;
Illiquidity; and Selling Stockholders."
The 201,300 shares of Common Stock being offered by this prospectus by JMA
are issuable pursuant to a unit purchase option we granted to JMA for its
services as placement agent in the 1998 Private Placement. JMA has the right to
purchase 20% of the Units sold in the 1998 Private Placement until April 2,
2003, 5:00 p.m. (EST) at a purchase price equal to purchase price of the Units.
The 75,000 shares of Common Stock being offered by this prospectus by
Synergy are issuable pursuant to warrants we issued to Synergy for its financial
and advisory services under a consulting agreement, dated August 7, 1998, we
have with Synergy. Of the warrants issuable for 75,000 shares of Common Stock,
(i) 50,000 shall vest on December 31, 1998 or upon our retention of an
investment banking firm introduced to us by Synergy (an "Introduced Firm"),
whichever is sooner, and (ii) 25,000 shall vest only upon our retention of an
Introduced Firm. 37,500 of the warrants have an exercise price equal to $7.00
per share of Common Stock. 12,500 of the warrants have an exercise price
equal to $8.00 per share; and the remaining 25,000 warrants have an exercise
price equal to $9.00 per share.
PLAN OF DISTRIBUTION
This prospectus may be used from time to time by the Selling Stockholders
to sell their shares of Common Stock registered in this prospectus in
transactions in which they are or may be deemed to be underwriters within the
meaning of the Securities Act. The Selling Stockholders may also sell their
shares of Common Stock being registered in this prospectus to or through brokers
or dealers who may act solely as agent, or may acquire shares as principal. The
distribution of the shares of Common Stock may be effected in one or more
transactions that may take place on the Nasdaq SmallCap Market System, ordinary
broker's transactions, privately negotiated transactions or through sales to one
or more broker-dealers for resale of such securities as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by these holders in
connection with such sales. In connection with such sales, the Selling
Stockholders and any participating brokers or dealers may be deemed
"underwriters" as such term is defined in the Securities Act. See "Risk
Factors-Current Prospectus and State Registration Required to Resell Common
Stock."
JMA is a Selling Stockholder and beneficially owns 201,300 of the shares of
Common Stock included in this offering. JMA is also a market-maker in our
securities. JMA has acted as private placement agent in our 1995 Private
Placement and 1998 Private Placement and was one of the syndicate managers in
our IPO. In consideration for its services in connection with our 1998 Private
Placement, JMA received a commission of 10% of the gross proceeds, as well as 3%
non-accountable expense allowance and reimbursement for other costs, including
legal expenses relating to the 1998 Private Placement. Also, for its services,
we issued JMA five-year warrants to acquire 20% of the number of securities
bought in the 1998 Private Placement which equals 201,300 of the shares of
Common Stock being registered in this Prospectus. See "Risk Factors--Current
Prospectus and State Registration Required to Resell Common Stock.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Morrison Cohen Singer & Weinstein, LLP, New York, New York, a partner of which
holds options to acquire shares of Common Stock. Certain legal matters with
respect to information contained in this Prospectus under the headings "Risk
Factors-Our
24
<PAGE>
Obligations to Pay Royalty Fees and the Possibility of Losing Our Patents or
Other Rights; and -Uncertain Ability to Protect Our Technology" will be passed
upon for us by Gardere & Wynne, LLP, Dallas, Texas.
EXPERTS
The balance sheet as of December 31, 1997 and the statements of operations,
changes in stockholders' equity (capital deficiency) and cash flows for each of
the years in the two-year period ended December 31, 1997 and for the period from
inception (September 11, 1991) through December 31, 1997 included in the Annual
Report on Form 10-KSB which is incorporated by reference in this Prospectus have
been audited by, and are incorporated by reference herein in reliance upon the
report of Richard A. Eisner & Company, LLP, independent auditors, given on the
authority of that firm as experts in accounting and auditing.
25
<PAGE>
No dealer, salesperson or any other individual has been authorized to give any
information or to make any representations not contained in this prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by us or the Selling Stockholders. This prospectus does
not constitute an offer to sell, or a solicitation to buy, any security by any
person in any jurisdiction which such offer or solicitation is unlawful. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances imply that the information in this prospectus is correct as of any
time subsequent to the date of this prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Where You Can Find More Information...................................... ii
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds ......................................................... 17
Selling Stockholders..................................................... 18
Description of Securities................................................ 24
Plan of Distribution..................................................... 24
Legal Matters............................................................ 24
Experts.................................................................. 25
</TABLE>
CYTOCLONAL PHARMACEUTICS INC.
1,282,875
Shares
of
Common Stock
-----------
PROSPECTUS
-----------
October _____,1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Printing Expenses.................................................... $3,000
Accounting Fees and Expenses......................................... 3,500
Legal Fees and Expenses.............................................. 30,000
Miscellaneous Expenses............................................... 1,000
Total................................................................ $37,500
</TABLE>
Item 15. Indemnification of Directors and Officers
The Certificate of Incorporation and By-Laws of the Registrant provides
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to Directors, officers or controlling persons of the Company pursuant
to the Company's By-laws and the Delaware General Corporation Law, the Company
has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the Company
are to be indemnified against certain liabilities. The Company's Restated
Certificate of Incorporation also limits, to the fullest extent permitted by
Delaware law, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence, except liability for (i) breach of
the director's duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and Directors.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<S> <C>
1.1 Amended Form of Underwriting Agreement between Registrant and the
Underwriters (1)
1.2 Agreement Among Underwriters (1)
3.1 Certificate of Incorporation, as amended (1)
3.2 By-laws (1)
4.1 Specimen certificates representing Class C Warrants, Class D Warrants
and Common Stock (1)
4.2 Form of Warrant Agreement with warrant certificates between Registrant,
the Underwriters and Warrant Agent (1)
4.3 Form of Unit Purchase Option (1)
4.4 Warrant Certificate issued to The Washington State University Research
Foundation (1)
4.5 Form of Class E Warrant
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP
5.2 Consent of Gardere & Wynne, LLP
10.1 Form of Consulting Agreement between the Registrant and JMA(1)
10.2 Employment Agreement dated March 1, 1992 between the Registrant and
Arthur P. Bollon, Ph.D. (1)
10.3 Employment Agreement dated March 1, 1992 between the Registrant and
Bruce Meyers, as amended(1)
10.4 Employment Agreement effective November 2, 1995 between the Registrant
and Daniel Shusterman (1)
10.5 1992 Stock Option Plan, as amended (1)
10.6 Form of Stock Option Agreement (1)
10.7 Lease Agreement dated August 22, 1997 between the Registrant and
Andrews-Dillingham Properties (8)
10.8 Lease Agreement dated October 1, 1991 between the Registrant and J.K.
and Susie Wadley Research Institute and Blood Bank, as amended (1)
10.9 Purchase Agreement dated October 10, 1991 between the Registrant and
Wadley Technologies, Inc. ("Wadley") (1)
10.10 Security Agreement dated October 10, 1991 between the Registrant and
Wadley (1)
10.11 License Agreement dated March 15, 1989 between the Registrant and
Phillips Petroleum Company, as amended (1)
10.12 License Agreement dated June 10, 1993 between Registrant and Research &
Development Institute, Inc. ("RDI"), as amended, relating to the Fungal
Paclitaxel Production System (1)
10.13 Amendment, dated May 27, 1998, to that certain License Agreement, dated
June 10, 1993, between the RDI and the Company (6)*
10.14 Research and Development Agreement effective June 10, 1993 between
Registrant and RDI, as amended (1)
10.15 License Agreement dated February 22, 1995 between Registrant and RDI, as
amended, relating to FTS-2 (1)
10.16 Research, Development and License Agreement dated March 26, 1992 between
Registrant and Enzon, Inc. ("Enzon"), as amended (1)
10.17 Research, Development and License Agreement dated July 13, 1992 between
Registrant and Enzon relating to the Registrant's tumor necrosis factor
technology (1)
10.18 Agreement effective June 30, 1992 between Registrant and University of
Texas at Dallas ("UTD"), as amended (1)
10.19 Research Agreement effective April 8, 1994 between Registrant and
Sloan-Kettering Institute for Cancer Research (1)
10.20 Joint Venture Agreement dated September 17, 1992 between Registrant and
Pestka Biomedical Laboratories, Inc. ("Pestka") (1)
10.21 Stock Purchase Agreement dated September 17, 1992 between Registrant and
Pestka (1)
10.22 License Agreement dated September 17, 1992 between Cytomune, Inc. and
Pestka (1)
10.23 Research and Development Agreement dated September 17, 1992 between
Cytomune, Inc. and Pestka (1)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.24 Marketing Agreement dated as of November 1, 1994 between Helm AG and the
Registrant (1)
10.25 Extension Agreement with RDI dated June 5, 1995 (1)
10.26 Third Amendment to Lease Agreement dated April 30, 1995 (1) 10.27 Form
of Subordinated Note Extension (1) 10.28 Form of Note Extension (1)
10.29 September 25, 1995 RDI Extension (1) 10.30 October 25, 1995 RDI
Extension (1) 10.31 Amendment to License Agreement dated June 10, 1993,
as amended, and Research and Development Agreement effective June 10,
1993, as amended, both agreements between the Company and RDI (1) 10.32
License Agreement No. W960206 effective February 27, 1996 between the
Company and The Regents of the University of California (2)
10.33 License Agreement No. W960207 effective February 27, 1996 between the
Company and The Regents of the University of California (2)
10.34 Amended and Restated License Agreement between the Washington State
University Research Foundation and the Company, dated June 3, 1998 (6)*
10.35 Amendment to Agreement, effective June 30, 1992, as amended, between
Registrant and the University of Texas at Dallas (3)
10.36 1996 Stock Option Plan (4)
10.37 Patent License Agreement between the Registrant and The University of
Texas System (1)
10.38 Master License Agreement, dated as of June 12, 1998, between the Company
and Bristol-Myers Squibb Company, Inc. (6)*
10.39 Sublicense Agreement, dated May 27, 1998, between the Company and
Bristol-Myers Squibb Company, Inc. under the Research & Development
Institute, Inc. License Agreement, as amended, dated June 10, 1993 (6)*
10.40 Sublicense Agreement, dated May 19, 1998, between the Company and
Bristol-Myers Squibb Company, Inc. under the Washington State University
Research Foundation License Agreement, dated July 8, 1996 (6)*
10.41 Exclusive License Agreement between The Regents of the University of
California and the Company for Peptide Antiestrogen for Breast Cancer
Therapy Case No. LA97-103(8)*
11.1 Statement re: Computation of per share earnings (5)
24.1 Consent of Morrison Cohen Singer & Weinstein, LLP (included in its
opinion filed as Exhibit 5.1 hereto)
24.2 Consent of Richard A. Eisner & Company, LLP
</TABLE>
- ----------
* Confidential Portions omitted and filed separately with the Commission
pursuant to Rule 24b-2 promulgated under the Securities Act.
(1) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(File No. 33-91802) and is incorporated by reference herein.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 and is incorporated by reference
herein.
(3) Filed as an exhibit to the Company's Post-Effective Amendment No.1 to its
Registration Statement on Form SB-2 (File No. 33-91802) and is incorporated
by reference herein.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-8
(File No. 333-11691) and is incorporated by reference herein.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 and is incorporated by reference
herein.
(6) Filed as an exhibit to the Company's Current Events on Form 8-K (File No.
000-26078) and is incorporated by reference herein.
(7) Filed as an exhibit to the Company' Post Effective Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 333-13409)
II-3
<PAGE>
and is incorporated by reference herein.
(8) Filed as an exhibit to the Company's Post Effective Amendment No. 2 to
Registration Statement on Form SB-2 (File No. 333-13409) and is
incorporated by reference herein.
Item 17. Undertakings
Rule 415 Offering-Undertakings Required by Regulation S-B, Item 512(a).
The undersigned registrant hereby undertakes:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(2) That, for determining liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be an initial bona fide
offering.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the city of Dallas, state of Texas, on October 22, 1998.
CYTOCLONAL PHARMACEUTICS INC.
By: Arthur P. Bollon
-----------------------------
Arthur P. Bollon, Ph.D.,
Chairman, President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
Arthur P. Bollon Chairman, President, Chief
- -------------------------- Executive Officer and Director
Arthur P. Bollon, Ph.D. (principal executive officer) October 22, 1998
Daniel Shusterman Vice President Operations, Treasurer
- -------------------------- and Chief Financial Officer
Daniel Shusterman, J.D. (principal financial and accounting
officer) October 22, 1998
Ira Gelb Director October 22, 1998
- --------------------------
Ira Gelb, M.D.
Irwin Gerson Director October 22, 1998
- --------------------------
Irwin C. Gerson
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Page No.
4.5 Form of Class E Warrant
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP 5.2 Consent of Gardere &
Wynne, LLP
24.2 Consent of Richard A. Eisner & Company, LLP
- ----------
* Confidential Portions omitted and filed separately with the Commission
pursuant to Rule 24b-2 promulgated under the Securities Act.
II-6
<PAGE>
Exhibit 4.5
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS CLASS E WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
CYTOCLONAL PHARMACEUTICS INC.
Class E Warrant for the Purchase of Shares of Common Stock,
par value $0.01 per share
THIS CLASS E WARRANT EXPIRES ON APRIL 2, 2003
No. ________________ ______________ Shares
THIS CERTIFIES that, for value received, ________________, with an
address at __________________________ (including any transferee, the "Holder"),
is entitled to subscribe for and purchase from Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time before 5:00 P.M. on April 2, 2003, New
York time (the "Exercise Period"), ______________________ shares of the
Company's Common Stock, par value $0.01 per share ("Common Stock"), at a price
(the "Exercise Price") equal to $10.20, 120% of the average closing bid price
for the Common Stock for the 30 consecutive trading days immediately preceding
the closing of the Offering (the "Average Closing Bid Price"). This Class E
Warrant ("Warrant") is the warrant or one of the warrants (collectively,
including any warrants issued upon the exercise or transfer of any such warrants
in whole or in part, the "Warrants") issued pursuant to an offering (the
"Offering") by the Company of units, each consisting of a number of shares of
Common Stock and a Warrant to purchase one half of such number of shares of
Common Stock, determined by dividing the purchase price per Unit of $100,000 by
the Average Closing Bid Price for the Common Stock, pursuant to a Confidential
Private Placement Memorandum, dated March 31, 1998, as it may be amended or
supplemented (the "Memorandum"). As used herein the term "this Warrant" shall
mean and include this Warrant and
<PAGE>
any Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the "Election to Exercise" attached hereto, duly executed) to the
Company at its office at 9000 Harry Hines Boulevard, Dallas, Texas 75235, or at
such other place as is designated in writing by the Company, together with cash
or a certified or bank cashiers check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised. Each Warrant not exercised prior to
5:00 p.m. on April 2, 2003 New York time shall become null and void and all
rights thereunder shall cease as of such time.
2. Upon receipt by the Company of the Warrant, the "Election to
Exercise" and the aggregate Exercise Price for the Warrant Shares, the Holder
shall be deemed to be the holder of record of the Warrant Shares issuable upon
such exercise; provided, however, that if the date of such receipt is a date
upon which the transfer books of the Company are closed, the Holder shall be
deemed to be the record holder on the next succeeding business day on which such
books are open. As soon as practicable after each such exercise of this Warrant,
the Company shall issue and cause to be delivered to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the remaining unexercised balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a Warrant Register as
they are issued. The Company shall be entitled to treat the registered holder of
any Warrant on the Warrant Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall cause to be delivered a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the
2
<PAGE>
aggregate the right to purchase a like number of Warrant Shares (or portions
thereof), upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
thereunder.
(1) The Holder acknowledges that he has been advised by the Company
that neither this Warrant nor the Warrant Shares have been registered under the
Act, that this Warrant is being or has been issued and the Warrant Shares may be
issued on the basis of the statutory exemption provided by Section 4(2) of the
Act or Regulation D promulgated thereunder, or both, relating to transactions by
an issuer not involving any public offering, and that the Company's reliance
thereon is based in part upon the representations made by the original Holder in
the original Holder's Subscription Agreement executed and delivered in
accordance with the terms of the Offering (the "Subscription Agreement") . The
Holder acknowledges that he is familiar with the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of this Warrant or the Warrant Shares issuable upon exercise hereof
shall be valid or effective, and the Company shall not be required to give any
effect to any such sale, assignment or transfer, unless (i) the sale, assignment
or transfer of this Warrant or such Warrant Shares is registered under the Act,
it being understood that neither this Warrant nor such Warrant Shares are
currently registered for sale and that the Company has no obligation or
intention to so register this Warrant or such Warrant Shares except as
specifically provided herein, or (ii) this Warrant or such Warrant Shares are
sold, assigned or transferred in accordance with all the requirements and
limitations of Rule 144 under the Act, it being understood that Rule 144 is not
available at the time of the original issuance of this Warrant for the sale of
this Warrant or such Warrant Shares and that there can be no assurance that Rule
144 sales will be available at any subsequent time, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act.
4. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase Warrant Shares granted pursuant to
the outstanding Warrants, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that the Warrant
Shares, upon receipt by the Company of the full Exercise Price therefor, shall
be validly issued, fully paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date this
Warrant is first issued (i) declare a dividend on any class of the outstanding
capital stock of the Company (the Capital Stock") payable in shares of its
Capital Stock, (ii) subdivide any class of the outstanding Capital Stock, or
(iii) combine any class of the outstanding Capital Stock into a smaller number
of shares, but only if such combination is effective after such time as, were an
exercise of the Warrant to take place, in whole or in part, then, in each case,
the Exercise Price, and the number of Warrant Shares issuable upon exercise of
this Warrant, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, or combination, shall be proportionately
3
<PAGE>
adjusted so that the Holder after such time shall be entitled to receive the
aggregate number and kind of shares for such consideration which, if such
Warrant had been exercised immediately prior to such time at the then-current
exercise price, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, or combination. Such adjustment
shall be made successively whenever any event listed above shall occur.
(1) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 5(b) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(2) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(3) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
Certified mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(4) The Company shall not be required to issue fractions of shares of
Common Stock of the Company upon the exercise of this Warrant. If any fraction
of a share would be issuable on the exercise of this Warrant (or specified
portions thereof), the Company shall purchase such fraction for an amount in
cash equal to the same fraction of the Current Market Price o such share of
Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company With
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation,,as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
4
<PAGE>
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
(1) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares) , or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or f rom no par value to a specified par value, or
as a result of a subdivision or combination, but including any change in the
shares into two or more classes or series of shares), the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(2) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer or delivery of this Warrant to a person other than, or the issuance and
delivery of any certificate in a name other than that of the registered Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
8. (a) The Company will use its best effort to file a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), therein registering the Warrant Shares
(together, the "Registrable Securities") within six (6) months of the final
closing of the Offering (the "Filing Date"), and use its best efforts to have
the Registration Statement declared effective by the Commission as soon as
possible thereafter (the "Effective Date"). In the event the Effective Date is
not within eight (8) months of the final
5
<PAGE>
closing of the Offering, the then number of Warrants shall be increased by two
percent (2%), effective as of such date and by an additional two percent (2%) on
each one month anniversary thereafter, until such time that the number of
Warrants should equal 120% of the original number of shares. The Company agrees
to keep the Registration Statement effective until the expiration period of the
Warrant.
(1) In the event of a registration pursuant to the provisions of this
Section 8, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the holder or such holders
(the "Eligible Holders") may reasonably request; provided, however, that the
Company shall not by reason of this Section 8(b) be required to qualify to do
business in any state in which it is not otherwise required to qualify to do
business or to file a general consent to service of process.
(2) The Company shall keep effective any registration or qualification
contemplated by this Section 8 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby.
(3) In the event of a registration pursuant to the provisions of this
Section 8, the Company shall furnish to each Eligible Holder such reasonable
number of copies of the registration statement and of each amendment and
supplement thereto (in each case, including all exhibits), such reasonable
number of copies of each prospectus contained in such registration statement and
each supplement or amendment thereto (including each preliminary prospectus),
all of which shall conform to the requirements of the Act and the rules and
regulations thereunder, and such other documents, as any Eligible Holder may
reasonably request to facilitate the disposition of the Registrable Securities
included in such registration.
(4) In the event of a registration pursuant to the provision of this
Section 8, the Company and each Eligible Holder shall enter into a
cross-indemnity agreement and a contribution agreement, each in customary form,
with each underwriter, if any, and, if requested, enter into an underwriting
agreement containing customary representations, warranties, allocation of
expenses, and customary closing conditions, including, without limitation,
opinions of counsel and accountants' cold comfort letters, with any underwriter
who acquires any Registrable Securities.
(5) The Company agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Registrable
Securities to sell such securities under Rule 144.
9. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees,
6
<PAGE>
agents, and counsel, and each person, if any, who controls any such person
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, f or all purposes of this Section 9,
without limitation, reasonable attorneys, fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with, or (i) any breach of any
representation, warranty, covenant, or agreement of the Company contained in
any of the Warrants, any untrue statement or alleged untrue statement of a
material fact contained (A) in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale
of any of the Registrable Securities, or (B) in any application or other
document or communication (in this Section 9 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the Registrable
Securities under the securities or blue sky laws thereof or filed with the
commission or any securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company with respect to such Eligible Holder by or on behalf of such person
expressly for inclusion in any registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or
in any application, as the case may be. Notwithstanding the foregoing, the
Company shall not be responsible for any failure of JMA to file, on behalf of
the Company, Blue Sky applications in jurisdictions where JMA is offering
Units and where such application is required by law. The foregoing agreement
to indemnify shall be in addition to any liability the company may otherwise
have, including liabilities arising under any of the Warrants.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability under this Section 9(a) unless the Company shall have
been materially prejudiced by such failure or relieve the Company from any
liability other than pursuant to this Section 9(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
employed counsel reasonably satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different from
or additional
7
<PAGE>
to those available to the Company, in any of which events such fees and
expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties. Anything in this Section 9 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably
withheld. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of
its officers or directors in connection with the sale of any Registrable
Securities or any preliminary prospectus, prospectus, registration statement,
or amendment or supplement thereto, or any application relating to any sale
of any Registrable Securities.
(1) The Holder agrees to indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who shall have signed any
registration statement covering Registrable Securities held by the Holder, each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, and its or their respective
counsel, to the same extent as the foregoing indemnity from the Company to the
Eligible Holders in Section 9(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 9(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
9 (a).
(2) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 9(a) or
9(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Warrant expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by or on behalf of an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission,
8
<PAGE>
shall be determined by, among other things, whether such statement, alleged
statement, omission, or alleged omission relates to information supplied by the
Company or by such Eligible Holders, and the parties, relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 9(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by all Eligible Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent representation. For purposes of this
Section 9(c), each person, if any, who controls any Eligible Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent, and counsel of each such Eligible
Holder or control person shall have the same rights to contribution as each
Eligible Holder or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the company,
subject in each case to the provisions of this Section 9(c). Anything in this
Section 9(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 9(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
10. Unless registered pursuant to the provisions of Section 8 hereof,
the Warrant Shares issued upon exercise of the, Warrants shall be subject to a
stop transfer order and the certificate or certificates evidencing such warrant
Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
9
<PAGE>
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER
OF SUCH SECURITIES, WHICH COUNSEL AND PINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE
MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS."
In addition, any Warrants issued upon transfer or any new Warrants
issued shall bear a similar legend.
11. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated) , including an affidavit of the Holder thereof that this
Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost, stolen, destroyed or mutilated Warrant, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor, and denomination.
12. The Holder of any Warrant shall not have solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this warrant.
13. This Warrant shall be construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed within such State,
without regard to principles governing conflicts of law.
14. The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 8(b) of the Subscription
Agreement. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint or
other process.
10
<PAGE>
15. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at 9000 Harry Hines Boulevard,
Dallas, Texas 75235, Attention: President, (ii) if to the Holder, at its address
set forth on the first page hereof, or (iii) in either case, to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 15. Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 15. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 15 shall be deemed given at the time of receipt
thereof.
16. No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Warrant upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
17. This Warrant may be amended only by a written instrument executed
by the Company and the Holder hereof. Any amendment shall be endorsed upon this
Warrant, and all future Holders shall be bound thereby.
Dated: ________________, 1998
Cytoclonal Pharmaceutics Inc.
By:___________________________________
Name: Arthur P. Bollon, Ph.D.
Title: President
- --------------------------------
Daniel Shusterman, Secretary
11
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________________ hereby sells, assigns,
and transfers unto_____________________ a Class E Warrant to purchase
_____________ shares of Common Stock, par value $0.01 per share, of Cytoclonal
Pharmaceutics Inc. (the "Company"), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint ________________
attorney to transfer such Warrant on the books of the Company, with full power
of substitution.
Dated:
------------------------
Signature
- ------------------------------
----------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
12
<PAGE>
To: Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Dallas, Texas 75235
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase_____________
Warrant Shares covered by the within Class E Warrant and tenders payment
herewith in the amount of $__________ in accordance with the terms thereof, and
requests that certificates for such securities be issued in the name of, and
delivered to:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print Name, Address and Social Security or Tax Identification Number)
and, if such number of Warrant shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print Name, Address and Social Security or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
13
<PAGE>
Dated:_____________________________
Name:_________________________________
(Print)
Address:
- -----------------------------------------------------------------------
---------------------------------------
(Signature)
-----------------------------------
(Signature Guarantee)
-------------------------------
(Signature Guarantee)
14
<PAGE>
EXHIBIT 5.1
MORRISON COHEN SINGER & WEINSTEIN, LLP
750 Lexington Avenue
New York, New York 10022
-----------
Telephone: (212) 735-8600
-----------
Facsimile (212) 735-8708
October 21, 1998
Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Dallas, Texas 75235
Re: Registration Statement on Form S-3
Dear Sirs:
We refer to Registration Statement on Form S-3 (the "Registration
Statement") filed by you, Cytoclonal Pharmaceutics Inc., a Delaware
corporation (the "Company"), pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange Commission
thereby registering an aggregate of 1,282,875 shares of common stock, $.01
par value per share (the "Common Stock"), of the Company consisting of: (i)
671,035 shares of Common Stock for resale by the Selling Stockholders (as
defined in the Registration Statement) who purchased such shares in the
Company's private placement completed in April 1998 (the "1998 Private
Placement") pursuant to Section 4(2) and Regulation D promulgated under the
Securities Act (the "Private Placement Shares"); (ii) 335,540 shares of
Common Stock for resale by the Selling Stockholders issuable upon the
exercise of Class E Warrants (the "Class E Warrants") purchased by such
stockholders in the 1998 Private Placement (the "Class E Warrant Shares");
(iii) 134,199 shares of Common Stock for resale by a certain Selling
Stockholder, Janssen-Meyers Associates, L.P. ("JMA"), issuable upon the
exercise of the unit purchase option (the "JMA Unit Purchase Option") granted
to JMA by the Company in consideration for its services as placement agent in
the 1998 Private Placement (the "JMA Unit Purchase Option Shares"), (iv)
67,101 shares of Common Stock for resale by JMA issuable upon the exercise of
the Class E Warrants underlying the JMA Unit Purchase Option (the "JMA Unit
Purchase Option Warrant Shares"), and (v) 75,000 shares of Common Stock for
resale by a certain Selling Stockholder, Synergy Group, L.P. ("Synergy"),
issuable upon the exercise of a warrant (the "Synergy Warrant") issued to
Synergy by the Company pursuant to a financial consulting agreement, dated
August 7, 1998, between the Company and Synergy (the "Synergy Warrant
Shares").
We have examined and are familiar with originals, or copies certified or
otherwise identified to our satisfaction, of such corporate records of the
Company, certificates of officers of the Company
<PAGE>
Cytoclonal Pharmaceutics Inc.
October 21, 1998
Page 2
and of public officials and such other documents as we have deemed
appropriate as a basis for the opinions expressed below.
Based upon the foregoing, we are of the opinion that:
1. The Private Placement Shares have been duly and validly authorized,
issued, fully paid and nonassessable.
2. The Class E Warrant Shares have been duly and validly authorized and
when sold, paid for and issued upon the exercise of the Class E
Warrants in accordance with the terms of the Class E Warrants, will be
duly and validly issued, fully paid and nonassessable.
3. The JMA Unit Purchase Option Shares have been duly and validly
authorized and when sold, paid for and issued upon the exercise of the
JMA Unit Purchase Option in accordance with the terms of the JMA Unit
Purchase Option, will be duly and validly issued, fully paid and
nonassessable.
4. The JMA Unit Purchase Option Warrant Shares have been duly and validly
authorized and when sold, paid for and issued upon the exercise of the
Class E Warrants issuable upon the exercise of the JMA Unit Purchase
Option in accordance with the Class E Warrants and JMA Unit Purchase
Option, will be duly and validly issued, fully paid and nonassessable.
5. The Synergy Warrant Shares have been duly and validly authorized and
when sold, paid for and issued upon the exercise of the Synergy
Warrant, will be duly and validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion in the above-mentioned
Registration Statement and to the reference to our name under the heading
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Very truly yours,
MORRISON COHEN SINGER & WEINSTEIN, LLP
--------------------------------------
MORRISON COHEN SINGER & WEINSTEIN, LLP
<PAGE>
EXHIBIT 5.2
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Legal Matters" included in
this Form S-3.
GARDERE & WYNNE, L.L.P.
Daniel F. Perez October 22, 1998
- ------------------------ ------------------
Daniel F. Perez Date:
<PAGE>
EXHIBIT 24.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement on Form S-3 of Cytoclonal Pharmaceutics Inc. of our report, dated
February 6, 1998 (with respect to Note K[2], April 13, 1998) on our audits
of the financial statements of Cytoclonal Pharmaceutics Inc. as of
December 31, 1997 and for each of the years in the two-year period ended
December 31, 1997 and for the period from September 11, 1991 (inception)
through December 31, 1997, included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997. We also consent to the
reference of our firm under the caption "Experts" included in the Prospectus.
Richard A. Eisner & Company, LLP
- --------------------------------
Richard A. Eisner & Company, LLP
New York, New York
October 20, 1998
