As filed with the Securities and Exchange Commission on December 8, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
HEMISPHERX BIOPHARMA, INC.
(Name of Issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
52-0845822
(I.R.S. Employee Identification No.)
--------------------
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
(215) 988-0080
(Address and telephone number of principal executive
offices and principal place of business)
--------------------
William A. Carter, M.D., Chief Executive Officer
Hemispherx Biopharma, Inc.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
(215) 988-0080
(Name, address and telephone number of agent for service)
Copies of all communications to:
Michael H. Freedman, Esq.
Silverman, Collura, Chernis & Balzano, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
(212) 779-8600
<PAGE>
Approximate date of proposed sale to the public: From time to time or at
one time after the effective date of this Registration Statement as determined
by the Selling Securityholders.
If the only securities being registered on this form are being offered
pursuant to 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, as amended ("Securities Act"), other than securities offered only in
connection with dividend or 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 462(c) under
the Securities Act, check the following box and list the Securities Act
registration 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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share(2) Offering Price Registration Fee
==============================================================================================
<S> <C> <C> <C> <C>
Common Stock(3) 750,000 $6.50 $4,875,000 $1,477.27
- ----------------------------------------------------------------------------------------------
Common Stock(4) 250,000 $6.50 $1,625,000 $492.42
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
TOTAL 1,000,000 $6,500,000 $1,969.70
==============================================================================================
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, there are
also being registered such indeterminate number of additional shares of
Common Stock as may become issuable upon exercise of warrants to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
(2) Common Stock price per share calculated in accordance with Rule 457(c) of
the Securities Act using the last sale price for the Common Stock on
December 7, 1998.
(3) Common Stock held by Selling Securityholders.
(4) Common Stock underlying warrants held by Selling Securityholders.
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 ("Securities Act"), or until the
Registration Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
PROSPECTUS
DATED DECEMBER 8, 1998 SUBJECT TO COMPLETION
HEMISPHERx BIOPHARMA, INC.
750,000 SHARES OF COMMON STOCK
250,000 SHARES OF COMMON STOCK UNDERLYING WARRANTS
This Prospectus relates to the possible resale from time to time by a
selling securityholder ("Selling Securityholder") of up to (i) 750,000 shares of
Hemispherx Biopharma, Inc. ("Company") common stock, $.001 par value ("Common
Stock"); and (ii) 250,000 shares of Common Stock underlying warrants
("Warrants"). The Common Stock and shares of Common Stock underlying the
Warrants are collectively referred to herein as the "Securities". This
Prospectus also relates to such presently indeterminate number of additional
shares of Common Stock as may be issuable upon exercise of the Warrants, based
upon stock splits, stock dividends or similar transactions, in accordance with
Rule 416 under the Securities Act of 1933, as amended ("Securities Act").
The Company will not receive any proceeds from the possible resales by the
Selling Securityholders of their respective Securities. The Company will receive
gross proceeds of up to $1,600,000 upon exercise of the Warrants. There can be
no assurance that any Warrants will be exercised.
The Selling Securityholders may sell their Securities from time to time,
in market transactions, in negotiated transactions, through the writing of
options, or a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Selling
Securityholders may effect such transactions by selling their Securities to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of such Securities for whom such broker-dealer may act as
agents or to whom they may sell as principals, or both (which compensation as to
a particular broker-dealer might be in excess of customary commissions.) The
Company has agreed to bear all expenses in connection with the registration of
the Securities to which this Prospectus relates.
The Company's Common Stock and Class A Warrants are quoted on the American
Stock Exchange ("AMEX") under the symbols HEB and HEB/WS, respectively. On
November 27, 1998 the last sale price of the Common Stock and Class A Warrants
as reported on AMEX was $7.125 and $3.625, respectively.
THESE SECURITIES ARE HIGHLY SPECULATIVE. THEY INVOLVE A HIGH DEGREE OF RISK.
THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS
OF THEIR ENTIRE INVESTMENT (SEE "RISK FACTORS")
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Room 1204, Everett McKinley Dirksen Building,
219 South Dearborn Street, Chicago, Illinois 60604; and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all of the information set forth in the
Registration Statements of which this Prospectus is a part and which the Company
has filed with the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed as a part thereof, copies of which can
be inspected at, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above. Additional updating
information with respect to the Company may be provided in the future by means
of appendices or supplements to the Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of
such person, a copy of any and all of the information that has been or may be
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Hemispherx Biopharma, Inc., 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103 (215) 988-0080.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(c) The Company's Registration Statement on Form S-3, File No. 333-45677,
which was declared effective by the Commission on February 18, 1998;
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(d) The Company's 1998 Proxy Statement dated May 19, 1998;
(e) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form S-1, Registration No. 33-93314; and
(h) All other reports filed by the Company pursuant to Section 13(a) and
15(d) of the Exchange Act since the Company's fiscal year ended December 31,
1997.
All documents filed by the Company with the Commission pursuant to
sections 13, 14 or 15(d) of the Exchange Act subsequent hereto, but prior to the
termination of the offering of securities made by this Prospectus shall be
deemed to be incorporated by reference herein and to be part hereof from their
respective dates of filing.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus, to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere or incorporated by reference elsewhere in this Prospectus,
including information under "Risk Factors".
THE COMPANY
Hemispherx Biopharma, Inc. ("Company") has developed a large body of
knowledge in the development and testing of therapeutic products based on
nucleic acid technologies. Ampligen, its lead compound, a type of
double-stranded RNA, is in advanced human clinical development for various
therapeutic indications. It has been clinically evaluated as an investigational
drug in over 350 patients for different therapeutic indications. The clinical
profile that is emerging from these studies is that the drug has broad-spectrum
antiviral and immune modulating activity and is generally well tolerated.
The Company is currently conducting Phase III human clinical trials for
the therapeutic treatment of Myalgic Encephalomyelitis also known as Chronic
Fatigue Syndrome (ME/CFS). Ampligen is also under investigation for the
treatment of HIV infection. Other disease indications, including hepatitis B and
certain cancers, are targeted for further investigation. Clinical trials
conducted in the early 1990's indicate that Ampligen may have potential in the
treatment of metastatic renal cell cancer and malignant melanoma. The Company
plans to explore the possibility of partnerships for the further development in
the treatment of these diseases.
The Company expects to continue its research and clinical efforts for the
next several years with significant benefit accruing as a result of certain
revenues expected from various cost recovery treatment programs, notably in
Canada, Belgium and the United States. However, the Company may continue to
incur losses over the next several years due to clinical costs incurred in the
continued development of Ampligen for commercial application. Possible losses
may fluctuate from quarter to quarter as a result of differences in the timing
of significant expenses incurred and receipt of licensing fees and/or cost
recovery treatment revenues in Belgium, Canada and the United States. The
Company is also pursuing similar programs in other countries, especially within
the European Union where resources have been substantially increased with
respect to pursuing regulatory approvals.
As part of its research and development activities, the Company has
entered into various collaborative and sponsored research agreements with
researchers, universities and government agencies. The Company believes that
these agreements provide the Company with access to physicians and scientists
with expertise in the fields of clinical medicine, virology, molecular biology,
biochemistry, immunology and cellular biology.
The Company's policy is to file or license patent applications on a
worldwide basis to protect technology, inventories and improvements that are
considered important to the
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development of its business. Over the years, the Company has secured a
significant patent estate consisting of more than 25 issued U.S. patents and
over 300 derivative international filings. Nine additional U.S. patent filings
are pending along with their international counterparts. These patents primarily
cover the Company's technology platform that involves modifications of nucleic
acid polymers to achieve specifically configured base pairs, or to alter nucleic
acid structures to trigger dormant components of the body's own immune/antiviral
system and/or to inhibit selectively certain human viruses such as hepatitis
viruses, herpes viruses, etc. Included is a large set of issued patents and
patent applications from Temple University ("Oragen Technology") which have been
licensed by the Company on an exclusive basis.
The development of the Company's products has required and will continue
to require the commitment of substantial resources to conduct the time-consuming
research, preclinical development, and clinical trials necessary to bring
pharmaceutical products to market and establish commercial production and
marketing capabilities. Accordingly, the Company may need to raise additional
funds through additional equity or debt financing, collaborative arrangements
with corporate partners, off balance sheet financing or form other sources in
order to complete the necessary clinical trials and the regulatory approval
processes and begin commercializing its products.
Product Development
In the second quarter of 1998, the Company initiated the recruitment of
clinical investigators and ME/CFS patients to participate in the Phase III
confirmatory placebo-controlled clinical study of Ampligen in the treatment of
persons suffering from ME/CFS. The Company has a target of eventually enrolling
230 patients with the severely debilitating form of ME/CFS. As of November 1998,
the Company had engaged the services of six clinical investigators to start
enrolling patients in the Phase III ME/CFS clinical trial. The Company expects
to engage the services of eight to ten investigators in total by the end of
March 1999. ME/CFS patients who are not eligible for the Phase III trial in the
United Sates may seek treatment under the ME/CFS Cost Recovery Treatment Program
now authorized by the Food and Drug Administration ("FDA").
The Company has entered into research agreements with LabCorp., a
subsidiary of Laboratory Corporation of America (NYSE:LH) and Workwell
Corporation ("Workwell") to provide high quality diagnostic data during the
Phase III study. LabCorp will carry out laboratory diagnostic tests on samples
sent from clinical trial sites to its location in Raritan, NJ. Workwell will
monitor treadmill oxygen consumption at each clinical trial center. Research and
testing for a specific biochemical marker (RNase L), an antiviral enzyme, will
be done by R.E.D. Laboratories in Brussels. Initial research data indicates a
high degree of correlation between levels of this enzyme and the severity of
ME/CFS. These clinical research partners will help provide scientifically valid
and quality assured Phase III data in support of securing FDA approval.
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In the first quarter of 1998, the FDA authorized expansion of the ME/CFS
cost recovery treatment program. This open treatment protocol with cost recovery
has been ongoing since mid-1997 under the auspices of the FDA. Under this
protocol, the enrolled patients pay for the Ampligen administered, which totals
about $7,000 for a 24 week treatment course.
At the end of October 1998, patients were also being treated in Belgium
and Austria pursuant to ME/CFS Cost Recovery Treatment Programs. The Belgium
program was authorized and initiated in 1994. Since inception, over 60 patients
have been treated in this program, which is similar to the cost recovery
treatment program now in process in the United States. The Company is currently
reviewing the records of new patients for possible inclusion in the program. The
ME/CFS Cost Recovery Program was initiated in Austria in September 1998. A
similar ME/CFS Cost Recovery Treatment Program is ongoing in Canada.
Manufacturing
In 1994, the Company entered into an agreement with Bioclones, Ltd.
("Bioclones"), a subsidiary of South African Breweries, Ltd., with respect to
the co-development of various RNA drugs, including Ampligen ("Bioclones
Agreement"). Pursuant to the Bioclones Agreement, Ribotech, Ltd. ("Ribotech"),
was formed in 1994 to produce the raw materials for Ampligen. Ribotech is
jointly owned by Bioclones (75.1%) and the Company (24.9%).
Ribotech has produced raw materials that were accepted for use in the
manufacture of Ampligen. The Drug Master File (DMF) has been submitted to the
FDA. Ribotech presently has the capacity to produce the materials required to
treat approximately 2,000 patients. Plans for a new production plant are being
developed. The planned facility will have the capacity to produce the materials
needed to treat up to 50,000 patients.
A liquid formulation process for Ampligen was initiated at Cook Imaging, a
U.S. based facility for preparing the large volume parenteral drug products
under GMP (Good Manufacturing Practice). This liquid process is more efficient
and allows for greater volume manufacturing production needed to meet projected
requirements. Results with the product liquid format to date have been
encouraging with respect to product stability and ease of handling. The liquid
formulation format also eliminates the need for a major pharmacy function nearby
the clinical treatment site.
In the third quarter, the Company informed the FDA of its intention to
switch certain patients from the labor intensive lyophilized dosage form of
Ampligen to the more convenient ready-to-infuse liquid formulation for the
treatment of patients in clinical trials. In addition, the Company submitted a
report demonstrating the equivalence of the lyophilized product to the liquid
product. This report was based on extensive testing of the liquid product. This
liquid product can be manufactured more efficiently and allows for the
production of greater volumes of the product. The Company will continue to
produce lyophilized product for further clinical development.
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Ribotech currently produces the majority of the biochemicals used for the
Company's drug substances and has initiated a program to produce liquid dose
product. Ribotech announced the completion of their first pilot run of liquid
product in the third quarter. Product produced by this run is currently
undergoing extensive testing. In addition to the liquid product, five lots of
Ampligen were produced in the third quarter. The Company used these five lots to
produce nearly 1,000 doses of lyophilized product and approximately 3,000 doses
of liquid product. These doses are to be used in the CFS Cost Recovery Clinical
Treatment Programs in the U.S., Canada, Belgium and Austria, as well as in the
U.S. Phase III CFS clinical trials.
The Company also received, tested and released for use in the production
of Ampligen 4 kilograms of raw material from Pharmacia Biotech ("Pharmacia").
Pharmacia was formerly a division of Upjohn and has been a long time supplier of
raw material used in the production of Ampligen. Pharmacia's production capacity
compliments the existing capacity at Ribotech. Pharmacia has a small equity
position in the Company.
The Company completed six (6) months of accelerated and long term
stability studies on the liquid formulation product produced by Cook Imaging.
These stability studies on liquid formulated product are required by the FDA.
Management has initiated efforts to identify and locate additional liquid
formulation capacity in the U.S. and Europe. The Company anticipates that
additional production capacity will be needed in the future.
Distribution/Marketing
In February 1998, the Company entered into an agreement with Kimberly Home
Health Care, Inc. d/b/a Olsten Health Services ("Olsten"). This agreement
appoints Olsten as a distributor of products to U.S. patients enrolled in the
ME/CFS cost recovery protocol ("AMP 511"). Olsten will maintain an Ampligen
inventory for use in treating these patients. In addition, Olsten agreed to
provide initially up to $500,000 of support for other clinical program efforts
including identification of the potential medical and economic benefits to
patients receiving Ampligen. The Company agreed to compensate Olsten for certain
services in connection with conducting certain aspects of the clinical programs.
Olsten has the capability to deliver treatment and services to chronic
disease patients including infusion services, home nursing and other medical
services through a national network of more than 500 locations. Olsten will also
provide various patient education and clinical support services to assist ME/CFS
patients in dealing more effectively with this disease. The Company feels that
Olsten's participation completes the product delivery process and uniquely meets
the needs of ME/CFS patients.
The Company is presently exploring the possibility of distribution and
marketing relationships for the Western European market. Negotiations are under
way with a France based multinational pharmaceutical firm.
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Europe
A wholly owned subsidiary named Hemispherx Biopharma Europe NV/S.A has
been formed in Europe. This European subsidiary is presently based in Antwerp to
serve the needs of the Company in pursuing ME/CFS clinical tests, related
clinical treatments and new drug marketing approval in Belgium and other
European (European Union) countries. The Company has engaged the services of
several senior executives and leading medical experts to pursue this task. The
Company experts to file final drug marketing approval documents in the European
Union during 1998.
The European Union ("EU") countries, consisting of 15 members, are in the
process of establishing a comprehensive policy with respect to authorizing the
marketing of new pharmaceutical products. Instead of the historical procedure
whereby individual countries grant national authorizations, the EU has
established two systems based on (i) the mutual recognition of authorizations;
and (ii) one single authorization to be valid for the 15 member states. The
Company is preparing a submission to the EU authorities (European Medicines
Evaluation Agency - EMEA) for approval of Ampligen specifically to be used in
the EU for treatment of patients with ME/CFS. This submission will contain all
available information on the quality, safety and efficacy of Ampligen with
respect to ME/CFS in the United States and Europe as of a specific date in 1998.
The Company intends to submit this application to the EMEA in December 1998,
following an earlier submission of certain summary documents.
The Company is also evaluating various European facilities to be
responsible for affirming overall product quality for use in the EU. This
program may involve the packing and distribution of the product to be used in
the European Union, including product labeling in the different EU languages
required.
Recent Developments
On September 14, 1998, VMW, Inc. filed a complaint against the Company in
the United States District Court, Southern District of New York. The complaint
alleges that the Company failed to fulfill its financial obligations to VMW,
Inc. with respect to a certain letter agreement pertaining to services. VMW,
Inc. claims damages of less than $100,000. The Company is opposing this
complaint.
Ell & Co., and the Northern Trust Company, as Trustee of the AT&T Master
Pension Trust filed a complaint against the Company in the Court of Chancery of
the State of Delaware in and for New Castle County on September 23, 1998. This
complaint alleges that the Company breached its contractual obligations as set
forth in the Certificate of Powers, Designations, Preferences and Rights of the
Series E Convertible Stock of the Company. The plaintiffs seek to enforce their
rights to convert 1,500 shares of Series E Preferred Stock into 750,000 shares
of freely traded common stock. The Company maintains that the 1,500 shares of
Series E Preferred Stock had been properly redeemed and that the plaintiff is
not contractually able to effect a proper conversion into common shares.
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The Company filed a complaint against Manual P. Asensio, Asensio &
Company, Inc. and others in the United States District Court for the Eastern
District of Pennsylvania on September 30, 1998. The Company alleges the unlawful
manipulation and short selling by defendants of the common stock of the Company
on the American Stock Exchange on or about September 15, 1998 through the
present. The Company alleges, among other things, that the defendants
distributed materially false information concerning the Company to the public,
thereby damaging the Company and its shareholder equity.
The Year 2000
The Company's Year 2000 Compliance Program ("Program") is steadily moving
forward. The Program was implemented in the spring of 1998 with the objective of
(i) updating and/or replacing aging hardware/software; (ii) establishing new
platforms for data bases; and (iii) assuring company-wide Year 2000 ("Y2K")
compliance.
With respect to Y2K compliance, the Program is addressing the issue of
computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000. The Program is divided into three
groups: clinical, manufacturing and financial. Outside hardware/software
consultants have been employed to review all hardware and software in terms of
Y2K compliance, as well as upgrades for certain aged equipment. In most cases,
it appears that the upgrades will solve the Company's potential Y2K problem.
Solutions for the Company's clinical group issues have been identified.
Management is presently preparing to present the clinical group proposal to the
Board of Directors at its upcoming 1998 meeting now scheduled in December 1998.
Upon approval, the recommendations could be implemented and in place by March
30, 1999.
The Company's manufacturing group has also identified the
hardware/software to be upgraded to be Y2K compliant. The Company has engaged
the services of a developer of integrated systems to review these needs and
determine the hardware/software best suited to serve the manufacturing process
and data base. The developer's recommendations are to be available by
mid-December 1998, at which time the Company will take the appropriate actions.
The Company believes that the manufacturing group will be Y2K compliant by May
30, 1999.
The Company's financial group has identified minor Y2K hardware/software
problems and expects to be compliant by December 31, 1998.
Certain major vendors and suppliers have been contacted and have provided
certification that they are Y2K compliant or have provided reports reflecting
the status of their Y2K programs. By mid-December 1998, the Company expects to
have contacted all major vendors with respect to this matter.
The total cost of the Program is unknown at this time, but the Company
expects that the cost will range from $150,000 to $200,000.
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The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Y2K failures will
have a material impact on the Company's results of operations, liquidity and
financial condition. The Program is expected to significantly reduce the
Company's level of uncertainty about the Y2K problem and, in particular, about
the Y2K compliance and readiness of its material external agents. The Company
believes that, with the implementation of new business systems and completion of
the Program as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
1. Dependence on Ampligen; Manufacture of Ampligen; Expiration of Patents.
The Company's principal development efforts are currently focused on
Ampligen. While clinical trials of Ampligen have to date produced favorable
results, additional trials sponsored by the Company are planned, and no
assurance can be given that the drug will ultimately be demonstrated to be safe
or efficacious. In addition, while Ampligen has been authorized for use in
clinical trials in the United States and other countries, no assurance can be
given that additional clinical trials approvals will be authorized in the United
States or in other countries in a timely fashion or at all or that such clinical
trials will be completed by the Company. No assurance can be given that
commercialization of Ampligen in any countries where Ampligen may be approved
will prove successful. The Company believes that its extensive patent estate may
hinder any competitors from testing and developing Ampligen for particular
indications since the Company has patented the use of Ampligen for many disease
indications. The Company further believes that the available market for
non-patented disease indications for Ampligen which might be available to
competitors is minimal since the Company believes, based on laboratory tests,
that Ampligen may not be effective against such disease indications; however, no
assurances can be given. Willful infringement of the Company's patents by a
competitor could result in significant monetary damages to the Company in the
event that such infringement was not enjoined by a court of law. Nevertheless,
in the event that the Company's patent protection is not adequate for all
relevant disease indications, competitors might be able to test, develop and
commercialize Ampligen. Additionally, as a result of the Company's dependence on
Ampligen, the failure to demonstrate the drug's safety and efficacy in planned
clinical trials, to conduct the planned clinical trials, to obtain additional
approvals for the drug or to successfully commercialize the drug would have a
materially adverse effect on the Company.
2. No Assurance of Regulatory Approval; Government Regulation.
The Company's research, preclinical development, clinical trials, and the
manufacturing and marketing of its products are subject to extensive regulation
by numerous governmental authorities in the U.S. and other countries, including,
but not limited to, the Food and Drug Administration ("FDA") in the U.S., the
Health Protection Branch of Canada's Department of Health and Welfare ("HPB"), a
federal regulatory agency in Canada, and the European Medical Evaluation Agency
("EMEA") in Europe. None of the Company's products has been approved for full
commercial sale by the FDA, the HPB, the EMEA or any other foreign regulatory
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authority and the Company does not expect to achieve profitable operations
unless Ampligen receives final regulatory approval and is commercialized
successfully. In order to obtain final regulatory approval of a new drug product
for an indication, the Company must demonstrate to the satisfaction of the
regulatory agency that such product is safe and effective for its intended uses
and that the Company is capable of manufacturing the product to the applicable
regulatory standards. The process of obtaining required regulatory approvals is
rigorous and lengthy and has required and will continue to require the
expenditure of substantial resources. There can be no assurance that the Company
will be able to obtain the necessary regulatory approvals. Unsatisfactory
clinical trial results, clinical trials not conducted in accordance with
applicable protocol requirements and/or delays in obtaining regulatory approvals
would prevent the marketing of products developed by the Company, and pending
the receipt of such approvals, the Company will not receive product revenues or
royalties.
Pharmaceutical products and their manufacture are subject to continued
review following regulatory approval, and later discovery of previously unknown
problems may result in the imposition of restrictions on such products or their
manufacture, including withdrawal of the products from the market. Failure to
comply with applicable regulatory requirements could, among other things, result
in fines, suspension of regulatory approvals, operating restrictions and
criminal prosecution. The Company cannot predict the extent to which current or
future government regulations might have a materially adverse effect on the
production, marketing and sale of the Company's products. Such regulations may
delay or prevent clinical trials, regulatory approval, and the manufacture or
marketing of the Company's potential products. In addition, such regulation may
impose costly procedures upon the Company's activities or furnish a competitive
advantage to other companies more experienced in regulatory affairs than the
Company and may deplete the Company's liquidity and capital resources.
3. Additional Financing Requirements.
The development of the Company's products has required and may continue to
require the commitment of substantial resources to conduct the time-consuming
research, preclinical development, and clinical trials that are necessary to
bring pharmaceutical products to market and to establish commercial-sale
production and marketing capabilities. Based on its current operating plan, the
Company anticipates that projected cash flow from operations and currently
available financing arrangements will be sufficient to meet the Company's
capital requirements for approximately 30 months from the date of this
Prospectus. The Company's current cash flow should be sufficient to enable the
Company to complete the necessary clinical trials or regulatory approval process
for Ampligen for any indication or, if any such approval were obtained, to begin
manufacturing or marketing Ampligen on a commercial basis. If not, the Company
may need to raise substantial additional funds through additional equity or debt
financing, collaborative arrangements with corporate partners, off balance sheet
financing or from other sources in order to complete the necessary clinical
trials and the regulatory approval processes and begin commercializing its
products. If adequate funds are not available from operations and other sources,
and if the Company is not able to raise additional financing on acceptable
terms, the Company's business could be materially adversely affected.
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<PAGE>
Moreover, because of the Company's long-term capital requirements, it may
seek to access the public equity market whenever conditions are favorable, even
if it does not have an immediate need for additional capital at that time. There
can be no assurance that any additional funding will be available to the Company
on terms acceptable to the Company, if at all. Any additional funding may result
in significant dilution and could involve the issuance of securities with rights
which are senior to those of existing stockholders. The Company may also need
additional funding earlier than anticipated, and the Company's cash requirements
in general may vary materially from those now planned, for reasons including,
but not limited to, changes in the Company's research and development programs,
clinical trials, competitive and technological advances, the regulatory process,
and higher than anticipated expenses and lower than anticipated revenues from
certain of the Company's clinical trials as to which cost recovery from
participants has been approved.
4. Uncertainty Regarding Patents and Proprietary Rights.
The Company's success will depend, in large part, on its ability to obtain
patent protection for its products and to obtain and preserve proprietary
information and trade secrets. Consequently, the Company's ability to obtain
exclusive rights for the commercial sale of Ampligen is subject to the Company's
acquisition of enforceable patents covering the use of the drug for a particular
indication. The Company has been issued certain patents on the use of Ampligen
alone and Ampligen in combination with certain other drugs for the treatment of
human immunodeficiency virus ("HIV"). The Company has also been issued a patent
on the use of Ampligen in combination with certain other drugs for the treatment
of chronic hepatitis B virus ("HBV") and chronic hepatitis C virus ("HCV") and a
patent which affords protection on the use of Ampligen in patients with myalgic
encephalomyetis, also know as chronic fatigue syndrome ("ME/CFS"). To date, the
Company has not been issued any patents in the U.S. for the use of Ampligen as
monotherapy for HBV or for any of the cancers which the Company has sought to
target. The Company's applications for U.S. patents for the use of Ampligen as
monotherapy for HBV and in the treatment of renal cell carcinoma and lung cancer
are currently pending, although no assurances can be given that any of such
applications will be approved. No assurances can be given that competitors will
not seek and obtain patents regarding the use of Ampligen in combination with
various other agents (including AZT) for a particular target indication prior to
the Company. The Company believes that the existence of the Company's treatment
indication patents precludes a competitor from selling an identical or similar
product for the same treatment indication without infringing upon the Company's
issued patents. No assurance can be given, however, that the Company's patent
protection will be adequate to prevent the entry into the market of competitors
for all of the Company's treatment indications.
The patent position of biotechnology and pharmaceutical firms is highly
uncertain and involves complex legal and factual questions. To date, no
consistent policy has emerged regarding the breadth of protection afforded by
pharmaceutical and biotechnology patents. Accordingly, there can be no assurance
that patent applications relating to the Company's products or technology will
result in patents being issued or that, if issued, such patents will afford
meaningful protection against competitors with similar technology. It is
generally
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<PAGE>
anticipated that there may be significant litigation in the industry regarding
patent and other intellectual property rights and that such litigation could
consume substantial resources of the Company. No assurance can be given that the
Company's patents will provide competitive advantages for its products or will
not be successfully challenged or circumvented by its competitors. No assurance
can be given that patents do not exist or could not be filed which would have a
materially adverse effect on the Company's ability to market its products or to
obtain or maintain any competitive position the Company may achieve with respect
to its products. The Company's patents also may not prevent others from
developing competitive products using related technology. Other companies
obtaining patents covering products or processes useful to the Company may bring
infringement actions against the Company. There can be no assurance that the
Company will have the financial resources necessary to enforce patent rights it
may hold. As a result, the Company may be required to obtain licenses from
others to develop, manufacture or market its products. There can be no assurance
that the Company would be able to obtain any such licenses on commercially
reasonable terms, if at all. The Company licenses certain patents and
proprietary information from third parties, some of which patents and
proprietary information may have been developed with government grants under
circumstances where the government maintained certain rights with respect to the
patents/information developed. No assurances can be given that such third
parties will adequately enforce any rights they may have or that the rights, if
any, retained by the government will not adversely affect the value of the
Company's license. Certain of the Company's know-how and technology is not
patentable, particularly the procedures for the manufacture of the Company's
drug product which are carried out according to standard operating procedure
manuals. To protect its rights, the Company has since 1991 required employees
and consultants to enter into confidentiality agreements with the Company. There
can be no assurance that these agreements will not be breached, that the Company
would have adequate and enforceable remedies for any breach, or that any trade
secrets of the Company will not otherwise become known or be independently
developed by competitors.
5. Disputes and Legal Proceedings Related to Patent Rights.
The Company's ownership of one of its patents for the use of Ampligen for
the treatment of HIV is the subject of a dispute. Vanderbilt University has
advised the Company of its position that employees of the University were the
inventors of the patent at issue. The Company does not believe the University's
position to have merit, and if the University filed a claim against the Company,
the Company would vigorously defend against such an action. If such a claim were
filed and if such a claim were found to have merit, the loss of the patent at
issue would not have a materially adverse effect on the Company's long range
business since the University would be able to limit or prevent only the
Company's use of Ampligen in combination with AZT in the treatment of HIV. In
the event that the University obtained ownership of the disputed patent, the
University could license a third entity to sell Ampligen for a specific
combinational treatment. However, without the Company's consent, the Company
believes that the commercialization process by a third party would require
substantial expenditure to repeat clinical trials and establish a new
manufacturing protocol acceptable to regulatory agencies and would require a
license from the Company for the use of Ampligen as a component of the
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<PAGE>
combinational requirement. Furthermore, the loss of this patent would not affect
the Company's ability to market Ampligen as a monotherapy for HIV which
treatment the Company has tested and expects to continue to develop.
6. History of Losses; Future Profitability Uncertain.
The Company began operations in 1966 and last reported net profit from
1985 through 1987. Since 1987, the Company has incurred substantial operating
losses and as of December 31, 1997, the Company's accumulated deficit was
approximately $54 million. The Company has not yet generated significant
revenues from its products and could incur substantial and increased losses in
the future. Such losses may fluctuate significantly from quarter to quarter.
There can be no assurance that the Company will ever achieve significant
revenues from product sales or become profitable. The Company's ability to
achieve profitable operations is dependent, in large part, on successfully
developing products, obtaining regulatory approvals on a timely basis, and
making the transition from a research and development firm to an organization
producing commercial products or entering into joint ventures or other licensing
arrangements. No assurance can be given that the Company's product development
efforts will be successfully completed, required regulatory approvals will be
obtained, any products will be manufactured and marketed successfully, or
profitability will be achieved.
7. No Assurance of Successful Product Development.
The development of new pharmaceutical products is subject to a number of
significant risks. Potential products that appear to be promising at an early
stage of research or development may not reach the market for a number of
reasons. Potential products may be found to be ineffective or to have adverse
side effects, fail to receive necessary regulatory clearances, be difficult to
manufacture on a commercial scale, be uneconomical to market or be precluded
from commercialization by proprietary rights of third parties. The Company's
products are in various stages of clinical and pre-clinical development; each
will need to progress through further clinical studies and appropriate
regulatory approval processes before any such products can be marketed.
Generally, only a small percentage of potential therapeutic products are
eventually approved by the FDA for commercial sale. The transition from limited
production of pre-clinical and clinical research quantities to production of
commercial quantities of the Company's products will involve distinct management
and technical challenges and will require additional management and technical
personnel and capital to the extent such manufacturing is not handled by third
parties. There can be no assurance that the Company's efforts will be successful
or that any given product will be determined to be safe and effective, capable
of being manufactured economically in commercial quantities or successfully
marketed.
8. Manufacturing Experience and Capacity.
Ampligen is currently produced only for use in its clinical trials,
including the Cost Recovery Clinical Treatment Programs, however, the Company is
engaged with its partner, Bioclones (as defined below) and other suppliers to
increase production capacity. To be
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<PAGE>
successful, the Company's products must be manufactured in commercial quantities
in compliance with regulatory requirements and at acceptable costs. Although the
Company has entered into an agreement with Bioclones Proprietary, Ltd.
("Bioclones"), a biopharmaceutical company which is associated with South
African Breweries, Ltd. (together with Bioclones, "SAB")(the "SAB Agreement")
which provides for the construction of a new commercial manufacturing facility
by a company which is 24.9% owned by the Company, no assurance can be given as
to the timing of such construction, and therefore the Company may continue to be
dependent on third parties for a portion of the manufacturing and production
process. A pilot facility in South Africa is being expanded to provide an
increased supply of Ampligen raw material. The construction of the commercial
facility is dependent upon the regulatory status of Ampligen (or other products
covered by the Company's patents) in various global markets, and no assurance
can be given with respect to when, and if, construction will be initiated or
completed. The Company intends to utilize third-party facilities if and when the
need arises or, if it is unable to do so, to build or acquire commercial-scale
manufacturing facilities. The Company will need to comply with regulatory
requirements for such facilities, including those of the FDA, HPB and EMEA,
pertaining to Good Manufacturing Practices ("GMP") regulations. There can be no
assurance that such facilities can be used, built, or acquired on commercially
acceptable terms, that such facilities, if used, built, or acquired, will be
adequate for the Company's long-term needs. Moreover, there is no assurance that
successful manufacture of a drug on a limited scale basis for investigational
use will lead to a successful transition to commercial, large-scale production.
Small changes in methods of manufacture may affect the chemical structure of
Ampligen and other such RNA drugs, as well as their safety and efficacy. Changes
in methods of manufacture, including commercial scale-up, can, among other
things, require new clinical studies and affect orphan drug status,
particularly, market exclusivity rights, if any, under the Orphan Drug Act.
9. Marketing Experience and Capacity.
The Company currently has limited marketing or sales capability and to the
extent that the Company determines not to, or is unable, to enter into marketing
agreements or third party distribution agreements for its products, significant
additional resources may be required to develop a sales force and distribution
organization. The Company's present agreement with Olsten offers the potential
to provide significant marketing and distribution capacity in the United States.
Pursuant to the SAB Agreement, the corporate partner will be responsible for
fielding an adequate sales force in South America, Africa, United Kingdom,
Australia and New Zealand. Nevertheless, there can be no assurance that the
Company will be able to establish such arrangements, under the SAB Agreement or
otherwise, on terms acceptable to the Company, if at all, or that the cost of
establishing such arrangements will not exceed any product revenues, or that
such arrangements will be successful. To the extent that the Company enters into
co-marketing or other licensing arrangements, any revenues received by the
Company will be dependent on the efforts of third parties, and there can be no
assurance that such efforts will be successful.
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10. Rapid Technological Change and Substantial Competition.
The pharmaceutical and biotechnology industries are subject to rapid and
substantial technological change. Technological competition from pharmaceutical
and biotechnology companies, universities, governmental entities and others
diversifying into the field is intense and is expected to increase. Most of
these entities have significantly greater research and development capabilities
than the Company, as well as substantial marketing, financial and managerial
resources, and represent significant competition for the Company. Acquisition
of, or investments in, competing companies by large pharmaceutical companies
could increase such competitors' financial, marketing and other resources. There
can be no assurance that developments by others will not render the Company's
products or technologies obsolete or noncompetitive or that the Company will be
able to keep pace with technological developments. Competitors have developed or
are in the process of developing technologies that are, or in the future may be,
the basis for competitive products. Some of these products may have an entirely
different approach or means of accomplishing similar therapeutic effects to
products being developed by the Company. These competing products may be more
effective and less costly than the Company's products. In addition, conventional
drug therapy, surgery and other more familiar treatments will offer competition
to the Company's products. Furthermore, many of the Company's competitors have
significantly greater experience than the Company in pre-clinical testing and
human clinical trials of pharmaceutical products and in obtaining FDA, HPB, EMEA
and other regulatory approvals of products. Accordingly, the Company's
competitors may succeed in obtaining FDA, HPB and EMEA product approvals more
rapidly than the Company. If any of the Company's products receive regulatory
approvals for any indication and the Company commences commercial sales of its
products, it will also be competing with respect to manufacturing efficiency and
marketing capabilities, areas in which it has limited experience. The Company's
competitors may possess or obtain patent protection or other intellectual
property rights that prevent, limit or otherwise adversely affect the Company's
ability to develop or exploit its products.
11. Dependence upon Qualified and Key Personnel.
Because of the specialized nature of the Company's business, the Company's
success will depend, among other things, on its ability to attract and retain
qualified management and scientific personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be able to continue to
attract or retain such persons. The Company currently depends upon the services
of Dr. William A. Carter, its President, Chief Executive Officer and Chairman of
the Board, Robert E. Peterson, its Chief Financial Officer and Dr. Carol A.
Smith, the Company's Director of Manufacturing and Process Development. Certain
key individuals upon whom the Company currently depends, including but not
limited to the Company's Medical Director, Dr. David Strayer, are not employees
of the Company. In addition, Dr. Smith does not have a written employment
agreement with the Company. The continued availability to the Company of the
services of these individuals is subject to the policies of the institution
which employs them; any change in such policies may have an adverse effect upon
the Company's continued retention of the services of these individuals. While
the Company has an employment
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agreement with Dr. William A. Carter, and has secured key man life insurance in
the amount of $2 million on the life of Dr. Carter, the loss of Dr. Carter or
other key personnel or of the services of such employees of collaborators or the
failure to recruit additional personnel as needed could have a materially
adverse effect on the Company's ability to achieve its objectives. 12.
Dependence on Third Parties.
12. Dependence on Third Parties.
The Company's strategy for research, development and commercialization is
to rely in part upon collaborative arrangements with third parties in
appropriate circumstances. The Company's strategy has led it to enter into
various arrangements with universities, research groups, licensors and others.
The Company is dependent on a number of important arrangements with third
parties. In particular, the Company utilizes the services of employees at
Allegheny University and has obtained certain of its technology for Oragen
products through a license with Temple University. There can be no assurance
that the Company will be able to negotiate additional third party arrangements
or continue any existing arrangements on terms acceptable to the Company, if at
all, or that key researchers upon whom the Company is dependent will continue to
be associated with such universities and/or to work on the Company's products.
The loss of any such existing arrangement or key researcher could have a
materially adverse effect on the Company. The Company may seek a significant
portion of its future capital requirements from arrangements with pharmaceutical
companies or others pursuant to arrangements under which, among other things,
the Company would receive payment for certain research and development
activities in exchange for future royalty payments. There can be no assurance
that any such arrangements will be established on a basis acceptable to the
Company, if at all, or if established, will be scientifically or commercially
successful. The failure to achieve such arrangements on satisfactory terms could
have a materially adverse effect on the Company. The Company is dependent upon
certain third party suppliers for key components of its proposed products and
for substantially all of the production process. The failure to continue
arrangements with such third parties or obtain satisfactory substitute
arrangements could have a materially adverse effect on the Company.
13. Impact of Potential AMEX Delisting on Marketability of Securities;
Broker-Dealer Sales of the Company's Securities.
The Company's Common Stock and Class A Warrants trade on AMEX. AMEX has
rules which establish criteria for the continued listing of securities on AMEX.
Generally, AMEX will consider delisting or suspending a company based on, among
other things, the following criteria: stockholders' equity, operating losses,
reduced market value of publicly held shares, substantial disposition of assets,
and total number of shareholders.
If the Company were to continue to incur operating losses, it might be
unable to maintain the standards for continued listing and the listed securities
could be subject to delisting from AMEX. If the Company's securities are
delisted, an investor would find it more difficult to dispose of the Company's
securities or to obtain accurate quotations as to the price of the Company's
securities and it could have an adverse effect on the coverage of news
concerning
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the Company. In addition, if the Company's securities were delisted, they would
likely be subject to a rule that imposes additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (accredited investors are generally persons
having net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale, as well as disclosing certain information concerning the risks of
purchasing low-priced securities on the market for such securities.
Consequently, delisting, if it occurred, would adversely affect the ability of
broker-dealers to sell the Company's securities and would make subsequent
financing more difficult.
14. Product Liability Exposure.
As with most pharmaceutical companies, the Company faces an inherent
business risk of exposure to product liability claims in the event that the use
of its products results in adverse effects. Such liability might result from
claims made directly by patients, hospitals, clinics or other consumers, or by
pharmaceutical companies or others manufacturing such products on behalf of the
Company. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. The Company currently maintain worldwide product liability
insurance coverage.
15. Uncertainty of Health Care Reimbursement and Potential Legislation.
The Company's ability to successfully commercialize its products will
depend, in part, on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities, private health coverage insurers and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and from time to time legislation is
proposed which, if adopted, could further restrict the prices charged by and/or
amounts reimbursable to manufacturers of pharmaceutical products. The Company
cannot predict what, if any, legislation will ultimately be adopted or the
impact of such legislation on the Company. Reimbursement from government
agencies may become more restricted in the future. The Company also understands
that there is increasing political pressure in Canada to limit health care
costs; no assurances can be given that the legislative or regulatory results, if
any, of such pressure will not have an adverse impact on the Company.
Furthermore, there can be no assurance that third party insurance companies will
allow the Company to charge and receive payments for its products sufficient to
realize an appropriate return on its investment in product development. The
Company's potential products represent a new mode of therapy, and the Company
expects that the costs associated with purchasing and administering its products
will be substantial. There can be no assurance that the Company's proposed
products, if successfully developed, will be considered cost effective to
third-party payers, that reimbursement will be available or, if available, that
the timing and amount of such payors' reimbursement will not adversely affect
the Company's ability to sell its products on a profitable basis.
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16. Hazardous Materials.
The Company's business involves the controlled use of hazardous materials,
carcinogenic chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply in all material respects with the standards prescribed by applicable
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident or the failure
to comply with applicable regulations, the Company could be held liable for any
damages that result, and any such liability could be significant. The Company
does not maintain insurance coverage against such liabilities. The Company is
also subject to a variety of laws and regulations relating to occupational
health and safety, environmental protection, hazardous substance control, and
waste management and disposal. The failure to comply with any of such
regulations could subject the Company to, among other things, third party damage
claims, civil penalties and criminal liability.
17. Possible Volatility of Stock Price.
The stock market in general and biotechnology and pharmaceutical stocks in
particular have from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. The market price of the Common Stock and Warrants, like the stock
prices of many publicly traded biotechnology and smaller pharmaceutical
companies, may be highly volatile. Announcements of technological innovations,
regulatory matters or new commercial products by the Company or its competitors,
developments or disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by the Company or its competitors, regulatory developments in both
the U.S. and foreign countries, public concern as to the safety of
pharmaceutical products, economic and other external factors, and
period-to-period fluctuations in financial results, may have a significant
impact on the market price of the Common Stock and Warrants.
18. Shares Eligible for Future Sale; Registration Rights.
A substantial amount of the Company's outstanding Common Stock are
restricted securities, as that term is defined in Rule 144 promulgated under the
Securities Act ("Rule 144"). Absent registration under the Securities Act or the
availability of an exemption under the Securities Act, the sale of such shares
is subject to Rule 144. In general, under Rule 144, subject to the satisfaction
of certain other conditions, a person, including an affiliate of the Company,
who has beneficially owned restricted shares of Common Stock for at least one
year is entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class, if the Common Stock is quoted on a stock exchange, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years is entitled to sell such
shares under
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Rule 144(k), without regard to any of the volume limitations described above. In
addition, the Company has issued warrants to purchase 2,750,000 shares of Common
Stock ("Rule 701 Warrants") in reliance upon the provisions of Rule 701 of the
Securities Act, pursuant to which, in certain circumstances, such Rule 701
Warrants may be sold. Certain holders of Common Stock have executed lock up
agreements with the Company. The sale, or availability for sale, of substantial
amounts of the Company's securities in the public market subsequent to this
Prospectus, including the securities issued pursuant to Rule 144, Rule 701 or
otherwise, could adversely affect the market price of the Common Stock and could
impair the Company's ability to raise additional capital through the sale of its
equity securities or debt financing. The availability of Rule 144 and Rule 701
to the holders of restricted securities of the Company would be conditioned on,
among other factors, the availability of certain public information concerning
the Company.
19. Exercise of Warrants May Have Dilutive Effect on Market.
The Warrants provide for, during their term, an opportunity for the holder
to profit from a rise in the market price, of which there is no assurance, with
resulting dilution in the ownership interest in the Company held by the then
present stockholders. Holders of the Warrants most likely would exercise the
Warrants and purchase the underlying Common Stock at a time when the Company may
be able to obtain capital by a new offering of securities on terms more
favorable than those provided by such Warrants, in which event the terms on
which the Company may be able to obtain additional capital would be affected
adversely.
20. Conflicts of Interest.
All of the members of the Company's Scientific Advisory Board are employed
other than by the Company and may have commitments to or consulting or advisory
contracts with other entities (which may include competitors of the Company)
that may limit their availability to the Company. While each member of the
Company's Scientific Advisory Board does execute a non-disclosure and
non-competition agreement with respect to proprietary data that he or she
receives from the Company, there can be no assurance that these agreements will
absolutely protect the Company from the results of such data being revealed,
accidentally or otherwise, by a member of its Scientific Advisory Board.
21. Historic Absence of Dividends.
The Company intends to retain future earnings, if any, to provide funds
for the operations of its business and, accordingly, does not anticipate paying
any cash dividends on its Common Stock in the reasonably foreseeable future. The
last cash dividend was paid to shareholders in 1989.
22. The Year 2000.
The use of computer systems that rely on two-digit programs to perform
computations or other functions may cause such systems to malfunction with
respect to the year 2000 and subsequent years. Like many other entities, the
Company is currently assessing its computer software and database with respect
to its functionality beyond the turn of the century. The
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extent and estimated cost of the modifications which will be required are
expected to be $150,000 to $200,000, these expenditures will not have a material
effect on the financial condition and results of operations of the Company.
There can be no assurance, however, that the year 2000 problem will be resolved
successfully and in a timely fashion or that any failure or delay by the Company
or any third parties which interact with the Company in achieving year 2000
compliance will not have an adverse effect on its operations.
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USE OF PROCEEDS
The Company will not receive proceeds from any resale of the Selling
Securityholder Securities. The proceeds to be received by the Company from the
exercise of the Warrants (assuming all of such securities are exercised), will
be $1,600,000. The Company intends to use such proceeds for general corporate
purposes. Pending use of the proceeds, they will be invested in short term,
interest bearing securities or money market funds.
DILUTION
The following discussion is based on the issuance of the Common Stock and
assumes that all of the Warrants are exercised:
As of September 30, 1998, the net tangible book value of the Common Stock,
based on the balance sheet at September 30, 1998, was $14,774,800 or $.60 per
share. Net tangible book value per share represents the amount of the assets,
$17,016,416, less intangible assets of $1,325,474 and liabilities of $916,142,
divided by the number of shares outstanding, 24,692,340. Without taking into
account any other changes in the net tangible book value of the Company after
September 30, 1998, upon the issuance of the Common Stock and the exercise of
the Warrants, and the receipt of the net proceeds therefrom ($1,600,000), the
pro forma net tangible book value of the Common Stock, would be $16,374,800.
Upon dividing the pro forma net tangible book value by the pro forma amount of
Common Stock outstanding (24,942,340), the pro forma net tangible book value per
share is $.66 per share, representing an immediate increase in the net tangible
book value of $.06 per share to the present shareholders. Dilution to new
investors, since new investors will purchase shares at varying and fluctuating
prices, represents the difference between the market price of the Common Stock
and the pro forma net tangible book value per share after the issuance of all
the shares of Common Stock issuable upon exercise of the Warrants.
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RESALES BY SELLING SECURITYHOLDERS
This Prospectus relates to the proposed resale by the Selling
Securityholders of the Securities. The following table sets forth as of November
18, 1998 certain information with respect to the persons for whom the Company is
registering the Securities for sale to the public except as footnoted below.
None of such persons has had a material relationship with or has held any
position or office with the Company or any of its affiliates within three years,
other than as footnoted below. The Company will not receive any of the proceeds
from the sale of the Securities. If the Warrants are exercised, the Company
would receive $1,600,000.
Securities Securities
Owned Prior Securities Owned
to Offering(1) Offered Herein After Offering
-------------- -------------- --------------
Name of Selling Common
Securityholders Stock Warrants Common Stock Amount %
- --------------- ----- -------- ------------ ------ ---
Value Management and 750,000 250,000 1,000,000(2) 0 0
Research AG
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of November 18, 1998. For purposes of
computing the percentage of outstanding shares of Common Stock held by
each person or group of persons named above, any security which such
person or persons has or have the right to acquire within such date is
deemed to be outstanding but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the Company believes based on information
supplied by such persons, that the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
which they beneficially own.
(2) Includes (i) 200,000 shares of Common Stock underlying the Warrants. The
Warrants are exercisable during the five year period commencing April 30,
1998, at exercise prices ranging from $4.00 to $10.00 per share; and (ii)
50,000 shares of Common Stock underlying a Warrant exercisable during the
five year period commencing July 10, 1998 at an exercise price of $4.00.
25
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders may offer and sell shares of Common Stock and
Warrants from time to time in the discretion of the Selling Securityholders on
AMEX or in the over-the-counter market or otherwise at prices and at terms then
prevailing or at prices related to the then current market price, or at
negotiated prices. The distribution of the shares of Common Stock and Warrants
may be effected from time to time in one or more transactions including, without
limitation: (a) a block trade in which the broker-dealer so engaged will attempt
to sell the Common Stock and Warrants as agent, but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face or
other direct transactions between the Selling Securityholders and purchasers
without a broker-dealer or other intermediary. In effecting sales,
broker-dealers or agents engaged by the Selling Securityholders may arrange for
other broker-dealers or agents to participate. From time to time, one or more of
the Selling Securityholders may pledge, hypothecate or grant a security interest
in some or all of the common Stock owned by them, and the pledgees, secured
parties or persons to whom such securities have been hypothecated shall, upon
foreclosure in the event of default, be deemed to be Selling Securityholders
hereunder. In addition, the Selling Securityholders may from time to time sell
short the Common Stock of the Company, and in such instances, this Prospectus
may be delivered in connection with such short sale and the Common Stock offered
hereby may be used to cover such short sale.
Sales of Selling Securityholders' Common Stock and Warrants may also be
made pursuant to Rule 144 under the Securities Act, where applicable. The
Selling Securityholders' shares may also be offered in one or more underwritten
offerings, on a firm commitment or best efforts basis. The Company will receive
no proceeds from the sale of Common Stock by the Selling Securityholders.
To the extent required under the Securities Act, the aggregate amount of
Selling Securityholders' Common Stock and Warrants being offered and the terms
of the offering, the names of any such agents, brokers, dealers or underwriters
and any applicable commission with respect to a particular offer will be set
forth in an accompanying Prospectus supplement. Any underwriters, dealers,
brokers or agents participating in the distribution of the Common Stock and
Warrants may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a Selling Securityholder and/or purchasers
of Selling Securityholders' shares of Common Stock and/or Warrants, for whom
they may act. In addition, sellers of Selling Securityholders' shares of Common
Stock and/or Warrants may be deemed to be underwriters under the Securities Act
and any profits on the sale of Selling Securityholders' shares of Common Stock
or Warrants by them may be deemed to be discounts or commissions under the
Securities Act. Selling Securityholders may have other business relationships
with the Company and its subsidiaries or affiliates in the ordinary course of
business.
26
<PAGE>
From time to time each of the Selling Securityholders may transfer,
pledge, donate or assign Selling Securityholders' shares of Common Stock and
Warrants to lenders, family members and others and each of such persons will be
deemed to be a "Selling Securityholder" for purposes of this Prospectus. The
number of Selling Securityholders' shares of Common Stock and Warrants
beneficially owned by those Selling Securityholders who so transfer, pledge,
donate or assign Selling Securityholders' shares of Common Stock or Warrants
will decrease as and when they take such actions. The plan of distribution for
Selling Securityholders' shares of Common Stock and Warrants sold hereunder will
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be Selling Securityholders hereunder.
Including, and without limiting the foregoing, in connection with
distributions of the Common Stock, a Selling Securityholder may enter into
hedging transactions with broker-dealers and the broker-dealers may engage in
short sales of the Common Stock in the course of hedging the positions they
assume with such Selling Securityholder. A Selling Securityholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the Common Stock to the broker-dealers, who may then resell or otherwise
transfer such Common Stock. A Selling Securityholder may also loan or pledge the
Common Stock to a broker-dealer and the broker-dealer may sell the Common Stock
so loaned or upon default may sell or otherwise transfer the pledged Common
Stock.
Under applicable rule and regulations under the Exchange Act, any person
engaged in the distribution of the Common Stock may not bid for or purchase
shares of Common Stock during a period which commences one business day (5
business days, if the Company's public float is less than $25 million or its
average daily trading volume is less than $100,000) prior to such person's
participation in the distribution, subject to exceptions for certain passive
market making activities. In addition and without limiting the foregoing, each
Selling Securityholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M which provisions may limit the timing of purchases and sales of
shares of the Company's Common Stock by such Selling Securityholder.
The Company is bearing all costs relating to the registration of the
shares of Common Stock (other than fees and expenses, if any, of counsel or
other advisors to the Selling Securityholders). Any commissions, discounts or
other fees payable to broker-dealers in connection with any sale of the shares
of Common Stock and Warrants will be borne by the Selling Securityholder selling
such shares of Common Stock or Warrants.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and Warrants of the
Company is Continental Stock Transfer & Trust Co., 2 Broadway, New York, New
York 10004.
27
<PAGE>
LEGAL MATTERS
The legality of the shares offered hereby has been passed upon for the
Company by Silverman, Collura, Chernis & Balzano, P.C., 381 Park Avenue South,
Suite 1601, New York, New York 10016.
EXPERTS
The consolidated financial statements of the Company and subsidiaries as
of December 31, 1996 and 1997, and for each of the years in the three year
period ended December 31, 1997, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, also incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company, the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expense
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person of the Company in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issues.
28
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create any implication that there
has been no change in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
----
Available Information........................................................ 3
Prospectus Summary........................................................... 5
Risk Factors................................................................. 12
Use of Proceeds.............................................................. 24
Dilution..................................................................... 24
Resales by Selling Securityholders........................................... 25
Plan of Distribution......................................................... 26
Transfer Agent............................................................... 27
Legal Matters................................................................ 28
Experts...................................................................... 28
Disclosure of Commission Position on Indemnification......................... 28
--------------------
Until , 1998 all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 2,159.09
Printing $ 2,500*
Legal Fees and Expenses $ 10,000*
Accounting Fees and Expenses $ 2,500*
Miscellaneous Expenses (including travel
and promotional expenses) $ 1,000*
TOTAL $18,159*
*Estimated
The Selling Securityholders will not pay any portion of the foregoing
expenses of issuance and distribution.
Item 15. Indemnification of Directors and Officers.
The Restated Certificate of Incorporation of the Company provides as
follows:
No person who is or was a director of this Corporation shall be
personally liable to the Corporation or its stockholders for monetary
damages for the breach of any fiduciary duty as a director, unless, and
only to the extent that, such director is liable (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholder, (ii) for
acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction form
which the director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law gives Delaware
corporations the power to indemnify each of the Company's present and former
officers and directors under certain circumstances, if such person acted in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the corporation. The Company's Restated Certificate of
Incorporation generally requires the Company to indemnify directors and officers
to the fullest extent permissible under Delaware law.
The Company has entered into indemnification agreements with its current
directors and certain of its executive officers. These agreements have the
practical effect in certain cases of eliminating the ability of stockholders to
collect monetary damages from such individuals.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedule
(a) The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
(1)1.1 Form of Underwriting Agreement
(1)1.2 Form of Selected Dealer Agreement
(1)1.3 Form of Agreement Among Underwriters
(1)3.1 Amended and Restated Certificate of Incorporation of
Registrant, as amended, along with Certificates of
Designations, Rights and Preferences of Series A1, A2, B
and C Preferred Stock, as amended
(1)3.2 By-laws of Registrant, as amended
(2)3.3 Certificate of Designations of Series D Preferred Stock
(2)3.4 Certificate of Correction to Certificate of Designations
of Series D Preferred Stock
(3)3.5 Certificate of Designations of Series E Preferred Stock
(1)4.1 Specimen certificate representing Registrant's Common
Stock
(1)4.2 Form of Class A Redeemable Warrant Certificate
(1)4.3 Form of Underwriter's Unit Option Purchase Agreement
(1)4.4 Form of Class A Redeemable Warrant Agreement with
Continental Stock Transfer and Trust Company
5.1 Opinion of Silverman, Collura & Chernis, P.C. with
respect to legality of the securities of the Registrant
being registered
(1)10.1 Registration Rights Agreement, dated as of May 9, 1989
(1)10.2 Subordination Agreement, dated as of September 18, 1992
(1)10.3 Series A1 and Series A2 Preferred Stock Purchase
Agreement, dated as of January 22, 1991
(1)10.4 Sixth Amendment Agreement, dates as of March 31, 1994,
amending the Series A1 and Series A2 Preferred Stock
Purchase Agreement
II-2
<PAGE>
(1)10.5 Seventh Amendment Agreement, dated as of January 1,
1995, amending the Series A1 and Series A2 Preferred
Stock Purchase Agreement
(1)10.6 Form of Series C Preferred Stock Subscription Agreement,
dated as of June 22, 1993
(1)10.7 Form of Series C Debt Subscription Agreement, dates as
of June 30, 1993
(1)10.8 Form of Note issued with respect to Series C Debt
Subscription Agreement, dated as of June 30, 1993
(1)10.9 Form of Warrant issued with respect to Series C Debt
Subscription Agreement, dated as of June 30, 1993
(1)10.10 Cohn Restructuring Agreement, dated as of March 31, 1994
(1)10.11 Form of Warrant issued with respect to Cohn
Restructuring Agreement, dated as of March 31, 1994
(1)10.12 Note issued with respect to Cohn Restructuring
Agreement, dated as of March 31, 1994
(1)10.13 Letter Agreement, dated April 14, 1994 between the
Registrant and Maryann Charlap and Promissory Notes
(1)10.14 Letter Agreement, dated July 13, 1994 between Bridge
Ventures, Inc. and the Registrant
(1)10.15 Letter Agreement dated September 20, 1994 between
Maryann Charlap and Lloyd DeVos
(1)10.16 Letter Agreement, dated November 1, 1994 among the
Registrant, Bridge Ventures, Inc. and Myron Cherry
(1)10.17 Form of Bridge Loan Agreement and Promissory Note
(1)10.18 [Intentionally left blank]
(1)10.19 Form of Registration Rights Agreement issued pursuant to
1994 Common Stock Financing Subscription Agreement
(1)10.20 Form of Proxy issued pursuant to 1994 Common Stock
Financing Subscription Agreement
(1)10.21 Standby Financing Agreement, dated June 2, 1995, as
amended September 20, 1995
II-3
<PAGE>
(1)10.22 Tisch/Tsai Entities Stock Pledge Agreement, dated
February 28, 1995
(1)10.23 Tisch/Tsai Entities Settlement Agreement, dated February
28, 1995
(1)10.24 Form of Promissory Note with Tisch/Tsai Entities
(1)10.25 Form of Warrant with Tisch/Tsai Entities
(1)10.26 Letter Agreement, dated May 4, 12995 between the
Registrant and Gerald Brauser
(1)10.27 Brauser Note, dated May 2, 1995
(1)10.28 1990 Stock Option Plan
(1)10.29 1992 Stock Option Plan
(1)10.30 1993 Employee Stock Purchase Plan
(1)10.31 Form of Confidentiality, Invention and Non-Compete
Agreement
(1)10.32 Form of Clinical Research Agreement
(1)10.33 Form of Collaboration Agreement
(1)10.34 Employment Agreement by and between the Registrant and
John R. Rapoza, dated May 18, 1992
(1)10.35 Employment Agreement by and between the Registrant and
James R. Owen, dated September 21, 1992
(1)10.36 Amended and Restated Employment Agreement by and between
the Registrant and Dr. William A. Cater, dated as of
July 1, 1993
(1)10.37 Employment Agreement by and between Registrant and
Harris Freedman, dated August 1, 1994
(1)10.38 Employment Agreement by and between the Registrant and
Sharon Will, dated August 1 1994
(1)10.39 License Agreement by and between the Registrant and the
Johns Hopkins University, dated December 31, 1980
(1)10.40 Technology Transfer, Patent License and Supply Agreement
by and between the Registrant, Pharmacia LKB
Biotechnology Inc., Pharmacio P-L Biochemicals Inc. and
E.I. du Pont de Nemours and Company, dated November 24,
1987
II-4
<PAGE>
(1)10.41 Pharmaceutical Use Agreement, by and between the
Registrant and Temple University, dated August 3, 1988
(1)10.42 Assignment and Research Support Agreement by and between
the Registrant, Hahnemann University and Dr. David
Strayer, Dr. Isadore Brodsky and Dr. David Gillespie,
dated June 30, 1989
(1)10.43 Lease Agreement between the Registrant and Red Gate III
Limited Partnership, dated November 1, 1989, relating to
the Registrant's Rockville, Maryland facility
(1)10.44 Fee Agreement between the Registrant and Choate, Hall &
Stewart, dated January 27, 1993
(1)10.45 Settlement and Release Agreement between the Registrant
and Lloyd DeVos, dated August 18, 1994
(1)10.46 Agreement between the Registrant and Bioclones
(Proprietary) Limited
(1)10.47 Licensing Agreement with Core BioTech Corp.
(1)10.48 Licensing Agreement with BioPro Corp.
(1)10.49 Licensing Agreement with BioAegean Corp.
(1)10.50 Letter Agreement, dated may 12, 1992, between the
Registrant and Dr. Werner E.G. Muller
(1)10.51 Amendment, dated August 3, 1995, to Agreement between
the Registrant and Bioclones (Proprietary) Limited
(contained in Exhibit 10.46)
(1)10.52 Agreement, dated July 16, 1995, between the Registrant,
Vernacular Communications, Inc. Gerald Souham, Mitchell
L. Reisman, Craig S. O'Keefe and Robert C. Conaboy
(1)10.53 Agreement, dated June 27, 1995, between the Registrant
and The Sage Group
(1)10.54 Form of Indemnification Agreement
(1)10.55 Agreement, dated September 13, 1995, between the
Registrant and River Pharma Inc.
(2)10.56 Series D Preferred Stock Subscription Agreement, dated
June 28, 1996
(2)10.57 Series D Preferred Stock Registration Rights Agreement,
dated June 28, 1996
II-5
<PAGE>
(2)10.58 GFL Advantage Fund Limited Common Stock Purchase
Warrant, dated June 28, 1996
(3)10.59 Series E Preferred Stock Registration Rights Agreement
10.60 Value Management & Research, AG Subscription Agreement
dated July 20, 1998
(1)11 Calculation of Earnings Per Share
(1)14.1 Material Foreign Patents
(1)21 Subsidiaries of the Registrant
23.1 Consent of Silverman, Collura, Chernis & Balzano, P.C.
(included in Exhibit 5.1)
23.2 Consent of KMPG Peat Marwick LLP
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 33-93314) declared effective by the Securities
and Exchange Commission on November 2, 1995.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-8941) declared effective by the Securities
and Exchange Commission on September 16, 1996.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-24983) declared effective by the Securities
and Exchange Commission on April 18, 1997.
b. Financial Statement Schedules.
All schedules are omitted from this Registration Statement because they
are not required or the required information is included in the Consolidated
Financial Statement or the Notes thereto.
Item 17. Undertakings.
(a) Rule 415 Offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
II-6
<PAGE>
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement; and
(iii) Includes any additional or changed material information on the plan
of distribution.
provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
(1) Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the issuer has been advised 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred or paid by a director, officer or controlling person of the
issuer in the successful defense of any action, suit or proceedings) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such court.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorized this registration statement to
be signed on its behalf by the undersigned, in the City of Philadelphia, State
of Pennsylvania, on November 30, 1998.
HEMISPHERX BIOPHARMA, INC.
By: /s/ William A. Carter
----------------------------------------
William A. Carter, President and CEO
In accordance with the requirements of the Securities Act, this
Registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
--------- ----- ----
Principal Executive Officer
and Chairman of the Board
/s/ William A. Carter and as Power of Attorney
- ------------------------ for Members of the Board November 30, 1998
William A. Carter, M.D.
/s/ Robert E. Peterson Principal Financial Officer and
- ------------------------ Principal Accounting Officer November 30, 1998
Robert E. Peterson
/s/ Richard C. Piani Director November 23, 1998
- ------------------------
Richard C. Piani
/s/ Ransom W. Etheridge Director November 25, 1998
- ------------------------
Ransom W. Etheridge
/s/ William Mitchell Director November 24, 1998
- ------------------------
William Mitchell
II-8
Exhibit 5.1
[Letterhead of Silverman, Collura, Chernis & Balzano P.C.]
December 8, 1998
Hemispherx Biopharma, Inc.
1617 JFK Boulevard
Philadelphia, Pennsylvania 19103
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to Hemispherx Biopharma, Inc. ("Company"), a
Delaware corporation, pursuant to Registration Statement on Form S-3, as filed
with the Securities and Exchange Commission on December 8, 1998 ("Registration
Statement"), covering (i) 750,000 shares of the Company's common stock, $.001
par value ("Common Stock"); and (ii) 250,000 shares of Common Stock underlying
warrants.
In acting as counsel for the Company and arriving at the opinions as
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of natural persons and the conformity to original documents of
all documents submitted to us as certified or photostated copies.
Based on the foregoing, and subject to the qualifications and limitations
set forth herein, it is our opinion that:
1. The Company has authority to issue the Common Stock in the manner
and under the terms set forth in the Registration Statement.
2. The Common Stock has been duly authorized and is validly issued,
fully paid and non-assessable. The Common Stock underlying the warrants have
been duly authorized
<PAGE>
Hemispherx Biopharma, Inc.
December 8, 1998
Page 2
and when issued, delivered and paid for in accordance with the warrants' terms
terms, will be validly issued, fully paid and non-assessable.
We express no opinion with respect to the laws other than those of the
State of New York and Federal Laws of the United States of America, and we
assume no responsibility as to the applicability thereto, or the effect thereon,
of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and its use as part of the Registration Statement.
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement. It is not to be used, circulated,
quoted or otherwise referred to for any other purpose. Other than the Company,
no one is entitled to rely on this opinion.
Very truly yours,
SILVERMAN, COLLURA, CHERNIS
& BALZANO, P.C.
/s/ Silverman, Collura, Chernis & Balzano P.C.
Exhibit 10.60
ACCREDITED INVESTOR
SUBSCRIPTION AGREEMENT
Subscription Agreement for the
Purchase of Hemispherx Biopharma, Inc. Common Stock
Subject to the terms and conditions hereof, Value Management & Research
("Undersigned"), hereby irrevocably subscribes for and agrees to purchase an
aggregate of 750,000 shares ("Shares") of the common stock of Hemispherx
Biopharma, Inc. ("Company") at a purchase price of $3.00 per Share. The
Undersigned agrees to purchase 400,000 of the Shares as of the date hereof and
350,000 of the Shares no later than September 15, 1998. The Undersigned
irrevocably agrees to tender payment in the amount of $1,200,000 to the Company
for the payment of 400,000 Shares upon execution of this Subscription Agreement,
and $1,050,000, representing payment for 350,000 Shares, no later than September
15, 1998. Time is of the essence. The purchase price shall be paid by check,
subject to collection, or by wire transfer, made payable to the order of
"Silverman, Collura, Chernis & Balzano, Escrow Account". The Company shall have
the right to reject this subscription in whole or in part. In the event that the
Company rejects the subscription in whole or in part, the Company shall cause
the entire purchase price (if the subscription is rejected in whole) or that
portion thereof corresponding to the Shares not sold pursuant to this
subscription agreement (if the subscription is rejected in part) to be returned
to the Undersigned forthwith.
1. The Undersigned, in order to induce the Company to accept this subscription
agreement represents, warrants and covenants to the Company as follows:
(a) The Undersigned acknowledges that the Shares being purchased hereunder
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), or the securities laws of any State; (ii) absent an
exemption from registration contained in those laws, the issuance and sale of
the Shares require registration; and (iii) the Company's reliance upon any such
exemption is invariably based upon the Undersigned's representations,
warranties, and agreements contained in the Subscription Agreement.
(b) The Undersigned agrees that this Subscription Agreement is and shall
be irrevocable unless it has not been accepted by the Company.
(c) The Undersigned has carefully read and considered all disclosures
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998 (collectively the "Exchange Act Reports").
The undersigned understands that an investment in
<PAGE>
the Shares or a speculative investments with a high degree of risk of loss, and
there are substantial restrictions on the transferability of the Shares. The
Undersigned acknowledges that no offering memorandum has been distributed
regarding the Shares and that the Undersigned has been given the opportunity to
ask questions of, and receive answers from, the Company concerning the terms and
conditions of this Subscription Agreement and to obtain such additional written
information, to the extent the Company possesses such information or can acquire
it without unreasonable effort or expense, necessary to verify the accuracy of
same, as the Undersigned desires in order to evaluate the investment. The
Undersigned further acknowledges that the Undersigned has received no
representations or warranties from the Company, or their respective employees or
agents in making this investment decision.
(d) The Undersigned acknowledges that the Undersigned has investigated the
Company's business, financial conditions, current state of affairs, planned
business and other matters necessary in order for the Undersigned to make an
informed investment decision regarding the purchase of the Shares.
(e) The Undersigned acknowledges that the Undersigned is purchasing the
Shares without being furnished any prospectus, offering memorandum or written
description of the Company, its business and/or its future plans, and has relied
solely upon the Exchange Act Reports and the Undersigned's own investigation
into the Company and its proposed operations.
(f) The Undersigned is aware that the purchase of the Shares is a
speculative investment involving a high degree of risk and that there is no
guarantee that the Undersigned will realize any gain from this investment, and
that the entire investment could be lost.
(g) The Undersigned understands that no federal or state agency has made
any finding or determination regarding the fairness of this Offering, or any
recommendation or endorsement of this Offering.
(h) The Undersigned is purchasing the Shares for the Undersigned's own
account, with the intention of holding the Security with no present intention of
dividing or allowing others to participate in this investment or of reselling or
otherwise participating, directly or indirectly,
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in a distribution of the Security, and shall not make any sale, transfer, or
pledge thereof without registration under the Securities Act and any applicable
securities laws of any state or unless an exemption from registration is
available under those laws.
(i) The Undersigned will not sell short in any manner the Shares.
(j) The Undersigned is financially able to bear the economic risk of this
investment, including the ability to hold the Shares indefinitely or to afford a
complete loss of the Undersigned's investment in the Shares.
(k) The Undersigned represents that the Undersigned's overall commitment
to investments which are not readily marketable is not disproportionate to its
net worth, and the investment in the Securities will not cause such overall
commitment to become excessive. The Undersigned understands that the statutory
basis on which the Shares are being sold to the Undersigned to others would not
be available if the Undersigned's present intention were to hold the Shares for
a fixed period or until the occurrence of a certain event. The Undersigned
realizes that in the view of the Securities and Exchange Commission, a purchase
now with a present intent to resell by reason of a foreseeable specific
contingency or any anticipated change in the market value, or in the condition
of the Company, or that of the industry in which the business of the Company is
engaged or in connection with a contemplated liquidation, or settlement of any
loan obtained by the Undersigned for the acquisition of the Shares, and for
which such Shares may be pledged as security or as donations to religious or
charitable institutions for the purpose of securing a deduction on an income tax
return, would, in fact, represent a purchase with an intent inconsistent with
the Undersigned's representations to the Company, and the Securities and
Exchange Commission would then regard such sale as one for which no exemption
from registration is available. The Undersigned will not pledge, transfer or
assign this Subscription Agreement.
(l) The Undersigned represents that the funds provided for this investment
are either separate property of the Undersigned, other property over which the
Undersigned has the right of control, or are otherwise funds as to which the
Undersigned has the sole right of management.
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(m) The address shown under the Undersigned's signature at the end of this
Subscription Agreement is the Undersigned's principal business address if a
corporation or other entity.
(n) The Undersigned has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Shares.
(o) The Undersigned acknowledges that the certificates for the securities
comprising the Shares which the Undersigned will receive will contain a legend
substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO
A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
AND UNTIL REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN
OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
(p) This Subscription Agreement and all representations, warranties and
statements made by the Undersigned herein are true, complete and correct in all
material respects.
(q) The Undersigned acknowledges that the Company, except as set forth
below, is under no obligation to register the Shares under the Securities Act or
any state securities laws, or to take any action to make any exemption from any
such registration provisions available.
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<PAGE>
(r) This Subscription Agreement is a legally binding obligation of the
Undersigned in accordance with its terms.
(s) The Undersigned is an "accredited investor," as such term is defined
in Regulation D of the Rules and Regulations promulgated under the Act.
(t) If the Undersigned is a partnership, corporation, trust or other
entity, (i) the Undersigned has enclosed with this Subscription Agreement
appropriate evidence of the authority of the individual executing this
Subscription Agreement to act on its behalf (e.g., if a trust, a certified copy
of the trust agreement; if a corporation, a certified corporate resolution
authorizing the signature and a certified copy of the articles of incorporation;
or if a partnership, a certified copy of the partnership agreement), (ii) the
Undersigned represents and warrants that it was not organized or reorganized for
the specific purpose of acquiring Shares, and (iii) the Undersigned has the full
power and authority to execute this Subscription Agreement on behalf of such
entity and to make the representations and warranties made herein on its behalf,
and (iv) this investment in the Company has been affirmatively authorized, if
required, by the governing board of such entity and is not prohibited by the
governing documents of the entity.
(u) The Undersigned expressly acknowledges and agrees that the Company is
relying upon the Undersigned's representation contained in the Subscription
Agreement. The Undersigned subscriber acknowledges that the Undersigned
understands the meaning and legal consequences of the representations and
warranties which are contained herein and hereby agrees to indemnify, save and
hold the Company, and their respective officers, directors and counsel harmless
from and against any and all claims or actions arising out of a breach of any
representation, warranty or acknowledgement of the Undersigned contained in the
Subscription Agreement. Such indemnification shall be deemed to include not only
the specific liabilities or obligation with respect to which such indemnity is
provided, but also all reasonable costs, expenses, counsel fees and expenses of
settlement relating thereto, whether or not any such liability or obligation
shall have been reduced to judgment.
(v) Except as otherwise specifically provided for hereunder, no party
shall be deemed to have waived any of his or her or its rights hereunder or
under any other agreement, instrument or papers signed by any of them with
respect to the subject matter hereof unless such waiver is in writing signed by
the party waiving said right. A waiver on any one occasion with
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<PAGE>
respect to the subject matter hereof shall not be construed as a bar to, or
waiver of, any right or remedy on any future occasion. All rights and remedies
with respect to the subject matter hereof, whether evidenced hereby or by any
other agreement, instrument, or paper, will be cumulative, and may be exercised
separately or concurrently.
(w) The parties have not made any representations or warranties with
respect to the subject matter hereof not set forth herein, and this Subscription
Agreement, together with any instruments executed simultaneously herewith,
constitutes the entire agreement between them with respect to the subject matter
hereof. All understandings and agreements heretofore had between the parties
with respect to the subject matter hereof are merged in this Subscription
Agreement and any such instrument, which alone fully and completely expresses
their agreement.
(x) This Agreement may not be changed, modified, extended, terminated or
discharged orally, but only by an agreement in writing, which is signed by all
of the parties to this Agreement.
(y) The parties agree to execute any and all such other and further
instruments and documents, and to take any and all such further actions
reasonably required to effectuate this Subscription Agreement and the intent and
purposes hereof.
(z) This Subscription Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the Undersigned hereby
consents to the jurisdiction of the courts of the State of New York and/or the
United States District Court for the Southern District of New York.
(aa) The Undersigned understands that this subscription is not binding
upon the Company until the Company accepts it, which acceptance is at the sole
discretion of the Company and is to be evidenced by the Company's execution of
this Subscription Agreement where indicated. This Subscription Agreement shall
be null and void if the Company does not accept it as aforesaid.
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<PAGE>
(bb) The Undersigned understands that the Company may, in its sole
discretion, reject this subscription and, in the event that the offering to
which this Subscription relates is oversubscribed, reduce this subscription in
any amount and to any extent, whether or not pro rata reductions are made of any
other investor's subscription.
(cc) Neither this Subscription Agreement nor any of the rights of the
Undersigned hereunder may be transferred or assigned by the Undersigned.
(dd) Please check whether one or more of the following definitions of
"accredited investor," if any, applies to you. If none of the following applies
to you, please leave a blank.
(i) A Bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); an insurance
company as defined in Section 2(13) of the Securities Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; any plan established and
maintained by a state, or its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; any employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974, if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are Accredited Investors.
(ii) A Private Business Development Company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(iii) An organization described in Section 501(c)(3) of the Internal
Revenue Code or corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000.
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<PAGE>
(iv) A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of purchase exceeds $1,000,000.
(v) A natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(vi) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Shares, whose purchase is directed by
a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D.
(vii) Any entity in which all of the equity owners are Accredited
Investors.
2. REGISTRATION RIGHTS
a. The Company agrees to utilize its best efforts to register the
Shares under the Act by filing a Registration Statement
("Registration Statement") with the Securities and Exchange
Commission ("the "Commission") on a form deemed appropriate by the
Company's counsel as expeditiously as is reasonably practicable
after the date that this Subscription Agreement is accepted by the
Company, but in no event later than 90 days after such date.
b. The Undersigned will cooperate with the Company in all respects in
connection with the Registration Statement, including, timely
supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in
connection with the registration and sale of the Shares.
c. The Company will use its best efforts to cause the Registration
Statement to become effective within 60 days of the filing thereof
with the Commission and to remain effective for a period of nine
months.
d. The Company will prepare and file with the Commission such
amendments and supplements (including post-effective
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<PAGE>
amendments) to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Act
with respect to the sale or other disposition of the Shares covered
by the Registration Statement for a period of nine months.
e. The Company shall furnish to the Undersigned such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in the
Registration Statement (including each preliminary prospectus and
any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in the
Registration Statement or prospectus, and such other documents, as
the Undersigned may reasonably request in order to facilitate the
sale or disposition of the Shares.
f. The Company shall use its best efforts to register or qualify the
Shares and any other securities covered by the Registration
Statement under such other securities or "blue sky" laws of such
jurisdictions as the Undersigned shall reasonably request, and do
any and all other acts and things that may be necessary to enable
the Undersigned to consummate the disposition in such jurisdictions
of the Shares, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or
to subject itself to taxation in respect of doing business in any
such jurisdiction, or to consent to general service of process in
any such jurisdiction.
g. The Company shall immediately notify the Undersigned at any time
when a prospectus relating to the Shares is required to be delivered
under the Securities Act, of the happening of any event as a result
of which the prospectus including in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing or if it is necessary to amend or
supplement such prospectus to comply with law, and at the request of
the Undersigned shall prepare and furnish to the Undersigned a
reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of the Shares or other securities, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements
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<PAGE>
therein not misleading in the light of the circumstances then
existing and shall otherwise comply in all material respects with
law and so that such prospectus, as amended or supplemented, will
comply with applicable law.
h. The Company shall cooperate with the Undersigned to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing securities to be sold under the
Registration Statement, and enable such securities to be in such
denominations and registered in such names as the Undersigned may
request.
i. The Company shall notify the Undersigned immediately, and confirm
the notice in writing (A) when the Registration Statement, or any
post-effective amendment thereto, shall have become effective, or
any supplement to the prospectus or any amendment prospectus shall
have been filed, (B) of the receipt of any comments from the
Commission, (C) of any request of the Commission to amend the
Registration Statement or amend or supplement the prospectus or for
additional information, and (D) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of
the Registration Statement for offering or sale in any jurisdiction,
or of the institution or threatening of any proceedings for any of
such purposes.
j. The Company shall make every reasonable effort to prevent the
issuance of any stop order suspending the effectiveness of the
Registration Statement or of any other preventing or suspending the
use of any preliminary prospectus and, if any such order is issued,
to obtain the withdrawal of any such order at athe earliest possible
moment.
k. All expenses incurred in connection with the registration of the
Shares under this Agreement shall be paid by the Company, including,
without limitation, printing expenses, fees and disbursements of
counsel for the Company and expenses of any audits to which the
Company shall agree or which shall be necessary to comply with
governmental requirements in connection with any such registration,
all registration and filing fees for the Shares under Federal and
State securities laws; provided, however, the Company shall not be
liable for (a) any discounts or commissions to any underwriter or
broker/dealer; (b) any stock transfer taxes incurred with respect to
Shares or (c) the fees and expenses of counsel and/or accountants
for the Undersigned.
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l. The Company shall indemnify and hold harmless each Undersigned, its
directors and officers and if such Undersigned is a portfolio or
investment fund, its investment advisors and each person, if any,
who controls the Undersigned within the meaning of the Act or the
Securities Exchange Act of 1934 (the "Exchange Act") (each of the
Undersigned and each such officer, director, investment advisor (if
applicable) and controlling person, an "Indemnified Party"), against
any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statements including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, (iii) any violation or alleged violation by the
Company of the Act, the Exchange Act, or (iv) any state securities
law or any rule or regulation promulgated under the Act, the
Exchange Act or any state securities law, and the Company shall
reimburse each Indemnified Party for any legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to any Undersigned in any such
case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by
the Undersigned. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any
Indemnified Party and shall survive the transfer of any Shares by
the Undersigned.
m. Promptly after receipt by an Indemnified Party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in this paragraph (l),
such Indemnified Party will, if a claim in respect thereof is to be
made against the Company, give written notice to the latter of the
commencement of such action; provided, however, that the failure of
any Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this paragraph (l),
except to the extent that the company is actually prejudiced by such
failure to give notice. In case any such action
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is brought against an Indemnified Party, unless in such Indemnified
Party's reasonable judgment a conflict of interest between such
Indemnified Party and the Company may exist in respect of such claim
(in which case, the Company shall not be liable for the fees and
expenses of more than one counsel for all Indemnified Parties), the
Company will be entitled to participate in and to assume the defense
thereof to the extent that it may wish with counsel reasonably
satisfactory to such Indemnified Party, and after notice from the
Company to such Indemnified Party of its election so to assume the
defense thereof, the Company will not be liable to such Indemnified
Party for an legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. The Company shall not
consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving by the
claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
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3. JURISDICTIONAL NOTICES
THE SECURITIES OFFERED PURSUANT TO THE TERM SHEET HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR THE SECURITIES LAWS
OF ANY STATES OF THE UNITED STATES OR ANY OTHER JURISDICTION AND ARE BEING
OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE TERM SHEET. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. IT IS THE RESPONSIBILITY
OF ANY SUBSCRIBER WISHING TO PURCHASE THE SHARES TO SATISFY ITSELF AS TO THE
FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNITED STATES
IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED
GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
4. COUNTERPARTS
This agreement may be executed in one or more counterparts, each of which
when executed shall be deemed an original and all of which taken together shall
constitute but one and the same document. Delivery by telecopier of an executed
signature page hereto shall be effective as delivery of a manually executed
counterpart hereof.
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IN WITNESS WHEREOF, the Undersigned has executed this Subscription
Agreement on this 20th day of July, 1998
750,000 (Number of Shares Subscribed for) x $3.00 per share = $ 2,250,000
Value Management & Research, AG
- --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
S/ Florian Homm
- --------------------------------------------------------------------------------
(Signature)
Florian Homm
- --------------------------------------------------------------------------------
Name (Please Print)
Managing Partner
- --------------------------------------------------------------------------------
Title of Person Executing Agreement
Flughafen Strasse 21
- --------------------------------------------------------------------------------
Address: Number and Street
Neu-Isenburg Germany 63263
- --------------------------------------------------------------------------------
City Country Code
None
- --------------------------------------------------------------------------------
Tax Identification Number
Offenbach / Main - Germany
- --------------------------------------------------------------------------------
Jurisdiction of Incorporation
Accepted this 20th day of July, 1998, on behalf of
HEMISPHERX BIOPHARMA, INC.
BY: S/ William A. Carter
14
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FORM OF RECEIPT
SILVERMAN, COLLURA, CHERNIS & BALZANO, P.C.
The undersigned hereby acknowledges receipt from Value Management & Research
("VMR") of the amount of US $1,200,000, representing the purchase price for
400,000 shares (the "Shares") of the common stock of Hemispherx Biopharma, Inc.
(the "Company") in accordance with the subscription agreement dated as of July
___, 1998 (the "Agreement") between the Company and VMR. The undersigned is
aware that the Agreement (i) permits the Company to reject, in whole or in part,
the subscription by VMR for the Shares and (ii) in the event of such rejection,
requires the Company of cause the return to VMR of all or the appropriate
portion of the purchase price, as the case may be. The undersigned confirms
that, upon instruction by the Company, it shall return to VMR forthwith such
purchase price or portion thereof, as the case may be.
SILVERMAN, COLLURA, CHERNIS
& BALZANO, P.C.
By:_____________________________
Name:
Title:
15
<PAGE>
FORM OF RECEIPT
SILVERMAN, COLLURA, CHERNIS & BALZANO, P.C.
The undersigned hereby acknowledges receipt from Value Management & Research
("VMR") of the amount of US $1,050,000, representing the purchase price for
350,000 shares (the "Shares") of the common stock of Hemispherx Biopharma, Inc.
(the "Company") in accordance with the subscription agreement dated as of July
___, 1998 (the "Agreement") between the Company and VMR. The undersigned is
aware that the Agreement (i) permits the Company to reject, in whole or in part,
the subscription by VMR for the Shares and (ii) in the event of such rejection,
requires the Company of cause the return to VMR of all or the appropriate
portion of the purchase price, as the case may be. The undersigned confirms
that, upon instruction by the Company, it shall return to VMR forthwith such
purchase price or portion thereof, as the case may be.
SILVERMAN, COLLURA, CHERNIS
& BALZANO, P.C.
By:_____________________________
Name:
Title:
16
EXHIBIT 23.1
(INCLUDED IN EXHIBIT 5.1)
Exhibit 23.2
Consent of Independent Accountants
The Board of Directors
Hemispherx Biopharma, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
December 7, 1998
