As filed with the Securities and Exchange Commission on January 15, 1999
Registration No. 333-63773
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER THE SECURITIES ACT OF 1933
TECHNICLONE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3698422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14282 FRANKLIN AVENUE,
TUSTIN, CALIFORNIA 92780-7017
(714) 508-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
WITH COPIES TO:
LARRY O. BYMASTER THOMAS J. CRANE, ESQ.
14282 FRANKLIN AVENUE, KENT M. CLAYTON, ESQ.
TUSTIN, CALIFORNIA 92780-7017 RUTAN & TUCKER, LLP
(714) 508-6000 611 ANTON BLVD.
(Name, address, including zip code, and telephone SUITE 1400
number, including area code, of agent for service) COSTA MESA, CA 92626
(714) 641-5100
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. : |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGIS-
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) TRATION FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 2,641,509 $ 1.28 $3,381,132 $998
value (4)
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Shares of Common Stock, 254,545 $ 1.375 $ 350,000 $104
$.001 par value, Issuable Upon
Exercise of Warrants to
Purchase Common Stock (5)
====================================================================================================================================
(1) In the event of a stock split, stock dividend or similar transaction
involving the Company's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act of
1933, as amended (the "Securities Act").
(2) In accordance with Rule 457(c), the aggregate offering price of shares of
Common Stock of the Registrant (sometimes referred to herein as the
"Company") is estimated solely for purposes of calculating the registration
fees payable pursuant hereto, as determined in accordance with Rule 457(c),
using the average of the high and low sales price reported by the Nasdaq
SmallCap Market for the Common Stock on January 5, 1999, which was $1.28 per
share. In accordance with Rule 457(g), the aggregate offering price of
shares of Common Stock of the Company issuable upon exercise of outstanding
warrants is calculated solely for purposes of calculating the registration
fees payable pursuant hereto, as determined in accordance with Rule 457(g),
using the exercise price of such warrants.
(3) Previously paid.
(4) Represents shares of Common Stock issued to Resonance Limited and The Tail
Wind Fund, Ltd. (the "Registered Stockholders").
(5) Represents shares of Common Stock issuable to the Registered Stockholders
upon exercise of outstanding warrants issued to the Registered Stockholders
pursuant to the Regulation D Common Stock Equity Line Subscription Agreement
dated as of June 16,1998, by and between the Company and the Registered
Stockholders (as amended, supplemented and otherwise modified, the "Equity
Line Agreement").
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION DATED JANUARY 15, 1999
PROSPECTUS
2,896,054 SHARES
[Techniclone TECHNICLONE
Logo CORPORATION
Here]
COMMON STOCK
This Prospectus may be used only in connection with the resale, from time
to time, of up to 2,896,054 shares (the "Shares") of common stock, par value
$.001 per share ("Common Stock"), of Techniclone Corporation, a Delaware
corporation ("Techniclone" or the "Company"), by Resonance Limited and The Tail
Wind Fund, Ltd. (the "Registered Stockholders") for their own benefit in
transactions in the over-the-counter market, at prevailing market prices, at
negotiated prices or otherwise. This Prospectus has been prepared for the
purposes of registering the Shares under the Securities Act of 1933, as amended
(the "Securities Act") to allow for future sales by the Registered Stockholders
to the public without restriction. To the knowledge of the Company, the
Registered Stockholders have made no arrangement with any brokerage firm for the
sale of the Shares. Many of the Shares offered by the Registered Stockholders
may be acquired by such Registered Stockholders upon exercise of warrants to
purchase Common Stock issued by the Company to the Registered Stockholders
(collectively, the "Warrants"). Of the 2,896,054 Shares offered hereby, (i)
2,545,454 Shares were issued on or about June 16, 1998 to the Registered
Stockholders pursuant to the terms of a Regulation D Common Stock Equity Line
Subscription Agreement dated as of June 16, 1998 (as amended, the "Equity Line
Agreement") between the Company and the Registered Stockholders and an
additional 96,055 Shares were issued to the Registered Stockholders in December
1998 (the "Initial Shares") and (ii) up to an additional 254,545 Shares may be
issued to the Registered Stockholders upon exercise of outstanding warrants
issued on or about June 16, 1998 to the Registered Stockholders pursuant to the
Equity Line Agreement, at an exercise price of $1.375 per share (the
"Warrants").
All or a portion of the Shares offered by this Prospectus may be offered for
sale, from time to time, by the Registered Stockholders, pursuant to this
Prospectus, in one or more private or negotiated transactions, in open market
transactions on The Nasdaq SmallCap Market ("Nasdaq SmallCap Market"), in
settlement of short sale transactions, in settlement of options transactions, or
otherwise, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of the sale, at prices related
to such market prices, at negotiated prices, or otherwise. The Registered
Stockholders may effect these transactions by selling the Shares directly to one
or more purchasers or to or through broker-dealers or agents including: (a) in a
block trade in which the broker or dealer so engaged will attempt to sell the
shares of Common Stock as agent, but may position and resell a portion of the
block as principal to facilitate the transaction; (b) in purchases by a broker
or dealer and resale by such broker or dealer as a principal for its account
pursuant to this Prospectus; (c) in ordinary brokerage transactions and (d) in
transactions in which the broker solicits purchasers. The compensation to a
particular underwriter, broker-dealer or agent may be in excess of customary
commissions. The Registered Stockholders are "underwriters" within the meaning
of the Securities Act, in connection with the sale of the Shares offered hereby.
The Registered Stockholders will pay all commissions, transfer taxes and other
expenses associated with the sales of the Shares by them. The Company will pay
the expenses of the preparation of this prospectus. The Company has agreed to
indemnify the Registered Stockholders against certain liabilities, including
liabilities arising under the Securities Act. The Company will not receive any
of the proceeds from the sale of the Shares by the Registered Stockholders. The
Company will not receive any proceeds from the exercise of the Warrants, which
may only be exercised pursuant to a cashless exercise by the Registered
Stockholders. Concurrently with sales under this Prospectus, the Registered
Stockholders may effect other sales of Common Stock or Shares under Rule 144 or
other exempt resale transactions. There can be no assurance that the Registered
Stockholders, or any of them, will sell any or all of the Shares offered hereby.
See "Plan of Distribution."
The Company's Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is listed
on the Nasdaq SmallCap Market under the symbol "TCLN". On January 13, 1999, the
last reported sale price of the Company's Common Stock on the Nasdaq SmallCap
Market was $1.25 per share.
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7, FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
----------------------
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 , 1999
TABLE OF CONTENTS
------------------ PAGE
----
Available Information ................................................... 2
Incorporation of Certain Documents By Reference ......................... 3
Cautionary Statement Regarding Forward-Looking Statement ................ 4
The Company ............................................................. 5
Risk Factors ............................................................ 7
The Equity Line Agreement................................................19
Use of Proceeds ........................................................21
Recent Developments ....................................................21
Registered Stockholders ................................................23
Plan of Distribution ...................................................25
Description of Securities ..............................................27
Legal Matters ...........................................................28
Experts .................................................................28
Indemnification of Directors and Officers ..............................28
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
offering described herein other than those contained or incorporated by
reference in this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any of the Registered Stockholders. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, nor shall there be any sale
of these securities by any person in any jurisdiction in which such an offer,
solicitation or sale would be unlawful. 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 or that the information contained herein is correct as of any
time subsequent to the date hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act relating to the Shares being offered pursuant to this Prospectus.
For further information pertaining to the Common Stock and the Shares to which
this Prospectus relates, reference is made to such Registration Statement. This
Prospectus constitutes the prospectus of the Company filed as a part of the
Registration Statement and it does not contain all information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. In addition, the
Company is subject to the informational requirements of the Exchange Act and, in
accordance therewith, files reports, proxy statements and other information with
the Commission relating to its business, financial statements and other matters.
Reports and proxy and information statements filed pursuant to Section 14(a) and
14(c) of the Exchange Act and other information filed with the Commission as
well as copies of the Registration Statement can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Midwest Regional Offices at 500 West Madison Street, Chicago, Illinois 60606 and
Northeast Regional Office at 7 World Trade Center, 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 Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be
obtained electronically by visiting the Commission's web site on the Internet at
http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq
SmallCap Market under the symbol "TCLN".
2
Reports, proxy statements and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., at 1735 K
Street, N.W., Washington D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by this reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1998, as filed with the Commission on July 29, 1998 pursuant to
Section 13(a) of the Exchange Act.
(2) The Company's Definitive Proxy Statement with respect to the Annual
Meeting of Stockholders held on October 13, 1998, as filed with the Commission
on August 27, 1998.
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1998, as filed with the Commission on September 14, 1998.
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998, as filed with the Commission on December 15, 1998.
(5) The Company's Current Report on Form 8-K, as filed with the
Commission on January 7, 1999.
(6) The Company's Current Report on Form 8-K, as filed with the
Commission on June 29, 1998.
(7) The Company's Current Report on Form 8-K, as filed with the
Commission on March 9, 1998.
(8) The Company's Current Report on Form 8-K, as filed with the
Commission on November 24, 1997.
(9) The Company's Current Report on Form 8-K, as filed with the
Commission on May 12, 1997, as amended by Form 8-K/A Amendment No. 1 to such
Form 8-K as filed with the Commission on October 2, 1997, and as further amended
by Form 8-K/A Amendment No. 2 to such Form 8-K as filed with the Commission on
October 14, 1997.
(10) The Company's Definitive Proxy Statement with respect to the Annual
Meeting of Stockholders held on April 23, 1998, as filed with the Commission on
March 17, 1998.
(11) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A and Form 8-B (Registration of
Successor Issuers) filed under the Exchange Act, including any amendment or
report filed for the purpose of updating such description
(12) All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the Company's fiscal year ended April
30, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which re-registers all securities
then remaining unsold, shall be deemed to be incorporated herein by this
reference and to be made a part hereof from the date of filing of such
documents.
3
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will 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 or all of the foregoing documents and information that has been or
may be incorporated by reference herein (other than exhibits to such documents).
Requests for such documents and information should be directed to Techniclone
Corporation, Attention: Steven C. Burke, Chief Financial Officer, 14282 Franklin
Avenue, Tustin, California 92780-7017, telephone number (714) 508- 6000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference from documents filed with the
Commission by the Company are or may constitute forward-looking statements. Such
statements include those contained herein or therein regarding the development
or possible assumed future results of operations of the Company's business, the
markets for the Company's products, anticipated capital expenditures, regulatory
developments, any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," or similar expression, and other
statements contained or incorporated by reference herein regarding matters that
are not historical facts. Because such statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. The risks and uncertainties that may
cause actual results to differ materially include, among others, risks and
uncertainties associated with completing pre-clinical and clinical trials of the
Company's technologies; obtaining additional financing to support the Company's
operations; obtaining regulatory approval for such technologies; complying with
other governmental regulations applicable to the Company's business; obtaining
the raw materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity to manufacture, market and sell the Company's products,
either directly or indirectly with collaborative partners; developing market
demand for and acceptance of such products; competing effectively with other
pharmaceutical and biotechnological products; attracting and retaining key
personnel; protecting proprietary rights; accurately forecasting operating and
capital expenditures, other commitments, or clinical trial costs, general
economic conditions, pricing pressures and uncertainties of litigation.
Assumptions relating to budgeting, marketing, product development and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its capital
expenditure or other budgets, which may in turn affect the Company's business,
financial position and results of operations. As a result of these factors, the
Company's revenues and expenses could vary significantly from quarter to
quarter, and past financial performance should not be considered a reliable
indicator of future performance. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements set forth or
referred to above in this paragraph. Investors are cautioned not to place undue
reliance on such statements which speak only as of the date hereof. The Company
undertakes no obligation to release publicly any revision to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events, except as may be
required by the federal securities laws.
4
THE COMPANY
GENERAL
Techniclone Corporation was incorporated in the State of Delaware on
September 25, 1996. On March 24, 1997, Techniclone International Corporation, a
California corporation (a predecessor company incorporated in June 1981), was
merged with and into Techniclone Corporation, a Delaware corporation
(collectively "Techniclone"). This merger was effected for the purpose of
effecting a change in the Company's state of incorporation from California to
Delaware and making certain changes in the Company's charter documents. The
"Company" refers to Techniclone Corporation, Techniclone International
Corporation, its former subsidiary, Cancer Biologics Incorporated ("CBI"), which
was merged into the Company on July 26, 1994 and its wholly-owned subsidiary
Peregrine Pharmaceuticals, Inc., a Delaware corporation ("Peregrine").
The Company is engaged in the research, development and commercialization of
novel cancer therapeutics in two principal areas: 1) direct tumor targeting
agents for the treatment of refractory malignant lymphoma and 2) collateral
targeting agents for the treatment of solid tumors.
Oncolym(R), the Company's most advanced direct tumor targeting agent
candidate, is an investigational murine monoclonal antibody radiolabeled with
I131 which is being studied in a Phase II/III trial for the treatment of
intermediate and high-grade relapsed or refractory B-cell non-Hodgkins lymphoma
("NHL"). The clinical trials are currently being held at participating medical
centers, including, M.D. Anderson Cancer Center, George Washington University
Medical Center, Iowa City VA Medical Center, Queen's Medical Center- Hawaii,
University of Illinois at Chicago Medical Center, The Medical University of
South Carolina and University of Miami Hospital. The Company currently
anticipates adding up to six additional clinical trial sites for Oncolym(R).
Following the completion of the clinical trials, the Company expects to file an
application with the United States Food and Drug Administration ("FDA") to
market Oncolym(R) in the United States.
Collateral tumor targeting may be described as the therapeutic strategy of
targeting peripheral structures and cell types, other than the viable cancer
cells directly, as a means to treat solid tumors. The Company's three leading
advanced collateral targeting agents for solid tumors are Tumor Necrosis Therapy
("TNT"), Vascular Targeting Agents ("VTAs"), and Vasopermeation Enhancement
Agents ("VEAs").
TNT is a universal tumor targeting therapy potentially capable of treating a
wide range of solid tumors. Radiolabeled TNT agents are believed to act by
binding to dead or dying cells at the core of the tumor and irradiating the
tumor from the inside out. TNT is potentially capable of carrying a wide variety
of therapeutic agents to the interior of solid tumors. The Company's first TNT
based product is an investigational, chimeric monoclonal antibody radiolabeled
with the I131 isotope. During March 1998, the Company began enrolling patients
into a Phase I study of TNT for the treatment of malignant glioma (brain
cancer). The Company has since filed a protocol with the FDA to begin a Phase II
study of TNT for the treatment of malignant glioma, which commenced in December
1998. The clinical trials are currently being conducted at The Medical
University of South Carolina with additional clinical sites underway. The
Company has also recently received an unrestricted grant to conduct Phase I/II
systemic trials of TNT for prostate, pancreatic and liver cancers at a clinical
site in Mexico City.
VTAs are believed to act by destroying the vasculature of solid tumors. VTAs
are multi-functional molecules that target the capillaries and blood vessels of
solid tumors. Once there, these agents block the flow of oxygen and nutrients to
the underlying tissue by creating a blood clot in the tumor. In preclinical
trials, VTAs have caused clots in animals and within hours of the clot's
formation, the tumor begins to die and necrotic regions are formed. Since every
tumor in excess of 2mm in size forms an expanding vascular network during tumor
growth, VTAs could be effective against all types of solid tumors. Techniclone's
5
scientists are doing preliminary studies on VTAs. The VTA technology was
acquired in April of 1997 through the Company's acquisition of Peregrine
Pharmaceuticals, Inc.
VEAs use vasoactive compounds (molecules that cause tissues to become more
permeable) linked to monoclonal antibodies, such as the TNT antibody, to
increase the vasoactive permeability at the tumor site and are believed to act
by increasing the concentration of killing agents at the core of the tumor. In
pre-clinical studies, the Company's scientists were able to increase the uptake
of drugs or isotopes within a tumor by between 150% and 420%, if a vasoactive
agent was given several hours prior to the therapeutic treatment. The
therapeutic drug can be a chemotherapy drug, a radioactive isotope or other
cancer fighting agent. This enhancement of toxic drug dosing is achieved by
altering the physiology and, in particular, the permeability of the blood
vessels and capillaries that serve the tumor. As the tumor vessels become more
permeable, the amount of therapeutic treatment reaching the tumor cells
increases.
The principal executive offices of the Company are located at 14282 Franklin
Avenue, Tustin, California 92780-7017. The Company's telephone number is (714)
508-6000.
6
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY, TOGETHER WITH ALL OF THE OTHER INFORMATION SET
FORTH HEREIN OR INCORPORATED HEREIN BY REFERENCE IN THIS PROSPECTUS.
FLUCTUATION OF FUTURE OPERATING RESULTS. A number of factors could cause
actual results to differ materially from anticipated future operating results.
These factors include worldwide economic and political conditions and industry
specific factors. If the Company is to remain competitive and is to timely
develop and produce commercially viable products at competitive prices in a
timely manner, it must maintain access to external financing sources until it
can generate revenue from licensing transactions or sales of products. The
Company's ability to obtain financing and to manage its expenses and cash
depletion rate ("burn rate") is the key to the Company's continued development
of product candidates and the completion of ongoing clinical trials. The Company
expects that its burn rate will vary substantially from quarter to quarter as it
funds non-recurring items associated with clinical trials, product development,
antibody manufacturing and radiolabeling expansion and scale-up, patent legal
fees and various consulting fees. The Company has limited experience with
clinical trials and if the Company encounters unexpected difficulties with its
operations or clinical trials, it may have to expend additional funds, which
would increase its burn rate.
EARLY STAGE OF DEVELOPMENT. Since its inception, the Company has been
engaged in the development of drugs and related therapies for the treatment of
people with cancer. The Company's product candidates are generally in the early
stages of development, with two product candidates currently in clinical trials.
Revenues from product sales have been insignificant and throughout the Company's
history there have been minimal revenues from product royalties. If the initial
results from any of the clinical trials are poor, then management believes that
those results will adversely effect the Company's ability to raise additional
capital, which will affect the Company's ability to continue full-scale research
and development for its antibody technologies. Additionally, product candidates
resulting from the Company's research and development efforts, if any, are not
expected to be available commercially for at least the next year. No assurance
can be given that the Company's product development efforts, including clinical
trials, will be successful, that required regulatory approvals for the
indications being studied can be obtained, that its product candidates can be
manufactured and radiolabeled at an acceptable cost and with appropriate quality
or that any approved products can be successfully marketed.
NEED FOR ADDITIONAL CAPITAL. The Company has experienced negative cash flows
from operations since its inception and expects the negative cash flow from
operations to continue for the foreseeable future. The Company currently has
commitments to expend additional funds for facilities construction, clinical
trials, radiolabeling contracts, license contracts, severance arrangements,
employment agreements, consulting agreements, and for the repurchase of LYM-1
(hereinafter referred to as "Oncolym(R)") marketing rights from Alpha
Therapeutic Corporation ("Alpha") and Biotechnology Development, Ltd. ("BTD").
The Company expects operating expenditures related to clinical trials to
increase in the future as the Company's clinical trial activity increases and
scale-up for clinical trial production continues. As a result of increased
activities in connection with the Phase II/III clinical trials for Oncolym(R)
and Phase I and anticipated Phase II clinical trials for TNT and the development
costs associated with VEAs and VTAs, the Company expects that the monthly
negative cash flow will continue.
In December 1998, the Company consummated the sale/leaseback of its two
corporate facilities in Tustin, California with an unrelated entity. The
sale/leaseback transaction provides for the leaseback by the Company of the
facilities for a twelve-year period with two five-year options to renew. The net
7
cash received by the Company, reduced by the amounts required to satisfy
existing mortgages, expenses of the sale, lease deposits, prorated rent and
increased borrowing related to the sale, amounted to approximately $1.9 million.
Without obtaining additional financing, the Company believes that it has
sufficient cash on hand to meet its obligations on a timely basis only through
February 1999. The Company's ability to access funds under the Equity Line
Agreement is subject to the satisfaction of certain conditions and the failure
to satisfy these conditions may limit or preclude the Company's ability to
access such funds, which could adversely affect the Company's business,
immediate liquidity, financial position and results of operations unless
additional financing sources are available. See "The Equity Line Agreement."
The Company must raise additional funds to sustain its research and
development efforts, provide for future clinical trials, expand its
manufacturing and radiolabeling capabilities, and continue its operations until
it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company will be required to obtain financing
through one or more methods, including obtaining additional equity or debt
financing and/or negotiating a licensing or collaboration agreement with another
company. There can be no assurance that the Company will be successful in
raising these funds on terms acceptable to it, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of the Company's product candidates. The Company's future
success is dependent upon raising additional money to provide for the necessary
operations of the Company. If the Company is unable to obtain additional
financing, the Company's business, financial position and results of operations
would be adversely affected.
ANTICIPATED FUTURE LOSSES. The Company has experienced significant losses
since inception. As of October 31, 1998, the Company's accumulated deficit was
approximately $79,991,000. The Company expects to incur significant additional
operating losses in the future and expects cumulative losses to increase
substantially due to expanded research and development efforts, preclinical
studies and clinical trials, and scale- up of manufacturing and radiolabeling
capabilities. The Company expects losses to fluctuate substantially from quarter
to quarter. All of the Company's products are in development, preclinical
studies or clinical trials, and no significant revenues have been generated from
product sales. To achieve and sustain profitable operations, the Company, alone
or with others, must successfully develop, obtain regulatory approval for,
manufacture, introduce, market and sell its products. The time frame necessary
to achieve market success is long and uncertain. The Company does not expect to
generate significant product revenues for at least two years. There can be no
assurance that the Company will ever generate product revenues sufficient to
become profitable or to sustain profitability.
TECHNOLOGICAL UNCERTAINTY. The Company's future success depends
significantly upon its ability to develop and test workable products for which
the Company will seek FDA approval to market to certain defined groups. A
significant risk remains as to the technological performance and commercial
success of the Company's technology and products. The products currently under
development by the Company will require significant additional laboratory and
clinical testing and investment over the foreseeable future. The research,
development and testing activities, together with the resulting increases in
associated expenses, are expected to result in operating losses for the
foreseeable future. Although the Company is optimistic that it will be able to
complete development of one or more of its products, (i) the Company's research
and development activities may not be successful; (ii) proposed products may not
prove to be effective in clinical trials; (iii) patient enrollment in the
clinical trials may be delayed or prolonged significantly, thus delaying the
trials; (iv) the Company's product candidates may cause harmful side effects
during clinical trials; (v) the Company's product candidates may take longer to
progress through clinical trials than has been anticipated; (vi) the Company's
product candidates may prove impracticable to manufacture in commercial
quantities at a reasonable cost and/or with acceptable quality; (vii) the
Company may not be able to obtain all necessary governmental clearances and
approvals to market its products; (viii) the Company's product candidates may
not prove to be commercially viable or successfully marketed; or (ix) the
Company may not ever achieve significant revenues or profitable operations. In
addition, the Company may encounter unanticipated problems, including
8
development, manufacturing, distribution, financing and marketing difficulties.
The failure to adequately address these difficulties could adversely affect the
Company's business, financial position and results of operations.
The results of initial preclinical and clinical testing of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical testing. The Company's clinical data gathered to date with respect to
its Oncolym(R) antibody are primarily from a Phase II dose escalation trial
which was designed to develop and refine the therapeutic protocol to determine
the maximum tolerated dose of total body radiation and to assess the safety and
efficacy profile of treatment with a radiolabeled antibody. Further, the data
from this Phase II dose escalation trial were compiled from testing conducted at
a single site and with a relatively small number of patients. Substantial
additional development and clinical testing and investment will be required
prior to seeking any regulatory approval for commercialization of this potential
product. There can be no assurance that clinical trials of Oncolym(R), TNT or
other product candidates under development will demonstrate the safety and
efficacy of such products to the extent necessary to obtain regulatory approvals
for the indications being studied, or at all. Companies in the pharmaceutical
and biotechnology industries have suffered significant setbacks in advanced
clinical trials, even after obtaining promising results in earlier trials. The
failure to adequately demonstrate the safety and efficacy of Oncolym(R), TNT or
any other therapeutic product under development could delay or prevent
regulatory approval of the product and would adversely affect the Company's
business, financial condition and results of operations.
LENGTHY REGULATORY PROCESS; NO ASSURANCE OF REGULATORY APPROVALS. Testing,
manufacturing, radiolabeling, advertising, promotion, export and marketing,
among other things, of the Company's proposed products are subject to extensive
regulation by governmental authorities in the United States and other countries.
In the United States, pharmaceutical products are regulated by the FDA under the
Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. At the present time, the Company
believes that its products will be regulated by the FDA as biologics.
Manufacturers of biologics may also be subject to state regulation.
The steps required before a biologic may be approved for marketing in the
United States generally include (i) preclinical laboratory tests and animal
tests, (ii) the submission to the FDA of an Investigational New Drug ("IND")
application for human clinical testing, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the product, (iv) the submission
to the FDA of a Product License Application ("PLA") or a Biologics License
Application ("BLA"), (v) the submission to the FDA of an Establishment License
Application ("ELA"), (vi) FDA review of the ELA and the PLA or BLA, and (vii)
satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the product is made to assess compliance with Current Good
Manufacturing Practices ("CGMP"). The testing and approval process requires
substantial time, effort and financial resources and there can be no assurance
that any approval will be granted on a timely basis, if at all. There can be no
assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specific time period, if at all, with respect to any of
the Company's product candidates. Furthermore, the FDA may suspend clinical
trials at any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.
The results of preclinical and clinical studies, together with detailed
information on the manufacture and composition of a product candidate, are
submitted to the FDA as a PLA or BLA requesting approval to market the product
candidate. Before approving a PLA or BLA, the FDA will inspect the facilities at
which the product is manufactured, and will not approve the marketing of the
product candidate unless CGMP compliance is satisfactory. The FDA may deny a PLA
or BLA if applicable regulatory criteria are not satisfied, require additional
testing or information, and/or require post-marketing testing and surveillance
to monitor the safety or efficacy of a product. There can be no assurance that
FDA approval of any PLA or BLA submitted by the Company will be granted on a
9
timely basis or at all. Also, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed.
Both before and after approval is obtained, violations of regulatory
requirements, including the preclinical and clinical testing process, or the PLA
or BLA review process may result in various adverse consequences, including the
FDA's delay in approving or refusing to approve a product, withdrawal of an
approved product from the market, and/or the imposition of criminal penalties
against the manufacturer and/or license holder. For example, license holders are
required to report certain adverse reactions to the FDA, and to comply with
certain requirements concerning advertising and promotional labeling for their
products. Also, quality control and manufacturing procedures must continue to
conform to CGMP regulations after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with CGMP. Accordingly,
manufacturers must continue to expend time, monies and effort in the area of
production and quality control to maintain CGMP compliance. In addition,
discovery of problems may result in restrictions on a product, manufacturer,
including withdrawal of the product from the market. Also, new government
requirements may be established that could delay or prevent regulatory approval
of the Company's product candidates.
The Company will also be subject to a variety of foreign regulations
governing clinical trials and sales of its products. Whether or not FDA approval
has been obtained, approval of a product candidate by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. At least initially, the Company intends, to the extent possible,
to rely on licensees to obtain regulatory approval for marketing its products in
foreign countries.
COMMERCIAL PRODUCTION. To conduct clinical trials on a timely basis, obtain
regulatory approval and be commercially successful, the Company must scale-up
its manufacturing and radiolabeling processes and ensure compliance with
regulatory requirements of its product candidates so that those product
candidates can be manufactured and radiolabeled in increased quantities. As the
Company's products currently in clinical trials, Oncolym(R) and TNT, move
towards FDA approval, the Company or contract manufacturers must scale-up the
production processes to enable production and radiolabeling in commercial
quantities. The Company has expended significant funds for the scale-up of its
antibody manufacturing capabilities for clinical trial requirements for its
Oncolym(R) and TNT products and for refinement of its radiolabeling processes.
The Company intends to utilize its existing antibody manufacturing capacity to
meet the clinical trial requirements for its Oncolym(R) and TNT products and to
support the initial commercialization of Oncolym(R) . In order to provide
additional capacity, the Company believes it can successfully negotiate an
agreement with contract antibody manufacturers to have these products produced,
the cost of which is estimated to be approximately one to three million dollars
in start up costs and additional production costs on a "per run basis". The
Company believes that it can successfully negotiate an agreement with contract
radiolabeling companies to provide radiolabeling services to meet commercial
demands. Such a contract would, however, require a substantial investment by the
Company (estimated at five to nine million dollars over the next two years) for
equipment and related production area enhancements required by these vendors,
and for vendor services associated with technology transfer assistance, scale-up
and production start-up, and for regulatory assistance. The Company anticipates
that production of its products in commercial quantities will create technical
and financial challenges for the Company. The Company has limited manufacturing
experience, and no assurance can be given as to the Company's ability to
scale-up its manufacturing operations, the suitability of the Company's present
facility for clinical trial production or commercial production, the Company's
ability to make a successful transition to commercial production and
radiolabeling or the Company's ability to reach an acceptable agreement with
contract manufacturers to produce and radiolabel Oncolym(R), TNT, or the
Company's other product candidates, in clinical or commercial quantities. The
10
failure of the Company to scale- up its manufacturing and radiolabeling for
clinical trial or commercial production or to obtain contract manufacturers,
could adversely affect the Company's business, financial position and results of
operations.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION. The decline in the market price
of the Company's Common Stock has lead to substantial dilution to holders of
Common Stock. Under the terms of the Company's agreement with the holders of the
Company's 5% Adjustable Convertible Class C Preferred Stock (the "Class C
Stock"), the shares of the Class C Stock are convertible into shares of the
Company's Common Stock at the lower of a conversion cap of $0.5958 (the
"Conversion Cap") or a conversion price equal to the average of the lowest
trading price of the Company's Common Stock for the five consecutive trading
days ending with the trading date prior to the date of conversion reduced by 27
percent. The Company's agreement with the holders of the Class C Stock also
provides that upon conversion, the holders of the Class C Stock will also
receive warrants to purchase one-fourth of the number of shares of Common Stock
issued upon conversion of the Class C Stock at an exercise price of $0.6554 per
share (or 110% of the Conversion Cap), which warrants will expire in April 2002
(the "Class C Warrants"). Dividends on the Class C Stock are payable quarterly
in shares of Class C Stock or cash, at the option of the Company, at the rate of
$50.00 per share per annum.
From September 26, 1997 (the date the Class C Stock became convertible into
Common Stock) through January 13, 1999, 13,703 shares of Class C Stock,
including Class C dividend shares and additional shares of Class C Stock issued
during fiscal year 1998 (as described below), were converted into 24,719,415
shares of Common Stock, resulting in substantial dilution to the common
stockholders. In addition, in conjunction with the conversion of the Class C
Stock, the holders were granted warrants to purchase shares of Common Stock of
the Company. Class C Warrants to purchase 6,144,537 shares of common stock have
been exercised on a combined cash and cashless basis through January 13, 1999,
at an exercise price of $.6554 per share, in exchange for 5,831,980 shares of
Common Stock and proceeds to the Company of $3,599,901. As of January 13, 1999,
Class C Warrants to purchase 35,244 shares of Common Stock were outstanding.
During fiscal year 1998, the registration statement required to be filed by the
Company pursuant to the Company's agreement with the holders of the Class C
Stock was not declared effective by the 180th day following the closing date of
such offering, and therefore, the Company was required to issue an additional
325 shares of Class C Stock, calculated in accordance with the terms of such
agreement. At January 13, 1999, 270 shares of Class C Stock remained outstanding
and may be converted into shares of Common Stock at the lower of a 27% discount
from the average of the lowest market trading price for the five consecutive
trading days preceding the date of conversion or the Conversion Cap. Assuming
the conversion of all of such remaining shares of Class C Stock at the
Conversion Cap, the Company is required to issue to the holders of the Class C
Stock upon conversion thereof an aggregate of approximately 453,000 shares of
Common Stock and Class C Warrants to purchase an aggregate of up to
approximately113,000 shares of Common Stock at an exercise price of $.6554 per
share.
Sales, particularly short selling, of substantial amounts of shares of
Common Stock in the public market have adversely affected and may continue to
adversely affect the prevailing market price of the Common Stock and, depending
upon the then current market price of the Common Stock, increase the risks
associated with the possible conversion of the Class C Stock and the Class C
Warrants. From September 26, 1997, the date on which the Class C Stock was first
convertible, through March 1998, the price of the Company's Common Stock
steadily declined while the average trading volume increased significantly.
Pursuant to the terms of the Equity Line Agreement (and assuming, solely for
purposes of this Prospectus, a 10-day low closing bid price per share of not
less than $1.00, which allows the Company to sell the maximum number of shares
of Common Stock to the Registered Stockholders for maximum proceeds of
$16,500,000), the Company may, at its option, sell to the Registered
Stockholders, in addition to the Initial Shares and the Warrants, up to
20,625,000 shares of Common Stock (the "Equity Line Investor Shares") and
warrants to purchase up to an additional 2,062,500 shares of Common Stock (the
"Equity Line Investor Warrants"). The price at which the Equity Line Investor
Shares will be issued and sold by the Company to the Registered Stockholders
11
will be equal to (i) 82.5% of the lowest closing bid price during the ten
trading days (the "10 day low closing bid price") immediately preceding the date
on which such shares are sold to the Registered Stockholders or (ii) if 82.5% of
such 10 day low closing bid price results in a discount of less than twenty
cents ($0.20) per share from such 10 day low closing bid price, such 10 day low
closing bid price minus twenty cents ($0.20). In addition, the Company may be
obligated to issue to the Registered Stockholders an additional 954,545 shares
of Common Stock upon adjustment of the purchase price of the Shares already
issued to the Registered Stockholders on the three-month and six-month
anniversary of the date of this Prospectus (the "Adjustment Shares"). Pursuant
to the terms of a Placement Agent Agreement dated as of June 16, 1998 between
the Company and Swartz Investments, LLC (the "Placement Agent Agreement"), the
Company may also be obligated to issue up to 2,157,955 shares of Common Stock
(the "Equity Line Placement Shares") and warrants to purchase up to an
additional 206,250 shares of Common Stock (the "Equity Line Placement
Warrants"). The Company will not receive any proceeds from the exercise of the
Equity Line Investor Warrants, the Equity Line Placement Warrants or the
Warrants, which may only be exercised pursuant to a cashless exercise by the
Registered Stockholders. See "The Equity Line Agreement," "Use of Proceeds" and
"Plan of Distribution."
In addition to the Class C Warrants, the Warrants and the Equity Line
Placement Warrants, at January 13, 1999, the Company had outstanding warrants
and options to employees, directors, consultants and other parties to issue
approximately 8,569,000 shares of Common Stock at an average price of $1.16 per
share.
The sale and issuance of the Equity Line Investor Shares may result in
substantial dilution to the existing holders of Common Stock. The issuance of
the Equity Line Investor Shares, the Adjustment Shares and the Equity Line
Placement Shares and the issuance of shares of Common Stock issuable upon
conversion of the remaining Class C Stock and upon exercise of the remaining
Class C Warrants, the Equity Line Investor Warrants, the Equity Line Placement
Warrants and such other outstanding warrants and options, as well as subsequent
sales of the Shares, the Equity Line Investor Shares, the Adjustment Shares, the
Equity Line Placement Shares and such shares of Common Stock in the open market,
could adversely affect the market price of the Company's Common Stock and impair
the Company's ability to raise additional capital.
STOCK PRICE FLUCTUATIONS AND LIMITED TRADING VOLUME. The market price of the
Company's Common Stock, and the market prices of securities of companies in the
biotechnology industry generally, have been highly volatile. Also, at times
there is a limited trading volume in the Company's Common Stock. Announcements
of technological innovations 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 United States and foreign countries, public concern as to the safety of
biotechnology products and economic and other external factors, as well as
period-to-period fluctuations in financial results may have a significant impact
on the market price of the Company's Common Stock. The volatility in the stock
price and the potential additional new shares of common stock that may be issued
on the exercise of warrants and options and the historical limited trading
volume are significant risks investors should consider.
MAINTENANCE CRITERIA FOR NASDAQ SMALLCAP MARKET, RISKS OF LOW-PRICED
SECURITIES. The Company's Common Stock is presently traded on the Nasdaq
SmallCap Market. To maintain inclusion on the Nasdaq SmallCap Market, the
Company's Common Stock must continue to be registered under Section 12(g) of the
Exchange Act, and the Company must continue to have either net tangible assets
of at least $2,000,000, market capitalization of at least $35,000,000, or net
income (in either its latest fiscal year or in two of its last three fiscal
years) of at least $500,000. In addition, the Company must meet other
requirements, including, but not limited to, having a public float of at least
500,000 shares and $1,000,000, a minimum closing bid price of $1.00 per share of
Common Stock (without falling below this minimum bid price for a period of 30
12
consecutive business days), at least two market makers and at least 300
stockholders, each holding at least 100 shares of Common Stock. For the period
of January 29, 1998 through May 4, 1998, the Company failed to maintain a $1.00
minimum closing bid price. From May 5, 1998, through September 2, 1998, the
Company met this requirement. However, at various times since September 2, 1998,
the Company has failed to maintain a $1.00 minimum closing bid price and
currently expects the closing bid price of the Common Stock to fall below the
$1.00 minimum bid requirement from time to time in the future. If the Company
fails to meet the minimum closing bid price of $1.00 for a period of 30
consecutive business days, it will be notified by the Nasdaq and will then have
a period of 90 calendar days from such notification to achieve compliance with
the applicable standard by meeting the minimum closing bid price requirement for
at least 10 consecutive business days during such 90 day period. There can be no
assurance that the Company will be able to maintain these requirements in the
future. If the Company fails to meet the Nasdaq SmallCap Market listing
requirements, the market value of the Common Stock could decline and holders of
the Company's Common Stock would likely find it more difficult to dispose of and
to obtain accurate quotations as to the market value of the Common Stock. In
addition, if the minimum closing bid price of the Common Stock is not at least
$1.00 per share for 10 consecutive business days before a call by the Company
under the Equity Line Agreement or if the Company's Common Stock ceases to be
included on the Nasdaq SmallCap Market, the Company would have limited or no
access to funds under the Equity Line Agreement.
If the Company's Common Stock ceases to be included on the Nasdaq SmallCap
Market, the Company's Common Stock could become subject to rules adopted by the
Commission regulating broker-dealer practices in connection with transactions in
"penny stocks." Penny stocks generally are equity securities with a price per
share of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on Nasdaq, provided that current price and volume
information with respect to transactions in these securities is provided). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the Commission which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its sales person in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to these penny stock rules. If the
Company's Common Stock becomes subject to the penny stock rules, investors may
be unable to readily sell their shares of Common Stock.
INTENSE COMPETITION. The biotechnology industry is intensely competitive and
changing rapidly. Virtually all of the Company's existing competitors have
greater financial resources, larger technical staffs, and larger research
budgets than the Company and greater experience in developing products and
running clinical trials. Two of the Company's competitors, Idec Pharmaceuticals
Corporation ("Idec") and Coulter Pharmaceuticals, Inc. ("Coulter"), each has a
lymphoma antibody that may compete with the Company's Oncolym(R) product. Idec
is currently marketing its lymphoma product for low grade non-Hodgkins Lymphoma
and the Company believes that Coulter will be marketing its respective lymphoma
product prior to the time the Oncolym(R) product will be submitted to the FDA
for marketing approval. Coulter has also announced that it intends to seek to
conduct clinical trials of its antibody treatment for intermediate and/or high
grade non-Hodgkins lymphomas. There are several companies in preclinical studies
with angiogenesis technologies which may compete with the Company's VTA
technology. In addition, there may be other companies which are currently
developing competitive technologies and products or which may in the future
develop technologies and products which are comparable or superior to the
Company's technologies and products. Some or all of these companies may also
13
have greater financial and technical resources than the Company. Accordingly,
there can be no assurance that the Company will be able to compete successfully
or that competition will not adversely affect the Company's business, financial
position and results of operations. There can be no assurance that the Company's
existing and future competitors will not be able to raise substantial funds and
to employ these funds and their other resources to develop products which
compete with the Company's other product candidates.
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS. The Company has limited
experience in conducting clinical trials. The rate of completion of the
Company's clinical trials will depend on, among other factors, the rate of
patient enrollment. Patient enrollment is a function of many factors, including
the nature of the Company's clinical trial protocols, existence of competing
protocols, size of the patient population, proximity of patients to clinical
sites and eligibility criteria for the study. Delays in patient enrollment will
result in increased costs and delays, which could adversely effect the Company.
There is no assurance that patients enrolled in the Company's clinical trials
will respond to the Company's product candidates. Setbacks are to be expected in
conducting human clinical trials. Failure to comply with FDA regulations
applicable to this testing can result in delay, suspension or cancellation of
the testing, or refusal by the FDA to accept the results of the testing. In
addition, the FDA may suspend clinical trials at any time if it concludes that
the subjects or patients participating in such trials are being exposed to
unacceptable health risks. Further, there can be no assurance that human
clinical testing will show any current or future product candidate to be safe
and effective or that data derived from the testing will be suitable for
submission to the FDA. Any suspension or delay of any of the clinical trials
could adversely effect the Company's business, financial condition and results
of operations.
UNCERTAINTY OF MARKET ACCEPTANCE. Even if the Company's products are
approved for marketing by the FDA and other regulatory authorities, there can be
no assurance that the Company's products will be commercially successful. If the
Company's two products in clinical trials, Oncolym(R) and TNT, are approved,
they would represent a departure from more commonly used methods for cancer
treatment. Accordingly, Oncolym(R) and TNT may experience under-utilization by
oncologists and hematologists who are unfamiliar with the application of
Oncolym(R) and TNT in the treatment of cancer. As with any new drug, doctors may
be inclined to continue to treat patients with conventional therapies, in most
cases chemotherapy, rather than new alternative therapies. The Company or its
marketing partner will be required to implement an aggressive education and
promotion plan with doctors in order to gain market recognition, understanding
and acceptance of the Company's products. Market acceptance also could be
affected by the availability of third party reimbursement. Failure of Oncolym(R)
and TNT to achieve market acceptance would adversely affect the Company's
business, financial condition and results of operations.
SOURCE OF RADIOLABELING SERVICES. The Company currently procures its
radiolabeling services pursuant to negotiated contracts with one domestic entity
and one European entity. There can be no assurance that these suppliers will be
able to qualify their facilities, label and supply antibody in a timely manner,
if at all, or that governmental clearances will be provided in a timely manner,
if at all, and that clinical trials will not be delayed or disrupted. Prior to
commercial distribution, the Company will be required to identify and contract
with a commercial radiolabeling company for commercial services. The Company is
presently in discussions with a few companies to provide commercial
radiolabeling services. A commercial radiolabeling service agreement will
require the investment of substantial funds by the Company. See "Risk
Factors-Commercial Production." The Company expects to rely on its current
suppliers for all or a significant portion of its requirements for the
Oncolym(R) and TNT antibody products to be used in clinical trials for the
immediate future. Radiolabeled antibody cannot be stockpiled against future
shortages due to the eight-day half-life of the I131 radioisotope. Accordingly,
any change in the Company's existing or future contractual relationships with,
or an interruption in supply from, its third-party suppliers could adversely
affect the Company's ability to complete its ongoing clinical trials and to
market the Oncolym(R) and TNT antibodies, if approved. Any such change or
interruption would adversely affect the Company's business, financial condition
and results of operations.
HAZARDOUS AND RADIOACTIVE MATERIALS. The manufacturing and use of the
Company's Oncolym(R) and TNT require the handling and disposal of the
radioactive isotope I131. The Company is relying on its current contract
14
manufacturers to radiolabel its antibodies with I131 and to comply with various
local, state and or national and international regulations regarding the
handling and use of radioactive materials. Violation of these local, state,
national or international regulations by these radiolabeling companies or a
clinical trial site could significantly delay completion of the trials.
Violations of safety regulations could occur with these manufacturers, so there
is a risk of accidental contamination or injury. The Company could be held
liable for any damages that result from an accident, contamination or injury
caused by the handling and disposal of these materials, as well as for
unexpected remedial costs and penalties that may result from any violation of
applicable regulations, which could adversely effect the Company's business,
financial condition and results of operations. In addition, the Company may
incur substantial costs to comply with environmental regulations. In the event
of any noncompliance or accident, the supply of Oncolym(R) and TNT for use in
clinical trials or commercially could be interrupted, which could adversely
affect the Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTIES FOR COMMERCIALIZATION. The Company intends to
sell its products in the United States and internationally in collaboration with
marketing partners. At the present time, the Company does not have a sales force
to market Oncolym(R) or TNT. If and when the FDA approves Oncolym(R) or TNT, the
marketing of Oncolym(R) and TNT will be contingent upon the Company either
licensing or entering into a marketing agreement with a large company or rely
upon it recruiting, developing, training and deploying its own sales force. The
Company does not presently possess the resources or experience necessary to
market Oncolym(R), TNT or its other product candidates. Other than an agreement
with BTD, the Company presently has no agreements for the licensing or marketing
of its product candidates, and there can be no assurance that the Company will
be able to enter into any such agreements in a timely manner or on commercially
favorable terms, if at all. Development of an effective sales force requires
significant financial resources, time and expertise. There can be no assurance
that the Company will be able to obtain the financing necessary or to establish
such a sales force in a timely or cost effective manner, if at all, or that such
a sales force will be capable of generating demand for the Company's product
candidates.
PATENTS AND PROPRIETARY RIGHTS. The Company's success depends, in large
part, on its ability to obtain or maintain a proprietary position in its
products through patents, trade secrets and orphan drug designations. The
Company has several United States patents or United States patent applications
and numerous corresponding foreign patent applications, and has licenses to
patents or patent applications owned by other entities. No assurance can be
given, however, that the patent applications of the Company or the Company's
licensors will be issued or that any issued patents will provide competitive
advantages for the Company's products or will not be successfully challenged or
circumvented by its competitors. The patent position worldwide of biotechnology
companies in relation to proprietary products is highly uncertain and involves
complex legal and factual questions. Moreover, any patents issued to the Company
or the Company's licensors may be infringed by others or may not be enforceable
against others. In addition, there can be no assurance that the patents, if
issued, would be held valid or enforceable by a court of competent jurisdiction.
Enforcement of the Company's patents may require substantial financial and human
resources. The Company may have to participate in interference proceedings if
declared by the United States Patent and Trademark Office to determine priority
of inventions, which typically take several years to resolve and could result in
substantial costs to the Company.
A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody and angiogenesis fields, competitors may have filed applications for or
have been issued patents and may obtain additional patents and proprietary
rights relating to products or processes competitive with or similar to those of
the Company. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biopharmaceutical patents. There can be no assurance that
patents do not exist in the United States or in foreign countries or that
patents will not be issued that would have an adverse effect on the Company's
ability to market any product which it develops. Accordingly, the Company
expects that commercializing monoclonal antibody-based products may require
licensing and/or cross-licensing of patents with other companies in this field.
There can be no assurance that the licenses, which might be required for the
15
Company's processes or products, would be available, if at all, on commercially
acceptable terms. The ability to license any such patents and the likelihood of
successfully contesting the scope or validity of such patents is uncertain and
the costs associated therewith may be significant. If the Company is required to
acquire rights to valid and enforceable patents but cannot do so at a reasonable
cost, the Company's ability to manufacture its products would be adversely
affected.
The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed by competitors.
PRODUCT LIABILITY. The manufacture and sale of human therapeutic products
involve an inherent risk of product liability claims. The Company has only
limited product liability insurance. There can be no assurance that the Company
will be able to maintain existing insurance or obtain additional product
liability insurance on acceptable terms or with adequate coverage against
potential liabilities. Product liability insurance is expensive, difficult to
obtain and may not be available in the future on acceptable terms, if at all. An
inability to obtain sufficient insurance coverage on reasonable terms or to
otherwise protect against potential product liability claims brought against the
Company in excess of its insurance coverage, if any, or a product recall could
adversely affect the Company's business, financial condition and results of
operations.
HEALTH CARE REFORM AND THIRD-PARTY REIMBURSEMENT. Political, economic and
regulatory influences are subjecting the health care industry in the United
States to fundamental change. Recent initiatives to reduce the federal deficit
and to reform health care delivery are increasing cost-containment efforts. The
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative benefits, controls on health care
spending through limitations on the growth of private health insurance premiums
and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, price controls on pharmaceuticals and other fundamental changes to the
health care delivery system. Any such changes could affect the Company's
ultimate profitability. Legislative debate is expected to continue in the
future, and market forces are expected to drive reductions of health care costs.
The Company cannot predict what impact the adoption of any federal or state
health care reform measures or future private sector reforms may have on its
business.
The Company's ability to successfully commercialize its product candidates
will depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of such products and related treatment are
obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations ("HMOs"). The Health
Care Financing Administration ("HCFA"), the agency responsible for administering
the Medicare program, sets requirements for coverage and reimbursement under the
program, pursuant to the Medicare law. In addition, each state Medicaid program
has individual requirements that affect coverage and reimbursement decisions
under state Medicaid programs for certain health care providers and recipients.
Private insurance companies and state Medicaid programs are influenced, however,
by the HCFA requirements.
There can be no assurance that any of the Company's product candidates, once
available, will be included within the then current Medicare coverage
determination. In the absence of national Medicare coverage determination, local
contractors that administer the Medicare program, within certain guidelines, can
make their own coverage decisions. Favorable coverage determinations are made in
those situations where a procedure falls within allowable Medicare benefits and
a review concludes that the service is safe, effective and not experimental.
Under HCFA coverage requirements, FDA approval for marketing will not
necessarily lead to a favorable coverage decision. A determination will still
need to be made as to whether the product is reasonable and necessary for the
purpose used. In addition, HCFA has proposed adopting regulations that would add
cost-effectiveness as a criterion in determining Medicare coverage. Changes in
16
HCFA's coverage policy, including adoption of a cost-effective criterion, could
adversely affect the Company's business, financial condition and results of
operations.
Third-party payers are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or reduce
government insurance programs, may all result in lower prices for the Company's
product candidates than it expects. The cost containment measures that health
care payers and providers are instituting and the effect of any health care
reform could adversely affect the Company's ability to operate profitably.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL. The Company is dependent
upon a limited number of key management and technical personnel. The loss of the
services of one or more of these key employees could adversely affect the
Company's business, financial condition and results of operations. In addition,
the Company's success is dependent upon its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition in its recruiting activities, and there can be no
assurance that the Company will be able to attract and/or retain qualified
personnel.
IMPACT OF THE YEAR 2000. The Company has identified substantially all of its
major hardware and software platforms in use and is continually modifying and
upgrading its software and information technology ("IT") and non-IT systems. The
Company has modified its current financial software to be Year 2000 ("Y2K")
compliant. The Company does not believe that, with upgrades of existing software
and/or conversion to new software, the Y2K issue will pose significant
operational problems for its internal computer systems. The Company expects all
systems to be Y2K compliant by April 30, 1999 through the use of internal and
external resources. The Company has incurred insignificant costs to date
associated with Y2K compliance and the Company presently believes estimated
future costs will not be material. However, the systems of other companies on
which the Company may rely also may not be timely converted, and failure to
convert by another company could have an adverse effect on the Company's
systems. The Company presently believes the Y2K problem will not pose
significant operational problems and is not anticipated to have a material
effect on its financial position or results of operations in any given year.
However, actual results could differ materially from the Company's expectations
due to unanticipated technological difficulties or project delays by the Company
or its suppliers. If the Company and third parties upon which it relies are
unable to address the issue in a timely manner, it could result in a material
financial risk to the Company. In order to assure that this does not occur, the
Company is in the process of developing a contingency plan and plans to devote
all resources required to attempt to resolve any significant Y2K issues in a
timely manner.
EARTHQUAKE RISKS. The Company's corporate and research facilities, where the
majority of its research and development activities are conducted, are located
near major earthquake faults which have experienced earthquakes in the past. The
Company does not carry earthquake insurance on its facility due to its
prohibitive cost and limited available coverage. In the event of a major
earthquake or other disaster affecting the Company's facilities, the operations
and operating results of the Company could be adversely affected.
FORWARD LOOKING STATEMENTS. Based on current expectations, this Prospectus,
the Company's Annual Report on Form 10-K and its quarterly and periodic reports
contain certain forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. In light of the
important factors that can materially affect results, including those set forth
above, the inclusion of forward- looking information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company may encounter competitive,
technological, financial and business challenges making it more difficult than
expected to continue to develop, market and manufacture its products;
competitive conditions within the industry may change adversely; upon
development of the Company's products, demand for the Company's products may
weaken; the market may not accept the Company's products; the Company may be
17
unable to retain existing key management personnel; the Company's forecasts may
not accurately anticipate market demand; and there may be other material adverse
changes in the Company's operations or business. Certain important factors
affecting the forward-looking statements made herein include, but are not
limited to accurately forecasting capital expenditures and obtaining new sources
of external financing prior to the expiration of existing support arrangements
or capital. Assumptions relating to budgeting, marketing, product development
and other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause the Company to alter
its capital expenditure or other budgets, which may in turn affect the Company's
business, financial position and results of operations.
18
THE EQUITY LINE AGREEMENT
On June 16, 1998, the Company entered into the Equity Line Agreement with
the Registered Stockholders, pursuant to which the Company may issue and sell,
from time to time, shares of its Common Stock for cash consideration up to an
aggregate of $20 million. The Company also entered into the Placement Agent
Agreement with Swartz Investments, LLC, whereby the Company engaged the services
of Swartz Investments, LLC as placement agent in connection with the placement
of securities of the Company with the Registered Stockholders pursuant to the
Equity Line Agreement.
Pursuant to the Equity Line Agreement, on or about June 16, 1998, the
Company received immediate funding of $3,500,000 in exchange for the
Institutional Investor Shares and issued the Institutional Investor Warrants to
the Registered Stockholders. Pursuant to the terms of the Equity Line Agreement,
one-half of the number of Institutional Investor Shares is subject to adjustment
on the date that is three months after the date of this Prospectus with the
other half subject to adjustment six months after the date of this Prospectus
(each such date, an "Adjustment Date"). At each Adjustment Date, if the 10 day
low closing bid price immediately preceding such Adjustment Date (the
"Adjustment Price") is less than the initial price per share paid for the shares
of Common Stock purchased by the Registered Stockholders on or about June 16,
1998 ($1.375 per Share), the Company will be obligated to issue a number of
Adjustment Shares equal to the difference between the amount of shares which
would have been issued if the price had been the Adjustment Price for $1,750,000
and one-half of the amount of shares actually issued (1,272,727 shares). In
addition, in December 1998, the Company issued an additional 96,055 Shares to
the Registered Stockholders pursuant to a separate agreement between the Company
and the Registered Stockholders (the "Additional Shares").
Pursuant to the terms of the Placement Agent Agreement, Swartz Investments,
LLC is entitled to receive (i) a cash placement fee equal to seven percent (7%)
of the purchase price of any and all securities placed pursuant to the Equity
Line Agreement; (ii) a non-accountable expense allowance equal to one percent
(1%) of the purchase price of any and all securities placed up to the aggregate
purchase price of the first $10 million of securities placed pursuant to the
Equity Line Agreement; (iii) a one time non-accountable expenses allowance equal
to one hundred thousand dollars for any and all securities placed in excess of
the aggregate purchase price of the first $10 million of securities placed
pursuant to the Equity Line Agreement (such non-accountable expenses allowance
to be paid upon placement of any securities resulting in an aggregate purchase
price in excess of $10,100,000 placed pursuant to the Equity Line Agreement);
and (iv) an amount of securities equal to ten percent (10%) of all Common Stock
issued pursuant to the Equity Line Agreement and an amount of securities equal
to ten percent (10%) of all warrants issued pursuant to the Equity Line
Agreement.
In connection with the placement of the Initial Shares and the Warrants to
the Registered Stockholders, the Company has issued to Swartz Investments, LLC
an aggregate of 264,151 shares of Common Stock and warrants to purchase up to
25,454 shares of Common Stock at an exercise price of $1.375 per share. Swartz
Investments, LLC has notified the Company that it will transfer all of such
shares and warrants to Dunwoody Brokerage Services, Inc., a broker-dealer
registered with the Commission and the National Association of Securities
Dealers, Inc. with respect to which Swartz Investments, LLC is an Office of
Supervisory Jurisdiction (OSJ), and will also assign all of its rights under the
Placement Agent Agreement and the Registration Rights Agreement (defined below)
to Dunwoody Brokerage Services, Inc.
Pursuant to the requirements of a Registration Rights Agreement dated as of
June 16, 1998, between the Company, the Registered Stockholders and Swartz
Investments, LLC (the "Registration Rights Agreement"), the Company has filed a
registration statement, of which this Prospectus forms a part, in order to
permit the Registered Stockholders to resell to the public the Initial Shares
and the and any shares that they may acquire upon exercise of the Warrants. The
Company has also filed a registration statement in order to permit the
19
Registered Stockholders to resell any other shares of Common Stock that they may
acquire pursuant to the Equity Line Agreement. Commencing ten days after the
date of this Prospectus and continuing until June 16, 2001, the Company may from
time to time, in its sole discretion, and subject to certain restrictions and
limitations set forth in the Equity Line Agreement, sell ("put") to the
Registered Stockholders, no more than one time during any monthly period upon
written notice given by the Company to the Registered Stockholders (the "Notice
Date"), a number of shares of Common Stock equal to up to $2,250,000 (which
amount may be increased up to $5,000,000 by mutual agreement of the parties)
less the aggregate dollar amount of any shares sold to the Registered
Stockholders during the three month period immediately preceding such Notice
Date, divided by (i) 82.5% of the 10 day low closing bid price immediately
preceding such Notice Date, or (ii) if 82.5% of such 10 day low closing bid
price results in a discount of less than twenty cents ($0.20) per share from
such 10 day low closing bid price, such 10 day low closing bid price minus
twenty cents ($0.20) (the "Purchase Price"), at a purchase price equal to the
Purchase Price immediately preceding the date on which such shares are sold;
provided, that the number of such shares shall be limited to the same number of
shares of restricted securities that such Registered Stockholders would
otherwise be able to sell pursuant to Rule 144(e) promulgated under the
Securities Act, and subject to a maximum dollar amount of $16,500,000
(representing the $20,000,000 total commitment amount less $3,500,000 of shares
of Common Stock already issued and sold by the Company to the Registered
Stockholders on or about June 16, 1998). At the time of each sale of Equity Line
Investor Shares, the Registered Stockholders will be issued Equity Line Investor
Warrants, expiring on December 31, 2004, to purchase a number of shares of
Common Stock equal to 10% of the number of Equity Line Investor Shares sold in
such sale at an exercise price equal to the price per share at which the Equity
Line Investor Shares were sold to the Registered Stockholders. To the extent
that the Company has not fully utilized the relevant commitment amount under the
Equity Line Agreement, the Company may also be obligated to issue to the
Registered Stockholders on June 16 of each of the next three years warrants to
purchase a number of shares of Common Stock equal to 10% of an amount equal to
the difference of the relevant minimum commitment amount ($6,666,666.66 for
1999, $13,333,333.32 for 2000 and $20,000,000 for 2001) minus the aggregate
amount of Common Stock sold to the Registered Stockholders during all years
preceding such date, divided by the 10 day low closing bid price of the Common
Stock immediately preceding such date, at an exercise price equal to the 10 day
low closing bid price of the Common Stock immediately preceding such date (the
"Equity Line Anniversary Warrants").
The Company's ability to put shares of its Common Stock, and the Registered
Stockholders' obligations to purchase the Shares, is conditioned upon the
satisfaction of certain conditions and subject to certain limitations. These
conditions and limitations include: (i) the registration statement of which this
Prospectus forms a part shall have been declared effective by the Commission,
(ii) the representations and warranties of the Company set forth in the Equity
Line Agreement must be true and correct in all material respects as of the date
of each put, (iii) the Company shall have performed and complied with all
obligations under the Equity Line Agreement, the Registration Rights Agreement
and the Warrants required to be performed as of the date of each put, (iv) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
be in effect which prohibits or directly and adversely affects any of the
transactions contemplated by the Equity Line Agreement, (v) at the time of a
put, there shall have been no material adverse change in the Company's business
prospects or financial condition, except as disclosed in the Company's most
recent periodic reports filed since June 16, 1998, with the Commission pursuant
to the Exchange Act, (vi) the Company's Common Stock shall not have been
delisted from the Nasdaq SmallCap Market nor suspended from trading, (vii) the
closing bid price of the Common Stock on any trading during the ten days
preceding the date of the put cannot be less than or equal to $0.50, and (viii)
if the closing bid price of the Common Stock on any trading day during the ten
trading days preceding the date of the put is less than $1.00 but greater than
$0.50, the Company may only exercise the put for an amount of shares not greater
than 15% of the amount that would otherwise be available to the Company pursuant
to the terms of the Equity Line Agreement.
20
The Registered Stockholders have agreed that they will not create or
increase a net short position with respect to the Common Stock during the ten
trading days prior to any put date or during the thirty calendar days prior to
the date that is three months after the date of this Prospectus and the thirty
calendar days prior to the date that is six months after the date of this
Prospectus. The Registered Stockholders have further agreed that they will not
engage in any trading practice or activity for the purpose of manipulating the
price of the Common Stock or otherwise engage in any trading practice or
activity that violates the rules and regulations of the Commission.
USE OF PROCEEDS
The proceeds from the sale of the Shares will be received directly by the
Registered Stockholders. The Company will not receive any proceeds from the sale
of the Shares offered hereby. The Company will not receive any proceeds from the
exercise of the Warrants, which may only be exercised pursuant to a cashless
exercise by the Registered Stockholders.
RECENT DEVELOPMENTS
On July 17, 1998, the Company notified the holders of the Class C Stock of
its intent to redeem the Class C Warrants issued in conjunction with the Class C
Stock offering in April 1997, if such Class C Warrants were not exercised on or
before August 6, 1998. As a result, the holders of the Class C Warrants elected
to exercise 4,076,157 of the Class C Warrants on a combined cash and cashless
basis and the Company issued to such holders an aggregate of 3,763,600 shares of
its Common Stock for which it received an aggregate of $2,244,264. At January
13, 1999, 270 shares of Class C Stock remained outstanding and, assuming the
conversion of all of such remaining shares of Class C Stock at the Conversion
Cap, the Company is required to issue to the holders of the Class C Stock upon
conversion thereof an aggregate of approximately 453,000 shares of Common Stock
and Class C Warrants to purchase an aggregate of up to approximately 113,000
shares of Common Stock at a purchase price of $.6554 per share.
In July 1998, the Company renegotiated its short-term note payable for
$2,385,000 with a construction contractor to provide for an extension of time
until July 29, 1998, to repay such note, and issued to the contractor a warrant,
expiring on March 31, 2001, to purchase up to 240,000 shares of Common Stock at
an exercise price of $.5625 per share. On July 29, 1998, the Company repaid
$500,000 of the note to the contractor and renegotiated the payment terms of the
note to provide for an extension of time until August 17, 1998 to repay the
remaining balance of the note. In connection with this subsequent extension
agreement, the Company issued to the contractor a warrant, expiring in July
2001, to purchase up to 95,000 shares of the Company's common stock at an
exercise price of $1.37 per share and also issued an aggregate of 147,235 shares
of Common Stock in lieu of repayment of accrued and unpaid interest on such
note. On August 17, 1998, the Company utilized funds received from the exercise
of Class C Warrants during July 1998 and August 1998 to repay the remaining
balance of $1,885,000 of such note in full, plus related legal fees in the
amount of $5,000.
On February 29, 1996, the Company entered into a Distribution Agreement with
BTD. Under the terms of the agreement, BTD was granted the right to market and
distribute LYM products in Europe and other designated foreign countries in
exchange for a nonrefundable fee of $3,000,000 and the performance of certain
duties by BTD as outlined in the agreement. The agreement also provides that the
Company will retain all manufacturing rights to the LYM antibodies and will
supply the LYM antibodies to BTD at preset prices. In conjunction with the
agreement, the Company was granted an option to repurchase the marketing rights
to the LYM antibodies through August 29, 1998, at its sole discretion. Although
the Company did not exercise its rights under the repurchase option as of such
date, BTD subsequently agreed to extend the repurchase option through August 30,
1999 (effective as of October 23, 1998) in consideration of cash payments to BTD
aggregating $431,250 (with $93,750 payable immediately and $112,500 payable each
21
quarter thereafter, beginning December 1, 1998) and the issuance by the Company
to BTD of options to purchase 125,000 shares of Common Stock at an exercise
price of $3 per share with a three-year term. The repurchase option may be
canceled by the Company upon 90 days' notice to BTD. The repurchase price under
the repurchase option, if exercised by the Company, would include a cash payment
of $4,500,000, the issuance of an option to purchase 1,000,000 shares of Common
Stock at an exercise price of $5 per share with a five-year term and royalties
equal to 5% of gross sales of LYM products in designated geographic areas.
Alternatively, if the repurchase option is not exercised by the Company and BTD
elects to market LYM products itself and requests clinical data from the
Company, BTD will make a cash payment of $1,000,000 to the Company and will pay
royalties to the Company equal to 5% of gross sales on LYM products in
designated geographic areas.
On September 8, 1998, Edward J. Legere II resigned from the Board of
Directors and the remaining directors appointed Mr. William C. Shepherd to fill
the vacancy on the Board of Directors caused by Mr. Legere's resignation. Mr.
Legere's resignation was not due to any disagreement with the Company on any
matter relating to the Company's operations, policies or practices.
On October 4, 1998, William Moding resigned from his position as Vice
President, Operations and Administration to pursue other personal and business
interests. In connection with Mr. Moding's resignation, the Company entered into
a revised severance agreement with Mr. Moding pursuant to which Mr. Moding will
provide consulting services to the Company as an independent consultant for a
fixed and non-cancelable period of sixteen months continuing until January 31,
2000, in consideration of the payment to Mr. Moding of a monthly consulting fee
of $12,500 and the issuance of an aggregate of 320,000 shares of Common Stock
during such period for the exercise of outstanding stock options, without the
requirement of any payment by Mr. Moding of the exercise price ($.60 per share)
therefor. In addition, the Company has agreed to make tax payments totalling
$65,280 to federal and state taxing authorities on behalf of Mr. Moding to
offset the income to Mr. Moding resulting from the non-payment of the exercise
price for such options and to pay Mr. Moding all accrued and unused vacation pay
and accrued back pay relating to salary deferral for the period from March 21,
1998 through October 3, 1998. Pursuant to the revised agreement, Mr. Moding will
be required to repay the Company the entire outstanding principal balance and
accrued interest thereon under two stock option exercise notes (with a current
combined principal amount of $179,379.77) by no later than January 31, 2000 and
to execute a standard form security agreement relating to the stock option
exercise notes to pledge Mr. Moding's interest in the stock options and his
personal assets as backup collateral to secure his obligations under the two
stock option exercise notes.
On October 13, 1998, at the Annual Meeting of Stockholders, the stockholders
of the Company approved the issuance of shares of Common Stock which could be
acquired by the Registered Stockholders pursuant to the Equity Line Agreement in
excess of 20% of the issued and outstanding shares of Common Stock (as required
pursuant to the Rules of the National Association of Securities Dealers, Inc.),
which approval was a condition to the Company's ability to put shares of its
Common Stock to the Registered Stockholders and to the Registered Stockholders'
obligations to purchase additional shares of Common Stock pursuant to the Equity
Line Agreement.
On November 2, 1998, Elizabeth Gorbett-Frost resigned from her position as
Chief Financial Officer of the Company to pursue other personal and business
interests. However, Ms. Gorbett-Frost agreed to remain in her position as
Corporate Secretary of the Company until November 30, 1998. In connection with
Ms. Gorbett-Frost's resignation, the Company entered into a severance agreement
with Ms. Gorbett-Frost pursuant to which she will remain as a non-officer
employee of the Company through April 30, 1999 in consideration of the payment
to Ms. Gorbett-Frost of a bi-weekly salary in the amount of $6,731, with the
first such payment to be made on December 11, 1998 and a final payment of $5,609
to be made on April 30, 1999. Ms. Gorbett- Frost will also be entitled to
exercise the outstanding options she presently holds to acquire up to 113,334
shares of Common Stock pursuant to the Company's 1996 Stock Incentive Plan until
90 days after April 30, 1999, at the stated exercise price of $.60 per share. In
addition, Ms. Gorbett-Frost received 30,000 unrestricted shares of Common Stock
22
upon the accomplishment of certain specified tasks which were substantially
completed by November 30, 1998 (including 5,000 shares of Common Stock upon
substantial completion of the registration statement of which this Prospectus
constitutes a part).
On November 2, 1998, Steven C. Burke was appointed to the position of Chief
Financial Officer by the Board of Directors of the Company.
In December 1998, the Company consummated the sale/leaseback of its two
corporate facilities in Tustin, California with an unrelated entity. The
sale/leaseback transaction provides for the leaseback by the Company of the
facilities for a twelve-year period with two five-year options to renew. The net
cash received by the Company, reduced by the amounts required to satisfy
existing mortgages, expenses of the sale, lease deposits, prorated rent and
increased borrowing related to the sale, amounted to approximately $1.9 million.
REGISTERED STOCKHOLDERS
The following table sets forth certain information as of January 13, 1999,
with respect to each Registered Stockholder for whom the Company is registering
securities for resale to the public. The Company will not receive any of the
proceeds from the sale of the Shares by the Registered Stockholders.
MAXIMUM NUMBER
SHARES BENEFICIALLY OF SHARES TO BE SOLD SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) PURSUANT TO THIS PROSPECTUS OWNED AFTER OFFERING(2)
NAME OF -------------------------- --------------------------- -----------------------
REGISTERED STOCKHOLDER NUMBER PERCENT NUMBER PERCENT
- ---------------------- ------ ------- ------ -------
Resonance Limited(3)...... 1,197,961 1.8% 579,211 618,750 0.9%
c/o Isac Securities
310 Madison Avenue
Suite 503
New York, NY 10017
The Tail Wind Fund,
Ltd. (4) ............... 4,791,843 6.9% 2,316,843 2,475,000 3.5%
Windermere House
404 East Bay Street
P.O. Box SS-5539
Nassau, Bahamas
- --------------
(1) Except as otherwise indicated below, beneficial ownership for purposes
of this table is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by them. Includes (solely for purposes of this Prospectus) up to
3,093,750 shares of Common Stock that may be acquired by the Registered
Stockholders pursuant to the Equity Line Agreement (including up to
281,250 shares of Common Stock issuable upon the exercise of warrants
that may be issued to the Registered Stockholders) within the 60-day
period ending on March 13, 1999 (assuming a 10 day low closing bid price
of not less than $1.00 per share, which allows the Company to sell the
maximum number of Equity Line Shares to the Registered Stockholders
under the terms of the Equity Line Agreement), which shares would not be
deemed beneficially owned within the meaning of Sections 13(d) and 13(g)
23
of the Exchange Act prior to their acquisition by the Registered
Stockholders. The total number of shares of Common Stock the Registered
Stockholders may receive under the Equity Line Agreement (including
shares of Common Stock issuable upon the exercise of warrants that may
be issued to the Registered Stockholders) is 23,642,045 shares (assuming
a 10 day low closing bid price of not less than $1.00 per share, which
allows the Company to sell the maximum number of Equity Line Shares to
the Registered Stockholders under the terms of the Equity Line
Agreement). See "The Equity Line Agreement." Based on an aggregate of
67,676,966 shares of Common Stock issued and outstanding as of January
13, 1999.
(2) Assumes that all of the Shares are sold pursuant to this Prospectus.
Includes (solely for purposes of this Prospectus) up to 3,093,750 shares
of Common Stock that may be acquired by the Registered Stockholders
pursuant to the Equity Line Agreement (including up to 281,250 shares of
Common Stock issuable upon the exercise of warrants that may be issued
to the Registered Stockholders) within the 60-day period ending on March
13, 1999 (assuming a 10 day low closing bid price of not less than $1.00
per share, which allows the Company to sell the maximum number of Equity
Line Shares to the Registered Stockholders under the terms of the Equity
Line Agreement), which shares would not be deemed beneficially owned
within the meaning of Sections 13(d) and 13(g) of the Exchange Act prior
to their acquisition by the Registered Stockholders. See "The Equity
Line Agreement."
(3) As of the date of this Prospectus, this Registered Stockholder owns
579,211 shares of Common Stock of the Company, including 50,909 shares
of Common Stock issuable upon exercise of outstanding warrants which are
currently exercisable, which represents less than 1% of the issued
outstanding Common Stock of the Company as of January 13, 1999. Also
includes (solely for purposes of this Prospectus) up to an additional
618,750 shares of Common Stock that may be acquired by this Registered
Stockholder pursuant to the Equity Line Agreement (including up to
56,250 shares of Common Stock issuable upon the exercise of warrants
that may be issued to this Registered Stockholder) within the 60-day
period ending on March 13, 1999 (assuming a 10 day low closing bid price
of not less than $1.00 per share, which allows the Company to sell the
maximum number of Equity Line Shares to the Registered Stockholders
under the terms of the Equity Line Agreement), which shares would not be
deemed beneficially owned within the meaning of Sections 13(d) and 13(g)
of the Exchange Act prior to their acquisition by this Registered
Stockholder. See "The Equity Line Agreement."
(4) As of the date of this Prospectus, this Registered Stockholder owns
2,316,843 shares of Common Stock of the Company, including 203,636
shares of Common Stock issuable upon exercise of outstanding warrants
which are currently exercisable, which represents approximately 3.4% of
the issued and outstanding Common Stock of the Company as of January 13,
1999. Also includes (solely for purposes of this Prospectus) up to an
additional 2,475,000 shares of Common Stock that may be acquired by this
Registered Stockholder pursuant to the Equity Line Agreement (including
up to 225,000 shares of Common Stock issuable upon the exercise of
warrants that may be issued to this Registered Stockholder) within the
60-day period ending on March 13, 1999 (assuming a 10 day low closing
bid price of not less than $1.00 per share, which allows the Company to
sell the maximum number of Equity Line Shares to the Registered
Stockholders under the terms of the Equity Line Agreement), which shares
would not be deemed beneficially owned within the meaning of Sections
13(d) and 13(g) of the Exchange Act prior to their acquisition by this
Registered Stockholder. See "The Equity Line Agreement."
None of the Registered Stockholders have had any material relationship
with the Company or any of its affiliates within the past three years other than
as a result of the ownership of securities of the Company or as a result of the
negotiation and the execution of the Equity Line Agreement. The natural
person(s) controlling The Tail Wind Fund, Ltd. is David Crook. The natural
person controlling Resonance Limited is Moishe Mandel.
The Shares offered hereby by the Registered Stockholders were acquired
pursuant to the Equity Line Agreement between the Company and the Registered
Stockholders or upon exercise of the Warrants. Under the Equity Line Agreement,
24
the Company agreed to register the Shares for resale by the Registered
Stockholders to permit their resale by the Registered Stockholders from time to
time to the public without restriction. The Company will prepare and file such
amendments and supplements to the registration statement as may be necessary in
accordance with the rules and regulations of the Securities Act to keep it
effective until the earlier to occur of (i) the date as of which all Shares may
be resold in a public transaction without volume limitations or other material
restrictions without registration under the Securities Act, including without
limitation, pursuant to Rule 144 under the Securities Act or (ii) the date as of
which all Shares offered hereby have been resold.
The Company has agreed to pay the expenses (other than broker discounts
and commissions, if any) in connection with this Prospectus.
PLAN OF DISTRIBUTION
The Company has been advised by the Registered Stockholders that all or a
portion of the Shares offered by this Prospectus may be offered for sale, from
time to time, by the Registered Stockholders in one or more private or
negotiated transactions, in open market transactions on the Nasdaq SmallCap
Market, in settlement of short sale transactions, in settlement of option
transactions, or otherwise, or a combination of these methods, at prices and
terms then obtainable, at fixed prices, at prices then prevailing at the time of
sale, at prices related to such prevailing prices, or at negotiated prices or
otherwise. The Registered Stockholders may effect these transactions by selling
the Shares directly to one or more purchasers or to or through broker-dealers or
agents including: (a) in a block trade in which the broker or dealer so engaged
will attempt to sell the shares of Common Stock as agent, but may position and
resell a portion of the block as principal to facilitate the transaction; (b) in
purchases by a broker or dealer and resale by such broker or dealer as a
principal for its account pursuant to this Prospectus; (c) in ordinary brokerage
transactions and (d) in transactions in which the broker solicits purchasers.
The compensation to a particular underwriter, broker-dealer or agent may be in
excess of customary commissions.
To the knowledge of the Company, the Registered Stockholders have made no
arrangement with any brokerage firm for the sale of the Shares. The Company has
been advised by the Registered Stockholders that they presently intend to
dispose of the Shares through broker-dealers in ordinary brokerage transactions
at market prices prevailing at the time of the sale. However, depending on
market conditions and other factors, the Registered Stockholders may also
dispose of the Shares through one or more of the other methods described above.
Concurrently with sales under this Prospectus, the Registered Stockholders may
effect other sales of Shares under Rule 144 or other exempt resale transactions.
There can be no assurance that the Registered Stockholders, or any of them, will
sell any or all of the Shares offered hereunder.
The Registered Stockholders are "underwriters" within the meaning of the
Securities Act, in connection with the sale of the Shares offered hereby. Any
broker-dealers or agents who act in connection with the sale of the Shares may
also be deemed to be underwriters. Profits on any resale of the Shares by the
Registered Stockholders and any discounts, commissions or concessions received
by any such broker-dealers or agents may be deemed to be underwriting discounts
and commissions under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Registered Stockholders (and, if they act as agent for the
purchaser of such Shares, from such purchaser). Broker-dealers may agree with
the Registered Stockholders to sell a specified number of Shares at a stipulated
price per share and, to the extent such a broker-dealer is unable to do so
acting as agent for the Registered Stockholder, to purchase as principal any
unsold Shares at the price required to fulfill the broker-dealer commitment to
the Registered Stockholder. Broker-dealers who acquire Shares as principal may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
25
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above. To the extent required under the
Securities Act, a supplemental prospectus will be filed, disclosing (a) the name
of any such broker-dealers; (b) the number of Shares involved; (c) the price at
which such Shares are to be sold; (d) the commissions paid or discounts or
concessions allowed to such broker-dealers, where applicable; (e) that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus, as supplemented; and (f)
other facts material to the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may not simultaneously engage in market
making activities with respect to the Shares for a period beginning when such
person becomes a distribution participant and ending upon such person's
completion of participation in the distribution, including stabilization
activities in the Common Stock to effect covering transactions, to impose
penalty bids or to effect passive marketing making bids. In addition to and
without limiting the foregoing, in connection with transactions in the Shares,
the Company and the Registered Stockholders may be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 thereof and, insofar as the Company
and the Registered Stockholders are distribution participants, Regulation M and
Rules 100, 101, 102, 103, 104 and 105 thereof. All of the foregoing may affect
the marketability of the Shares.
The Registered Stockholders have agreed that they will not create or
increase a net short position with respect to the Common Stock during the ten
trading days prior to any put date or during the thirty calendar days prior to
the date that is three months after the date of this Prospectus and the thirty
calendar days prior to the date that is six months after the date of this
Prospectus. The Registered Stockholders have further agreed that they will not
engage in any trading practice or activity for the purpose of manipulating the
price of the Common Stock or otherwise engage in any trading practice or
activity that violates the rules and regulations of the Commission.
The Registered Stockholders will pay all commissions, transfer taxes and
other expenses associated with the sales of the Shares by them. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to pay the expenses of the preparation of
this prospectus. The Company has also agreed to indemnify the Registered
Stockholders against certain liabilities, including, without limitation,
liabilities arising under the Securities Act.
The Company will not receive any proceeds from the exercise of the Warrants,
which may only be exercised pursuant to a cashless exercise by the Registered
Stockholders. The Company will not receive any of the proceeds from the sale of
the Shares by the Registered Shareholders.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in these states or an exemption from registration or qualification is
available and complied with.
The Common Stock of the Company is currently traded on the Nasdaq SmallCap
Market under the symbol "TCLN".
26
DESCRIPTION OF SECURITIES
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 120,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share, of
which 10,000 shares are designated as Series B Convertible Preferred Stock
("Series B Stock") and 17,200 shares are designated as 5% Adjustable Convertible
Class C Preferred Stock ("Class C Stock"). As of January 13, 1999, there were
67,676,966 shares of Common Stock outstanding held by 5,873 stockholders of
record, 270 shares of Class C Stock outstanding held by 8 holders of record and
no shares of Series B Stock outstanding.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to preferences that may be applicable
to the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive such lawful dividends as may be declared by
the Board of Directors. In the event of liquidation, dissolution or winding up
of the Company, and subject to the rights of the holders of outstanding shares
of Preferred Stock, if any, the holders of shares of Common Stock shall be
entitled to receive pro rata all of the remaining assets of the Company
available for distribution to its stockholders. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable, and shares of Common Stock to
be issued pursuant to this offering shall be fully paid and nonassessable.
The Warrants are exercisable at any time beginning on the date of issuance
thereof and ending on December 31, 2004. The shares of Common Stock underlying
the Warrants, when issued upon exercise in whole or in part, will be fully paid
and nonassessable, and the Company will pay any transfer tax incurred as a
result of the issuance of the Common Stock to the holder upon its exercise.
Each of the Warrants contain provisions that protect the holder against
dilution by adjustment of the exercise price. Such adjustments will occur in the
event, among others, of a merger, stock split or reverse stock split, stock
dividend or recapitalization. The Company is not required to issue fractional
shares upon the exercise of any Warrant. The holder of the Warrant will not
possess any rights as a stockholder of the Company until such holder exercises
the Warrant. The Warrant may be exercised upon surrender on or before the
expiration date of the Warrant at the offices of the Company, with an exercise
form completed and executed as indicated, accompanied by payment of the exercise
price for the number of shares with respect to which the Warrant is being
exercised. The exercise price is payable only pursuant to a "cashless exercise,"
in which that number of shares of Common Stock underlying the Warrant having a
fair market value equal to the aggregate exercise price are canceled as payment
of the exercise price.
For the life of each of the Warrants, the holder thereof has the opportunity
to profit from a rise in the market price of the Common Stock without assuming
the risk of ownership of the shares of Common Stock issuable upon the exercise
of the Warrant. The Warrant holder may be expected to exercise the Warrant at a
time when the Company would, in all likelihood, be able to obtain any needed
capital by an offering of Common Stock on terms more favorable than those
provided for by the Warrant. Furthermore, the terms on which the Company could
obtain additional capital during the life of the Warrant may be adversely
affected.
The Shares to which this Prospectus relates to be offered and sold from time
to time by the Registered Stockholders are the Initial Shares and Shares of
Common Stock issuable upon exercise of the Warrants. This Prospectus does not
cover the Equity Line Investor Shares, the Adjustment Shares, the Additional
Shares or the Equity Line Placement Shares or shares of Common Stock issuable
upon exercise of the Equity Line Investor Warrants, the Equity Line Anniversary
Warrants or the Equity Line Placement Warrants, which shares have been
separately registered for resale under the Securities Act and are the subject of
a separate Prospectus.
27
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Rutan & Tucker, LLP, Costa Mesa, California.
EXPERTS
The consolidated financial statements and related consolidated financial
statement schedule, incorporated in this Prospectus by reference from
Techniclone Corporation's Annual Report on Form 10-K for the year ended April
30, 1998, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which expresses an unqualified opinion and includes an
explanatory paragraph regarding substantial doubt about the Company's ability to
continue as a going concern), which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. The Company has liability
insurance for its officers and directors.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Provisions of the Company's Bylaws require the Company, among other things,
to indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers (other than liabilities arising from
actions not taken in good faith or in a manner the indemnitee believed to be
opposed to the best interests of the Company) to advance their expenses incurred
as a result of any proceeding against them as to which they could be indemnified
and to obtain directors' insurance if available on reasonable terms. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. The Company
believes that its Certificate of Incorporation and Bylaw provisions are
necessary to attract and retain qualified persons as directors and officers.
The Company has in place a directors' and officers' liability insurance
policy that, subject to the terms and conditions of the policy, insures the
directors and officers of the Company against loses arising from any wrongful
act (as defined by the policy) in his or her capacity as a director of officer.
The policy reimburses the Company for amounts which the Company lawfully
indemnifies or is required or permitted by law to indemnify its directors and
officers.
28
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE REGISTERED STOCKHOLDERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES BY ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL. 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 OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information.............................................. 2
Incorporation of Certain Documents
By Reference.................................................... 3
Cautionary Statement Regarding
Forward-Looking Statements...................................... 4
The Company........................................................ 5
Risk Factors....................................................... 7
The Equity Line Agreement.......................................... 19
Use of Proceeds.................................................... 21
Recent Developments................................................ 21
Registered Stockholders............................................ 23
Plan of Distribution............................................... 25
Description of Securities.......................................... 27
Legal Matters...................................................... 28
Experts............................................................ 28
Indemnification of Directors
and Officers.................................................... 28
-------------------------------
2,896,054 Shares
(Techniclone TECHNICLONE
Logo CORPORATION
Here)
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1999
================================================================================
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
Offering described in this Registration Statement:
SEC registration fee........................... $ 1,102
Printing and engraving expenses................ 5,000
Legal fees and expenses........................ 25,000
Blue Sky fees and expenses..................... 2,500
Accounting fees and expenses................... 25,000
Miscellaneous.................................. 10,000
--------
Total.................................. $ 68,602
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include provisions that eliminate the directors' personal liability for monetary
damages to the fullest extend possible under Delaware Law or other applicable
law (the "Director Liability Provision"). The Director Liability Provision
eliminates the liability of Directors to the Company and its stockholders for
monetary damages arising out of any violation by a director of his fiduciary
duty of due care. However, the Director Liability Provision does not eliminate
the personal liability of a director for (i) breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or
repurchases or redemption of stock other than from lawfully available funds, or
(iv) any transactions from which the director derived an improper benefit. The
Director Liability Provision also does not affect a director's liability under
the federal securities laws or the recovery of damages by third parties.
Furthermore, pursuant to Delaware Law, the limitation liability afforded by the
Director Liability Provision does not eliminate a director's personal liability
for breach of the director's duty of due care. Although the directors would not
be liable for monetary damages to the corporation or its stockholders for
negligent acts or commissions in exercising their duty of due care, the
directors remain subject to equitable remedies, such as actions for injunction
or rescission, although these remedies, whether as a result of timeliness or
otherwise, may not be effective in all situations. With regard to directors who
also are officers of the Company, these persons would be insulated from
liability only with respect to their conduct as directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
These provisions may cover actions undertaken by the Board of Directors, which
may serve as the basis for a claim against the Company under the federal and
state securities laws. The Company has been advised that it is the position of
the Commission that insofar as the foregoing provisions may be involved to
disclaim liability for damages arising under the Securities Act, such provisions
are against public policy as expressed in the Act and are therefore
unenforceable.
Delaware Law provides a detailed statutory framework covering
indemnification of directors, officers, employees or agents of the Company
against liabilities and expenses arising out of legal proceedings brought
against them by reason of their status or service as directors, officers,
employees or agents. Section 145 of the Delaware General Corporation Law
("Section 145") provides that a director, officer, employee or agent of a
corporation (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
II-1
be indemnified for expenses actually and reasonably incurred, judgments, fines
and amounts paid in settlement of such litigation, even if he is not successful
on the merits, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation (and in a
criminal proceeding, if he did not have reasonable cause to believe his conduct
was unlawful), and (iii) may be indemnified by the corporation for expenses
actually and reasonably incurred (but not judgments or settlements) of any
action by the Corporation or of a derivative action (such as a suit by a
stockholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director has been adjudged liable to the
corporation.
Delaware Law also permits a corporation to elect to indemnify its officers,
directors, employees and agents under a broader range of circumstances than that
provided under Section 145. The Certificate contains a provision that takes full
advantage of the permissive Delaware indemnification laws (the "Indemnification
Provision") and provides that the Company is required to indemnify its officers,
directors, employees and agents to the fullest extent permitted by law,
including those circumstances in which indemnification would otherwise be
discretionary, provided, however, that prior to making such discretionary
indemnification, the Company must determine that the person acted in good faith
and in a manner he or she believed to be in the best interests of the Company
and, in the case of any criminal action or proceeding, the person had no reason
to believe his or her conduct was unlawful.
In furtherance of the objectives of the Indemnification Provision, the
Company has also entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Certificate and Bylaws (the "Indemnification Agreements"). The Company
believes that the Indemnification Agreements are necessary to attract and retain
qualified directors and executive officers. Pursuant to the Indemnification
Agreements, an indemnitee will be entitled to indemnification to the extent
permitted by Section 145 or other applicable law. In addition, to the maximum
extent permitted by applicable law, an indemnitee will be entitled to
indemnification for any amount or expense which the indemnitee actually and
reasonably incurs as a result of or in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, preparing to be a witness, or
otherwise participating in any threatened, pending or completed claim, suit,
arbitration, inquiry or other proceeding (a "Proceeding") in which the
indemnitee is threatened to be made or is made a party or participant as a
result of his or her position with the Company, provided that the indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and had no reasonable cause to
believe his or her conduct was unlawful. If the Proceeding is brought by or in
the right of the Company and applicable law so provides, the Indemnification
Agreement provides that no indemnification against expenses shall be made in
respect of any claim, issue or matter in the Proceeding as to which the
indemnitee shall have been adjudged liable to the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company 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.
II-2
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1.............. Certificate of Incorporation of Techniclone
Corporation, a Delaware corporation
(Incorporated by reference to Exhibit B to the
Company's 1996 Proxy Statement as filed with
the Commission on or about August 20, 1996)
3.2.............. Bylaws of Techniclone Corporation, a Delaware
corporation (Incorporated by reference to
Exhibit C to the Company's 1996 Proxy
Statement as filed with the Commission on or
about August 20, 1996)
3.3.............. Certificate of Designation of 5% Adjustable
Convertible Class C Preferred Stock as filed
with the Delaware Secretary of State on April
23, 1997. (Incorporated by reference to
Exhibit 3.1 contained in Registrant's Current
Report on Form 8-K as filed with the
Commission on or about May 12, 1997)
4.1.............. Form of Certificate for Common Stock
(Incorporated by reference to the exhibit of
the same number contained in the Registrants'
Annual Report on Form 10-K for the fiscal year
ended April 30, 1988)
4.4.............. Form of Subscription Agreement entered into
with Series B Convertible Preferred Stock
Subscribers (Incorporated by reference to
Exhibit 4.1 contained in Registrant's Report
on Form 8-K dated December 27, 1995, as filed
with the Commission on or about January 24,
1996)
4.5.............. Registration Rights Agreement dated December
27, 1995, by and among Swartz Investments,
Inc. and the holders of the Registrant's
Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 4.2
contained in Registrant's Current Report on
Form 8-K dated December 27, 1995 as filed with
the Commission on or about January 24, 1996)
4.6.............. Warrant to Purchase Common Stock of Registrant
issued to Swartz Investments, Inc.
(Incorporated by reference to Exhibit 4.3
contained in Registrant's Current Report on
Form 8-K dated December 27, 1995 as filed with
the Commission on or about January 24, 1996)
II-3
4.7.............. 5% Preferred Stock Investment Agreement
between Registrant and the Investors named
therein (Incorporated by reference to Exhibit
4.1 contained in Registrant's Current Report
on Form 8-K as filed with the Commission on or
about May 12, 1997)
4.8.............. Registration Rights Agreement between the
Registrant and the holders of the Class C
Preferred Stock (Incorporated by reference to
Exhibit 4.2 contained in Registrant's Current
Report on Form 8-K as filed with the
Commission on or about May 12, 1997)
4.9.............. Form of Stock Purchase Warrant to be issued to
the holders of the Class C Preferred Stock
upon conversion of the Class C Preferred Stock
(Incorporated by reference to Exhibit 4.3
contained in Registrant's Current Report on
Form 8-K as filed with the Commission on or
about May 12, 1997)
4.10............. Regulation D Common Equity Line Subscription
Agreement dated as of June 16, 1998 between
the Registrant and the Subscribers named
therein (the "Equity Line Subscribers")
(Incorporated by reference to Exhibit 4.4
contained in Registrant's Report on Form 8-K
dated as filed with the Commission on or about
June 29, 1998)
4.11............. Form of Amendment to Regulation D Common Stock
Equity Line Subscription Agreement
(incorporated by reference to Exhibit 4.5
contained in Registrant's Current Report on
Form 8-K filed with the Commission on or about
June 29, 1998)
4.12............. Registration Rights Agreement dated as of June
16, 1998 between the Registrant and the Equity
Line Subscribers (Incorporated by reference to
Exhibit 4.6 contained in Registrant's Current
Report on Form 8-K as filed with the
Commission on or about June 29, 1998)
4.13............. Form of Stock Purchase Warrant to be issued to
the Equity Line Subscribers pursuant to the
Regulation D Common Stock Equity Subscription
Agreement (Incorporated by reference to
Exhibit 4.7 contained in Registrant's Current
Report on Form 8-K as filed with the
Commission on or about June 29, 1998)
II-4
4.14............. Placement Agent Agreement dated as of June 16,
1998, by and between the Registrant and Swartz
Investments LLC, a Georgia limited liability
company d/b/a Swartz Institutional Finance*
4.15............. Second Amendment to Regulation D Common Stock
Equity Line Subscription Agreement dated as of
September 16, 1998, by and among the
Registrant, The Tail Wind Fund, Ltd. and
Resonance Limited*
5................ Opinion of Rutan & Tucker, LLP*
10.22............ 1982 Stock Option Plan (Incorporated by
reference to the exhibit contained in
Registrant's Registration Statement on Form
S-8 (File No. 2-85628))
10.23............ Incentive Stock Option, Nonqualified Stock
Option and Restricted Stock Purchase Plan -
1986 (Incorporated by reference to the exhibit
contained in Registrant's Registration
Statement on Form S-8 (File No. 33-15102))
10.24............ Cancer Biologics Incorporated Incentive Stock
Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan - 1987
(Incorporated by reference to the exhibit
contained in Registrant's Registration
Statement on Form S-8 (File No. 33-8664))
10.25............ Amendment to 1982 Stock Option Plan dated
March 1, 1988 (Incorporated by reference to
the exhibit of the same number contained in
Registrants' Annual Report on Form 10-K for
the year ended April 30, 1988)
10.26............ Amendment to 1986 Stock Option Plan dated
March 1, 1988 (Incorporated by reference to
the exhibit of the same number contained in
Registrant's Annual Report on Form 10-K for
the year ended April 30, 1988)
10.31............ Agreement dated February 5, 1996, between
Cambridge Antibody Technology, Ltd. and
Registrant (Incorporated by reference to
Exhibit 10.1 contained in Registrant's Current
Report on Form 8-K dated February 5, 1996, as
filed with the Commission on or about February
8, 1996)
10.32............ Distribution Agreement dated February 29,
1996, between Biotechnology Development, Ltd.
and Registrant (Incorporated by reference to
Exhibit 10.1 contained in Registrant's Current
Report on Form 8-K dated February 29, 1996, as
filed with the Commission on or about March 7,
1996)
II-5
10.33............ Option Agreement dated February 29, 1996, by
and between Biotechnology Development, Ltd.
And Registrant (Incorporated by reference to
Exhibit 10.2 contained in Registrant's Current
Report on Form 8-K dated February 29, 1996, as
filed with the Commission on or about March 7,
1996)
10.34............ Purchase Agreement for Real Property and
Escrow Instructions dated as of March 22,
1996, by and between TR Koll Tustin Tech Corp.
and Registrant (Incorporated by reference to
Exhibit 10.1 contained in Registrant's Current
Report on Form 8-K dated March 25, 1996, as
filed with the Commission on or about April 5,
1996)
10.35............ Incentive Stock Option and Nonqualified Stock
Option Plan-1993 (Incorporated by reference to
the exhibit contained in Registrants'
Registration Statement on Form S-8 (File No.
33-87662))
10.36............ Promissory Note dated October 24, 1996 in the
original principal amount of $1,020,000
payable to Imperial Thrift and Loan
Association by Registrant (Incorporated by
reference to Exhibit 10.1 to Registrants'
Current Report on Form 8-K dated October 25,
1996)
10.37............ Deed of Trust dated October 24, 1996 among
Registrant and Imperial Thrift and Loan
Association (Incorporated by reference to
Exhibit 10.2 to Registrants' Current Report on
Form 8-K dated October 25, 1996)
10.38............ Assignment of Lease and Rents dated October
24, 1996 between Registrant and Imperial
Thrift and Loan Association (Incorporated by
reference to Exhibit 10.3 on Registrants'
Current Report on Form 8-K dated October 25,
1996)
10.39............ Commercial Security Agreement dated October
24, 1996 between Imperial Thrift and Loan
Association and Registrant (Incorporated by
reference to Exhibit 10.4 on Registrants'
Current Report on Form 8-K dated October 25,
1996)
10.40............ 1996 Stock Incentive Plan (Incorporated by
reference to the exhibit contained in
Registrants' Registration Statement on Form
S-8 (File No. 333-17513))
10.41............ Stock Exchange Agreement dated as of January
15, 1997 among the stockholders of Peregrine
Pharmaceuticals, Inc. and Registrant
(Incorporated by reference to Exhibit 2.1 to
Registrants' Quarterly Report on Form 10-Q for
the quarter ended January 31, 1997)
II-6
10.42............ First Amendment to Stock Exchange Agreement
among the Stockholders of Peregrine
Pharmaceuticals, Inc. and Registrant
(Incorporated by reference to Exhibit 2.1
contained in Registrant's Current Report on
Form 8-K as filed with the Commission on or
about May 12, 1997)
10.43............ Termination and Transfer Agreement dated as of
November 14, 1997 by and between Registrant
and Alpha Therapeutic Corporation
(Incorporated by reference to Exhibit 10.1
contained in Registrant's Current Report on
Form 8-K as filed with the Commission on or
about November 24, 1997)
23.1............. Consent of Rutan & Tucker, LLP (contained in
Exhibit 5)*
23.2............. Consent of Deloitte & Touche LLP**
- -------------------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price present no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
II-7
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-8
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 4 to Registration Statement on Form S-3 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Tustin, State of California, on January 14, 1999.
TECHNICLONE CORPORATION
By: /S/ LARRY O. BYMASTER
-----------------------------
Larry O. Bymaster, President
In accordance with the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 4 to Registration Statement on Form S-3 has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Larry O. Bymaster President, Chief Executive January 14, 1999
- ----------------------------- Officer and Director (Principal
Larry O. Bymaster Executive Officer)
/s/ Steven C. Burke Chief Financial Officer January 14, 1999
- ----------------------------- (Principal Financial and
Steven C. Burke Principal Accounting Officer)
/s/ Thomas R. Testman Chairman of the Board January 14, 1999
- -----------------------------
Thomas R. Testman
/s/ Rock Hankin Director January 14, 1999
- -----------------------------
Rock Hankin
Director January __, 1999
- -----------------------------
William C. Shepherd
Director January __, 1999
- -----------------------------
Carmelo J. Santoro, Ph.D.
/s/ Clive R. Taylor Director January 14, 1999
- -----------------------------
Clive R. Taylor, M.D., Ph.D.
II-9
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ------------
23.2 Consent of Deloitte & Touche LLP ____
II-10