AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ANTIVIRALS INC.
(Exact name of registrant as specified in its charter)
OREGON 2834 93-0797222
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
Number)
ONE S.W. COLUMBIA, SUITE 1105
PORTLAND, OREGON 97258
(503) 227-0554
(Address and telephone number, including area code, of registrant's principal
executive offices)
DENIS R. BURGER, PH.D.
CHIEF EXECUTIVE OFFICER
ANTIVIRALS INC.
ONE S.W. COLUMBIA, SUITE 1105
PORTLAND, OREGON 97258
(503) 227-0554
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO: COPIES TO:
BYRON W. MILSTEAD, ESQ. BRENDAN R. MCDONNELL, ESQ.
DAVID M. MEISELS, ESQ. NANCY P. HINNEN, ESQ.
Ater Wynne LLP Tonkon Torp LLP
222 S.W. Columbia, Suite 1800 888 S.W. Fifth Avenue, Suite 1600
Portland, Oregon 97201 Portland, Oregon 97204
(503) 226-1191 (503) 221-1440
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND THE EFFECTIVE
TIME OF THE MERGER (THE "MERGER") OF IMMUNOTHERAPY CORPORATION WITH AND INTO
ANTIVIRALS ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF ANTIVIRALS
INC., AS DESCRIBED IN THE AGREEMENT AND PLAN OF REORGANIZATION AND MERGER DATED
FEBRUARY 2, 1998, AS AMENDED (THE "MERGER AGREEMENT"), ATTACHED AS APPENDIX A TO
THE JOINT PROXY STATEMENT/PROSPECTUS FORMING A PART OF THIS REGISTRATION
STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE(1)(2)
(1) Common Stock, $.0001 par value.... 2,292,661 shares $N/A $N/A $100
(2) Warrants to purchase one share of
Common Stock........................ 2,275,659 shares $N/A $N/A $100
Total................................. $N/A $200
(1) The registration fee was computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended (the "Securities Act"). The Common Stock
of IMMUNOTHERAPY CORPORATION to be acquired in the Merger has no book value
because the Company has an accumulated deficit ($971,179) and the stock has
no par value.
(2) A fee of $200 was paid under Section 14(g) of the Securities and Exchange
Act in connection with the filing of preliminary proxy materials with the
Commission on June 18, 1998. Rule 457(b) under the Securities Act permits
the fee required hereby to be offset by the amount already paid under
Section 14(g). Accordingly, no fee accompanies this filing.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PRELIMINARY COPIES
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ANTIVIRALS INC.
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(Name of Registrant as Specified In Its Charter)
ANTIVIRALS INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock and Warrants
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(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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ANTIVIRALS INC.
ONE S.W. COLUMBIA STREET, SUITE 1105
PORTLAND, OREGON 97258
August 7, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"ANTIVIRALS Annual Meeting") of ANTIVIRALS INC. ("ANTIVIRALS"), which will be
held on Monday, August 31, 1998, at 10:00 a.m., local time, at the Marriott
Hotel, 1401 S.W. Naito Parkway, Portland, Oregon 97201.
At the ANTIVIRALS Annual Meeting, you will be asked to consider and vote
upon the following proposals: (i) a proposal to approve the issuance (the
"Issuance") of shares of common stock, par value $.0001 per share, of ANTIVIRALS
(the "ANTIVIRALS Common Stock") and warrants to purchase ANTIVIRALS Common Stock
("Warrants") to the shareholders of IMMUNOTHERAPY CORPORATION ("IMMUNOTHERAPY")
in connection with the Agreement and Plan of Reorganization and Merger, dated as
of February 2, 1998, by and among ANTIVIRALS, ANTIVIRALS Acquisition Corporation
and IMMUNOTHERAPY (as amended, the "Merger Agreement"), which provides for the
merger of IMMUNOTHERAPY with and into ANTIVIRALS Acquisition Corporation (the
"Merger"); (ii) the election of four (4) persons to the ANTIVIRALS Board of
Directors; (iii) the ratification of the appointment of ANTIVIRALS' independent
auditors, Arthur Andersen LLP, for the 1998 fiscal year; (iv) an amendment to
the ANTIVIRALS 1992 Stock Incentive Plan; (v) the approval of the 1997 Stock
Incentive Plan; and (vi) the approval of an amendment to ANTIVIRALS' Third
Restated and Amended Articles of Incorporation changing ANTIVIRALS' name to AVI
BioPharma Inc. Pursuant to the Merger Agreement, ANTIVIRALS Acquisition
Corporation will be a wholly owned subsidiary of ANTIVIRALS. In the Merger, all
of the outstanding shares of capital stock of IMMUNOTHERAPY will be converted
into shares of ANTIVIRALS Common Stock and Warrants based on an exchange ratio
which will be determined according to the Merger Agreement and all of the
outstanding options to acquire shares of common stock of IMMUNOTHERAPY will be
converted into options to acquire shares of ANTIVIRALS Common Stock based upon
an exchange ratio which will be determined according to the Merger Agreement.
ANTIVIRALS Board of Directors will appoint Mr. Jeffrey L. Lillard, a current
director and Managing Officer of IMMUNOTHERAPY, and Bruce L. A. Carter, Ph.D., a
current IMMUNOTHERAPY director, to fill vacancies on the Board effective upon
the close of the Merger.
ANTIVIRALS' BOARD OF DIRECTORS BELIEVES THE ISSUANCE AND THE MERGER TO BE
FAIR TO AND IN THE BEST INTERESTS OF ANTIVIRALS AND ITS SHAREHOLDERS, HAS
APPROVED THE ISSUANCE OF SHARES OF ANTIVIRALS COMMON STOCK AND WARRANTS TO THE
IMMUNOTHERAPY SHAREHOLDERS, AND THE MERGER AGREEMENT, AND RECOMMENDS A VOTE FOR
APPROVAL OF THE ISSUANCE. ANTIVIRALS' BOARD OF DIRECTORS ALSO RECOMMENDS THAT
YOU VOTE FOR THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS, FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS ANTIVIRALS'
INDEPENDENT AUDITORS, FOR THE AMENDMENTS TO THE ANTIVIRALS 1992 STOCK INCENTIVE
PLAN, FOR APPROVAL OF THE 1997 STOCK INCENTIVE PLAN, AND FOR THE CHANGE OF NAME.
You should read carefully the accompanying Notice of Annual Meeting of
Shareholders and the Joint Proxy Statement/Prospectus for details of the Merger,
including information about the exchange ratio and the number of shares of
ANTIVIRALS Common Stock and Warrants to be issued in connection with the Merger
and additional related information.
Whether or not you plan to attend the ANTIVIRALS Annual Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may
be revoked at any time before it is voted by signing and returning a later-dated
proxy with respect to the same shares, by filing with the Secretary of
ANTIVIRALS a written revocation bearing a later date or by attending and voting
at the ANTIVIRALS Annual Meeting. If you attend the ANTIVIRALS Annual Meeting,
you may vote in person if you wish, even though you previously have returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Denis R. Burger, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD.
ANTIVIRALS INC.
ONE S.W. COLUMBIA, SUITE 1105
PORTLAND, OREGON 97258
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 31, 1998
------------------------
TO THE SHAREHOLDERS OF ANTIVIRALS INC.:
The Annual Meeting of Shareholders (the "ANTIVIRALS Annual Meeting") of
ANTIVIRALS INC., an Oregon corporation ("ANTIVIRALS"), will be held on Monday,
August 31, 1998, at 10:00 a.m., local time, at the Marriott Hotel, 1401 S.W.
Naito Parkway, Portland, Oregon 97201, for the following purposes:
1. To consider and vote upon the following proposals: (i) a proposal to
approve the issuance (the "Issuance") of shares of common stock, par value
$.0001 per share, of ANTIVIRALS (the "ANTIVIRALS Common Stock") and warrants
to purchase ANTIVIRALS Common Stock ("Warrants") to the shareholders of
IMMUNOTHERAPY CORPORATION ("IMMUNOTHERAPY") and the issuance of options to
purchase ANTIVIRALS Common Stock to the holders of options to acquire shares
of IMMUNOTHERAPY's common stock in connection with an Agreement and Plan of
Reorganization and Merger, dated as of February 2, 1998 (as amended, the
"Merger Agreement"), by and among ANTIVIRALS, ANTIVIRALS Acquisition
Corporation, a California corporation and wholly owned subsidiary of
ANTIVIRALS, and IMMUNOTHERAPY, which provides for the merger of
IMMUNOTHERAPY with and into ANTIVIRALS Acquisition Corporation (the
"Merger"); (ii) the election of four (4) persons to the ANTIVIRALS Board of
Directors; (iii) ratification of the appointment of ANTIVIRALS' independent
auditors Arthur Andersen LLP, for ANTIVIRALS' 1998 fiscal year; (iv) an
amendment to the ANTIVIRALS 1992 Stock Incentive Plan; (v) the approval of
the 1997 Stock Incentive Plan; and (vi) the approval of an amendment to
ANTIVIRALS' Third Restated and Amended Articles of Incorporation changing
ANTIVIRALS' name to AVI BioPharma, Inc. Pursuant to the Merger Agreement,
ANTIVIRALS Acquisition Corporation will be the surviving corporation and
remain a wholly owned subsidiary of ANTIVIRALS, and all of the shares of
capital stock of IMMUNOTHERAPY issued and outstanding immediately prior to
the Merger will be converted into shares of ANTIVIRALS Common Stock and
Warrants based on an exchange ratio which will be determined according to
the Merger Agreement. In addition, all of the outstanding options to acquire
shares of IMMUNOTHERAPY common stock will be converted into options to
acquire shares of ANTIVIRALS Common Stock based on an exchange ratio which
will be determined according to the Merger Agreement. The Merger, including
the exchange ratio and the number of shares of ANTIVIRALS Common Stock and
Warrants to be issued in connection with the Merger, is more completely
described in the accompanying Joint Proxy Statement/Prospectus, and a copy
of the Merger Agreement is attached as Appendix A thereto.
2. To transact such other business as may properly come before the
ANTIVIRALS Annual Meeting or any adjournments or postponements thereof.
Only holders of record of ANTIVIRALS Common Stock at the close of business
on July 10, 1998, the record date of the Annual Meeting, are entitled to notice
of and to vote at the ANTIVIRALS Annual Meeting and any adjournments or
postponements thereof.
Whether or not you plan to attend the ANTIVIRALS Annual Meeting, please
complete, sign and date the enclosed proxy card appointing Denis R. Burger,
Ph.D., and Alan P. Timmins as your proxies and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time before
it is voted by signing and returning a later-dated proxy with respect to the
same shares, by filing with
the Secretary of ANTIVIRALS a written revocation bearing a later date, or by
attending and voting in person at the ANTIVIRALS Annual Meeting.
By order of the Board of Directors
ANTIVIRALS INC.
Denis R. Burger, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Portland, Oregon
August 7, 1998
IMPORTANT: Even if you plan to be present at the meeting, please complete,
sign and date the enclosed proxy or proxies and return promptly in the postage
prepaid envelope provided to ensure that your shares are represented at the
meeting. If you attend the meeting, you may vote in person if you wish to do
so even though you have previously sent in your proxy or proxies.
IMMUNOTHERAPY CORPORATION
1209 SW SIXTH AVENUE, SUITE 603
PORTLAND, OR 97204
August 7, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders (the
"IMMUNOTHERAPY Annual Meeting") of IMMUNOTHERAPY CORPORATION, a California
corporation ("IMMUNOTHERAPY"), which will be held on Monday, August 31, 1998, at
10:00 a.m., local time, at the Ramada Inn, 2726 S. Grand Avenue, Santa Ana,
California 92705.
At the IMMUNOTHERAPY Special Meeting, you will be asked to consider and vote
upon an Agreement and Plan of Merger, dated as of February 2, 1998 (as amended,
the "Merger Agreement") among ANTIVIRALS INC. ("ANTIVIRALS"), IMMUNOTHERAPY and
ANTIVIRALS Acquisition Corporation, a California corporation and wholly-owned
subsidiary of ANTIVIRALS ("Merger Sub"), pursuant to which (i) ANTIVIRALS will
issue (A) 0.174 shares of its common stock of ANTIVIRALS ("ANTIVIRALS Common
Stock") and 0.17257 warrants to purchase one (1) share of ANTIVIRALS Common
Stock at a price of $13.50 per share ("ANTIVIRALS Warrants") for each share of
common stock of IMMUNOTHERAPY outstanding; and (B) 0.35 shares of ANTIVIRALS
Common Stock and 0.35 ANTIVIRALS Warrants for each share of Class A Preferred
Stock of IMMUNOTHERAPY outstanding; (ii) all options of IMMUNOTHERAPY shall be
converted into options to acquire that number of shares of ANTIVIRALS Common
Stock determined by multiplying the number of shares of IMMUNOTHERAPY Common
Stock underlying such options by the Option Conversion Number (as defined in the
Merger Agreement); and (iii) IMMUNOTHERAPY will merge with and into Merger Sub
(the "Merger"), with Merger Sub as the surviving corporation. ANTIVIRALS Common
Stock and certain ANTIVIRALS warrants are traded on the Nasdaq National Market
(symbols "AVII" and "AVIIW," respectively). The closing prices per share of
ANTIVIRALS Common Stock and ANTIVIRALS' Nasdaq-traded warrant on August 6, 1998,
were $4.19 and $1.63, respectively.
IMMUNOTHERAPY'S BOARD OF DIRECTORS BELIEVES THE MERGER TO BE FAIR TO AND IN
THE BEST INTERESTS OF IMMUNOTHERAPY AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER. IMMUNOTHERAPY'S BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
AT THE IMMUNOTHERAPY SPECIAL MEETING.
You should read carefully the accompanying Notice of Special Meeting of
Shareholders and the Joint Proxy Statement/Prospectus for details of the Merger.
Whether or not you plan to attend the IMMUNOTHERAPY Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time before
it is voted by signing and returning a later-dated proxy with respect to the
same shares, by filing with the Secretary of IMMUNOTHERAPY a written revocation
bearing a later date or by attending and voting at the IMMUNOTHERAPY Special
Meeting. If you attend the IMMUNOTHERAPY
Special Meeting, you may vote in person if you wish, even though you previously
have returned your proxy card. Your prompt cooperation will be greatly
appreciated.
Sincerely,
Jeffrey L. Lillard
MANAGING OFFICER
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
IMMUNOTHERAPY CORPORATION
1209 SW SIXTH AVENUE, SUITE 603
PORTLAND, OR 97204
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 31, 1998
------------------------
TO THE SHAREHOLDERS OF IMMUNOTHERAPY CORPORATION:
The Special Meeting of Shareholders (the "IMMUNOTHERAPY Special Meeting") of
IMMUNOTHERAPY CORPORATION, a California corporation ("IMMUNOTHERAPY"), will be
held on Monday, August 31, 1998, at 10:00 a.m., local time, at the Ramada Inn,
2726 S. Grand Avenue, Santa Ana, California 92705, for the following purposes:
1. To consider and vote upon a proposal to approve the terms of an
Agreement and Plan of Merger, dated as of February 2, 1998 (as amended, the
"Merger Agreement"), among ANTIVIRALS INC. ("ANTIVIRALS"), IMMUNOTHERAPY and
ANTIVIRALS Acquisition Corporation ("Merger Sub"), pursuant to which (i)
ANTIVIRALS will issue (A) 0.174 shares of its common stock of ANTIVIRALS
("ANTIVIRALS Common Stock") and 0.17257 warrants to purchase one (1) share
of ANTIVIRALS Common Stock at a price of $13.50 per share ("ANTIVIRALS
Warrants") for each share of common stock of IMMUNOTHERAPY outstanding; and
(B) 0.35 share of ANTIVIRALS Common Stock and 0.35 ANTIVIRALS Warrants for
each share of Class A Preferred Stock of IMMUNOTHERAPY outstanding; (ii) all
options of IMMUNOTHERAPY shall be converted into options to acquire that
number of shares of ANTIVIRALS Common Stock determined by multiplying the
number of shares of IMMUNOTHERAPY Common Stock underlying such options by
the Option Conversion Number (as defined in the accompanying Merger
Agreement); and (iii) IMMUNOTHERAPY will merge with and into Merger Sub (the
"Merger"), with Merger Sub as the surviving corporation.
2. To transact such other business as may properly come before the
IMMUNOTHERAPY Special Meeting or any adjournments or postponements thereof.
Only holders of record of IMMUNOTHERAPY Common Stock at the close of
business on August 4, 1998, the record date of the IMMUNOTHERAPY Special
Meeting, are entitled to notice of and to vote at the IMMUNOTHERAPY Special
Meeting and any adjournments or postponements thereof.
The holders of Class A Preferred Stock of IMMUNOTHERAPY (the "Preferred
Stock") are hereby notified that a dividend on the Preferred Stock, in an amount
equal to eight percent (8%) per annum of the purchase price for the Preferred
Stock from the date of purchase through the date of payment of such dividend,
and payable in the form of one share of IMMUNOTHERAPY Common Stock for each
dollar accrued, will be paid on the closing date of the Merger.
Whether or not you plan to attend the IMMUNOTHERAPY Special Meeting, please
complete, sign and date the enclosed proxy card appointing Jeffrey L. Lillard
and James C. L. Baxendale as your proxies and return it promptly in the enclosed
postage-prepaid envelope. Your proxy may be revoked at any time before it is
voted by signing and returning a later-dated proxy with respect to the same
shares, by filing with
the Secretary of IMMUNOTHERAPY a written revocation bearing a later date or by
attending and voting at the IMMUNOTHERAPY Special Meeting.
IMMUNOTHERAPY CORPORATION
James C. L. Baxendale
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Portland, Oregon
August 7, 1998
IMPORTANT: Even if you plan to be present at the meeting, please complete,
sign and date the enclosed proxy or proxies and return promptly in the postage
prepaid envelope provided to ensure that your shares are represented at the
meeting. If you attend the meeting, you may vote in person if you wish to do
so even though you have previously sent in your proxy or proxies.
JOINT PROXY STATEMENT
OF
ANTIVIRALS INC.
AND
IMMUNOTHERAPY CORPORATION
------------------
PROSPECTUS
OF
ANTIVIRALS INC.
---------------------
This Joint Proxy Statement/Prospectus is being furnished to holders (the
"ANTIVIRALS Shareholders") of shares of common stock, $.0001 par value (the
"ANTIVIRALS Common Stock") of ANTIVIRALS INC., an Oregon corporation
("ANTIVIRALS"), in connection with the solicitation of proxies by ANTIVIRALS'
Board of Directors (the "ANTIVIRALS Board") for use at the Annual Meeting of
Shareholders to be held on Monday, August 31, 1998, commencing at 10:00 a.m.,
local time, and at any adjournments or postponements thereof at the Marriot
Hotel, 1401 S.W. Naito Parkway, Portland, Oregon 97201 (the "ANTIVIRALS Annual
Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders
"IMMUNOTHERAPY Shareholders") of shares of Common Stock, no par value (the
"IMMUNOTHERAPY Common Stock") and Class A Preferred Stock, no par value (the
"IMMUNOTHERAPY Preferred Stock" and, together with the IMMUNOTHERAPY Common
Stock, the "IMMUNOTHERAPY Stock") of IMMUNOTHERAPY CORPORATION, a California
corporation ("IMMUNOTHERAPY"), in connection with the solicitation of proxies by
the Board of Directors of IMMUNOTHERAPY (the "IMMUNOTHERAPY Board") for use at
the Special Meeting of Shareholders to be held on Monday, August 31, 1998, at
the Ramada Inn, 2726 S. Grand Avenue, Santa Ana, California 92705, commencing at
10:00 a.m., local time, and at any adjournments or postponements thereof (the
"IMMUNOTHERAPY Special Meeting").
This Joint Proxy Statement/Prospectus relates to the Agreement and Plan of
Merger, dated as of February 2, 1998 (as amended, the "Merger Agreement"), among
ANTIVIRALS, ANTIVIRALS Acquisition Corporation, a California corporation and
wholly-owned subsidiary of ANTIVIRALS ("Merger Sub"), and IMMUNOTHERAPY, which
provides for the merger of IMMUNOTHERAPY with and into Merger Sub, with Merger
Sub being the surviving corporation in the merger and remaining a wholly owned
subsidiary of ANTIVIRALS (the "Merger"). Subject to the terms and conditions of
the Merger Agreement, ANTIVIRALS will issue (the "Issuance") (i) 0.174 shares of
ANTIVIRALS Common Stock and 0.17257 warrants to purchase one share of ANTIVIRALS
Common Stock (the "ANTIVIRALS Warrants") in exchange for each share of
IMMUNOTHERAPY Common Stock, and (ii) 0.35 shares of ANTIVIRALS Common Stock and
0.35 ANTIVIRALS Warrants in exchange for each share of IMMUNOTHERAPY Preferred
Stock. In addition, each option to purchase shares of IMMUNOTHERAPY Common Stock
(an "IMMUNOTHERAPY Option") will be converted into an option to purchase the
number of shares of ANTIVIRALS Common Stock equal to the number of shares for
which such IMMUNOTHERAPY Option is exercisable times the Option Conversion
Number (as defined herein), at a price equal to the exercise price for the
IMMUNOTHERAPY Option divided by the Option Conversion Number. A copy of the
Merger Agreement is attached hereto as Annex A.
ANTIVIRALS has filed a Registration Statement on Form S-4 (together with any
amendments or supplements thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to up to 2,300,000 shares
of ANTIVIRALS Common Stock, and up to 2,300,000 ANTIVIRALS Warrants, issuable in
connection with the Merger. The total number of shares of ANTIVIRALS Common
Stock and ANTIVIRALS
Warrants to be issued in the Merger, and to be registered in the Registration
Statement, is subject to adjustment for fractional shares and for variations in
the number of shares of stock of IMMUNOTHERAPY outstanding at the time of the
Merger. This Joint Proxy Statement/Prospectus constitutes the Prospectus of
ANTIVIRALS (together with any amendments or supplements thereto) with respect to
the shares of ANTIVIRALS Common Stock and ANTIVIRALS Warrants to be issued in
the Merger. All information contained in this Joint Proxy Statement/Prospectus
relating to ANTIVIRALS has been supplied by ANTIVIRALS, and all information
contained herein relating to IMMUNOTHERAPY has been supplied by IMMUNOTHERAPY.
The consummation of the Merger is subject, among other things, to: (i) the
approval of the issuance of ANTIVIRALS Common Stock and ANTIVIRALS Warrants
pursuant to the Merger Agreement by the affirmative vote of the holders of a
majority of the ANTIVIRALS Common Stock present or represented by proxy and
entitled to vote at the ANTIVIRALS Annual Meeting; and (ii) the approval of the
Merger Agreement and the Merger by holders of a majority of the outstanding
shares of IMMUNOTHERAPY Common Stock and a majority of the outstanding shares of
IMMUNOTHERAPY Preferred Stock, each voting as a separate class, at the
IMMUNOTHERAPY Special Meeting.
The ANTIVIRALS Common Stock and certain warrants of ANTIVIRALS (the "Nasdaq
Warrants") are quoted on the Nasdaq National Market under "AVII" and "AVIIW,"
respectively. The IMMUNOTHERAPY Common Stock and Preferred Stock are not traded
on any stock exchange or the Nasdaq National Market. On November 5, 1997, the
last full trading day prior to announcement of the execution of the Merger
Agreement, the closing prices of a share of ANTIVIRALS Common Stock and a Nasdaq
Warrant were $9.31 and $4.00, respectively. On August 6, 1998, the closing
prices of a share of ANTIVIRALS Common Stock and a Nasdaq Warrant were $4.19 and
$1.63, respectively.
This Joint Proxy Statement/Prospectus is first being mailed to shareholders
of ANTIVIRALS and IMMUNOTHERAPY on or about August 10, 1998.
THE SHARES OF ANTIVIRALS COMMON STOCK AND ANTIVIRALS WARRANTS ISSUABLE IN
THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
FOR A DESCRIPTION OF CERTAIN IMPORTANT ISSUES IMMUNOTHERAPY SHAREHOLDERS
SHOULD CONSIDER IN EVALUATING THE MERGER AND THE ACQUISITION OF THE ANTIVIRALS
COMMON STOCK AND WARRANTS OFFERED HEREBY, SEE "RISK FACTORS" AT PAGE 16.
---------------------
The date of this Joint Proxy Statement/Prospectus is August 7, 1998.
AVAILABLE INFORMATION
ANTIVIRALS is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at certain regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such information can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the Commission. Shares of
ANTIVIRALS Common Stock and warrants to purchase ANTIVIRALS Common Stock are
traded on the Nasdaq Stock Market. Material filed by ANTIVIRALS can be inspected
at the offices of the National Association of Securities Dealers, Inc., Reports
Section, 1735 K Street, N.W., Washington D.C. 20006. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4 (the "Registration Statement") filed by
ANTIVIRALS with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), certain parts of which are omitted in accordance with the
rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits as a part thereof, are available for
inspection and copying as set forth above.
IMMUNOTHERAPY is not subject to the information and reporting requirements
of the Exchange Act.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO THE SECRETARY, ANTIVIRALS INC.,
ONE S.W. COLUMBIA, SUITE 1105, PORTLAND, OREGON 97258, TELEPHONE NUMBER (503)
227-0554. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BEFORE AUGUST 24, 1998.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ANTIVIRALS OR IMMUNOTHERAPY. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ANTIVIRALS OR IMMUNOTHERAPY SINCE THE DATE HEREOF OR
THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THEREOF.
FORWARD-LOOKING INFORMATION
Certain statements contained in this Joint Proxy Statement/Prospectus that
are not related to historical results are "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act and involve risks and uncertainties. Although each of ANTIVIRALS and
IMMUNOTHERAPY believes that these forward-looking statements are based on
reasonable assumptions, there can be no assurance that such assumptions will
prove to be accurate and actual results could
i
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed herein under "Risk Factors," "ANTIVIRALS
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "IMMUNOTHERAPY Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as those discussed elsewhere in
this Joint Proxy Statement/Prospectus. All forward-looking statements contained
in this Joint Proxy Statement/Prospectus or incorporated by reference are
qualified in their entirety by this cautionary statement. Neither ANTIVIRALS nor
IMMUNOTHERAPY intend to update or otherwise revise the forward-looking
statements contained herein to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
TRADEMARKS
ANTIVIRALS, NEU-GENE and CYTOPORTER are registered trademarks of ANTIVIRALS
INC.
CTP-37 is a trademark of IMMUNOTHERAPY CORPORATION.
ii
TABLE OF CONTENTS
PAGE
---------
FORWARD-LOOKING INFORMATION................................................................................ i
TRADEMARKS................................................................................................. ii
SUMMARY.................................................................................................... 1
Overview................................................................................................. 1
The Companies............................................................................................ 1
Meetings of Shareholders................................................................................. 2
The Merger............................................................................................... 3
COMBINED CONDENSED FINANCIAL DATA.......................................................................... 12
COMPARATIVE PER SHARE DATA................................................................................. 14
COMPARATIVE PER SHARE MARKET INFORMATION................................................................... 15
ANTIVIRALS............................................................................................... 15
IMMUNOTHERAPY............................................................................................ 15
RISK FACTORS............................................................................................... 16
Risks Relating to the Merger............................................................................. 16
Risks Relating to the Business of Both ANTIVIRALS and IMMUNOTHERAPY...................................... 18
ANNUAL MEETING OF ANTIVIRALS SHAREHOLDERS.................................................................. 24
Matters to be Considered at the Meeting.................................................................. 24
Record Date; Shares Entitled to Vote; Vote Required...................................................... 24
Proxies; Proxy Solicitation.............................................................................. 25
SPECIAL MEETING OF IMMUNOTHERAPY SHAREHOLDERS.............................................................. 25
General.................................................................................................. 25
Record Date; Shares Entitled to Vote..................................................................... 26
Quorum; Vote Required.................................................................................... 26
Proxies.................................................................................................. 26
BACKGROUND OF AND REASONS FOR THE MERGER................................................................... 27
Background............................................................................................... 27
Joint Reasons for the Merger............................................................................. 30
ANTIVIRALS' Reasons for the Merger....................................................................... 30
Recommendation of the ANTIVIRALS Board................................................................... 31
IMMUNOTHERAPY's Reasons for the Merger................................................................... 31
Recommendations of IMMUNOTHERAPY Board................................................................... 32
THE MERGER................................................................................................. 33
Terms of the Merger...................................................................................... 33
Effective Time of the Merger............................................................................. 34
Procedures for Exchange of IMMUNOTHERAPY Stock and IMMUNOTHERAPY Options................................. 34
Escrow of ANTIVIRALS Common Stock........................................................................ 35
Quotation of ANTIVIRALS Common Stock on Nasdaq National Market........................................... 35
Representations and Warranties........................................................................... 35
Business of IMMUNOTHERAPY Pending the Merger............................................................. 36
Interim Financing........................................................................................ 37
Irrevocable Proxy........................................................................................ 38
Conditions; Waivers...................................................................................... 38
Termination; Amendment................................................................................... 40
Indemnification.......................................................................................... 40
Certain Federal Income Tax Considerations................................................................ 40
iii
PAGE
---------
Tax Treatment of IMMUNOTHERAPY Options................................................................... 41
Resale of ANTIVIRALS Common Stock or ANTIVIRALS Warrants Issued in the Merger; Affiliates................ 42
Accounting Treatment..................................................................................... 43
Management and Operations of IMMUNOTHERAPY After the Merger.............................................. 43
Expenses and Fees........................................................................................ 43
Rights of Dissenting IMMUNOTHERAPY Shareholders.......................................................... 43
CONFLICTS OF INTEREST...................................................................................... 45
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 46
BUSINESS OF ANTIVIRALS..................................................................................... 51
General Overview......................................................................................... 51
Drug Design and Development.............................................................................. 51
Products................................................................................................. 52
Near-Term Product Development Summary.................................................................... 52
Antisense--Neu-Gene Technology........................................................................... 52
Technical Overview....................................................................................... 52
Near-Term Antisense Product Development--Cancer and Restenosis........................................... 55
Technical Overview....................................................................................... 55
Near-Term Drug Delivery Products......................................................................... 57
Long-Term Product Development............................................................................ 58
Collaborative Agreements................................................................................. 60
Manufacturing............................................................................................ 61
Marketing Strategy....................................................................................... 61
Patents and Proprietary Rights........................................................................... 62
Drug Approval Process and Other Government Regulation.................................................... 62
Competition.............................................................................................. 64
Research and Development................................................................................. 65
Employees................................................................................................ 65
Legal Matters............................................................................................ 65
ANTIVIRALS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 67
Overview................................................................................................. 67
Results of Operations.................................................................................... 67
Liquidity and Capital Resources.......................................................................... 67
BUSINESS OF IMMUNOTHERAPY.................................................................................. 69
General.................................................................................................. 69
Managing Cancer.......................................................................................... 69
Industry Overview........................................................................................ 69
Estimated World Markets for Therapeutic and Prophylactic Vaccines........................................ 70
IMMUNOTHERAPY's Product Development Strategy............................................................. 70
Summary of Products in Development....................................................................... 71
Proprietary Rights....................................................................................... 73
Manufacturing............................................................................................ 73
Government Regulation.................................................................................... 74
Employees................................................................................................ 74
Property................................................................................................. 74
Legal Proceedings........................................................................................ 74
IMMUNOTHERAPY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 76
iv
PAGE
---------
Overview................................................................................................. 76
Results of Operations.................................................................................... 76
Liquidity and Capital Resources.......................................................................... 77
ANTIVIRALS DIRECTORS AND EXECUTIVE OFFICERS................................................................ 79
Board of Directors Meetings and Committees............................................................... 80
Director Compensation.................................................................................... 81
Scientific Advisory Committee............................................................................ 81
ANTIVIRALS EXECUTIVE COMPENSATION.......................................................................... 82
Summary of Cash and Certain Other Compensation........................................................... 82
Stock Options............................................................................................ 82
Option Grants in Last Fiscal Year........................................................................ 82
Option Exercises and Holdings............................................................................ 83
Section 16 Reports....................................................................................... 83
STOCK OWNED BY ANTIVIRALS MANAGEMENT AND PRINCIPAL SHAREHOLDERS............................................ 84
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH ANTIVIRALS..................................................... 86
IMMUNOTHERAPY DIRECTORS AND EXECUTIVE OFFICERS............................................................. 87
IMMUNOTHERAPY EXECUTIVE COMPENSATION....................................................................... 88
Stock Option Information................................................................................. 88
STOCK OWNED BY IMMUNOTHERAPY MANAGEMENT AND PRINCIPAL SHAREHOLDERS......................................... 89
CERTAIN TRANSACTIONS AND RELATIONSHIPS OF IMMUNOTHERAPY.................................................... 91
ELECTION OF ANTIVIRALS DIRECTORS........................................................................... 91
APPROVAL OF AMENDMENT TO ANTIVIRALS STOCK INCENTIVE PLAN................................................... 92
APPROVAL OF ASSUMPTION OF IMMUNOTHERAPY 1997 STOCK OPTION PLAN............................................. 95
CHANGE OF NAME TO AVI BIOPHARMA............................................................................ 97
RATIFICATION OF APPOINTMENT OF ANTIVIRALS INDEPENDENT AUDITORS............................................. 97
DESCRIPTION OF CAPITAL STOCK............................................................................... 98
Transfer Agent........................................................................................... 98
Common Stock............................................................................................. 98
Preferred Stock.......................................................................................... 98
Warrants................................................................................................. 98
Oregon Control Share and Business Combination Statutes................................................... 100
COMPARATIVE RIGHTS OF IMMUNOTHERAPY SHAREHOLDERS AND ANTIVIRALS SHAREHOLDERS............................... 102
Classes of Stock......................................................................................... 102
Amendments to Articles of Incorporation and Bylaws....................................................... 102
Approval of Certain Corporate Transactions............................................................... 103
Dissenters' Rights....................................................................................... 104
Anti-takeover Provisions................................................................................. 105
"Blank Check" Preferred Stock............................................................................ 106
Removal of Directors..................................................................................... 106
Classified Board of Directors............................................................................ 106
Size of Board of Directors............................................................................... 107
Dividends and Repurchase of Shares....................................................................... 107
Class Voting............................................................................................. 107
LEGAL OPINION.............................................................................................. 107
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS............................................................... 107
v
PAGE
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EXPERTS.................................................................................................... 108
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
ANNEX A--Agreement and Plan of Reorganization and Merger................................................... A-1
ANNEX B--First Amendment to Agreement and Plan of Reorganization and Merger................................ B-1
ANNEX C--Second Amendment to Agreement and Plan of Reorganization and Merger............................... C-1
ANNEX D--Warrant Agreement................................................................................. D-1
ANNEX E--Lock-up Agreement................................................................................. E-1
ANNEX F--Escrow Agreement.................................................................................. F-1
ANNEX G--Term Loan Agreement............................................................................... G-1
ANNEX H--IMMUNOTHERAPY CORPORATION 1997 Stock Option Plan.................................................. H-1
ANNEX I--Legal Opinion relating to Certain Tax Matters..................................................... I-1
ANNEX J--California Dissenters' Rights Provisions.......................................................... J-1
vi
SUMMARY
CERTAIN SIGNIFICANT MATTERS DISCUSSED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE SUMMARIZED BELOW. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS (INCLUDING THE APPENDICES HERETO).
ANTIVIRALS SHAREHOLDERS AND IMMUNOTHERAPY SHAREHOLDERS ARE URGED TO REVIEW THE
ENTIRE JOINT PROXY STATEMENT/PROSPECTUS AND TO CAREFULLY REVIEW THE MATTERS SET
FORTH UNDER "RISK FACTORS" BEFORE VOTING UPON THE MATTERS TO BE CONSIDERED.
OVERVIEW.......................... This Joint Proxy Statement/Prospectus relates to the
Merger of IMMUNOTHERAPY with and into Merger Sub, a
newly formed California corporation and wholly owned
subsidiary of ANTIVIRALS. As a result of the Merger,
Merger Sub, as the surviving corporation in the Merger,
will continue as a wholly owned subsidiary of
ANTIVIRALS. Subject to the approval of the Merger by the
IMMUNOTHERAPY Shareholders at the Special Meeting of
IMMUNOTHERAPY Shareholders scheduled to be held on
August 31, 1998, the approval of the issuance of shares
of ANTIVIRALS Common Stock and ANTIVIRALS Warrants to
IMMUNOTHERAPY shareholders in the Merger by the
ANTIVIRALS' Shareholders at the Annual Meeting of
ANTIVIRALS Shareholders scheduled to be held on August
31, 1998, and the satisfaction of certain other
conditions, the Merger will be effected pursuant to the
terms of the Merger Agreement by and among ANTIVIRALS,
Merger Sub and IMMUNOTHERAPY, a copy of which is
attached hereto as Annex A.
THE COMPANIES
ANTIVIRALS INC.................. ANTIVIRALS is a company in the pioneer field of gene-
inactivating technology referred to as antisense and has
developed a patented class of antisense compounds which
may be useful in the treatment of a wide range of human
diseases. ANTIVIRALS also has developed new drug
delivery technology which may be useful with many
FDA-approved drugs as well as with its antisense
compounds. ANTIVIRALS' drug development program has two
areas of near-term focus:
- NEU-GENE antisense compounds for selected
applications, including cancer and restenosis,
and
- CYTOPORTER drug delivery engines for enhanced
delivery of FDA-approved drugs with delivery
problems, including paclitaxel and
cyclosporin.
ANTIVIRALS' principal executive office is located at One
S.W. Columbia Street, Suite 1105, Portland, Oregon
97258, where the telephone number is (503) 227-0554.
ANTIVIRALS ACQUISITION
CORPORATION................... ANTIVIRALS Acquisition Corporation, a wholly owned
California subsidiary of ANTIVIRALS ("Merger Sub"), was
formed by ANTIVIRALS solely for the purpose of effecting
the Merger. Merger Sub has minimal assets and no
business and has
1
carried on no activities that are not directly related
to its formation and its execution of the Merger
Agreement. The mailing address of Merger Sub's principal
executive offices is c/o ANTIVIRALS INC., One S.W.
Columbia Street, Suite 1105, Portland, Oregon 97258, and
its telephone number is (503) 227-0554.
IMMUNOTHERAPY CORPORATION....... IMMUNOTHERAPY is a biopharmaceutical company focused on
the development of non-toxic vaccines, including its
flagship product, CTP-37, to treat cancer and infectious
diseases. IMMUNOTHERAPY's principal executive offices
are located at 1209 SW Sixth Avenue, Suite 603,
Portland, Oregon 97204, and its telephone number is
(503) 222-7337. IMMUNOTHERAPY was incorporated in
California in 1993.
MEETINGS OF SHAREHOLDERS
ANTIVIRALS ANNUAL MEETING....... The ANTIVIRALS Annual Meeting is scheduled to be held on
Monday, August 31, 1998, at 10:00 a.m., local time, at
the Marriott Hotel, 1401 S.W. Naito Parkway, Portland,
Oregon 97201. At the ANTIVIRALS Annual Meeting,
shareholders of ANTIVIRALS will consider and vote upon:
(i) the issuance of ANTIVIRALS Common Stock, ANTIVIRALS
Warrants and ANTIVIRALS options in exchange for all of
the issued and outstanding shares of capital stock of
IMMUNOTHERAPY and all options to purchase IMMUNOTHERAPY
Common Stock in connection with the Merger Agreement;
(ii) the election of four (4) persons to the ANTIVIRALS
Board; (iii) the ratification of the appointment of
ANTIVIRALS' independent auditors Arthur Andersen LLP;
(iv) an amendment to the ANTIVIRALS 1992 Stock Incentive
Plan; (v) the approval of an amendment to ANTIVIRALS'
Third Restated and Amended Articles of Incorporation
changing ANTIVIRALS' name to AVI BioPharma; and (vi) the
approval of the 1997 Stock Incentive Plan.
Only holders of record of ANTIVIRALS Common Stock at the
close of business on July 10, 1998, are entitled to
notice of and to vote at the ANTIVIRALS Annual Meeting.
At the close of business on that date, 11,177,919 shares
of ANTIVIRALS Common Stock were outstanding and entitled
to vote. The affirmative vote of the holders of a
majority of the votes cast on a proposal is required for
approval of that proposal. See "ANNUAL MEETING OF
ANTIVIRALS SHAREHOLDERS-- Record Date; Shares Entitled
to Vote; Vote Required."
IMMUNOTHERAPY SPECIAL MEETING... The IMMUNOTHERAPY Special Meeting is scheduled to be
held on Monday, August 31, 1998, at 10:00 a.m., local
time, at the Ramada Inn, 2726 S. Grand Avenue, Santa
Ana, California 92705. At the IMMUNOTHERAPY Special
Meeting, Shareholders of IMMUNOTHERAPY will consider and
vote upon a proposal to approve and adopt the Merger
Agreement and the Merger.
Only holders of record of IMMUNOTHERAPY Common Stock and
IMMUNOTHERAPY Preferred Stock at the close of business
on August 4, 1998, are entitled to notice of and to vote
at the
2
IMMUNOTHERAPY Special Meeting. At the close of business
on that date, 10,868,000 shares of IMMUNOTHERAPY Common
Stock were outstanding and entitled to vote and 639,686
shares of IMMUNOTHERAPY Preferred Stock were outstanding
and entitled to vote. The affirmative vote of a majority
of the shares of IMMUNOTHERAPY Common Stock outstanding
and of a majority of the shares of IMMUNOTHERAPY
Preferred Stock outstanding, each voting as a separate
class, is necessary to approve and adopt the Merger
Agreement and Merger. IT IS A CONDITION TO CONSUMMATION
OF THE MERGER THAT HOLDERS OF NOT MORE THAN THREE
PERCENT (3%) OF THE TOTAL NUMBER OF SHARES OF
IMMUNOTHERAPY COMMON AND PREFERRED STOCK OUTSTANDING ON
THE CLOSING DATE BE ENTITLED TO CLAIM DISSENTERS'
RIGHTS. See "SPECIAL MEETING OF IMMUNOTHERAPY
SHAREHOLDERS--Record Date; Shares Entitled to Vote" and
"THE MERGER--Rights of Dissenting IMMUNOTHERAPY
Shareholders."
DISSENTERS' RIGHTS.............. IMMUNOTHERAPY Shareholders have the right to dissent
from the proposed Merger and, subject to certain
conditions, to receive payment of the "fair value" of
their shares of IMMUNOTHERAPY Stock, as provided in
Sections 1300 through 1312 of the Corporation Law. See
"THE MERGER--Rights of Dissenting IMMUNOTHERAPY
Shareholders." Under the Oregon Business Corporation
Act, ANTIVIRALS Shareholders are not entitled to
dissenters' rights or appraisal rights with respect to
the Merger.
THE MERGER
GENERAL......................... Upon consummation of the Merger, IMMUNOTHERAPY will
merge into Merger Sub, a wholly-owned subsidiary of
ANTIVIRALS. The shares of IMMUNOTHERAPY Stock then
outstanding (other than shares as to which dissenters'
rights have been exercised) will be exchanged for
ANTIVIRALS Common Stock and ANTIVIRALS Warrants, and
options to purchase shares of IMMUNOTHERAPY Common Stock
which are then outstanding under IMMUNOTHERAPY's 1997
Stock Option Plan (the "IMMUNOTHERAPY Stock Options")
will be converted into options to purchase ANTIVIRALS
Common Stock as described below.
EFFECTIVE TIME OF THE MERGER.... Following receipt of required approvals and satisfaction
or waiver of other conditions to the Merger, the Merger
will be consummated and become effective at the time at
which the certificates of merger to be filed pursuant to
the California General Corporation Law ("Corporation
Law") are received for filing by the Secretary of State
of California or at such later date and time as may be
specified in such certificates of merger. See "THE
MERGER--Effective Time of the Merger" and "Conditions;
Waivers."
CONVERSION OF IMMUNOTHERAPY
STOCK IN THE MERGER........... At the Effective Time, each share of IMMUNOTHERAPY Stock
issued and outstanding immediately prior to the
Effective Time
3
(other than shares as to which dissenters' rights of
appraisal have been duly sought, perfected and are not
subsequently withdrawn) will be exchanged for shares of
ANTIVIRALS Common Stock and Warrants to purchase shares
of ANTIVIRALS Common Stock. The 10,868,000 issued and
outstanding shares of IMMUNOTHERAPY Common Stock will be
exchanged for 0.174 shares of ANTIVIRALS Common Stock
and 0.17257 ANTIVIRALS Warrants, for a total of
1,891,032 shares of ANTIVIRALS Common Stock and
1,875,490 ANTIVIRALS Warrants, subject to adjustment for
fractional shares and fractional warrants. The 639,686
issued and outstanding shares of IMMUNOTHERAPY Preferred
Stock will be exchanged for 0.35 shares of ANTIVIRALS
Common Stock and 0.35 ANTIVIRALS Warrants, for a total
of 223,890 shares of ANTIVIRALS Common Stock and 223,890
ANTIVIRALS Warrants, subject to adjustment for
fractional shares and fractional warrants. The foregoing
numbers may increase based upon exercises of
IMMUNOTHERAPY Stock Options prior to the Effective Time,
and will increase based upon the declaration of
dividends by the IMMUNOTHERAPY Board of Directors in
respect to IMMUNOTHERAPY's Preferred Stock. The
ANTIVIRALS Warrants will entitle the holder to purchase
one share of ANTIVIRALS Common Stock at a price of
$13.50 per share, subject to certain adjustments. The
ANTIVIRALS Warrants will, subject to certain conditions,
be exercisable at any time after the second anniversary
of the closing of the Merger (the "Closing"), until four
(4) years and eight (8) months after the Closing, unless
earlier redeemed by ANTIVIRALS. The ANTIVIRALS Warrants
are redeemable by ANTIVIRALS at $0.25 per Warrant after
the ANTIVIRALS Warrants have become exercisable, upon
thirty (30) days' written notice, if the closing bid
price per share of ANTIVIRALS Common Stock for each of
twenty (20) consecutive trading days immediately
preceding the date notice of redemption is given equals
or exceeds 200 percent of the then-current Warrant
exercise price.
CONVERSION OF OPTIONS TO ACQUIRE
SHARES OF IMMUNOTHERAPY COMMON
STOCK IN THE MERGER........... At the Effective Time, contingent upon the approval by
the ANTIVIRALS Shareholders of the ANTIVIRALS 1997 Stock
Incentive Plan, ANTIVIRALS will assume the 1997
IMMUNOTHERAPY Option Plan, and all options to acquire
shares of IMMUNOTHERAPY Common Stock outstanding
immediately prior to the Effective Time will be
converted into rights to acquire shares of ANTIVIRALS
Common Stock under the same terms and conditions as
provided in the 1997 IMMUNOTHERAPY Option Plan. Each
IMMUNOTHERAPY Option will be converted into an option to
purchase that number of shares of ANTIVIRALS Common
Stock determined by multiplying the number of optioned
shares of IMMUNOTHERAPY Common Stock immediately prior
to the Effective Time by the
4
Option Conversion Number. The "Option Conversion Number"
is 0.175 multiplied by the result obtained by dividing
the sum of the closing prices of ANTIVIRALS Common Stock
and Nasdaq Warrant on the NASDAQ National Market by the
closing price of ANTIVIRALS Common Stock, each on the
day of Closing of the Merger. The exercise price per
share of ANTIVIRALS Common Stock will be equal to the
exercise price of such IMMUNOTHERAPY Stock Option
divided by the Option Conversion Number. For example,
assuming an ANTIVIRALS Common Stock and Nasdaq
ANTIVIRALS warrant price of $5.00 and $1.75 per share,
respectively, each IMMUNOTHERAPY Option having an
exercise price of $1.00 per share will be converted into
a right to purchase 0.23625 shares of ANTIVIRALS Common
Stock at an exercise price of $4.23 per share.
FRACTIONAL SHARES AND No fractional shares of ANTIVIRALS Common Stock or
WARRANTS...................... ANTIVIRALS Warrants will be issued in the Merger. For
any fractional share or warrant an IMMUNOTHERAPY
Shareholder would otherwise receive in the Merger,
ANTIVIRALS will pay to such holder an amount in cash
(rounded to the nearest whole cent) determined as
follows; for ANTIVIRALS Common Stock, by multiplying (i)
the fair market value of a share of ANTIVIRALS Common
Stock on the day immediately preceding the Effective
Date by (ii) the fraction of a share of ANTIVIRALS
Common Stock which such holder would otherwise be
entitled to receive in connection with the Merger: and
for ANTIVIRALS Warrants, by multiplying (i) the fair
market value of the ANTIVIRALS Warrants as determined by
ANTIVIRALS in its sole discretion by (ii) the fraction
of an ANTIVIRALS Warrant which such holder would
otherwise be entitled to receive in connection with the
Merger.
RESALE OF ANTIVIRALS COMMON
STOCK OR ANTIVIRALS WARRANTS
ISSUED IN THE MERGER;
AFFILIATES.................... The ANTIVIRALS Common Stock to be issued to
IMMUNOTHERAPY Shareholders in connection with the Merger
will be fully transferrable under the Securities Act;
however, every IMMUNOTHERAPY Shareholder is required to
execute and deliver to ANTIVIRALS a lock-up agreement as
a condition to ANTIVIRALS' obligations under the Merger
Agreement. Under the terms of the lock-up agreement to
be delivered by each IMMUNOTHERAPY Shareholder at the
Closing (the "Lock-up Agreement"), each Shareholder will
agree not to sell, pledge, transfer or otherwise dispose
of any shares of the ANTIVIRALS Common Stock or
ANTIVIRALS Warrants which they receive in connection
with the Merger for a period of two years after the
Effective Date of the Merger. ANTIVIRALS has agreed to
release from the operation of the Lock-up Agreements an
aggregate of 210,000 shares of ANTIVIRALS Common Stock
and ANTIVIRALS Warrants issued to IMMUNOTHERAPY
Shareholders by reason of the Merger six months after
the Effective Date of the Merger.
5
For purposes of allocating this release among the
IMMUNOTHERAPY Shareholders, that number of shares of
ANTIVIRALS Common Stock and ANTIVIRALS Warrants shall be
released equal to fifty percent (50%) of the shares of
ANTIVIRALS Common Stock and ANTIVIRALS Warrants received
by IMMUNOTHERAPY Shareholders by reason of the
conversion of shares of IMMUNOTHERAPY Preferred Stock in
connection with the Merger. The balance of the shares
and warrants to be released shall be allocated ratably
among all IMMUNOTHERAPY Shareholders, other than Jeffrey
Lillard and Paula Lillard, Trustees of the Lillard
Family Trust, dated April 28, 1989, Matthew L. Lillard
and Amy L. Lillard (the "Lillard Group"), based on their
holdings of ANTIVIRALS Common Stock and ANTIVIRALS
Warrants arising from the conversion of shares of
IMMUNOTHERAPY Common Stock in connection with the
Merger. One year after the Effective Date of the Merger,
ANTIVIRALS shall release from the operation of the
Lock-up Agreements (i) an aggregate number of shares of
ANTIVIRALS Common Stock issued to IMMUNOTHERAPY
Shareholders in connection with the Merger equal to the
remainder of 840,000 minus that number of shares of
ANTIVIRALS Common Stock released to ANTIVIRALS under the
terms of an escrow agreement executed in connection with
the Merger or which are subject to pending claims
thereunder, and (ii) an aggregate number of ANTIVIRALS
Warrants equal to 840,000. See "--Escrow of ANTIVIRALS
Common Stock." For purposes of allocating such shares
and warrants among the IMMUNOTHERAPY Shareholders, that
number of shares of ANTIVIRALS Common Stock and
ANTIVIRALS Warrants shall be released equal to fifty
percent (50%) of the shares of ANTIVIRALS Common Stock
and ANTIVIRALS Warrants received by IMMUNOTHERAPY
Shareholders by reason of the conversion of
IMMUNOTHERAPY Preferred Stock in connection with the
Merger. The balance of the shares of ANTIVIRALS Common
Stock and ANTIVIRALS Warrants to be released shall be
allocated ratably among all remaining former
IMMUNOTHERAPY Shareholders, other than the Lillard
Group, based on their respective holdings of ANTIVIRALS
Common Stock and ANTIVIRALS Warrants arising from the
conversion of shares of IMMUNOTHERAPY Common Stock in
connection with the Merger. The shares of ANTIVIRALS
Common Stock and ANTIVIRALS Warrants held by the Lillard
Group will be released after the Lock-up Agreement
terminates.
In addition, any person deemed to be an affiliate of
IMMUNOTHERAPY for purposes of Rule 145 under the
Securities Act at the Effective Time may not sell their
IMMUNOTHERAPY Common Stock acquired in connection with
the Merger, except pursuant to an effective Registration
Statement under the Securities Act covering such shares,
or in compliance with Rule 145 promulgated under the
Securities Act or another
6
applicable exemption from the registration requirements
of the Securities Act.
The ANTIVIRALS Warrants to be issued to IMMUNOTHERAPY
Shareholders in connection with the Merger are subject
to the terms of a Warrant Agreement between ANTIVIRALS
and the IMMUNOTHERAPY Shareholders which places
restrictions on the transfer of the ANTIVIRALS Warrants.
ANTIVIRALS has agreed to use all commercially reasonable
efforts to cause a registration statement with respect
to the issuance of ANTIVIRALS Common Stock underlying
the ANTIVIRALS Warrants under the Securities Act to be
filed and to become and remain effective in anticipation
of and prior to the exercise of the ANTIVIRALS Warrants.
RECOMMENDATION OF ANTIVIRALS
BOARD OF DIRECTORS............ The ANTIVIRALS Board has determined the issuance of
ANTIVIRALS Common Stock and ANTIVIRALS Warrants and the
Merger to be fair to and in the best interests of
ANTIVIRALS and its stockholders and has unanimously
approved the Issuance and the Merger Agreement. The
ANTIVIRALS Board recommends that ANTIVIRALS stockholders
vote "FOR" the Issuance. The ANTIVIRALS Board's
recommendation is based upon a number of factors
discussed in this Joint Proxy Statement/Prospectus. See
"BACKGROUND OF AND REASONS FOR THE MERGER."
RECOMMENDATION OF IMMUNOTHERAPY
BOARD OF DIRECTORS............ The IMMUNOTHERAPY Board has determined the Merger to be
fair to and in the best interests of IMMUNOTHERAPY and
its Shareholders and has unanimously approved the Merger
Agreement and the Merger. The IMMUNOTHERAPY Board
recommends that IMMUNOTHERAPY Shareholders vote "FOR"
the Merger Agreement and the Merger. The IMMUNOTHERAPY
Board's recommendation is based upon a number of factors
discussed in this Joint Proxy Statement/Prospectus. See
"BACKGROUND OF AND REASONS FOR THE MERGER" and
"CONFLICTS OF INTEREST."
SHARE OWNERSHIP OF MANAGEMENT... At the close of business on the ANTIVIRALS Record Date,
the directors and executive officers of ANTIVIRALS and
their affiliates were the beneficial owners of an
aggregate of 1,333,639 (approximately 11.9%) of the
11,177,919. At the close of business on the
IMMUNOTHERAPY Record Date, the directors and executive
officers of IMMUNOTHERAPY and their affiliates were the
beneficial owners of an aggregate of 6,830,113
(approximately 61.3%) of the outstanding IMMUNOTHERAPY
Common Stock and 80,000 (approximately 12.5%) of the
outstanding IMMUNOTHERAPY Preferred Stock.
IRREVOCABLE PROXY............... Certain directors, officers and shareholders of
IMMUNOTHERAPY, owning or having the power to vote an
aggregate of 7,593,213 shares of IMMUNOTHERAPY's Common
Stock and representing approximately 70% of the
outstanding
7
shares of IMMUNOTHERAPY's Common Stock as of August 4,
1998, have given an irrevocable proxy to ANTIVIRALS to
vote all of their shares of IMMUNOTHERAPY Common Stock
"FOR" approval of the Merger Agreement and the Merger.
PROCEDURE FOR EXCHANGING OF
IMMUNOTHERAPY STOCK AND
IMMUNOTHERAPY OPTIONS IN THE
MERGER........................ As soon as is reasonably practicable after the Effective
Time, ChaseMellon Shareholder Services LLC, the exchange
agent for the Merger (the "Exchange Agent"), will
deliver to each IMMUNOTHERAPY Shareholder who has
previously delivered certificates representing shares of
IMMUNOTHERAPY Stock to ANTIVIRALS, who has not perfected
the right to claim dissenter's rights under the
California Corporations Law, and who has delivered an
executed Lock-Up Agreement to ANTIVIRALS, a certificate
or certificates representing the whole number of shares
of ANTIVIRALS Common Stock and ANTIVIRALS Warrants into
which such shares of IMMUNOTHERAPY Stock were converted
in the Merger, less the number of shares, if any,
delivered pursuant to the Escrow Agreement (as defined
below), together with the cash payment in lieu of any
fractional shares to which the holder is entitled. As
soon as is reasonably practicable after the Effective
Time, ANTIVIRALS will deliver to holders of
IMMUNOTHERAPY Options, options to acquire that number of
shares of ANTIVIRALS Common Stock at exercise prices
which reflect the conversion of the IMMUNOTHERAPY
Options in the Merger.
ESCROW OF ANTIVIRALS COMMON
STOCK......................... The Merger Agreement provides that ANTIVIRALS will
withhold from certain IMMUNOTHERAPY shareholders,
including the Lillard Group, a number of shares of
ANTIVIRALS Common Stock equal to fifteen percent (15%)
of the aggregate number of shares of ANTIVIRALS Common
Stock to be received by all holders of IMMUNOTHERAPY
Stock upon consummation of the Merger (the "Escrow
Shares"). The Escrow Shares will be delivered to an
agent (the "Escrow Agent") and will be held for a period
that, absent unresolved claims, will end on the first
anniversary of the Closing Date. Subject to certain
limitations set forth in the Merger Agreement, the
Escrow Shares will be subject to claims by ANTIVIRALS to
reimburse ANTIVIRALS for liabilities incurred by
ANTIVIRALS with respect to or arising from the breach of
any warranty or any inaccuracy of any representation
made by IMMUNOTHERAPY in the Merger Agreement or the
breach of any covenant or agreement made by
IMMUNOTHERAPY in the Merger Agreement. The specific
terms and conditions relating to the Escrow Shares are
more specifically set forth in the Escrow Agreement to
be executed at the Closing (the "Escrow Agreement"). See
"THE MERGER-- Escrow of ANTIVIRALS Common Stock," and
"RISK FACTORS--Escrowed Shares."
8
QUOTATION OF THE ANTIVIRALS
COMMON STOCK AND ANTIVIRALS
WARRANT ON THE NASDAQ NATIONAL
MARKET........................ ANTIVIRALS will use all reasonable efforts to cause the
shares of Common Stock to be issued pursuant to the
Merger Agreement to be quoted for trading on the Nasdaq
National Market. ANTIVIRALS will use all reasonable
efforts to cause the ANTIVIRALS Warrants to be quoted
for trading on the Nasdaq National Market not more than
six months after the Effective Date of the Merger. See
"THE MERGER--Quotation of ANTIVIRALS Common Stock and
ANTIVIRALS Warrant on the Nasdaq National Market."
BUSINESS OF IMMUNOTHERAPY
PENDING THE MERGER............ IMMUNOTHERAPY has agreed that, prior to Effective Time,
it will operate its business in the ordinary course. In
addition, IMMUNOTHERAPY will not engage in certain
actions specified in the Merger Agreement without the
prior written consent of ANTIVIRALS.
INTERIM FINANCING............... ANTIVIRALS has agreed, under the terms and conditions of
a Loan Agreement (the "Loan Agreement"), to make certain
advances to IMMUNOTHERAPY from time to time to pay
certain current liabilities of IMMUNOTHERAPY pending the
closing of the Merger, which advances shall not exceed,
in the aggregate, $1,075,000 plus the amounts of any
multi-month contractual obligations with an outside
vendor or provider of services approved by ANTIVIRALS
and IMMUNOTHERAPY. Such advances bear interest at the
rate of 9 1/2% per annum. IMMUNOTHERAPY is obligated to
repay the advances in one installment on April 30, 1999.
In the event that IMMUNOTHERAPY defaults in the
repayment of the advances and interest, as ANTIVIRALS'
sole remedy for such default, IMMUNOTHERAPY shall issue
to ANTIVIRALS, subject to certain required approvals, in
exchange for the conversion of all amounts outstanding
under the Loan Agreement a number of shares of Class B
Preferred Stock equal to the aggregate dollar amount of
principal and interest outstanding on April 30, 1999,
divided by $1.0161235, which shares shall enjoy the same
rights and privileges as IMMUNOTHERAPY's Class A
Preferred Stock. ANTIVIRALS additionally shall have the
right to designate and IMMUNOTHERAPY shall be required
to appoint two designees of ANTIVIRALS to the Board of
Directors of IMMUNOTHERAPY. See "THE MERGER--Interim
Financing."
MANAGEMENT AND OPERATIONS OF
IMMUNOTHERAPY AFTER THE
MERGER........................ After the Merger, Merger Sub will succeed to the
business of IMMUNOTHERAPY and will be a wholly-owned
subsidiary of ANTIVIRALS. Merger Sub will operate as a
separate business unit of ANTIVIRALS. After the Merger,
Merger Sub will operate under the direction and guidance
of ANTIVIRALS' senior management and the ANTIVIRALS and
Merger Sub Boards. See
9
"THE MERGER--Management and Operations of IMMUNOTHERAPY
After the Merger."
CONDITIONS OF THE MERGER;
TERMINATION................... The consummation of the Merger is conditioned upon the
fulfillment or waiver of certain conditions set forth in
the Merger Agreement. See "THE MERGER-- Conditions;
Waivers." The Merger Agreement may be terminated (i) by
mutual consent of ANTIVIRALS, Merger Sub and
IMMUNOTHERAPY, (ii) by either ANTIVIRALS or
IMMUNOTHERAPY if the Merger has not been consummated by
September 15, 1998 (or if more than three percent of
IMMUNOTHERAPY shareholders votes against the Merger then
by October 7, 1998), and (iii) under certain other
circumstances. See "THE MERGER--Termination; Amendment."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................. It is expected that the Merger will constitute a
reorganization for federal income tax purposes and,
accordingly, no gain or loss will be recognized by
IMMUNOTHERAPY Shareholders upon the conversion of
IMMUNOTHERAPY Stock into ANTIVIRALS Common Stock in the
Merger. It is further expected that no gain or loss will
be recognized by IMMUNOTHERAPY or ANTIVIRALS as a result
of the Merger. See "THE MERGER--Certain Federal Income
Tax Consequences." IMMUNOTHERAPY Shareholders and
holders of IMMUNOTHERAPY Options are urged to consult
their own tax advisor as to the specific tax
consequences to them of the Merger.
REGULATORY APPROVALS............ The parties to the Merger are not required to file
notifications under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and are not aware
of any other regulatory approvals required to consummate
the Merger other than compliance with the federal
securities laws and applicable securities and "blue sky"
laws of the various states.
ACCOUNTING TREATMENT............ It is anticipated that the Merger will be accounted for
on a purchase basis. See "THE MERGER--Accounting
Treatment."
CONFLICTS OF INTEREST........... As of the IMMUNOTHERAPY Record Date, non-employee
directors of the IMMUNOTHERAPY Board beneficially owned
an aggregate of 3,011,463 shares of IMMUNOTHERAPY Common
Stock and 80,000 shares of IMMUNOTHERAPY Preferred Stock
and held options to acquire an aggregate of 340,000
shares of IMMUNOTHERAPY Common Stock. See "STOCK OWNED
BY IMMUNOTHERAPY MANAGEMENT AND PRINCIPAL SHAREHOLDERS."
Assuming an ANTIVIRALS Common Stock and Nasdaq Warrant
market value of $5.00 and $1.75, respectively, the
aggregate dollar value of ANTIVIRALS Common Stock and
ANTIVIRALS Warrants to be received by these non-employee
directors in respect of outstanding shares of
IMMUNOTHERAPY Stock would be approximately $2,739,433
and $964,288, respectively, without discount for the
lack of trading market and other attributes of the
ANTIVIRALS
10
Warrants, representing approximately 25.8% of the
aggregate consideration to be received by all holders of
IMMUNOTHERAPY Stock.
As of the IMMUNOTHERAPY Record Date, the executive
officers employees of IMMUNOTHERAPY beneficially owned
an aggregate of 3,536,950 shares of IMMUNOTHERAPY Common
Stock and held options to acquire an aggregate of
191,700 shares of IMMUNOTHERAPY Common Stock. See "STOCK
OWNED BY IMMUNOTHERAPY MANAGEMENT AND PRINCIPAL
SHAREHOLDERS." Assuming an ANTIVIRALS Common Stock and
Nasdaq Warrant market value of $5.00 and $1.75,
respectively, the aggregate dollar value of ANTIVIRALS
Common Stock and ANTIVIRALS Warrants to be received by
these executive officers in respect of outstanding
shares of IMMUNOTHERAPY Stock would be approximately
$3,091,930 and $1,068,150, respectively, without
discount for the lack of trading market and other
attributes of the ANTIVIRALS Warrants, representing
approximately 28.9% of the aggregate consideration to be
received by all holders of IMMUNOTHERAPY Stock.
Upon the closing of the Merger, Jeffrey L. Lillard,
Managing Officer and a director of IMMUNOTHERAPY, and
the largest holder of IMMUNOTHERAPY Common Stock, and
Dr. Bruce Carter, a director of IMMUNOTHERAPY, will be
appointed members of the ANTIVIRALS Board. After the
Effective Time, Mr. Lillard will be employed by
ANTIVIRALS under the terms of an employment agreement.
See "CONFLICTS OF INTEREST."
11
COMBINED CONDENSED FINANCIAL DATA
The following selected historical financial information of ANTIVIRALS and
IMMUNOTHERAPY has been derived from their respective historical financial
statements, and should be read in conjunction with such financial statements and
the notes thereto, which are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected unaudited pro forma combined condensed
financial information is derived from the unaudited pro forma combined condensed
financial statements included elsewhere in this Joint Proxy Statement/Prospectus
and should be read in conjunction with such statements and the notes thereto,
and in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations of each of ANTIVIRALS and IMMUNOTHERAPY.
The unaudited pro forma combined financial information is not necessarily
indicative of the actual results or financial position that would have been
achieved had the Merger been consummated at the beginning of the years
presented, and should not be construed as representative of future operations.
See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
ANTIVIRALS HISTORICAL FINANCIAL DATA
AT OR FOR YEAR ENDED JULY 22, AT OR FOR THREE MONTHS JULY 22,
DECEMBER 31, 1980 ENDED MARCH 31, 1980
------------------------ (INCEPTION) ---------------------- (INCEPTION)
1996 1997 TO 12/31/97 1997 1998 TO 3/31/98
----------- ----------- ------------ --------- ----------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues from grants and research
contracts.............................. $ 27,227 $ 14,345 $ 703,842 $ -- $ 5,650 $ 709,492
Loss from operations..................... (2,316,138) (4,005,041) (16,876,700) (621,751) (1,595,579) (18,472,279)
Net loss................................. (2,087,362) (3,615,990) (16,041,473) (592,696) (1,424,858) (17,466,331)
Net loss per share--basic and diluted.... (0.25) (0.36) (0.07) (0.13)
Shares used in per share calculation..... 8,233,548 10,078,962 8,233,548 11,147,840
BALANCE SHEET DATA:
Cash and investments..................... $ 3,041,229 $17,638,936 $15,790,550
Working capital.......................... 2,738,677 17,193,526 15,858,374
Total assets............................. 4,248,899 18,782,214 17,526,343
Common stock subject to rescission....... 3,121,965 -- --
Deficit accumulated during the
development stage...................... (12,425,483) (16,041,473) (17,466,331)
Total shareholders' equity............... 796,127 18,317,762 17,044,907
Book value per share(1).................. 0.11 1.65 1.53
- ------------------------
(1) Book value per share amounts are computed by dividing total shareholders'
equity by the total number of common shares outstanding at the end of year.
12
IMMUNOTHERAPY HISTORICAL FINANCIAL DATA
AT OR FOR YEAR ENDED OCTOBER 7, AT OR FOR THREE MONTHS OCTOBER 7,
DECEMBER 31, 1993 ENDED MARCH 31, 1993
---------------------- (INCEPTION) ---------------------- (INCEPTION)
1996 1997 TO 12/31/97 1997 1998 TO 3/31/98
---------- ---------- -------------- ---------- ---------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues from grants and research
contracts........................... $ -- $ -- $ 50,000 $ -- $ -- $ 50,000
Loss from operations.................. (1,187,485) (1,323,085) (3,524,202) (364,174) (213,366) (3,737,568)
Net loss.............................. (1,187,811) (1,324,493) (3,511,385) (364,086) (212,366) (3,723,751)
Net loss per share--basic and
diluted............................. (0.12) (0.13) (0.04) (0.02)
Shares used in per share
calculation......................... 9,671,667 10,449,000 10,030,000 10,868,000
BALANCE SHEET DATA:
Cash and investments.................. $ 31,219 $ 21,702 $ 12,286
Working capital (Deficit)............. (327,271) (762,244) (973,831)
Total assets.......................... 102,414 45,457 45,763
Deficit accumulated during the
development stage................... (2,196,450) (3,597,790) (3,835,743)
Total shareholders' equity (deficiency
in assets).......................... (309,292) (758,813) (971,179)
Book value per share(1)............... (0.03) (0.07) (0.09)
- ------------------------
(1) Book value per share amounts are computed by dividing total shareholders'
equity by the total number of common shares outstanding at the end of year.
Preferred shares are not included.
UNAUDITED ANTIVIRALS AND IMMUNOTHERAPY
PRO FORMA COMBINED CONDENSED FINANCIAL DATA:
AT OR FOR YEAR
ENDED AT OR FOR THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------- ----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from grants and research contracts.................... $ 14,345 $ 5,650
Loss from operations........................................... (5,328,126) (1,808,945)
Net loss....................................................... (4,940,483) (1,637,224)
Net loss per share basic and diluted........................... (0.41) (0.12)
Shares used in per share calculation........................... 12,178,962 13,247,840
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments........................................... $ 14,995,037
Working capital (Deficit)...................................... 14,076,744
Total assets................................................... 16,023,164
Deficit accumulated during the development stage............... (37,037,510)
Total shareholders' equity..................................... 15,073,728
Book value per share(1)........................................ 1.14
- ------------------------
(1) Book value per share amounts are computed by dividing total shareholders'
equity by the total number of common shares outstanding or pro forma common
shares outstanding at the end of the period. Preferred shares are not
included.
13
COMPARATIVE PER SHARE DATA
The following table presents comparative per share data for ANTIVIRALS and
IMMUNOTHERAPY on a historical basis and combined per share data on an unaudited
pro forma basis. This data should be read in conjunction with the selected
historical financial information, the pro forma combined condensed financial
statements and the separate historical financial statements of ANTIVIRALS and
IMMUNOTHERAPY and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined financial data is not
necessarily indicative of the actual results or financial position that would
have been achieved had the Merger been consummated at the beginning of the years
presented, and should not be construed as representative of future operations.
AT OR FOR YEAR ENDED AT OR FOR THREE
MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
HISTORICAL--ANTIVIRALS:
Net loss per share--Basic and Diluted....................................... $ (0.25) $ (0.36) $ (0.07) $ (0.13)
Book value per share(1)..................................................... 0.11 1.65 1.53
HISTORICAL--IMMUNOTHERAPY:
Net loss per share--Basic and Diluted....................................... $ (0.12) $ (0.13) $ (0.04) $ (0.02)
Book deficit per share(1)................................................... (0.03) (0.07) (0.09)
PRO FORMA--COMBINED NET LOSS:
Net loss per ANTIVIRALS share--Basic and Diluted............................ (.41) $ (0.12)
Net loss per IMMUNOTHERAPY share(2)--Basic and Diluted...................... (.07) (0.02)
PRO FORMA--COMBINED BOOK VALUE:
Book value per ANTIVIRALS share(3).......................................... $ 1.14
Book value per IMMUNOTHERAPY share(2)....................................... 0.20
- ------------------------
(1) The historical book value (deficit) per share is computed by dividing total
Shareholders' equity by the total number of common shares outstanding at the
end of the period.
(2) The IMMUNOTHERAPY equivalent proforma amounts of net income and book value
are computed by multiplying the proforma combined amounts by the exchange
ratio of 0.175.
(3) The pro forma combined book value per share of ANTIVIRALS Common Stock is
computed by dividing pro forma Shareholders' equity by the pro forma number
of common shares outstanding at the end of the period.
14
COMPARATIVE PER SHARE MARKET INFORMATION
ANTIVIRALS
The ANTIVIRALS Common Stock and Nasdaq Warrants are quoted on the Nasdaq
National Market. The ANTIVIRALS Common Stock and Nasdaq Warrants began trading
on the Nasdaq National Market on June 4, 1997. The table below sets forth for
the fiscal periods indicated the high and low closing prices per share of
ANTIVIRALS Common Stock and the Nasdaq Warrants on the Nasdaq National Market as
reported in published financial sources.
PRICE PER SHARE OF
PRICE PER
ANTIVIRALS COMMON NASDAQ WARRANT
STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
Fiscal 1997
Third Quarter................................................................. $ 7.50 $ 6.44 $ 3.69 $ 2.56
Fourth Quarter................................................................ $ 9.50 $ 6.60 $ 4.12 $ 2.75
Fiscal 1998
First Quarter................................................................. $ 7.66 $ 6.00 $ 3.38 $ 2.38
Second Quarter (through July 31, 1998)........................................ $ 7.38 $ 4.63 $ 3.00 $ 1.75
On November 5, 1997, the last full trading day prior to announcement by
ANTIVIRALS and IMMUNOTHERAPY of the execution of a letter of intent to enter
into a merger agreement, the reported Nasdaq National Market closing price per
share of ANTIVIRALS Common Stock was $9.31 and for Nasdaq Warrants was $4.00. On
August 6, 1998, the most recent available date prior this Joint Proxy Statement/
Prospectus, the reported Nasdaq National Market closing price per share of
ANTIVIRALS Common Stock was $4.19 and for Nasdaq Warrants it was $1.63. On that
date, there were 914 holders of record of ANTIVIRALS Common Stock and 15 holders
of record of Nasdaq Warrants. ANTIVIRALS Shareholders and IMMUNOTHERAPY
Shareholders are urged to obtain current market quotations.
ANTIVIRALS has never declared or paid cash dividends on shares of ANTIVIRALS
Common Stock. It is not anticipated that any cash dividends will be paid on
ANTIVIRALS Common Stock in the foreseeable future.
IMMUNOTHERAPY
There is no public market for shares of IMMUNOTHERAPY Common or Preferred
Stock. There were 50 holders of record of IMMUNOTHERAPY Common Stock and 48
holders of record of IMMUNOTHERAPY Preferred Stock as of August 4, 1998.
IMMUNOTHERAPY has never declared or paid cash dividends on shares of
IMMUNOTHERAPY Stock. It is not anticipated that any cash dividends will be paid
on IMMUNOTHERAPY Stock in the foreseeable future.
15
RISK FACTORS
The following factors should be considered carefully by the ANTIVIRALS
Shareholders and the IMMUNOTHERAPY Shareholders in connection with voting on the
Issuance and the Merger, respectively. These factors should be considered in
conjunction with the other information included elsewhere in this Joint Proxy
Statement/Prospectus.
RISKS RELATING TO THE MERGER
INTEGRATION OF THE BUSINESSES. The management of ANTIVIRALS and
IMMUNOTHERAPY have entered into the Merger Agreement with the expectation that
the Merger will result in beneficial synergistic effects for the combined
company. See "BACKGROUND OF AND REASONS FOR THE MERGER." Achieving the
anticipated benefits of the Merger will depend in part upon whether the
integration of the two companies' businesses is achieved in a timely, efficient
and effective manner, and there can be no assurance that this will occur. The
combination of the two companies will require, among other matters, coordination
of their research and development efforts. There can be no assurance that such
integration and coordination will be accomplished smoothly or successfully. The
integration of the two organizations will require the dedication of management
resources which will divert those resources from attention to the day-to-day
business of the combined company. The difficulties of integration may be
increased by the need to coordinate the clinical trials of proposed
pharmaceutical products at varying stages of development and clinical trials.
The process of combining the companies may cause an interruption of, or a loss
of momentum in, the activities of either or both of the companies' businesses
and may delay any improvement in the results of operations of the combined
company, at least in the near term.
EXPENSES RELATED TO THE MERGER. The negotiation and implementation of the
Merger will result in an aggregate pre-tax expense to ANTIVIRALS estimated at
approximately $1 million. This estimate includes estimated costs of consummating
the Merger, including fees and charges of attorneys and accountants for both
parties, personnel severance costs, the cancellation and continuation of
contractual obligations and other integration costs. These amounts are
preliminary estimates only and are therefore subject to change. These costs will
negatively affect ANTIVIRALS' results of operations in the quarter in which the
Merger is consummated. In addition, there can be no assurance that the combined
entity will not incur additional charges in subsequent quarters to reflect costs
associated with the Merger.
SHARES ELIGIBLE FOR FUTURE SALE. If the Issuance and the Merger are
approved by the stockholders of ANTIVIRALS and the Shareholders of
IMMUNOTHERAPY, respectively, ANTIVIRALS may issue to the IMMUNOTHERAPY
Shareholders up to approximately 2.3 million shares of ANTIVIRALS Common Stock
and up to approximately 2.3 million warrants to purchase shares of ANTIVIRALS
Common Stock. In addition, approximately 220,000 options to purchase additional
shares of ANTIVIRALS Common Stock will be issued in the Merger. Although these
shares, including any shares issued upon exercise of options, will initially be
subject to Lock-up Agreements entered into by IMMUNOTHERAPY Shareholders, six
months after the Closing Date, 210,000 shares of ANTIVIRALS Common Stock will be
released from operation of the lock-up agreements. One year after the Closing
Date, up to 840,000 shares of ANTIVIRALS Common Stock shall be released from
operation of the lock-up agreements, subject to pending claims of ANTIVIRALS.
The balance of the shares of ANTIVIRALS Common Stock will be released from
operation of the lock-up agreements two years after the Closing Date. In
addition, at that time, the ANTIVIRALS warrants issued in the merger will become
exercisable. Future sales of a substantial number of the foregoing shares could
adversely affect or cause substantial fluctuations in the market price of
ANTIVIRALS Common Stock. See "THE MERGER--Resale of ANTIVIRALS Common Stock
Issued in the Merger."
FLUCTUATION OF OPERATING RESULTS. A variety of factors may cause
period-to-period fluctuations in the operating results of the combined company
following the Merger. Such factors include, but are not limited to, the
integration of the businesses as noted above and expenses related to the
pre-clinical and clinical
16
development of new pharmaceutical products. Singularly or in combination, these
factors could adversely affect the combined company's operating results and
financial condition.
CONFLICTS OF INTEREST. Certain directors and executive officers of
IMMUNOTHERAPY have interests in connection with the Merger that are in addition
to those of the Shareholders of IMMUNOTHERAPY generally. Upon closing of the
Merger Agreement, Jeffrey L. Lillard, Managing Officer and director of
IMMUNOTHERAPY, and the largest holder of IMMUNOTHERAPY Stock, will become a
director of ANTIVIRALS, as will Dr. Bruce L. A. Carter, a current IMMUNOTHERAPY
director. At the Effective Time, Mr. Lillard will enter into an employment
agreement with ANTIVIRALS. Proximate to the Closing Date, ANTIVIRALS intends to
loan to Mr. Lillard approximately $450,000 to assist him with his relocation to
Portland, Oregon. See "CONFLICTS OF INTEREST."
DILUTION OF ANTIVIRALS STOCKHOLDERS. Upon consummation of the Merger,
approximately 13,340,732 shares of ANTIVIRALS Common Stock will be outstanding.
The holders of ANTIVIRALS Common Stock prior to the Merger will collectively own
approximately 11,198,919 shares of ANTIVIRALS Common Stock after consummation of
the Merger, which will constitute eighty-four percent (84%) of the ANTIVIRALS
Common Stock then outstanding. Prior to the Merger, shares of ANTIVIRALS Common
Stock had a book value per share of $0.11, $1.65 and 1.53 at December 31, 1996,
December 31, 1997 and March 31, 1998, respectively; after giving effect to the
Merger on a pro forma basis, shares of ANTIVIRALS Common Stock will have a book
value per share (including common stock equivalents) of $1.14 at March 31, 1998.
As a result of the Merger, holders of ANTIVIRALS Common Stock will experience an
immediate, substantial dilution of 16% in their aggregate percentage ownership
of ANTIVIRALS, and an equal amount of dilution in the book value of their
investment. See "COMPARATIVE PER SHARE DATA."
CHANGES IN SHAREHOLDER RIGHTS OF IMMUNOTHERAPY SHAREHOLDERS. Upon
consummation of the Merger, the IMMUNOTHERAPY Shareholders will become
shareholders of ANTIVIRALS, an Oregon corporation. There are material
differences between the rights of shareholders of California corporations and
the rights of stockholders of Oregon corporations. These differences include,
without limitation, differing shareholder rights with respect to certain
amendments to a corporation's bylaws, the availability under Oregon Law of
greater anti-takeover provisions for the corporation, and differing rights of
dissenting shareholders in certain corporate transactions. See "COMPARATIVE
RIGHTS OF IMMUNOTHERAPY SHAREHOLDERS AND ANTIVIRALS STOCKHOLDERS." All shares of
IMMUNOTHERAPY Preferred Stock will be exchanged for shares of ANTIVIRALS Common
Stock and holders of IMMUNOTHERAPY Preferred Stock will no longer enjoy various
rights, including, without limitation, dividend or liquidation preferences.
ESCROWED SHARES. The Merger Agreement provides for an escrow of fifteen
percent (15%) of the shares of ANTIVIRALS Common Stock issued in the Merger that
would otherwise be issued to certain IMMUNOTHERAPY shareholders, including the
Lillard Group. These shares will be held by the Escrow Agent for a period that,
absent unresolved claims, will end on the first anniversary of the Closing Date.
The Escrow Shares will be subject to claims by ANTIVIRALS to satisfy
IMMUNOTHERAPY's obligation under the Merger Agreement to reimburse ANTIVIRALS
for any and all claims and liabilities incurred by ANTIVIRALS with respect to or
arising from any breach of warranty or of any representation, or failure to
perform any covenant, made by IMMUNOTHERAPY in the Merger Agreement. For this
purpose, the Escrow Shares will have a value per share equal to the average
closing price of ANTIVIRALS Common Stock on the Nasdaq Stock Market during the
ten (10) trading days prior to the date the Escrowed Shares are to be delivered
to ANTIVIRALS under the terms of an Escrow Agreement to be executed concurrently
with the Closing. There can be no assurance to those IMMUNOTHERAPY Shareholders
that there will be no such claims, or that if there are such claims those
IMMUNOTHERAPY Shareholders will receive all or any portion of the Escrow Shares;
consequently, the consideration to be received by certain IMMUNOTHERAPY
Shareholders may be less than the full exchange ratio would suggest. In
addition, there can be no assurances that there will not be a decline in the
trading price of ANTIVIRALS Common Stock between the
17
Closing Date and the date on which the Escrow Shares are released from escrow
and the IMMUNOTHERAPY Shareholders are able to sell the same. See "RISK
FACTORS--Lock-up and Potential Changes in Merger Consideration to be Paid to
IMMUNOTHERAPY Shareholders."
There also can be no assurance to ANTIVIRALS Shareholders that the value
represented by the Escrow Shares will be sufficient to cover any shortfall in
value represented by breaches of representations or warranties that may occur,
resulting either from a decrease in the value of the Escrow Shares or to the
experience by ANTIVIRALS of liabilities due to breaches of representations or
warranties that exceed the value of the Escrow Shares. There is no other
recourse for recovery from IMMUNOTHERAPY after consummation of the Merger.
Consequently, to the extent such claims exist and exceed the value of the Escrow
Shares, the value anticipated to be received by ANTIVIRALS in the Merger may not
be realized.
LOCKUP AND POTENTIAL CHANGES IN THE MERGER CONSIDERATION TO BE PAID TO
IMMUNOTHERAPY SHAREHOLDERS. ANTIVIRALS Common Stock has experienced significant
fluctuations in value over its trading history, including significant
fluctuations in value ranging from a low of $4.56 per share to a high of $9.31
per share during the last nine months. The value of the consideration to be
received by the IMMUNOTHERAPY Shareholders pursuant to the Merger Agreement is
subject to fluctuation with the market value of ANTIVIRALS Common Stock. There
can be no assurances as to the market value of ANTIVIRALS Common Stock to be
received by the IMMUNOTHERAPY Shareholders at Closing, and there can be no
assurances that the ANTIVIRALS Common Stock to be received at Closing will not
thereafter decline in price. In addition, the consummation of the Merger is
conditioned on the delivery by IMMUNOTHERAPY to ANTIVIRALS of lockup agreements
executed by each shareholder of IMMUNOTHERAPY. Under the terms of the lockup
agreements, holders of ANTIVIRALS Stock obtained upon conversion of
IMMUNOTHERAPY Stock will be restricted from selling their ANTIVIRALS Common
Stock until the shares have been released from the Lockup Agreements or the
lockup agreements have terminated. There can be no assurances that the market
value of the ANTIVIRALS Common Stock will not decline after the Closing Date,
reducing or even eliminating the value of the stock held by the former
IMMUNOTHERAPY Shareholders. The volatility of the trading price for ANTIVIRALS
Common Stock means IMMUNOTHERAPY Shareholders cannot be assured that at Closing
or thereafter, the ANTIVIRALS Common Stock and the ANTIVIRALS Warrants given in
exchange for the IMMUNOTHERAPY Stock will have a market value that fairly
reflects the value of IMMUNOTHERAPY. It also means ANTIVIRALS Shareholders
cannot be assured that at Closing or thereafter, ANTIVIRALS will not have paid a
premium for IMMUNOTHERAPY.
CONDITIONS REQUIRED TO CONSUMMATE THE MERGER. The Merger Agreement contains
a number of conditions which, if not satisfied, could result in the Merger not
being consummated, including, without limitation, that holders of not more than
three percent (3%) of the total number of shares of IMMUNOTHERAPY Stock shall
have exercised dissenters' rights. See "THE MERGER--Conditions; Waivers" for a
detailed recitation of these conditions. Consequently, there is a risk that the
Merger will not occur even if the Issuance is approved by the ANTIVIRALS
Shareholders and the Merger and the Merger Agreement are approved by the
IMMUNOTHERAPY Shareholders. There can be no guarantee that all of the closing
conditions will be satisfied, that any unsatisfied conditions will be waived, or
that the Merger will in fact close. If the Merger is not consummated,
substantial expenses associated with the Merger will nonetheless have been
incurred, and will have a material adverse affect on each of ANTIVIRALS' and
IMMUNOTHERAPY's independent financial status and results of operations, with no
corresponding benefit from the Merger.
RISKS RELATING TO THE BUSINESS OF BOTH ANTIVIRALS AND IMMUNOTHERAPY
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES. ANTIVIRALS and
IMMUNOTHERAPY are development stage biotechnology companies. Since its inception
in 1980 through March 31, 1998, ANTIVIRALS had incurred losses of $17,466,331,
substantially all of which resulted from expenditures related to research and
development and general and administrative expenses. Similarly, since its
inception in 1993 through March 31, 1998, IMMUNOTHERAPY had incurred losses of
$3,723,751, resulting from its own
18
research and development, and general and administrative costs. Neither
ANTIVIRALS nor IMMUNOTHERAPY has generated any material revenues from product
sales to date, and there can be no assurance that material revenues from product
sales will ever be achieved. Moreover, even if ANTIVIRALS or IMMUNOTHERAPY does
realize revenues from product sales, the companies nevertheless expect to incur
significant operating losses over the next several years. The financial
statements accompanying this Joint Proxy Statement/Prospectus have been prepared
assuming that ANTIVIRALS and IMMUNOTHERAPY each will continue as a going
concern. ANTIVIRALS' and IMMUNOTHERAPY's ability to achieve a profitable level
of operations in the future will depend in large part on the completion of
product development of its antisense products and drug delivery products and
CTP-37, respectively, obtaining regulatory approvals for such products and
related products, and bringing several of these products to market. The
likelihood of the long-term success of ANTIVIRALS and IMMUNOTHERAPY must be
considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new pharmaceutical
products, competitive factors in the marketplace as well as the burdensome
regulatory environment in which ANTIVIRALS and IMMUNOTHERAPY operate. There can
be no assurance that ANTIVIRALS or IMMUNOTHERAPY will ever achieve significant
revenues or profitable operations. See "Selected Financial Data" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
TECHNOLOGICAL UNCERTAINTY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE
OF REGULATORY APPROVALS. ANTIVIRALS' proposed products are in the pre-clinical
stage of development and will require significant further research, development,
clinical testing and regulatory clearances. IMMUNOTHERAPY's product, CTP-37, is
in the clinical stage of development but also will require significant further
clinical testing and regulatory clearances. ANTIVIRALS has no products available
for sale other than research reagents and does not expect to have any products
resulting from its research efforts commercially available for at least several
years. Except for IMMUNOTHERAPY's CTP-37, none of the combined company's
proposed products has been tested in humans, nor has ANTIVIRALS filed an
Investigational New Drug Application ("IND") with the United States Food and
Drug Administration ("FDA") on any of its products currently under research and
development. ANTIVIRALS' proposed products and IMMUNOTHERAPY's CTP-37 are
subject to the risks of failure inherent in the development of products based on
innovative technologies. These risks include the possibilities that some or all
of the proposed products could be found to be ineffective or toxic, or otherwise
fail to receive necessary regulatory clearances; that the proposed products,
although effective, will be uneconomical to manufacture or market; that third
parties may now or in the future hold proprietary rights that preclude
ANTIVIRALS or IMMUNOTHERAPY from marketing its products; or that third parties
will develop and market superior or equivalent, but less expensive, products.
Accordingly, ANTIVIRALS and IMMUNOTHERAPY are unable to predict whether any
research and development activities will result in commercially viable products
or applications. Furthermore, due to the extended testing and regulatory review
process required before marketing clearance can be obtained, neither ANTIVIRALS
nor IMMUNOTHERAPY expects to be able to commercialize any therapeutic drug for
at least several years, either directly or through any potential corporate
partners or licensees. Although ANTIVIRALS and others have demonstrated the
effectiveness of antisense compounds in living cells and, in some cases, in
animal models, except for CTP-37, none of the combined company's proposed
products has been tested in humans and there can be no assurance that any of
such products will prove to be safe or effective in humans or will receive the
regulatory approvals that are required for commercial sale.
ANTIVIRALS' NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO
CAPITAL. ANTIVIRALS will require substantial funds for further development of
its potential products and to commercialize any products that may be developed.
ANTIVIRALS' capital requirements depend on numerous factors, including the
progress of its research and development programs, the status of pre-clinical
and clinical testing, the time and cost involved in obtaining regulatory
approvals, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments and the ability of ANTIVIRALS to establish collaborative
arrangements. ANTIVIRALS has no current anticipated sources of funding.
ANTIVIRALS believes that its existing capital resources will be sufficient to
satisfy its
19
current and projected funding requirements for at least twelve months from the
date of this Proxy Statement/Prospectus. ANTIVIRALS anticipates that after
twenty-four months, it will require substantial additional capital. Moreover, if
ANTIVIRALS experiences unanticipated cash requirements during the next
twenty-four months, ANTIVIRALS could require additional capital to fund its
operations, to continue research and development programs and to continue the
pre-clinical and clinical testing of its potential products and to commercialize
any products that may be developed. ANTIVIRALS may seek such additional funding
at any time through public or private financings, collaborative arrangements, or
other arrangements with third parties. There can be no assurance that additional
funds will be available on acceptable terms, if at all. If additional funds are
raised by issuing equity securities, further substantial dilution to existing
shareholders may result. If adequate funds are not available, ANTIVIRALS may be
required to delay, scale back or eliminate one or more of its development or
clinical testing programs, or to obtain funds by entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its products or technologies that ANTIVIRALS would not
otherwise relinquish. See "ANTIVIRALS Management's Discussion and Analysis of
Financial Condition and Results of Operations."
IMMUNOTHERAPY'S NEED FOR ADDITIONAL FUNDING. IMMUNOTHERAPY requires
substantial funds to maintain its license and for further development and
testing of CTP-37. To meet its ongoing operating expenses, IMMUNOTHERAPY has
borrowed, pending the Merger, approximately $1,000,000 as of July 31, 1998,
pursuant to a loan agreement with ANTIVIRALS. In the event the Merger is not
consummated for any reason, IMMUNOTHERAPY will be obligated to pay to ANTIVIRALS
the full amount of such loan, plus interest, which will become due and payable
on April 30, 1999. Without significant alternative financing, in such event,
IMMUNOTHERAPY will be unable to repay ANTIVIRALS and will also have no funds
with which to meet its continuing obligations relating to its license and to its
clinical trials. There can be no assurance that such alternative financing is
available or, if available, that it will be on terms which do not significantly
affect the value of IMMUNOTHERAPY Stock. There can also be no assurance that
alternative financing, if found, will permit the repayment to ANTIVIRALS of the
full amount loaned to IMMUNOTHERAPY. In the event IMMUNOTHERAPY defaults in the
repayment to ANTIVIRALS of the full amount issued to IMMUNOTHERAPY, ANTIVIRALS'
sole remedy for default shall be the issuance to ANTIVIRALS by IMMUNOTHERAPY,
subject to approval by IMMUNOTHERAPY's shareholders, of a number of shares of
Class B Preferred Stock of IMMUNOTHERAPY equal to the aggregate dollar amount of
principal and interest outstanding on April 30, 1999, divided by $1.0161235,
which Class B Preferred Stock shall enjoy the same rights and privileges as
IMMUNOTHERAPY's Class A Preferred Stock. ANTIVIRALS will thereafter enjoy the
right to designate and IMMUNOTHERAPY shall be required to appoint two designees
of ANTIVIRALS to IMMUNOTHERAPY's Board. See "IMMUNOTHERAPY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources."
LACK OF OPERATING EXPERIENCE. To date, ANTIVIRALS has engaged exclusively
in the development of pharmaceutical technology. Although members of ANTIVIRALS'
management have experience in biotechnology company operations, ANTIVIRALS has
limited experience in manufacturing or procuring products in commercial
quantities or selling pharmaceutical products and has only limited experience in
negotiating, setting up and maintaining strategic relationships, conducting
clinical trials and other later-stage phases of the regulatory approval process.
There can be no assurance that ANTIVIRALS will successfully engage in any of
these activities. See "ANTIVIRALS DIRECTORS AND EXECUTIVE OFFICERS."
20
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND
MARKETING. ANTIVIRALS does not have the resources and does not currently intend
to conduct later-stage human clinical trials itself or to manufacture all of its
proposed products for commercial sale. ANTIVIRALS therefore intends to seek
larger pharmaceutical company partners to conduct such activities for most or
all of its proposed products or may seek to contract with third parties to
conduct later stage clinical trials and for the manufacture of its proposed
products for commercial sale. In connection with its efforts to secure corporate
partners, ANTIVIRALS will seek to retain certain co-marketing rights to certain
of its proposed products, so that it may promote such products to selected
medical specialists while its corporate partner promotes these products to the
general medical market. There can be no assurance that ANTIVIRALS will be able
to enter into any such partnering arrangements on this or any other basis. In
addition, there can be no assurance that either ANTIVIRALS or its prospective
corporate partners will successfully introduce its proposed products, that they
will achieve acceptance by patients, health care providers and insurance
companies, or that they will be manufactured and marketed at prices that would
permit ANTIVIRALS to operate profitably. With respect to marketing ANTIVIRALS'
products, ANTIVIRALS may seek to enter into joint venture, sublicense or other
marketing arrangements with another party that has an established marketing
capability. There can be no assurance that ANTIVIRALS will be able to enter into
any such marketing arrangements with third parties, or that such marketing
arrangements would be successful. Failure to market its products successfully
would have a material adverse effect on ANTIVIRALS' business and results of
operations. In addition, ANTIVIRALS has no current joint venture, strategic
partnering or other similar agreements with pharmaceutical companies, and there
can be no assurance that ANTIVIRALS could negotiate any such arrangements, on an
acceptable basis or at all, if it chose to do so. Accordingly, the commercial
viability of ANTIVIRALS' proposed products has not been independently evaluated
by any independent pharmaceutical company. See "BUSINESS OF
ANTIVIRALS--Manufacturing" and "--Marketing Strategy."
NEED TO COMPLY WITH GOVERNMENTAL REGULATION AND TO OBTAIN PRODUCT
APPROVALS. The testing, manufacturing, labeling, distribution, marketing and
advertising of products such as ANTIVIRALS' proposed products and
IMMUNOTHERAPY's CTP-37, and related ongoing research and development activities,
are subject to extensive regulation by governmental regulatory authorities in
the United States and other countries. The FDA and comparable agencies in
foreign countries impose substantial requirements on the introduction of new
pharmaceutical products through lengthy and detailed clinical testing procedures
and other costly and time-consuming compliance procedures. ANTIVIRALS' proposed
products require substantial clinical trials and FDA review as new drugs.
ANTIVIRALS cannot predict with certainty when it might submit its products
currently under development for regulatory review. Once ANTIVIRALS submits its
potential products for review, there can be no assurance that FDA or other
regulatory approvals will be granted on a timely basis or at all. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on ANTIVIRALS' business and results of operations. Failure to comply with
regulatory requirements could subject ANTIVIRALS to regulatory or judicial
enforcement actions, including, but not limited to, product recalls or seizures,
injunctions, civil penalties, criminal prosecution, refusals to approve new
products and withdrawal of existing approvals, as well as potentially enhanced
product liability exposure. Sales of ANTIVIRALS' products outside the United
States will be subject to regulatory requirements governing clinical trials and
product approval. These requirements vary widely from country to country and
could delay introduction of ANTIVIRALS' products in those countries. See
"BUSINESS OF ANTIVIRALS--Drug Approval Process and Other Government Regulation."
DEPENDENCE ON KEY PERSONNEL. The success of ANTIVIRALS' business will
depend to a large extent on the abilities and continued participation of certain
key employees, including Drs. Denis Burger, Patrick Iversen, and Dwight Weller,
upon each of whom the Company holds key man life insurance and, after the
Merger, Jeffrey L. Lillard. The loss of any of these persons or of other key
employees could significantly delay the achievement of ANTIVIRALS' planned
development objectives. Competition for qualified personnel among pharmaceutical
companies is intense, and the loss of key personnel, or the inability to attract
and retain the additional, highly skilled personnel required for the expansion
of ANTIVIRALS' activities,
21
could have a material adverse effect on ANTIVIRALS' business and results of
operations. See "ANTIVIRALS EXECUTIVE COMPENSATION."
COMPETITION. Competition in the area of pharmaceutical products is intense.
There are many companies, both public and private, including well-known
pharmaceutical companies, that are engaged in the development of products for
certain of the applications being pursued by ANTIVIRALS and IMMUNOTHERAPY. Most
of these companies have substantially greater financial, research and
development, manufacturing and marketing experience, and resources than
ANTIVIRALS does and represent substantial long-term competition for ANTIVIRALS.
Such companies may succeed in developing pharmaceutical products that are more
effective or less costly than any that may be developed by ANTIVIRALS.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on patented or proprietary technology. If ANTIVIRALS is able to establish
and maintain a significant patent position with respect to its antisense
compounds, drug delivery and vaccine technology, its competition will likely
depend primarily on the effectiveness of the products, cost of production, and
the number, gravity and severity of unwanted side effects, if any, with its
products as compared to alternative products.
The industry in which ANTIVIRALS competes is characterized by extensive
research and development efforts and rapid technological progress. Although
ANTIVIRALS believes that its and IMMUNOTHERAPY's patent position may give it a
competitive advantage with respect to CTP-37, its proposed antisense compounds
and drug delivery products, new developments are expected to continue and there
can be no assurance that discoveries by others will not render ANTIVIRALS'
potential products noncompetitive. ANTIVIRALS' competitive position also depends
on its ability to attract and retain qualified scientific and other personnel,
develop effective products, implement development and marketing plans, obtain
patent protection, and secure adequate capital resources. See "BUSINESS OF
ANTIVIRALS--Competition" and "BUSINESS OF IMMUNOTHERAPY--Competition."
PATENTS AND PROPRIETARY RIGHTS. ANTIVIRALS and IMMUNOTHERAPY each believe
that its, and the combined company's, ultimate success will depend on the
strength of each company's existing patents and licenses, and additional patents
that it files in the future. Patent applications have been filed by ANTIVIRALS
covering the basic compositions of matter, methods of synthesis and therapeutic
use of NEU-GENE in the United States, Canada, Europe, Australia and Japan.
Patents have been issued in the name of ANTIVIRALS in the United States from
1991 through the present. In addition, ANTIVIRALS recently filed for patents on
NEU-GENE chemistry and CYTOPORTER drug delivery systems. IMMUNOTHERAPY, which
licenses the composition, manufacturing and use of CTP-37 in all fields of use
except fertility regulation from Dr. Vernon Stevens and The Ohio State
University, has ten issued patents relating to the composition, manufacture and
use of IMMUNOTHERAPY's CTP-37 licensed technology in the United States.
IMMUNOTHERAPY is in the process of prosecuting an international Patent
Cooperation Treaty ("PCT") application for CTP-37 in numerous foreign countries,
and pursuant to that process has received a patent grant in Australia.
Although each of ANTIVIRALS and IMMUNOTHERAPY believe their technologies are
adequately protected, there can be no assurance that any existing or future
patents will survive a challenge or will otherwise provide meaningful protection
from competition. Both companies are currently prosecuting further patent
protection for their intellectual property, but there can be no assurance that
any additional patents will ultimately issue. There can also be no assurance
that the patent positions of ANTIVIRALS or IMMUNOTHERAPY will not be challenged
by a competitor or, if challenged, that either company will have the financial
resources to provide a vigorous defense of its patents. Although the companies
are not aware of any violation at the present time, there can be no assurance
that the use of patented technology by ANTIVIRALS or IMMUNOTHERAPY does not or
will not in the future infringe third-party patents. In addition, if an
infringement were proven, it is likely that such event would have a material
adverse effect on the financial position and results of ANTIVIRALS or
IMMUNOTHERAPY, as the case may be.
22
RISK OF PRODUCT LIABILITY. Clinical trials or marketing of any of
ANTIVIRALS' potential pharmaceutical products may expose ANTIVIRALS to liability
claims from the use of these products. ANTIVIRALS currently intends to obtain
product liability insurance at the appropriate time; however, there can be no
assurance that ANTIVIRALS will be able to obtain or maintain insurance on
acceptable terms for its clinical and commercial activities or that such
insurance would be sufficient to cover any potential product liability claim or
recall. Failure to obtain or maintain sufficient coverage could have a material
adverse effect on ANTIVIRALS' business and results of operations.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND OREGON LAW. Certain
provisions of ANTIVIRALS' Second Restated Articles of Incorporation and Bylaws
could discourage potential acquisition proposals, delay or prevent a change in
control of ANTIVIRALS and make removal of management more difficult. Such
provisions could diminish the opportunities for a shareholder to participate in
tender offers, including tender offers that are priced above the then-current
market value of ANTIVIRALS Common Stock. The provisions may also inhibit
increases in the market price of ANTIVIRALS Common Stock that could result from
takeover attempts. For example, the ANTIVIRALS Board, without further
shareholder approval, may issue up to 2,000,000 shares of Preferred Stock, in
one or more series, with such terms as the Board of Directors may determine,
including rights such as voting, dividend and conversion rights which could
adversely affect the voting power and other rights of the holders of ANTIVIRALS
Common Stock. Preferred Stock thus may be issued quickly with terms calculated
to delay or prevent a change in control of ANTIVIRALS or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of ANTIVIRALS Common Stock. The
Oregon Control Share Act and Business Combination Act limit the ability of
parties who acquire a significant amount of voting stock to exercise control
over ANTIVIRALS. These provisions may have the effect of lengthening the time
required for a person to acquire control of ANTIVIRALS through a proxy contest
or the election of a majority of the Board of Directors and may deter efforts to
obtain control of ANTIVIRALS. Finally, ANTIVIRALS' Board of Directors is divided
into two classes, each of which serves for a staggered two-year term, which may
make it more difficult for a third party to gain control of ANTIVIRALS' Board of
Directors. See "Description of Securities."
ABSENCE OF DIVIDENDS. ANTIVIRALS has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
23
ANNUAL MEETING OF ANTIVIRALS SHAREHOLDERS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of ANTIVIRALS, as part of the solicitation of proxies by the ANTIVIRALS Board
from holders of the outstanding shares of ANTIVIRALS Common Stock, for use at
the ANTIVIRALS Annual Meeting to be held on Monday, August 31, , 1998, at the
Marriott Hotel, 1401 S.W. Naito Parkway, Portland, Oregon 97201 commencing at
10:00 a.m., local time, and at any adjournments or postponements thereof. This
Joint Proxy Statement/ Prospectus, together with the enclosed proxy card, is
first being mailed to ANTIVIRALS Shareholders and IMMUNOTHERAPY Shareholders on
or about August 10, 1998.
MATTERS TO BE CONSIDERED AT THE MEETING
At the ANTIVIRALS Annual Meeting, shareholders of record of ANTIVIRALS as of
the close of business on May 31, 1998, will consider and vote upon (i) the
Issuance; (ii) the adoption of ANTIVIRALS' 1997 Stock Option Plan in connection
with the assumption of the IMMUNOTHERAPY Options under the Merger Agreement;
(iii) the election of four (4) directors to the ANTIVIRALS Board, each to hold
office for a two year term; (iv) ratification of the appointment of Arthur
Andersen LLP as ANTIVIRALS' independent auditors; (v) an amendment to the
ANTIVIRALS Stock Incentive Plan to increase from 1,333,334 to 2,200,000 the
number of shares of ANTIVIRALS Common Stock authorized for issuance thereunder;
and (vi) an amendment to ANTIVIRALS' Third Restated and Amended Articles of
Incorporation changing the company's name to AVI BioPharma Inc., for the fiscal
year ending December 31, 1998; and (vi) such other business as may properly be
brought before the ANTIVIRALS Annual Meeting.
Holders of ANTIVIRALS Common Stock will not be entitled to dissenters'
rights as a result of the Issuance. See "THE MERGER--Terms of the Merger."
THE ANTIVIRALS BOARD HAS APPROVED THE ISSUANCE AND RECOMMENDS THAT
ANTIVIRALS SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE, "FOR" APPROVAL OF
THE 1997 STOCK OPTION PLAN, "FOR" THE NOMINEES FOR DIRECTORS, "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP, "FOR" AMENDMENT OF THE
STOCK INCENTIVE PLAN, AND "FOR" THE NAME CHANGE TO AVI BIOPHARMA. SEE
"BACKGROUND OF AND REASONS FOR THE MERGER," "ELECTION OF ANTIVIRALS DIRECTORS,"
"AMENDMENT TO STOCK INCENTIVE PLAN," "CHANGE OF NAME" AND "RATIFICATION OF
APPOINTMENT OF ANTIVIRALS INDEPENDENT AUDITORS."
As of the date of this Joint Proxy Statement/Prospectus, the ANTIVIRALS
Board does not know of any other matters to be presented for action by the
shareholders at the ANTIVIRALS Annual Meeting. Notice of shareholder proposals
and with respect to matters to be presented for action by the shareholders at an
annual meeting and nominations for director be delivered to the Secretary of
ANTIVIRALS not less than 60 days nor more than 90 days prior to the date of an
annual meeting. If any other matters are properly brought before the ANTIVIRALS
Annual Meeting, the persons named in the proxy will vote the shares represented
by such proxy upon such matters as determined by a majority of the ANTIVIRALS
Board.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The ANTIVIRALS Board has fixed the close of business on July 10, 1998 (the
"ANTIVIRALS Record Date") as the record date for the determination of the
holders of ANTIVIRALS Common Stock entitled to notice of and to vote at the
ANTIVIRALS Annual Meeting. Accordingly, only holders of record of ANTIVIRALS
Common Stock at the close of business on the ANTIVIRALS Record Date will be
entitled to vote at the ANTIVIRALS Annual Meeting, with each such share
entitling its owner to one vote on all matters properly presented at the
ANTIVIRALS Annual Meeting. On the ANTIVIRALS Record Date, there were
approximately 2,500 beneficial holders of the 11,177,919 shares of ANTIVIRALS
Common Stock then outstanding. The presence, in person or by proxy, of a
majority of the total number of outstanding shares of ANTIVIRALS Common Stock
entitled to vote at the ANTIVIRALS Annual Meeting is necessary to
24
constitute a quorum for the transaction of business at the ANTIVIRALS Annual
Meeting. Under Section 6(i) of Rule 4460 of the National Association of
Securities Dealers, Inc. (the "NASD"), the affirmative vote of a majority of the
total votes cast on the proposal is required for approval of the Issuance.
Abstention from voting and broker nonvotes will have the practical effect of
voting against the proposals since they represent one less vote for approval.
PROXIES; PROXY SOLICITATION
Shares of ANTIVIRALS Common Stock represented by properly executed proxies
received at or prior to the ANTIVIRALS Annual Meeting that have not been revoked
will be voted at the ANTIVIRALS Annual Meeting in accordance with the
instructions contained therein. Shares of ANTIVIRALS Common Stock represented by
properly executed proxies for which no instruction is given will be voted "FOR"
approval of all proposals. ANTIVIRALS shareholders are requested to complete,
sign, date and return promptly the enclosed proxy card in the postage-prepaid
envelope provided for this purpose to ensure that their shares are voted. A
shareholder may revoke a proxy at any time prior to its exercise by filing
written notice of revocation with, or by delivering a duly executed proxy
bearing a later date to, Corporate Secretary, ANTIVIRALS INC. One S.W. Columbia,
Suite 1105, Portland, Oregon 97258 or by attending the ANTIVIRALS Annual Meeting
and voting in person. Mere attendance at the ANTIVIRALS Annual Meeting will not
in and of itself revoke a proxy.
If the ANTIVIRALS Annual Meeting is postponed or adjourned for any reason,
at any subsequent reconvening of the ANTIVIRALS Annual Meeting all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the ANTIVIRALS Annual Meeting (except for any proxies that
have theretofore effectively been revoked or withdrawn), notwithstanding that
they may have been effectively voted on the same or any other matter at a
previous meeting.
PROXY SOLICITATION. ANTIVIRALS will bear the cost of soliciting proxies
from its shareholders. In addition to use of the mails, proxies may be solicited
personally or by telephone by directors, officers and employees of ANTIVIRALS,
who will not be specially compensated for such activities. Such solicitations
may be made personally, or by mail, facsimile, telephone, telegraph or
messenger. ANTIVIRALS will also request persons, firms and companies holding
shares in their names or in the name of their nominees, which are beneficially
owned by others, to send proxy materials to and obtain proxies from such
beneficial owners. ANTIVIRALS will reimburse such persons for their reasonable
expenses incurred in that connection.
SPECIAL MEETING OF IMMUNOTHERAPY SHAREHOLDERS
GENERAL
The IMMUNOTHERAPY Special Meeting will be held on Monday, August 31, 1998,
at The Ramada Inn, 2726 S. Grand Avenue, Santa Ana, California 92705, commencing
at 10:00 a.m., local time, and at any adjournments or postponements thereof, to
consider and vote on a proposal to approve the Merger Agreement. This Joint
Proxy Statement/Prospectus, together with the enclosed proxy card, is first
being mailed to IMMUNOTHERAPY Shareholders and ANTIVIRALS Shareholders on or
about August 10, 1998.
THE IMMUNOTHERAPY BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF IMMUNOTHERAPY AND THE IMMUNOTHERAPY SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE MERGER AND MERGER AGREEMENT. THE IMMUNOTHERAPY BOARD
RECOMMENDS THAT IMMUNOTHERAPY SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AND
MERGER AGREEMENT AT THE IMMUNOTHERAPY SPECIAL MEETING. SEE "BACKGROUND OF AND
REASONS FOR THE MERGER."
Holders of IMMUNOTHERAPY Stock will be entitled to dissenters' rights as a
result of the Merger. See "THE MERGER--Rights of Dissenting IMMUNOTHERAPY
Shareholders."
25
RECORD DATE; SHARES ENTITLED TO VOTE
The IMMUNOTHERAPY Board has fixed the close of business on August 4, 1998
(the "IMMUNOTHERAPY Record Date"), as the record date for the determination of
the holders of IMMUNOTHERAPY Common Stock entitled to notice of and to vote at
the IMMUNOTHERAPY Special Meeting. Accordingly, only holders of record of
IMMUNOTHERAPY Common Stock at the close of business on the IMMUNOTHERAPY Record
Date will be entitled to vote at the IMMUNOTHERAPY Special Meeting, with each
such share entitling its owner to one vote on all matters properly presented at
the IMMUNOTHERAPY Special Meeting. On the IMMUNOTHERAPY Record Date, there were
approximately 50 beneficial holders of 10,868,000 shares of IMMUNOTHERAPY Common
Stock and 48 beneficial holders of 639,686 shares of IMMUNOTHERAPY Preferred
Stock then outstanding, each of which entitles the holder thereof to one vote.
QUORUM; VOTE REQUIRED
The presence, in person or by proxy, of a majority of the total number of
outstanding shares of IMMUNOTHERAPY Common Stock entitled to vote and a majority
of the total number of outstanding shares of IMMUNOTHERAPY Preferred Stock
entitled to vote, is necessary to constitute a quorum for the transaction of
business at the IMMUNOTHERAPY Special Meeting. The affirmative vote at the
IMMUNOTHERAPY Special Meeting of holders representing a majority of the total
number of outstanding shares of IMMUNOTHERAPY Common Stock entitled to vote and
of holders representing a majority of the outstanding shares of IMMUNOTHERAPY
Preferred Stock entitled to vote, each voting as a separate class, is necessary
to approve the Merger and the Merger Agreement. An abstention with respect to
approval of the Merger Agreement will be counted for purposes of establishing a
quorum but will have the effect of a vote cast against the Merger Agreement.
PROXIES
Shares of IMMUNOTHERAPY Common Stock represented by properly executed
proxies received at or prior to the IMMUNOTHERAPY Special Meeting that have not
been revoked will be voted at the IMMUNOTHERAPY Special Meeting in accordance
with the instructions contained therein. Shares of IMMUNOTHERAPY Common Stock
represented by properly executed proxies for which no instruction is given will
be voted "FOR" approval of all proposals. IMMUNOTHERAPY shareholders are
requested to complete, sign, date and return promptly the enclosed proxy card in
the postage-prepaid envelope provided for this purpose to ensure that their
shares are voted. A shareholder may revoke a proxy at any time prior to its
exercise by filing written notice of revocation with, or by delivering a duly
executed proxy bearing a later date to Corporate Secretary, IMMUNOTHERAPY
CORPORATION, 1209 SW Sixth Avenue, Suite 603, Portland, Oregon 97204, or by
attending the IMMUNOTHERAPY Special Meeting and voting in person. Mere
attendance at the IMMUNOTHERAPY Special Meeting will not in and of itself revoke
a proxy.
If the IMMUNOTHERAPY Special Meeting is postponed or adjourned for any
reason, at any subsequent reconvening of the IMMUNOTHERAPY Special Meeting all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the IMMUNOTHERAPY Special Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter at a previous meeting.
IMMUNOTHERAPY will bear the cost of soliciting proxies from its
shareholders. In addition to use of the mails, proxies may be solicited
personally or by telephone by directors, officers and employees of
IMMUNOTHERAPY, who will not be specially compensated for such activities. Such
solicitations may be made personally, or by mail, facsimile, telephone,
telegraph or messenger. IMMUNOTHERAPY will also request persons, firms and
companies holding shares in their names or in the name of their nominees, which
are beneficially owned by others, to send proxy materials to and obtain proxies
from such beneficial owners. IMMUNOTHERAPY will reimburse such persons for their
reasonable expenses incurred in that connection.
26
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND
The acquisition of a complementary business with products at an advanced
stage of clinical development has been an ongoing objective of ANTIVIRALS'
management. ANTIVIRALS, from time to time, evaluates potential merger or
acquisition opportunities and considers potential alliances, combinations, joint
development programs and other transactions with other participants in the
biopharmaceutical industry.
Over the past several years, as its clinical programs have advanced and
capital needs have increased, IMMUNOTHERAPY's management has, from time to time,
engaged in discussions with its Board of Directors and other companies in the
biopharmaceutical industry to explore various strategic alliances and
combinations, including product development alliances, business combinations and
related transactions. In April 1997, the IMMUNOTHERAPY Board determined that the
continuing growth and development of the company required a full-time chief
executive officer with a strong reputation in the bio-pharmaceutical industry.
The Board designated William Goolsbee, IMMUNOTHERAPY's part-time chief executive
officer and a member of the IMMUNOTHERAPY Board, who also serves as chief
executive officer of his own corporation, and Dr. Bruce Carter, another member
of the Board, to locate suitable candidates for the position.
A few months later, in June 1997, the IMMUNOTHERAPY Board determined that
its capital and growth requirements necessitated additional means of financing
other than raising capital through equity offerings. The Board appointed a
committee consisting of Mr. Goolsbee; Jeffrey L. Lillard, Managing Officer and a
director of IMMUNOTHERAPY; and James Baxendale, Vice President--Corporate and
Legal Affairs, General Counsel and Secretary, to evaluate offers from third
parties ranging from venture capital-type financing to merger proposals. At the
same time, the IMMUNOTHERAPY Board determined to continue with its search for a
high-caliber Chief Executive Officer, believing that the reputation and contacts
of such an officer would be integral to attracting financing for the company.
Between June and October 1997, the committee appointed to evaluate financing
proposals for IMMUNOTHERAPY held discussions at varying levels with four
organizations, including ANTIVIRALS. Discussions with all of the organizations
arose out of contacts that directors of IMMUNOTHERAPY, or members of its Science
Advisory Board, had with such organizations.
Beginning in June 1997, the committee appointed by the IMMUNOTHERAPY Board
considered a series of proposals for funding from one organization. Initially,
the proposal was to be a traditional purchase of equity by the organization. By
October 1997, the proposal had evolved into the following structure: an initial
loan of $1,000,000, up to a total commitment of $3,000,000, subject to certain
conditions, structured so that warrants to purchase stock of IMMUNOTHERAPY would
be issued in payment for the principal and interest on the loan (the "Warrant
Proposal"). Under the Warrant Proposal, the financing entity would name
IMMUNOTHERAPY's Chief Executive Officer, have the power to restrict certain
expenditures by the company and would restrict IMMUNOTHERAPY from seeking other
financing in the future.
During approximately the same time period, another organization indicated an
interest in providing funding to IMMUNOTHERAPY of approximately $10,000,000 in
return for 51% of IMMUNOTHERAPY's outstanding common stock (the "Stock
Proposal"). The committee evaluated yet another proposal made by an organization
located in the eastern United States to invest up to $2 million if additional
venture partners would also join for an additional amount of up to $3 million
(the "Co-Investment Proposal"). The Co-Investment Proposal was subject to a
number of conditions, including among others, the condition that a preliminary
venture round first be completed (in which the organization would participate,
along with other venture capital-type investors) and that IMMUNOTHERAPY move its
headquarters to the locale of the proposer.
27
During August 1997, Dr. Gordon Duncan, then a consultant to ANTIVIRALS and a
member of IMMUNOTHERAPY's Scientific Advisory Board, contacted Mr. Alan Timmins,
Chief Operating Officer and Chief Financial Officer of ANTIVIRALS, regarding
IMMUNOTHERAPY's technology and investment opportunities. At the request of Mr.
Timmins, IMMUNOTHERAPY provided ANTIVIRALS' management with certain
nonconfidential information to provide a basis for further discussions between
the companies.
On September 8, 1997, Messrs. Goolsbee, Lillard, and Baxendale, met with Dr.
Denis Burger, ANTIVIRALS' Chief Executive Officer, and Mr. Timmins to become
better informed regarding the businesses of the two companies and to discuss
further their possible combination. As a result of this meeting, IMMUNOTHERAPY
agreed to provide to ANTIVIRALS scientific due diligence materials which were
reviewed by ANTIVIRALS' scientific personnel, members of its Board of Directors
and its Scientific Advisory Board. During September 1997, the management of
ANTIVIRALS and the management of IMMUNOTHERAPY also discussed telephonically and
by mail the valuation of IMMUNOTHERAPY.
As part of a regularly scheduled meeting of ANTIVIRALS' Board on September
11, 1997, ANTIVIRALS' management made a presentation to its Board regarding the
business and possible acquisition of IMMUNOTHERAPY. The Board authorized
ANTIVIRALS' management to complete due diligence and to further explore the
possible combination of the companies.
In early October, given the progress of negotiations with ANTIVIRALS and
IMMUNOTHERAPY's immediate need for cash to continue operations, the members of
the committees which had been appointed by the IMMUNOTHERAPY Board to explore
financing alternatives and hire a chief executive officer determined that they
needed to evaluate their options. The committees considered the alternatives of
hiring a Chief Executive Officer who would be able to attract financing for the
company as well as the Warrant Proposal, the Stock Proposal, the Co-Investment
Proposal and the ANTIVIRALS proposal. After interviewing a number of candidates,
the executive search committee had narrowed down the list of candidates and were
relatively close to making an offer. However, the committee determined that
IMMUNOTHERAPY had reached a stage that hiring of any of the chief executive
officers it was considering would not solve IMMUNOTHERAPY's immediate cash
needs. The committee determined that it was in the best interests of
IMMUNOTHERAPY to pursue the outstanding proposals, possibly in conjunction with
hiring a new chief executive officer.
The financing committee considered that each of the Warrant Proposal, the
Stock Proposal and the Co-Investment Proposal had significant, substantive terms
which were still being negotiated. Additionally, based on its negotiations to
that point, the committee was not certain compromises could be reached that
would be acceptable to IMMUNOTHERAPY or fair to its existing shareholders. For
example, with respect to the Warrant Proposal, the committee believed that
certain restrictions in the proposal, including the status of the financing as a
loan, the mandated selection of an individual chosen by the proponents of the
proposal as the CEO of IMMUNOTHERAPY, and restrictions on further borrowings
from other parties, were not in the best long-term interests of the company. At
the same time, the members of the committee were uncomfortable with the Stock
Proposal, which would require handing control of the company to an entity which
had no previous relationship with IMMUNOTHERAPY and, in addition, the committee
remained unclear as to when funds beyond the first $1,000,000 would be
available. Finally, with respect to the Co-Investment Proposal, the committee
felt that the conditions that a venture capital round be concluded and that the
company relocate across the country before substantial capital were infused made
that alternative impracticable due to IMMUNOTHERAPY's immediate need for a
capital infusion. In considering these issues, the IMMUNOTHERAPY Board also
attempted to quantify the risks, costs, dilution effect and the time required to
achieve an alternative liquidity event for IMMUNOTHERAPY Shareholders. After
careful evaluation, the Board determined that a merger with ANTIVIRALS would
provide its shareholders the best opportunity to replace their illiquid shares
and options of IMMUNOTHERAPY with publicly-traded shares and with options to
purchase ANTIVIRALS shares under certain terms and conditions.
28
On October 2 and 3, 1997, Messrs. Lillard and Baxendale met with Dr. Burger
and Mr. Timmins to discuss the terms of a combination in principle. At the
conclusion of the meeting on October 3, the parties executed a non-binding
letter of intent that set forth the principal terms of the transaction, subject
to approval of the ANTIVIRALS' and IMMUNOTHERAPY's Boards of Directors. Those
terms included the issuance of 2,100,000 ANTIVIRALS common shares and 2,100,000
warrants to acquire ANTIVIRALS common shares (at a strike price of $13.50
exercisable until June 2002) in exchange for all of IMMUNOTHERAPY's stock; the
appointment of two IMMUNOTHERAPY nominees to ANTIVIRALS' Board of Directors; the
consolidation of IMMUNOTHERAPY management into ANTIVIRALS', including
specifically, Jeffrey Lillard, IMMUNOTHERAPY's Managing Officer, and James
Baxendale, IMMUNOTHERAPY's Vice President and General Counsel; the acceptance of
IMMUNOTHERAPY's outstanding options by ANTIVIRALS; and other provisions.
On or around October 8, 1998, the financing committee agreed that management
of IMMUNOTHERAPY should proceed to negotiate a definitive agreement with
ANTIVIRALS consistent with the October 3 non-binding letter of intent.
Additional due diligence information was exchanged between the two
companies. On various dates during October, 1997, officers of IMMUNOTHERAPY met
with Mr. Timmins and representatives of ANTIVIRALS to clarify issues relating to
the proposed transaction and to address due diligence issues. During the course
of these meetings, the parties concluded that it would be desirable to reduce
the principal terms of the transaction to a new letter of intent which addressed
various issues negotiated during October. On or about October 18, 1997, the
financing committee provided a briefing to the IMMUNOTHERAPY Board regarding the
status of negotiations with ANTIVIRALS.
On November 3, 1997, as part of a special meeting of the ANTIVIRALS Board of
Directors, Dr. Burger made a presentation to the ANTIVIRALS Board concerning the
strategic potential of the combination with IMMUNOTHERAPY. Dr. Burger and Mr.
Timmins reviewed with the ANTIVIRALS Board the background of the merger
negotiations and their financial analysis of the terms and conditions of the
proposed transaction. ANTIVIRALS' outside legal adviser reviewed key terms and
conditions of the proposed letter of intent.
On November 4, 1997, the IMMUNOTHERAPY Board met and received a briefing on
the status of negotiations with ANTIVIRALS. After discussion, the IMMUNOTHERAPY
Board determined that ANTIVIRALS' proposal offered the best option for
IMMUNOTHERAPY, and authorized Messrs. Goolsbee, Lillard and Baxendale to proceed
to sign a letter of intent and issue a public announcement of the proposed
transaction. On November 5, 1997, the parties executed a letter of intent which
set forth the principal terms of the Merger and issued a joint press release.
A definitive agreement and plan of reorganization and merger was prepared by
ANTIVIRALS and presented to IMMUNOTHERAPY for review on October 27, 1997.
Between October 27, 1997, and February 2, 1998, numerous negotiating sessions
between the senior executives of ANTIVIRALS and their legal advisors and the
senior executives of IMMUNOTHERAPY and their legal advisors resulted in the
agreement to the terms of the tax-free reorganization described elsewhere in
this Proxy Statement/Prospectus. On January 8, 1998, the IMMUNOTHERAPY Board of
Directors met with its senior executives and its counsel to consider the
financial and other terms of the agreement. After discussing the terms of the
Merger Agreement and the company's alternatives, the Board unanimously approved
the agreement, authorizing the committee to complete negotiations and execute
the Merger Agreement.
On February 2, 1998, the ANTIVIRALS Board of Directors met with senior
executives of ANTIVIRALS and ANTIVIRALS' outside legal advisors to consider
approval of the Merger. During this meeting, ANTIVIRALS' management again
reviewed the financial terms of the Merger and its analysis of the strategic
considerations presented by the transaction. ANTIVIRALS' legal counsel
summarized the key terms and conditions of the Merger Agreement. After
discussion of these terms and issues, ANTIVIRALS' Board unanimously approved the
Merger Agreement and the Issuance, authorizing the company's officers to execute
and deliver the Merger Agreement and to undertake necessary actions to effect
the Merger.
29
On February 2, 1998, ANTIVIRALS and IMMUNOTHERAPY signed the Merger
Agreement and issued a press release providing the essential details of the
Agreement.
On August 4, 1998, ANTIVIRALS and IMMUNOTHERAPY signed an amendment to the
Merger Agreement to extend the date on which either party can terminate the
Merger Agreement from August 15, 1998 to September 15, 1998 (or if more than
three percent of IMMUNOTHERAPY shareholders vote against the Merger then by
October 7, 1998), to provide for ANTIVIRAL'S issuance of an additional 100,000
shares of Common Stock to acquire IMMUNOTHERAPY and to provide for the future
listing of the ANTIVIRALS Warrants for quotation on the Nasdaq National Market.
JOINT REASONS FOR THE MERGER
ANTIVIRALS and IMMUNOTHERAPY have identified several mutual benefits of the
Merger that they believe will contribute to the success of both companies
including:
COMPLEMENTARY PRODUCTS AND SYNERGIES. The proposed products of the two
companies complement each other with no duplication or overlap. It is expected
that all of the products currently under development by each company will
continue to be developed after the Merger. The management of both companies have
evaluated their respective underlying technologies and concluded that the
companies' technology platforms could be integrated to produce novel therapeutic
agents with significant market opportunities. Although both companies have
experience or have retained experienced personnel to assist in the pre-clinical
and clinical development of potential products, it is believed that, following
the Merger, both companies will benefit from IMMUNOTHERAPY's experience with
advanced clinical trials.
DISTRIBUTION OF RISK AMONG TECHNOLOGIES. Both ANTIVIRALS and IMMUNOTHERAPY
have been dependent on focused technology platforms in their development of
proposed biopharmaceutical products. The combination of the two companies will
distribute this risk across multiple technology platforms while preserving the
potential for significant returns from any single platform for the companies'
shareholders. This diminished risk profile may enhance the combined companies'
access to capital markets and positively affect the terms of additional
financings undertaken by the combined companies.
ANTIVIRALS' REASONS FOR THE MERGER
In addition to the mutual reasons for the Merger stated above, ANTIVIRALS'
Board of Directors believes the following strategic factors will also contribute
to the success of the combined companies:
ADVANCEMENT OF PRODUCT INTRODUCTION. ANTIVIRALS' ability to achieve
profitable operations has been dependent on the completion of product
development of its antisense and drug delivery technologies, obtaining
regulatory approvals for such products and bringing several of these products to
market. Each of these technologies is in the pre-clinical stage of development,
and difficulties and significant delays may be encountered in the development
and commercialization of these proposed pharmaceutical products. IMMUNOTHERAPY's
CTP-37 vaccine has been the subject of Phase II clinical studies and may obtain
necessary regulatory approvals and be successfully commercialized prior to the
successful introduction of new drugs based on ANTIVIRALS' current technologies.
It is ANTIVIRALS' belief that the addition of this product may substantially
shorten the period before material revenues are attained by the company.
ENHANCED STRATEGIC MARKET FOCUS. ANTIVIRALS' antisense technology is
designed to treat various proliferative disorders, including certain cancers.
ANTIVIRALS has selected paclitaxel, a leading cancer therapeutic, as an initial
drug to be combined with the companies' CYTOPORTER drug delivery engine. The
addition of IMMUNOTHERAPY's CTP-37 vaccine, which targets a wide range of human
malignancies, to ANTIVIRALS' product array will permit the combined companies to
strategically focus marketing efforts in the vast cancer therapeutics market and
to better position itself within the biopharmaceutical industry.
30
In the course of its decision to unanimously approve the Merger, the
ANTIVIRALS Board reviewed and considered with ANTIVIRALS' management factors
relevant to the Merger. The factors the Board considered included, but were not
limited to: (a) information concerning ANTIVIRALS' and IMMUNOTHERAPY's
respective businesses, historical financial performance and technologies, (b)
the respective companies' strategic direction and future product offerings and
opportunities, (c) compatibility of management and corporate cultures, (d)
valuation information derived from IMMUNOTHERAPY's prior capital raising
activities, (e) the structure and content of the proposed Merger Agreement, and
(f) reports from management and the legal advisors as to the results of their
due diligence investigation of IMMUNOTHERAPY.
The ANTIVIRALS Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including: (a) the dilutive
effect of issuing ANTIVIRALS Common Stock in the Merger, (b) the expenses to be
incurred in connection with the Merger and the effect of such expenses on the
results of operations of ANTIVIRALS, (c) risks associated with the loan to
IMMUNOTHERAPY during the pendency of the Merger, and (d) other risks described
under "Risk Factors" above. In view of the wide variety of factors considered,
both positive and negative, the ANTIVIRALS Board did not find it practical to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered, but did determine that the anticipated benefits of the
Merger outweighed the potentially negative factors considered.
RECOMMENDATION OF THE ANTIVIRALS BOARD
The ANTIVIRALS Board has determined the Issuance to be fair to and in the
best interests of ANTIVIRALS and its shareholders and has approved the Issuance.
The ANTIVIRALS Board recommends that ANTIVIRALS shareholders vote "FOR" the
Issuance. The ANTIVIRALS Board's recommendation is based on a number of factors
discussed in this Joint Proxy Statement/Prospectus.
IMMUNOTHERAPY'S REASONS FOR THE MERGER
The development of new innovative products such as CTP-37 is a challenging
task, even for pharmaceutical companies having greater resources and experience
than IMMUNOTHERAPY. Having demonstrated evidence of CTP-37's potential in the
clinic, the IMMUNOTHERAPY Board needed to address the issues of advancement of
shareholder interests as well as the development of CTP-37. In the course of
these deliberations, over a period of several months, the IMMUNOTHERAPY Board,
in consultation with its management, reviewed and considered many issues,
including, but not limited to: (a) IMMUNOTHERAPY's current financial condition
and obligations, (b) costs associated with the proposed Phase II and Phase III
clinical trials for CTP-37, (c) the expenses, risks and dilution associated with
raising additional financing, (d) available management resources, and (e) an
assessment of the competitive environment for IMMUNOTHERAPY's technology.
IMMUNOTHERAPY's Board also considered alternative partnering and financing
strategies to advance IMMUNOTHERAPY Shareholders' interests, including
alternative financing proposals received by management during this period.
In addition to the joint reasons for the Merger stated above, the
IMMUNOTHERAPY Board believes the following are additional reasons for
IMMUNOTHERAPY Shareholders to vote "FOR" approval of the Merger and the Merger
Agreement.
GREATER FINANCIAL RESOURCES AND ACCESS TO CAPITAL MARKETS. The continued
development of CTP-37 will require conducting costly clinical trials, producing
clinical supplies and significantly increasing IMMUNOTHERAPY's infrastructure.
ANTIVIRALS has successfully planned and executed an initial public offering in
the Nasdaq National Market and has sufficient capital resources to retire
IMMUNOTHERAPY's current debt and capitalize new clinical trials of CTP-37 going
forward. In addition, merging with ANTIVIRALS may favorably increase the new
company's future financing options.
31
MANAGEMENT EXPERTISE AND DEPTH. As a company historically focused on
clinical development of its lead product candidate CTP-37, IMMUNOTHERAPY
purposefully chose to minimized management expenses during the first clinical
trials of CTP-37. With the expectations that IMMUNOTHERAPY will initiate several
advanced clinical trials of CTP-37 going forward, the Merger provides
IMMUNOTHERAPY with pharmaceutical executives and research scientists to support
its cancer vaccine program.
LABORATORY SUPPORT. Advanced clinical studies of CTP-37 will require
extensive in vitro testing of clinical samples and development of in-process and
final product quality controls. ANTIVIRALS has well equipped laboratories and a
large staff of chemists and molecular biologists to assist in this effort.
The IMMUNOTHERAPY Board also considered a number of potentially negative
factors and outcomes in its analysis of the Merger, including: (a) the early
stage of ANTIVIRALS' principal technologies, their competitive environment and
the projected costs required to determine their potential, (b) dilution of
IMMUNOTHERAPY shareholder interest in CTP-37 as a result of the Merger with
ANTIVIRALS, (c) ANTIVIRALS' clinical trial and drug development experience, (d)
certain terms of the Merger Agreement, (e) information concerning ANTIVIRALS'
business, prospects, financial performances, financial conditions and
operations, (f) the absence of historic pricing for ANTIVIRALS Common Shares and
Trading Warrants, (g) the risk that benefits sought to be obtained by the Merger
might not be obtained, and (h) the need for additional capital to finance long
term drug development for the combined company. In view of both the positive and
negative factors that it considered, the IMMUNOTHERAPY Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered, but did determine that the anticipated benefits of
the Merger outweighed the potentially negative factors considered.
RECOMMENDATIONS OF IMMUNOTHERAPY BOARD
The IMMUNOTHERAPY Board has determined the Merger and the Merger Agreement
to be fair to and in the best interests of IMMUNOTHERAPY and its shareholders.
Accordingly, the IMMUNOTHERAPY Board has approved the Merger and the Merger
Agreement and recommends that the IMMUNOTHERAPY Shareholders vote "FOR" approval
of the Merger and the Merger Agreement.
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THE MERGER
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and incorporated by reference herein.
TERMS OF THE MERGER
THE MERGER. Subject to the terms and conditions of the Merger Agreement,
IMMUNOTHERAPY will merge with and into Merger Sub at the Effective Time. The
separate corporate existence of IMMUNOTHERAPY will then cease, and Merger Sub, a
wholly-owned subsidiary of ANTIVIRALS, will be the surviving corporation in the
Merger (the "Surviving Corporation").
ARTICLES OF INCORPORATION AND BYLAWS. The Merger Agreement provides that
the Articles of Incorporation and Bylaws of Merger Sub as in effect immediately
prior to the Effective Time will become the Articles of Incorporation and Bylaws
of the Surviving Corporation.
DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior to
the Effective Time will become the directors of the Surviving Corporation, until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal. ANTIVIRALS has agreed to cause its
Board to appoint Jeffrey L. Lillard, currently Managing Officer and a director
of IMMUNOTHERAPY, and Dr. Bruce Carter, currently a director of IMMUNOTHERAPY,
to fill vacancies on the ANTIVIRALS Board of Directors immediately after the
Effective Time. The officers of Merger Sub immediately prior to the Effective
Time will become officers of the Surviving Corporation, until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal. See "THE MERGER--Management and Operations of
IMMUNOTHERAPY After the Merger."
CONVERSION OF IMMUNOTHERAPY STOCK IN THE MERGER. At the Effective Time,
each share of IMMUNOTHERAPY Stock issued and outstanding immediately prior to
the Effective Time (other than shares as to which dissenters' rights of
appraisal have been duly sought, perfected and are not subsequently withdrawn)
will be exchanged for shares of ANTIVIRALS Common Stock and Warrants to purchase
shares of ANTIVIRALS Common Stock. The 10,868,000 issued and outstanding shares
of IMMUNOTHERAPY Common Stock will be exchanged for 0.174 shares of ANTIVIRALS
Common Stock and 0.17257 ANTIVIRALS Warrants, for an aggregate total of
1,891,032 shares of ANTIVIRALS Common Stock and 1,875,490 ANTIVIRALS Warrants,
subject to adjustment for fractional shares and fractional warrants. The 639,686
issued and outstanding shares of IMMUNOTHERAPY Class A Preferred Stock will be
exchanged for 0.35 shares of ANTIVIRALS Common Stock and 0.35 ANTIVIRALS
Warrants, for an aggregate total of 223,890 shares of ANTIVIRALS Common Stock
and 223,890 ANTIVIRALS Warrants, subject to adjustment for fractional shares and
fractional warrants. The foregoing numbers may increase, based upon exercises of
IMMUNOTHERAPY Stock Options prior to the Effective Time, and will increase based
on the declaration of dividends by the IMMUNOTHERAPY Board of Directors in
respect to IMMUNOTHERAPY's Preferred Stock. The ANTIVIRALS Warrants will entitle
the holder to purchase one share of ANTIVIRALS Common Stock at a price of $13.50
per share, subject to certain adjustments. The ANTIVIRALS Warrants will, subject
to certain conditions, be exercisable at any time after the second anniversary
of the closing of the Merger (the "Closing"), until four (4) years and eight (8)
months after the Closing, unless earlier redeemed. The ANTIVIRALS Warrants are
redeemable by ANTIVIRALS at $0.25 per Warrant after the ANTIVIRALS Warrants have
become exercisable, upon thirty (30) days' written notice, if the Closing bid
price per share of ANTIVIRALS Common Stock for each of twenty (20) consecutive
trading days immediately preceding the date notice or redemption is given equals
or exceeds two hundred percent (200%) of the then-current Warrant exercise
price.
CONVERSION OF OPTIONS TO ACQUIRE SHARES OF IMMUNOTHERAPY COMMON STOCK IN THE
MERGER. At the Effective Time, ANTIVIRALS will assume the 1997 IMMUNOTHERAPY
Option Plan, and all options to
33
acquire shares of IMMUNOTHERAPY Common Stock outstanding immediately prior to
the Effective Time will be converted into rights to acquire shares of ANTIVIRALS
Common Stock under the terms and conditions of the 1997 IMMUNOTHERAPY Option
Plan. Nasdaq rules require that the ANTIVIRALS Shareholders approve the adoption
of the 1997 IMMUNOTHERAPY Option Plan. See "APPROVAL OF 1997 IMMUNOTHERAPY
OPTION PLAN." Each IMMUNOTHERAPY Stock Option will be converted into an option
to purchase that number of shares of ANTIVIRALS Common Stock determined by
multiplying the number of option shares of IMMUNOTHERAPY Common Stock
immediately prior to the Effective Time by the Option Conversion Number. The
"Option Conversion Number" is 0.175 multiplied by the result obtained by
dividing the sum of the closing prices of ANTIVIRALS Common Stock and Nasdaq
Warrant in the Nasdaq National Market with the Closing Price of ANTIVIRALS
Common Stock, each on the day of the Closing. The exercise price per share of
ANTIVIRALS Common Stock will be equal to the exercise price of such
IMMUNOTHERAPY Stock Option divided by the "Option Conversion Number."
Nasdaq
AntiVirals Common + Warrant
Option = Stock Price Price
Conversion 0.175 X
Number -------------------------------------
AntiVirals Common Stock Price
AntiVirals ImmunoTherapy Option
Option Exercise = Exercise Price
Price -------------------------------------
Option Conversion Number
For example, assuming an ANTIVIRALS Common Stock and Nasdaq Warrant price of
$5.00 and $1.75 per share, respectively, and an exercise price for the
IMMUNOTHERAPY Option of $1.00 per share, each IMMUNOTHERAPY Option will be
converted into a right to purchase 0.23625 shares of ANTIVIRALS Common Stock at
a purchase price of $4.23 per share.
FRACTIONAL SHARES. No fractional shares of ANTIVIRALS Common Stock or
ANTIVIRALS Warrants will be issued in the Merger. ANTIVIRALS will pay to each
holder of IMMUNOTHERAPY Stock an amount in cash (rounded to the nearest whole
cent) determined as follows: for ANTIVIRALS Common Stock, by multiplying (i) the
fair market value of a share of ANTIVIRALS Common Stock on the day immediately
preceding the Effective Date by (ii) the fraction of a share of ANTIVIRALS
Common Stock which such holder would otherwise be entitled to receive in
connection with the Merger; and for ANTIVIRALS Warrants, by multiplying (i) the
fair market value of the ANTIVIRALS Warrants as determined by ANTIVIRALS in its
sole discretion by (ii) the fraction of an ANTIVIRALS Warrant which such holder
would otherwise be entitled to receive in connection with the Merger.
EFFECTIVE TIME OF THE MERGER
Promptly following receipt of all required approvals and satisfaction of
waiver of the other conditions in the Merger, the Merger will be consummated and
become effective at the time at which the Certificates of Merger to be filed
pursuant to the Corporation Law or accepted for filing by the Secretary of State
of California or such later date and time as may be specified in such
Certificate of Merger. See "THE MERGER--Conditions; Waivers."
PROCEDURES FOR EXCHANGE OF IMMUNOTHERAPY STOCK AND IMMUNOTHERAPY OPTIONS
As soon as practicable after the Effective Time, ANTIVIRALS and
IMMUNOTHERAPY shall jointly submit to ChaseMellon Shareholder Services, LLC (the
"Exchange Agent") an instruction letter including a list of the names and other
information relating to IMMUNOTHERAPY Shareholders who have delivered the
certificates representing all IMMUNOTHERAPY Stock held by such IMMUNOTHERAPY
shareholders to ANTIVIRALS and for which such holders are not entitled to claim
dissenters' rights and which shareholders
34
have delivered a Lock-up Agreement in accordance with the requirements of the
Merger Agreement. As soon as reasonably practicable following the Effective
Time, ANTIVIRALS shall cause the Exchange Agent to deliver to each such
IMMUNOTHERAPY shareholder, in exchange for the IMMUNOTHERAPY stock held by such
IMMUNOTHERAPY shareholder, a certificate or certificates representing the number
of whole shares of ANTIVIRALS Common Stock and ANTIVIRALS Warrants into which
the shares of IMMUNOTHERAPY Stock so surrendered shall have been converted by
the Merger and the cash payment in lieu of a fractional share of ANTIVIRALS
Common Stock, if any, to which such IMMUNOTHERAPY shareholder shall be entitled.
As soon as is reasonably practicable following the Effective Time, ANTIVIRALS
shall deliver stock option grant documents to holders of each Option to purchase
IMMUNOTHERAPY Common Shares outstanding immediately prior to the Effective Time
who are entitled to receive options to purchase shares of ANTIVIRALS Common
Stock by reason of the conversion of the IMMUNOTHERAPY Options in connection
with the Merger.
ESCROW OF ANTIVIRALS COMMON STOCK
The Merger Agreement provides that ANTIVIRALS will withhold from certain
IMMUNOTHERAPY Shareholders, including the Lillard Group, a number of shares of
ANTIVIRALS Common Stock equal to fifteen percent (15%) of the aggregate number
of shares of ANTIVIRALS Common Stock to be received by all holders of
IMMUNOTHERAPY Stock upon consummation of the Merger (the "Escrow Shares"). The
Escrow Shares will be held by an Escrow Agent for a period, that, absent
unresolved claims, will end on the first anniversary of the Closing Date.
Subject to certain limitations set forth in the Merger Agreement, the Escrow
Shares will be subject to claims by ANTIVIRALS to reimburse ANTIVIRALS for
claims and liabilities incurred by ANTIVIRALS with respect to and arising from
the breach of any warranty or any inaccuracy of any representation made by
IMMUNOTHERAPY in the Merger Agreement or the breach of any covenant or agreement
made by IMMUNOTHERAPY in the Merger Agreement. For this purpose, the Escrow
Shares will be deemed to have a value per share equal to the average closing
price of the ANTIVIRALS Common Stock as traded on Nasdaq during the ten (10)
trading days prior to the date of delivery of the Escrow Shares to ANTIVIRALS.
The specific terms and conditions relating to the Escrow Shares are more
specifically set forth in an escrow agreement to be executed at the Closing (the
"Escrow Agreement"). See "THE MERGER--Escrow of ANTIVIRALS Common Stock," and
"RISK FACTORS--Escrow Shares."
QUOTATION OF ANTIVIRALS COMMON STOCK AND ANTIVIRALS WARRANTS ON NASDAQ NATIONAL
MARKET
In the Merger Agreement, ANTIVIRALS has agreed to use all reasonable efforts
to (i) register under the Securities Act the shares of ANTIVIRALS Common Stock
to be issued pursuant to the Merger Agreement, and the shares of ANTIVIRALS
Common Stock to be issued in connection with the exercise of the ANTIVIRALS
Warrants and under IMMUNOTHERAPY's 1997 Stock Option Plan; (ii) cause such
shares of ANTIVIRALS Common Stock to be quoted for trading on the Nasdaq
National Market; and (iii) cause ANTIVIRALS warrants to be quoted for trading on
the Nasdaq National Market not more than six months after the Effective Date of
the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties of
IMMUNOTHERAPY as to (a) the corporate organization and existence of
IMMUNOTHERAPY, (b) the authority of IMMUNOTHERAPY to enter into the Merger
Agreement in the absence of the need for governmental or third-party consents to
the Merger, (c) the capitalization of IMMUNOTHERAPY, (d) the lack of
subsidiaries of IMMUNOTHERAPY, (e) the accuracy of IMMUNOTHERAPY's financial
statements and the absence of additional liabilities, (f) leases and titles to
IMMUNOTHERAPY's real and personal property, (g) the absence of certain changes
and events, (h) the accuracy of IMMUNOTHERAPY's financial statements as they
relate to IMMUNOTHERAPY's indebtedness, (i) the absence of guarantees and
suretyship, (j) the absence of undisclosed liabilities, (k) payment
35
of taxes, (l) IMMUNOTHERAPY's fixed assets, (m) IMMUNOTHERAPY's material
contracts, (n) ownership and rights to use intellectual property (o)
IMMUNOTHERAPY's insurance, (p) licenses, permits and authorizations used by
IMMUNOTHERAPY in the conduct of its business, (q) litigation to which
IMMUNOTHERAPY is a party, (r) compliance with applicable laws, (s) employees,
(t) the terms, existence, operations, liabilities and compliance with applicable
laws of IMMUNOTHERAPY's employee benefit plans and certain other matters
relating to the Employment Retirement Income Security Act of 1974, as amended,
(u) IMMUNOTHERAPY's bank accounts and powers of attorney, (v) labor matters, (w)
the absence of questionable payments and other commercial practices, (x) the
absence of brokers or finders retained by IMMUNOTHERAPY in connection with the
Merger, (y) the absence of conflicts of interest, (z) books and records of
IMMUNOTHERAPY, (aa) IMMUNOTHERAPY's compliance with laws relating to the
environment and safety matters, (bb) IMMUNOTHERAPY's adherence to certain
practices relating to confidentiality, and (cc) IMMUNOTHERAPY's full disclosure
of all material facts and lack of omission in respect of the representations and
warranties made in the Merger Agreement.
The Merger Agreement also includes representations and warranties by
ANTIVIRALS and Merger Sub as to (a) the corporate organization and existence of
ANTIVIRALS and Merger Sub, (b) the authority of ANTIVIRALS and Merger Sub to
enter into the Merger Agreement and the absence of the need for governmental or
third-party consents to the Merger, (c) the absence of changes in ANTIVIRALS'
financial condition, (d) the valid issuance of the Common Stock and Warrants to
be issued by ANTIVIRALS in connection with the Merger, (e) the capitalization of
Merger Sub, (f) the investment intent of ANTIVIRALS in acquiring the
IMMUNOTHERAPY Stock as a result of the Merger, (g) the accuracy of ANTIVIRALS'
financial statements, (h) the absence of brokers or finders retained by
ANTIVIRALS in connection with the Merger, (i) the capitalization of ANTIVIRALS,
(j) the accuracy of ANTIVIRALS' reports filed with the Securities and Exchange
Commission, (k) litigation to which ANTIVIRALS is a party, (l) the terms,
existence, operations, liabilities and compliance with applicable laws of
ANTIVIRALS' employee benefit plans and certain other matters relating to the
Employee Retirement Income Security Act of 1974, as amended, and (m) ANTIVIRALS'
full disclosure of all material facts and lack of omission in respect of the
representations and warranties made in the Merger Agreement.
BUSINESS OF IMMUNOTHERAPY PENDING THE MERGER
IMMUNOTHERAPY has agreed that, prior to the Effective Time of the Merger,
IMMUNOTHERAPY will operate diligently and only in the ordinary course of
business and, without the prior written consent of ANTIVIRALS, will not:
(a) cancel or permit any insurance of a material nature to lapse or
terminate, unless renewed or replaced by similar coverage;
(b) amend its Articles of Incorporation or Bylaws;
(c) be in material default under any material contract, agreement,
commitments or undertakings of any kind;
(d) violate or fail to comply with any laws applicable to IMMUNOTHERAPY
or IMMUNOTHERAPY's properties or business if the effect of the failure to so
comply would have a material adverse effect on IMMUNOTHERAPY;
(e) commit any of the following acts: the borrowing of any funds or the
incurring of any liabilities except in the ordinary course of business; the
payment of any obligations or liabilities, except as disclosed in its
financial statements or incurred since the date of such financial statements
in the ordinary course of business; the declaration of any dividends; the
sale, transfer or disposal of any of its assets, properties or rights,
except in the ordinary course of business; the entry into any agreement
granting any preferential rights to purchase any of IMMUNOTHERAPY's assets,
properties or rights, except in the ordinary course of business; the waiver
of any rights of value without consideration,
36
which would have a material adverse effect on IMMUNOTHERAPY; the making of
any amendment or termination of any non-trade contract, agreement or
license; the making of any arrangement or payment of any bonuses or special
compensation to any present or former officers, directors or employees of
IMMUNOTHERAPY; the increase in the compensation of any officers, directors
or employees; the making of any capital expenditures in excess of $10,000,
individually or in the aggregate; the entry into any material transaction
other than in the ordinary course of business; experiencing any labor
trouble which has a material adverse effect; be cited for any material
violations of the federal Occupational Safety Health Act of 1970 or any
rules or regulations promulgated thereunder or any other act of any other
governmental agency; suffering any damages, destruction or losses which are
material to IMMUNOTHERAPY's business; the failure to operate the business of
IMMUNOTHERAPY in the ordinary course so as to preserve the business intact;
the changing of any accounting methods or practices by IMMUNOTHERAPY which
materially adversely affect its assets, liabilities or business; or the
experiencing of any change in IMMUNOTHERAPY's condition, assets,
liabilities, working capital reserves, earnings, business or prospects;
(f) enter into any contract, agreement or other commitment which
involves payment in excess of $1,000;
(g) fail to maintain and repair any material amount of its assets in
accordance with good standards of maintenance and as required in any leases
or other agreements pertaining thereto;
(h) acquire, purchase or redeem any IMMUNOTHERAPY Stock;
(i) issue or enter into any subscriptions, options, agreements or other
binding commitments in respect to the issuance, transfer, sale, registration
or encumbrance of any shares of IMMUNOTHERAPY Stock;
(j) cause or voluntarily permit a change in any method of accounting for
tax purposes during or applicable to its current tax year which would render
inaccurate the information concerning taxes set forth in the Merger
Agreement or would have a material adverse effect on IMMUNOTHERAPY for any
period prior to the Effective Time of the Merger; or
(k) permit any affiliate to sell or reduce its risk relative to shares
received by such affiliate until financial results covering at least thirty
(30) days of post-Merger combined results have been published.
INTERIM FINANCING
ANTIVIRALS has agreed, under the terms and conditions of a Loan Agreement
(the "Loan Agreement"), to make certain advances to IMMUNOTHERAPY from time to
time to pay certain current liabilities of IMMUNOTHERAPY pending the closing of
the Merger, which advances, shall not exceed, in the aggregate, $1,075,000 plus
the amounts of any contractual obligations with an outside vendor or provider of
services approved by ANTIVIRALS and IMMUNOTHERAPY. Such advances bear interest
at the rate of 9 1/2% per annum. As of July 31, 1998, the aggregate principal
amount outstanding under the Loan Agreement was approximately $1,000,000.
IMMUNOTHERAPY is obligated to repay the advances in one installment on April 30,
1999. In the event that IMMUNOTHERAPY defaults in the repayment of the advances
and interest, as ANTIVIRALS' sole remedy for such default, IMMUNOTHERAPY shall
issue to ANTIVIRALS, subject to certain required approvals, in exchange for the
conversion of all amounts outstanding under the Loan Agreement a number of
shares of Class B Preferred Stock equal to the aggregate dollar amount of
principal and interest outstanding on April 30, 1999, divided by $1.0161235,
which shares shall enjoy the same rights and privileges as IMMUNOTHERAPY's Class
A Preferred Shares. ANTIVIRALS additionally shall have the right to designate
and IMMUNOTHERAPY shall be required to appoint two designees of ANTIVIRALS to
the Board of Directors of IMMUNOTHERAPY.
37
IRREVOCABLE PROXY
Certain directors, officers and shareholders of IMMUNOTHERAPY owning or
having the power to vote an aggregate of 7,593,213 shares of IMMUNOTHERAPY's
Common Stock and representing approximately seventy percent (70%) of the
outstanding shares of IMMUNOTHERAPY's Common Stock as of July 31, 1998, have
given an irrevocable proxy to ANTIVIRALS to vote all of its shares of
IMMUNOTHERAPY Common Stock for approval of the Merger Agreement and the Merger.
CONDITIONS; WAIVERS
CONDITIONS TO THE OBLIGATIONS OF IMMUNOTHERAPY. The obligations of
IMMUNOTHERAPY to effect the Merger are subject to the satisfaction or waiver of
certain conditions, including the following:
(i) IMMUNOTHERAPY shall not have discovered any material error,
misstatement or omission in the representation and warranties made by
ANTIVIRALS and Merger Sub in the Merger Agreement, ANTIVIRALS' and Merger
Sub's representations and warranties in the Merger Agreement shall be true
in all material respects on the Closing Date and IMMUNOTHERAPY shall have
received a certificate of the Presidents of ANTIVIRALS and Merger Sub,
respectively, to that effect,
(ii) ANTIVIRALS shall have executed and delivered to IMMUNOTHERAPY the
Escrow Agreement,
(iii) IMMUNOTHERAPY shall have received an opinion of Ater Wynne Hewitt
Dodson & Skerritt, LLP, dated the Closing Date, in a form reasonably
satisfactory to IMMUNOTHERAPY,
(iv) ANTIVIRALS shall have executed and delivered an employment
agreement to Jeffrey L. Lillard, and a letter to James Baxendale confirming
the payment by ANTIVIRALS of certain obligations arising under an Employment
Agreement between IMMUNOTHERAPY and Mr. Baxendale, together with the
issuance by ANTIVIRALS of certain stock options to Mr. Baxendale,
(v) the Merger Agreement, the Merger and the transactions contemplated
thereby shall have been approved by the requisite vote of IMMUNOTHERAPY's
shareholders in accordance with the California Corporations Code and
IMMUNOTHERAPY's Articles of Incorporation and Bylaws,
(vi) the Merger Agreement, the Merger, the Issuance and the transactions
contemplated thereby shall have been approved and adopted by the requisite
vote of ANTIVIRALS' shareholders in accordance with the Oregon Business
Corporation Act and ANTIVIRALS' Articles of Incorporation and Bylaws, and
IMMUNOTHERAPY shall have received a certificate from the Secretary of
ANTIVIRALS to that effect,
(vii) a registration statement in respect of the ANTIVIRALS Stock to be
issued in connection with the Merger shall have been declared effective and
no stop order relating to the same shall have been received, and
(viii) ANTIVIRALS shall not have suffered any material adverse change in
its business, properties or operations since September 30, 1997.
CONDITIONS TO THE OBLIGATIONS OF ANTIVIRALS AND MERGER SUB. The respective
obligations of ANTIVIRALS and Merger Sub to effect the Merger or subject to the
satisfaction or waiver of the following additional conditions:
(i) ANTIVIRALS and Merger Sub shall not have discovered any material
error, misstatement or omission in the representations and warranties made
by IMMUNOTHERAPY in the Merger Agreement and IMMUNOTHERAPY shall have
conformed and complied with all material agreements required by the Merger
Agreement required to be conformed or complied with by IMMUNOTHERAPY at or
prior to the Closing,
(ii) ANTIVIRALS shall have received an opinion of Tonkon Torp LLP, dated
the Closing Date, in a form reasonably satisfactory to ANTIVIRALS,
38
(iii) there shall have occurred no casualty to any facility, property or
equipment owned or used by IMMUNOTHERAPY which is materially adverse and
significant to the business, financial condition or operations of
IMMUNOTHERAPY,
(iv) ANTIVIRALS shall have received a Certificate of Existence from the
California Secretary of State and a Tax Clearance Certificate from the
California Franchise Tax Board, a Certificate duly signed by an officer of
IMMUNOTHERAPY, dated the Closing Date, certifying that all representations
and warranties of IMMUNOTHERAPY were true and correct in all material
respects when made and as of the Closing Date and that all the respective
covenants, agreements, obligations and conditions of IMMUNOTHERAPY to have
been performed as of or prior to the Closing have been fully performed and
complied with, a Certificate signed by the Secretary of IMMUNOTHERAPY as to
incumbency and authorizing resolutions, consents to assignments of certain
agreements, licenses and/or permits, and a schedule listing the aggregate
price paid by IMMUNOTHERAPY shareholders and received by IMMUNOTHERAPY for
the shares of IMMUNOTHERAPY's stock held by IMMUNOTHERAPY shareholders or,
if different, their basis in such shares,
(v) ANTIVIRALS shall have received UCC Termination Statements executed
by persons having any security interest, lien, claim or other encumbrances
or adverse interests in or on any assets of IMMUNOTHERAPY,
(vi) there shall have been no change in the business, financial
condition or results of operations of IMMUNOTHERAPY since February 2, 1998,
which has had a material adverse effect or could reasonably be expected to
have a material adverse effect,
(vii) the Merger Agreement, the Merger and the transactions contemplated
thereby shall have been approved and adopted by the requisite vote of the
shareholders of IMMUNOTHERAPY in accordance with the California Corporation
Code and IMMUNOTHERAPY's Articles of Incorporation and Bylaws, ANTIVIRALS
shall have received a Certificate of the Secretary of IMMUNOTHERAPY to that
effect and holders of no more than three percent (3%) of the shares of
IMMUNOTHERAPY Stock shall be entitled to claim dissenter's rights under
Chapter 13 of the California Corporation Code with respect to such shares,
(viii) the Merger Agreement, the Merger and the issuance and other
transactions contemplated thereby shall have been approved and adopted by
the ANTIVIRALS Shareholders in accordance with the Oregon Business
Corporation Act and ANTIVIRALS' Restated Certificate of Incorporation and
Restated Bylaws,
(ix) a registration statement in respect of the ANTIVIRALS Stock to be
issued in connection with the Merger shall have been declared effective and
no stop order shall have been received with respect thereto,
(x) ANTIVIRALS shall have received the Escrow Agreement,
(xi) ANTIVIRALS shall have received a Lock-Up Agreement in a form
acceptable to ANTIVIRALS from each IMMUNOTHERAPY Shareholder,
(xii) Jeffrey L. Lillard shall have executed and delivered to ANTIVIRALS
an Employment Agreement and James Baxendale shall have executed and
delivered to IMMUNOTHERAPY an Employment Agreement, and
(xiii) prior to the meeting of the Shareholders of ANTIVIRALS to vote upon
the Merger Agreement, the Merger and the Issuance, Dong Il Kwon and Dong
Kook Pharmaceutical Co., Ltd. shall have executed and delivered to
ANTIVIRALS an undertaking waiving any right of first refusal or other
similar rights to license IMMUNOTHERAPY products in markets other than the
Korean Peninsula.
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of IMMUNOTHERAPY, ANTIVIRALS and Merger Sub to effect the Merger are
subject to the satisfaction of waiver of
39
certain conditions, including the condition that no litigation which challenges
the consummation of the transactions contemplated in the Merger Agreement or
which seeks to enjoin any of the transactions contemplated therein shall have
been instituted or threatened against any party to the Merger Agreement.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, before or after approval by the Shareholders of IMMUNOTHERAPY and
ANTIVIRALS, by mutual consent of the Boards of Directors of ANTIVIRALS, Merger
Sub and IMMUNOTHERAPY. The Merger Agreement may also be terminated: (i) by the
Board of Directors of ANTIVIRALS if any condition to the obligation of
ANTIVIRALS or Merger Sub under the Merger Agreement to be complied with or
performed by IMMUNOTHERAPY at or before the Closing shall not have been complied
with or performed at the time required for compliance or performance and such
noncompliance or nonperformance shall not have been waived by ANTIVIRALS; (ii)
by the Board of Directors of IMMUNOTHERAPY if any condition to the obligation of
IMMUNOTHERAPY under the Merger Agreement to be complied with or performed by
ANTIVIRALS or Merger Sub at or before the Closing shall not have been complied
with or performed at the time required for such compliance or performance and
such noncompliance or nonperformance shall not have been waived by
IMMUNOTHERAPY; or (iii) by either the Board of Directors of IMMUNOTHERAPY or
ANTIVIRALS if the Closing shall not have been consummated on or before August
15, 1998.
INDEMNIFICATION
Certain holders of IMMUNOTHERAPY Common Stock, including the Lillard Group,
have agreed to indemnify and hold harmless ANTIVIRALS and Merger Sub from and
against all losses, claims, judgments, liabilities, demands, charges, suits,
penalties, costs or expenses, including court costs and attorneys' fees ("Claims
and Liabilities") with respect to or arising from the breach of any warranty or
any inaccuracy of any representation made by IMMUNOTHERAPY in the Merger
Agreement or the breach of any covenant or agreement made by IMMUNOTHERAPY in
the Merger Agreement. The Merger Agreement provides that ANTIVIRALS shall not be
permitted to enforce any claim for indemnification which is less than $10,000 in
value until the aggregate of all claims for indemnification exceed $50,000.
ANTIVIRALS' recourse is limited to the total value of the Escrow Shares.
ANTIVIRALS has agreed to indemnify and hold harmless IMMUNOTHERAPY in respect to
all Claims and Liabilities with respect to or arising from the breach of any
warranty or any inaccuracy of any representation made by ANTIVIRALS or Merger
Sub or the breach of any covenant or agreement made by ANTIVIRALS or Merger Sub
in the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL. The following discussion summarizes the material federal income
tax considerations of the Merger that are generally applicable to holders of
IMMUNOTHERAPY Stock and IMMUNOTHERAPY Options, and does not purport to be a
complete analysis or listing of all potential tax effects relevant to a decision
whether to vote in favor of approval and adoption of the Merger. This section
reflects the tax opinion of Ater Wynne, LLP, which will be delivered to
IMMUNOTHERAPY in connection with the Merger and will be filed as an exhibit to a
supplement to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part (the "Tax Opinion").
The Tax Opinion includes an opinion to the effect that the Merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), that each of ANTIVIRALS,
ANTIVIRALS Acquisition Corporation and IMMUNOTHERAPY will be a party to the
reorganization within the meaning of Section 368(d) of the Code, and that no
income, gain or loss will be recognized by the IMMUNOTHERAPY Shareholders as a
result of the Merger with respect to the outstanding IMMUNOTHERAPY Stock
converted into ANTIVIRALS Common Stock and ANTIVIRALS Warrants (except (i) an
amount that does not exceed any cash received as a result of exercising
dissenters' rights, (ii) an amount arising as a result of the return of the
Escrowed Shares to ANTIVIRALS, and (iii) an amount that does not exceed any cash
received in lieu of fractional shares). The Tax Opinion is based on
40
certain assumptions, including the assumption that the Merger will take place as
described in the Merger Agreement, and is subject to certain limitations and
qualifications. The Tax Opinion is also based on the assumption that certain
factual matters represented by ANTIVIRALS, Merger Sub, IMMUNOTHERAPY and others
will be true and correct on the Effective Time of the Merger, which
representations tax counsel will neither investigate nor verify.
IMMUNOTHERAPY SHAREHOLDERS AND OPTION HOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
Subject to the limitations, qualifications and assumptions described herein
and in the Tax Opinion, the Merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code, and the following federal income tax
consequences will result:
(a) No income, gain, or loss will be recognized by holders of the
IMMUNOTHERAPY Stock upon their receipt in the Merger of ANTIVIRALS Common
Stock and ANTIVIRALS Warrants in exchange therefor (except (i) an amount
that does not exceed any cash received as a result of exercising dissenters'
rights, (ii) an amount arising as a result of the return of the Escrowed
Shares to ANTIVIRALS, and (iii) an amount that does not exceed any cash
received in lieu of fractional shares);
(b) The aggregate tax basis of the ANTIVIRALS Common Stock and
ANTIVIRALS Warrants received by IMMUNOTHERAPY Shareholders in the Merger
will be the same as the aggregate tax basis of IMMUNOTHERAPY Stock
surrendered in exchange therefor, reduced by the amount allocable to
fractional shares for which cash is received; and
(c) The holding period of the ANTIVIRALS Common Stock and ANTIVIRALS
Warrants received by each IMMUNOTHERAPY Shareholder in the Merger will
include the period for which the IMMUNOTHERAPY Stock surrendered in exchange
therefor was considered to be held, provided that the IMMUNOTHERAPY Stock so
surrendered is held as a capital asset at the time of the Merger.
Neither ANTIVIRALS nor IMMUNOTHERAPY has requested or will request a ruling
from the Internal Revenue Service ("IRS") with regard to any of the U.S. federal
income tax consequences of the Merger. A successful IRS challenge to the
"reorganization" status of the Merger would result in an IMMUNOTHERAPY
shareholder recognizing income, gain or loss with respect to each share of
IMMUNOTHERAPY Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, at the Effective
Time of the Merger, of the ANTIVIRALS Common Stock and ANTIVIRALS Warrants
received in exchange therefor. In such event, a shareholder's aggregate basis in
the ANTIVIRALS Common Stock and ANTIVIRALS Warrants so received would equal its
fair market value, and the holding period for such stock and warrants would
begin the day after the Merger.
TAX TREATMENT OF IMMUNOTHERAPY OPTIONS
GENERAL. The following discussion summarizes the tax treatment of holders
of IMMUNOTHERAPY Options in the Merger. The tax treatment of the holders of
IMMUNOTHERAPY Options is highly complex and depends, in part, on an individual
holder's personal situation. The discussion set forth below is quite general and
does not address all of the federal income tax issues that might apply to every
holder of an IMMUNOTHERAPY Option. Holders of IMMUNOTHERAPY Options are strongly
urged to consult their own tax advisors regarding the federal income tax
consequences of the Merger on the IMMUNOTHERAPY Options.
41
TREATMENT OF HOLDERS OF IMMUNOTHERAPY OPTIONS WHO RECEIVE ANTIVIRALS
OPTIONS. Holders of IMMUNOTHERAPY nonqualified stock options ("NQOs") who
receive ANTIVIRALS NQOs in the Merger in exchange for their IMMUNOTHERAPY NQOs
should not recognize taxable income as a result of the exchange.
The foregoing discussion is intended only as a summary of certain federal
income tax consequences of the Merger and does not purport to be a complete
analysis or listing of all potential tax effects relevant to a decision whether
to vote in favor of approval and adoption of the Merger Agreement and the
Merger. The discussion does not address the tax consequences that may be
relevant to a particular IMMUNOTHERAPY shareholder subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, non-United States persons, and
certain shareholders subject to the alternative minimum tax provisions of the
code, nor does it address any consequences arising under the laws of any state,
locality or foreign jurisdiction or the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger), including without limitation, transactions in
which shares of IMMUNOTHERAPY stock are acquired or in which shares of
ANTIVIRALS Common Stock or ANTIVIRALS Warrants are disposed. Moreover, the
discussion is based upon the Code, treasury regulations thereunder and
administrative rulings and court decisions as of the date hereof. All of the
foregoing are subject to change (which change could be retroactive), and any
such change could affect the continuing validity of this discussion.
IMMUNOTHERAPY shareholders should be aware that opinions of counsel are not
binding on the IRS or any court; if the Merger fails to qualify as a tax-free
reorganization, it would be treated for federal income tax purposes as a taxable
sale or exchange by the IMMUNOTHERAPY Shareholders of their IMMUNOTHERAPY Stock.
IMMUNOTHERAPY Shareholders are urged to consult their own tax advisors
concerning the federal, state, local and foreign tax consequences of the Merger
to them.
RESALE OF ANTIVIRALS COMMON STOCK OR ANTIVIRALS WARRANTS ISSUED IN THE MERGER;
AFFILIATES
The ANTIVIRALS Common Stock to be issued to IMMUNOTHERAPY Shareholders in
connection with the Merger will be fully transferable under the Securities Act,
except that every IMMUNOTHERAPY Shareholder is required to execute and deliver
to ANTIVIRALS a Lock-up Agreement as a condition to ANTIVIRALS' obligations
under the Merger Agreement. Under the terms of the Lock-up Agreement to be
delivered by each IMMUNOTHERAPY Shareholder at the Closing, each shareholder
will agree not to sell, pledge, transfer or otherwise dispose of any shares of
the ANTIVIRALS Common Stock and ANTIVIRALS Warrants which they receive in
connection with the Merger for a period of two years after the Effective Date of
the Merger. Notwithstanding the Lock-up Agreements, ANTIVIRALS has agreed to
release from the operation of the Lock-up Agreements an aggregate of 210,000
shares of ANTIVIRALS Common Stock and ANTIVIRALS Warrants issued to
IMMUNOTHERAPY shareholders by reason of the Merger six months after the
Effective Date of the Merger. For purposes of allocating this release among the
IMMUNOTHERAPY shareholders, that number of shares of ANTIVIRALS Common Stock and
ANTIVIRALS Warrants shall be released equal to fifty percent (50%) of the shares
of ANTIVIRALS Common Stock and ANTIVIRALS Warrants received by IMMUNOTHERAPY
shareholders by reason of the conversion of shares of IMMUNOTHERAPY Preferred
Stock in connection with the Merger. The balance of the shares and warrants to
be released shall be allocated ratably among all IMMUNOTHERAPY Shareholders,
other than the Lillard Group, based on their holdings of ANTIVIRALS Common Stock
and ANTIVIRALS Warrants arising from the conversion of shares of IMMUNOTHERAPY
Common Stock in connection with the Merger. One year after the Effective Date of
the Merger, ANTIVIRALS shall release from the operation of the Lock-up Agreement
(i) an aggregate number of shares of ANTIVIRALS Common Stock issued to
IMMUNOTHERAPY Shareholders in connection with the Merger equal to the remainder
of 840,000 minus that number of shares of ANTIVIRALS Common Stock released to
ANTIVIRALS under the terms of the Escrow Agreement or which are subject to
pending claims thereunder, and (ii) an aggregate number of ANTIVIRALS warrants
equal to 840,000. For purposes of allocating such shares and warrants among the
IMMUNOTHERAPY Shareholders, that number of shares of ANTIVIRALS Common Stock and
ANTIVIRALS Warrants shall be
42
released equal to fifty percent (50%) of the shares of ANTIVIRALS Common Stock
and ANTIVIRALS Warrants received by IMMUNOTHERAPY Shareholders by reason of the
conversion of IMMUNOTHERAPY Preferred Stock in connection with the Merger. The
balance of the shares of ANTIVIRALS Common Stock and ANTIVIRALS Warrants to be
released shall be allocated ratably among all remaining former IMMUNOTHERAPY
Shareholders, other than the Lillard Group, based on their respective holdings
of ANTIVIRALS Common Stock and ANTIVIRALS Warrants arising from the conversion
of shares of IMMUNOTHERAPY Common and Preferred Stock in connection with the
Merger.
In addition, any person deemed to be an affiliate of IMMUNOTHERAPY for
purposes of Rule 145 under the Securities Act at the Effective Time may not sell
their IMMUNOTHERAPY Common Stock acquired in connection with the Merger, except
pursuant to an effective Registration Statement under the Securities Act
covering such shares, or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act.
The ANTIVIRALS Warrants to be issued to IMMUNOTHERAPY Shareholders in
connection with the Merger also are subject to the terms of a Warrant Agreement
between ANTIVIRALS and the IMMUNOTHERAPY Shareholders which places restrictions
on the transfer of the ANTIVIRALS Warrants. It is anticipated that such
restrictions will be removed when the ANTIVIRALS Warrants become trading
warrants. ANTIVIRALS has agreed to use all commercially reasonable efforts to
cause a registration statement with respect to the issuance of ANTIVIRALS Common
Stock underlying the ANTIVIRALS Warrants under the Securities Act to be filed
and to become and remain effective in anticipation of and prior to the exercise
of the ANTIVIRALS Warrants. ANTIVIRALS has also agreed to use all commercially
reasonable efforts to cause the Warrants to be quoted for trading on the Nasdaq
National Market System no later than six months after the Effective Date of the
Merger.
ACCOUNTING TREATMENT
It is expected that the Merger will be treated as a purchase for accounting
and financial reporting purposes.
MANAGEMENT AND OPERATIONS OF IMMUNOTHERAPY AFTER THE MERGER
After the Merger, the Articles of Incorporation and Bylaws of Merger Sub
will be the Articles of Incorporation and Bylaws of the surviving corporation
and Merger Sub will operate as a wholly-owned subsidiary and separate business
unit of ANTIVIRALS. After the Merger, the business of IMMUNOTHERAPY will have
access to resources generally available to ANTIVIRALS' business units, will
participate in appropriate activities with ANTIVIRALS' other business units and
will operate under the direction and guidance of ANTIVIRALS' senior management
and the ANTIVIRALS' and Merger Sub's Boards of Directors.
EXPENSES AND FEES
ANTIVIRALS and IMMUNOTHERAPY will each pay their own expenses in connection
with the Merger. ANTIVIRALS, however, has agreed to loan certain funds to
IMMUNOTHERAPY prior to the Closing, which funds will be used, in part, to pay
certain expenses incurred by IMMUNOTHERAPY in connection with the Merger.
RIGHTS OF DISSENTING IMMUNOTHERAPY SHAREHOLDERS
The rights of IMMUNOTHERAPY Shareholders who dissent in connection with the
Merger are governed by specific legal provisions contained in Chapter 13
(Section 1300--1312) of the California Corporations Code. The following is a
brief summary of the rights of IMMUNOTHERAPY Shareholders who dissent from the
Merger. It is qualified in its entirety by reference to the applicable statutory
provisions of the Corporations Code attached hereto as Annex J.
43
If the Merger is consummated, holders of record of IMMUNOTHERAPY Common and
Preferred Stock who (a) deliver to IMMUNOTHERAPY written demand for the
repurchase of their shares within 30 days after the date on which IMMUNOTHERAPY
mailed to the shareholder the notice of approval of the Merger by
IMMUNOTHERAPY's outstanding shares, (b) refrain from voting in favor of the
Merger, and (c) comply with the provisions of Sections 1300 through 1312 of the
Corporations Code, will then be entitled to have the "fair market value" of
their shares, determined as of the day before the first announcement of the
terms of the proposed Merger, paid to them in cash.
The following is a brief summary of Sections 1300 through 1312 of the
Corporations Code, which sets forth the procedures for demanding statutory
dissenters' rights. This summary is qualified in its entirety by reference to
Sections 1300 through 1312 of the Corporations Code, the text of which is
attached hereto in Annex J.
If the Merger is approved and consummated, those Shareholders of
IMMUNOTHERAPY who elect to exercise their dissenters' rights and who properly
and timely perfect such rights will be entitled to receive the "fair market
value" in cash for their shares of IMMUNOTHERAPY Stock. Pursuant to Section 1300
of the Corporations Code, such "fair market value" means the value of the
IMMUNOTHERAPY shares as of the day before the first announcement of the terms of
the proposed Merger, excluding any appreciation or depreciation in consequence
of the proposed Merger, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective after the Merger.
If any shareholder has the right to exercise dissenters' rights,
IMMUNOTHERAPY must, within ten (10) days after approval of the Merger by the
outstanding shares, deliver to all such Shareholders: notice of the approval of
the Merger accompanied by a copy of Sections 1300, 1301, 1302, 1303 and 1304 of
the Corporations Code; a statement of the price determined by IMMUNOTHERAPY to
represent the "fair market value" of the dissenting shares; and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's dissenters' right under the Corporations Code (the
"Dissenters' Notice").
A shareholder who elects to exercise his or her dissenters' rights must
deliver to IMMUNOTHERAPY, within thirty (30) days after the date on which the
Dissenters' Notice was mailed to the shareholder, written demand for the
purchase of the shares and payment in cash of their fair market value, and the
share certificate or certificates, and must not have voted his or her shares in
favor of the Merger. The written demand must contain a statement of the number
and class of the shares held of record by the shareholder which the shareholder
demands that IMMUNOTHERAPY purchase, and a statement of what the shareholder
claims is the fair market value of those shares as of the day before the
announcement of the Merger.
If a shareholder fails to deliver the written demand for payment to
IMMUNOTHERAPY within thirty (30) days after the date on which the Dissenters'
Notice was mailed to the shareholder, or if the shareholder votes his or her
shares in favor of the Merger, such shareholder will lose his or her dissenters'
rights with respect to his or her shares.
Within thirty (30) days after the later of consummation of the Merger or an
agreement between IMMUNOTHERAPY and the dissenting shareholder as to the "fair
market value" of the shares to be purchased, IMMUNOTHERAPY shall pay each
shareholder cash in the amount of the "fair market value" of the shares to be
repurchased plus statutory interest accrued from the date of the agreement as to
the "fair market value" of the shares.
If the shareholder and IMMUNOTHERAPY cannot agree on the "fair market value"
of the shares to be repurchased, then within six (6) months after the date on
which the Dissenters' Notice was mailed to the shareholder, the shareholder may
file a complaint in the superior court of the proper county asking the court to
determine the "fair market value" of the dissenting shares. The dissenter will
be entitled to
44
judgment for the amount that the court or an appraiser appointed by the court
finds to be the "fair market value" of his or her shares.
The Merger Agreement provides that it may be terminated by ANTIVIRALS in the
event that more than three percent (3%) of the outstanding shares of
IMMUNOTHERAPY Common Stock are dissenting shares.
CONFLICTS OF INTEREST
IMMUNOTHERAPY BOARD OF DIRECTORS AND MANAGEMENT. As of the IMMUNOTHERAPY
Record Date, non-employee directors of the IMMUNOTHERAPY Board beneficially
owned or had the power to vote an aggregate of 3,011,463 shares of IMMUNOTHERAPY
Common Stock, 80,000 shares of IMMUNOTHERAPY Preferred Stock and held vested
options to acquire an aggregate of 340,000 shares of IMMUNOTHERAPY Common Stock,
exercisable at $1.00 per share. See "STOCK OWNED BY IMMUNOTHERAPY MANAGEMENT AND
PRINCIPAL SHAREHOLDERS." Assuming an ANTIVIRALS Common Stock market value of
$5.00 and an ANTIVIRALS Merger Warrant market value of $1.75, the aggregate
dollar value of ANTIVIRALS Common Stock and Warrants to be received by these
non-employee directors in respect of outstanding shares of IMMUNOTHERAPY Common
and Preferred Stock would be approximately $3,703,722, without discount for the
lack of trading market and other attributes of the ANTIVIRALS Warrants,
representing approximately 25.8% of the aggregate consideration to be received
by all holders of IMMUNOTHERAPY Common and Preferred Stock. Assuming an
ANTIVIRALS Common Stock market value of $5.00, the aggregate dollar value of the
options to acquire ANTIVIRALS Common Stock to be received by these non-employee
directors in respect of outstanding options to acquire IMMUNOTHERAPY Common
Stock would be approximately $61,625, representing approximately 39.2% of the
aggregate consideration to be received by all holders of options to acquire
shares of IMMUNOTHERAPY Common Stock.
As of the IMMUNOTHERAPY Record Date, the executive officers employees of
IMMUNOTHERAPY beneficially owned an aggregate of 3,536,950 shares of
IMMUNOTHERAPY Common Stock, zero shares of IMMUNOTHERAPY Preferred Stock and
held vested options to acquire an aggregate of 191,700 shares of IMMUNOTHERAPY
Common Stock, exercisable at $1.00 per share. See "STOCK OWNED BY IMMUNOTHERAPY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming an ANTIVIRALS market value of
$5.00 and an ANTIVIRALS Merger Warrant market value of $1.75, the aggregate
dollar value of ANTIVIRALS Common Stock and Warrants to be received by these
executive officers in respect of outstanding shares of IMMUNOTHERAPY Common and
Preferred Stock would be approximately $4,161,080, without discount for the lack
of trading market and other attributes of the ANTIVIRALS Warrants, representing
approximately 28.9% of the aggregate consideration to be received by all holders
of IMMUNOTHERAPY Common Stock. Pursuant to the Merger Agreement, all outstanding
options to acquire shares of IMMUNOTHERAPY Common Stock, including those held by
the executive officers of IMMUNOTHERAPY, will be converted into options to
purchase shares of ANTIVIRALS Common Stock. Assuming an ANTIVIRALS market value
of $5.00, the aggregate dollar value of the options to acquire ANTIVIRALS Common
Stock to be received by these executive officers in respect of outstanding
options to acquire shares of IMMUNOTHERAPY Common Stock would be approximately
$34,746, representing approximately 22.1% of the aggregate consideration to be
received by all holders of options to acquire shares of IMMUNOTHERAPY Common and
Preferred Stock.
Upon closing of the Merger, Jeffrey L. Lillard, Managing Officer and a
director of IMMUNOTHERAPY and the largest holder of IMMUNOTHERAPY Common Stock,
and Dr. Bruce Carter, a director of IMMUNOTHERAPY, will be appointed as members
of the ANTIVIRALS Board. After the Effective Time, Mr. Lillard will be employed
by ANTIVIRALS under the terms of an employment agreement.
Under the terms of the proposed employment agreement, Mr. Lillard will be
paid an annual base salary of $125,000. The employment agreement also provides
for the payment to Mr. Lillard of one additional year of base salary and for the
immediate and full vesting of all options granted to him under
45
ANTIVIRALS' stock incentive plans in the event of the termination of his
employment by ANTIVIRALS for reasons other than cause, or upon his termination
upon a change in control of ANTIVIRALS. In addition, the employment agreement
prevents Mr. Lillard from competing with ANTIVIRALS for a period of two years
following the termination of his employment for any reason.
Proximate to the Closing Date, ANTIVIRALS intends to loan approximately
$450,000 to Mr. Lillard. The purpose of this loan is to assist Mr. Lillard with
his relocation to Portland, Oregon. This loan will (i) be full recourse, (ii)
bear interest at the rate of nine and one-half percent (9 1/2%) per annum, (iii)
be secured by a mortgage on Mr. Lillard's residence and guaranteed by Mr.
Matthew L. Lillard, and (iv) be due March 31, 1999.
46
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
HISTORICAL PRO FORMA
---------------------------- -----------------------------------
ANTIVIRALS IMMUNOTHERAPY ADJUSTMENTS COMBINED
----------- --------------- ----------- ----------------------
ASSETS
Current assets
Cash and cash equivalents........................ $15,790,550 $ 12,286 $(807,799) a. $14,995,037
Prepaid expenses and other current assets........ 549,260 13,422 (548,942) b. 13,740
Note receivable from stockholder................. -- 7,403 7,403
----------- --------------- ----------- -----------
Total current assets........................... 16,339,810 33,111 (1,356,741) 15,016,180
Property and equipment
Laboratory equipment............................. 891,505 -- 891,505
Office equipment................................. 194,935 28,431 223,366
Leasehold improvements........................... 1,618,378 -- 1,618,378
----------- --------------- ----------- -----------
Total.......................................... 2,704,818 28,431 -- 2,733,249
Less: accumulated depreciation and
amortization................................... (2,301,158) (15,779) (2,316,937)
----------- --------------- ----------- -----------
Property and equipment, net........................ 403,660 12,652 -- 416,312
Other assets
Patent costs, net................................ 560,825 -- 560,825
Deferred acquisition costs....................... 192,201 -- (192,201) a. --
Other............................................ 29,847 -- 29,847
----------- --------------- ----------- -----------
Total other assets............................. 782,873 -- (192,201) 590,672
----------- --------------- ----------- -----------
Total assets................................... $17,526,343 $ 45,763 ($1,548,942) $16,023,164
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 302,189 $ 147,846 $ 450,035
Accrued liabilities.............................. 179,247 95,604 274,851
Deferred compensation............................ -- 214,550 214,550
Current portion of notes payable................. -- 548,942 (548,942) b. --
----------- --------------- ----------- -----------
Total current liabilities...................... 481,436 1,006,942 (548,942) 939,436
Long-term portion of notes payable to related
parties.......................................... -- 10,000 -- 10,000
Shareholders' equity (deficit)
Preferred stock.................................. -- 1,391,364 (1,391,364) --
Common stock at par.............................. 1,116 1,473,200 (1,472,990) c. 1,326
Additional paid-in capital....................... 34,510,122 -- 17,599,790 d. 52,109,912
Deficit accumulated during the development
stage.......................................... (17,466,331) (3,835,743) (15,735,436) e. (37,037,510)
----------- --------------- ----------- -----------
Total shareholders' (deficit) equity........... 17,044,907 (971,179) (1,000,000) 15,073,728
----------- --------------- ----------- -----------
Total liabilities and shareholders' (deficit)
equity....................................... $17,526,343 $ 45,763 ($1,548,942) $16,023,164
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
Ending number of common shares outstanding......... 11,158,951 10,868,000 (8,768,000) 13,258,951
Book value per common share........................ 1.53 (0.09) 1.14
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
46
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR YEARS ENDED DECEMBER 31
HISTORICAL--
HISTORICAL--ANTIVIRALS IMMUNOTHERAPY
1997 1997
-------------------- ---------------
Revenues from grants and research contracts............................... $ 14,345 $ --
Operating expenses:
Research and development................................................ 2,737,172 819,931
General and administrative.............................................. 1,282,214 503,154
----------- ---------------
Total operating expenses.............................................. 4,019,386 1,323,085
----------- ---------------
Loss from operations.................................................... (4,005,041) (1,323,085)
Other income (expense):
Interest income......................................................... 508,675
Interest expense........................................................ (119,624) (1,408)
----------- ---------------
Total other income (expense).......................................... 389,051 (1,408)
----------- ---------------
Net loss................................................................ $ (3,615,990) $ (1,324,493)
----------- ---------------
----------- ---------------
Weighted average number of common shares outstanding...................... 10,078,962 10,449,000
Net loss per share--basic and diluted..................................... (0.36) (0.13)
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR YEARS ENDED DECEMBER 31
PROFORMA--ADJUSTMENTS PROFORMA--COMBINED
1997 1997
---------------------- --------------------
Revenues from grants and research contracts........................ $ 14,345
Operating expenses:
Research and development......................................... 3,557,103
General and administrative....................................... 1,785,368
-----------
Total operating expenses....................................... 5,342,471
-----------
Loss from operations............................................. (5,328,126)
Other income (expense):
Interest income.................................................. 508,675
Interest expense................................................. (121,032)
-----------
Total other income (expense)................................... 387,643
-----------
Net loss......................................................... $ $ (4,940,483)
----------- -----------
----------- -----------
Weighted average number of common shares outstanding............... (8,349,000) 12,178,962
Net loss per share--basic and diluted.............................. (0.41)
47
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31, 1998
HISTORICAL PRO FORMA
------------------------------ --------------------------
ANTIVIRALS IMMUNOTHERAPY ADJUSTMENTS COMBINED
------------- --------------- ----------- -------------
Revenues from grants and research contracts.......... $ 5,650 $ -- $ 5,650
Operating expenses:
Research and development........................... 1,294,264 120,382 1,414,646
General and administrative......................... 306,965 92,984 399,949
------------- --------------- -------------
Total operating expenses......................... 1,601,229 213,366 -- 1,814,595
------------- --------------- ----------- -------------
Loss from operations............................... (1,595,579) (213,366) -- (1,808,945)
Other income (expense):
Interest income, net............................... 170,721 1,000 171,721
------------- --------------- -------------
Total other income (expense)..................... 170,721 1,000 -- 171,721
------------- --------------- -------------
Net loss........................................... $ (1,424,858) $ (212,366) $ -- $ (1,637,224)
------------- --------------- ----------- -------------
------------- --------------- ----------- -------------
Weighted average number of common shares
outstanding........................................ 11,147,840 10,868,000 (8,768,000) 13,247,840
Net loss per share--basic and diluted................ (0.13) (0.02) (0.12)
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
48
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
NOTE 1.--BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been prepared
to present the effect of the acquisition by ANTIVIRALS of IMMUNOTHERAPY. The pro
forma financial statements have been prepared based upon the historical
financial statements of ANTIVIRALS and IMMUNOTHERAPY as if the acquisition had
occurred at March 31, 1998, and at the beginning of the respective periods.
The Pro Forma Consolidated Statements of Operations were prepared without
the impact of the estimated write-off of acquired in-process research and
development of $19,600,000, related to the purchase of IMMUNOTHERAPY, as
described in this Joint Proxy Statement/Prospectus. Such amounts were not
included, as the write-off would not have an on-going effect on normal
operations of ANTIVIRALS.
The Pro Forma Consolidated Statements of Operations may not be indicative of
the results of operations that actually would have occurred if the transactions
had been in effect as of the beginning of the respective periods nor do they
purport to indicate the results of future operations of ANTIVIRALS. The pro
forma financial statements should be read in conjunction with the financial
statements and notes thereto included in ANTIVIRALS' 1997 Form 10-KSB and the
audited financial statements and notes for IMMUNOTHERAPY included elsewhere in
this Joint Proxy Statement/Prospectus. Management believes that all adjustments
necessary to present fairly such pro forma financial statements have been made
based on the terms and structure of the transaction.
NOTE 2.--PRO FORMA ADJUSTMENTS
a. Assets as of March 31, 1998, were adjusted as follows:
To record as purchase price merger costs incurred as of March 31, 1998..... $ (192,201)
To record estimated additional merger costs................................ (807,799)
-----------
$(1,000,000)
-----------
-----------
b. To record elimination of Inter-company receivable and payable as of March
31, 1998................................................................. $ (548,942)
-----------
-----------
c. Common stock as of March 31, 1998, was adjusted as follows:
To record elimination of IMMUNOTHERAPY common stock........................ $(1,473,200)
To record the par value of ANTIVIRALS common stock issued to IMMUNOTHERAPY
shareholders (2,100,000 shares at $.0001 par value)...................... 210
-----------
$(1,472,990)
-----------
-----------
d. Additional paid-in capital as of March 31, 1998, was adjusted as follows:
To record the estimated fair value of ANTIVIRALS common stock, warrants and
options issued to IMMUNOTHERAPY shareholders............................. $17,600,000
Less: par value of ANTIVIRALS common stock issued to IMMUNOTHERAPY
shareholders............................................................. (210)
-----------
$17,599,790
-----------
-----------
e. Deficit accumulated during the development stage as of March 31, 1998, was
adjusted as follows:
To eliminate IMMUNOTHERAPY deficit accumulated during the development
stage.................................................................... $ 3,835,743
To write off acquired in-process research and development.................. (19,571,179)
-----------
$(15,735,436)
-----------
-----------
49
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.--PRO FORMA LOSS PER SHARE
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using the weighted
average number of common shares outstanding for the period and diluted EPS is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding. The pro forma weighted average number of common
shares outstanding assumes ANTIVIRALS issued the 2,100,000 shares of common
stock at the beginning of the period. Given that the company is in a loss
position, there is no difference between basic EPS and diluted EPS since the
common stock equivalents would be antidilutive.
NOTE 4.--MERGER RELATED TRANSACTION COSTS AND WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH AND DEVELOPMENT
ANTIVIRALS estimates that the entire purchase price of $19,600,000 will be
allocated to in-process research and development. In the opinion of ANTIVIRALS
management and the appraiser, the acquired research and development in process
has not yet reached technological feasibility and has no alternative future use
and, accordingly, will be charged to expense by ANTIVIRALS in the period the
Merger becomes effective.
The components of the purchase price include the estimated fair value of
common stock $13,000,000; the estimated fair value of common stock warrants,
$3,930,000; the estimated fair value of common stock options, $700,000; the
assumption of estimated ITC net liabilities of $970,000; and estimated merger
costs of $1,000,000.
The Unaudited Pro Forma Combined Condensed Balance Sheets reflect these
estimated transaction costs as if such costs were incurred as of March 31, 1998,
but the effects of these costs are not reflected in the Unaudited Pro Forma
Combined Condensed Statements of Operations.
50
BUSINESS OF ANTIVIRALS
GENERAL OVERVIEW
ANTIVIRALS is a pioneer in the development of two platform technologies,
antisense and drug delivery, to treat life-threatening diseases. ANTIVIRALS'
innovative drug development program has a primary clinical focus on cancer and
cardiovascular disease with two areas of near-term focus:
- NEU-GENE antisense compounds for cancer and restenosis, and
- CYTOPORTER drug delivery engines for enhanced delivery of FDA-approved
drugs with delivery problems.
The first application of ANTIVIRALS' antisense technology is designed to
treat diseases involving cellular proliferation such as cancer, the
cardiovascular disease called restenosis, and other proliferative disorders.
ANTIVIRALS is currently in pre-clinical development with this multi-use compound
and expects to file an Investigational New Drug Application ("IND") to begin
clinical trials in the next year. ANTIVIRALS' first planned drug delivery
products combine a novel CYTOPORTER delivery engine with two FDA-approved drugs
that have delivery problems. These drugs, paclitaxel (Taxol) and cyclosporin are
both off patent and could have much wider use if their delivery problems were
reduced. ANTIVIRALS expects to file an IND to begin clinical trials with its
enhanced form of paclitaxel and to initiate pre-clinical studies with its
enhanced form of cyclosporin in 12-24 months. See "--Drug Approval Process and
Other Government Regulation."
ANTIVIRALS has signed an agreement to acquire IMMUNOTHERAPY, a
Portland-based biotechnology company with a therapeutic cancer vaccine in Phase
II clinical trials for colorectal cancer. This transaction is subject to
shareholder approval of each company and is expected to close in mid-1998. This
acquisition adds a third platform technology (cancer vaccines) to the Company's
portfolio and moves the Company to later stage clinical development with two
additional Phase II trials and one Phase III trial expected in 1998. See "--Drug
Approval Process and Other Government Regulation."
ANTIVIRALS' long-term product development program uses its NEU-GENE and
CYTOPORTER technologies to develop drugs to treat a broad range of human
diseases and combines these technologies to produce combination drugs with
additional potential clinical applications. ANTIVIRALS has filed patent
applications covering the basic compositions of matter, methods of synthesis and
therapeutic uses of NEU-GENEs in the United States, Canada, Europe, Australia
and Japan. Eleven patents have issued in the United States and nine others have
been granted by the European Patent Office and in Japan, Canada and Australia.
Additional patent applications, covering ANTIVIRALS' basic compositions of
matter, methods of synthesis and medical uses of CYTOPORTER compounds have been
filed.
DRUG DESIGN AND DEVELOPMENT
Most conventional drugs are designed to induce or inhibit the function of a
target protein molecule with as few side effects as possible. Conventional drugs
are not available for many diseases due to their low level of selectivity for
the specific disease target or because they are difficult to deliver to their
targets. These two issues, lack of selectivity and poor delivery, may contribute
to poor efficacy, unwanted side effects or high toxicity at clinical dosages.
Moreover, the development of conventional drugs is usually time consuming and
expensive, since thousands of compounds must be produced and analyzed to find
one with an acceptable balance between efficacy and toxicity. Safe and effective
therapeutics for viral and host diseases such as cancer and cardiovascular
diseases have been particularly difficult to develop because these diseases use
the patient's own cellular machinery and therefore provide few disease targets
for therapeutic intervention that will not prove toxic to the patient.
Antisense technology has the potential to provide safe and effective
treatment for a wide range of diseases, including cancer, cardiovascular, and
infectious diseases. This new approach uses synthetic
51
compounds, or polymers, designed to block the function of genetic sequences
involved in the disease process. Targeting these genetic sequences provides the
selectivity that is not available in conventional drug development. The
antisense approach inhibits the disease mechanism at the genetic level.
Many drugs must cross tissue and cellular barriers to reach their
therapeutic targets inside cells. Drugs of this type must move from the aqueous
environment in blood across the lipid cell membrane and into the interior of
cells. Therefore, these drugs must achieve solubility in both water and lipids.
Since few compounds have these solubility characteristics, many drug candidates
are a compromise between inherent solubility and effective delivery. This
trade-off greatly reduces efficacy and may significantly heighten toxicity of
many drug candidates as well as many FDA-approved drugs.
ANTIVIRALS has developed two distinct technologies designed to address the
critical issues in drug development. ANTIVIRALS' NEU-GENE antisense technology
addresses the issue of drug selectivity, and its CYTOPORTER drug delivery
technology is designed to address delivery problems with both FDA-approved drugs
and with antisense compounds. The characteristics of the patented structure of
ANTIVIRALS' NEU-GENE compounds distinguish its antisense technology from
competing technologies. ANTIVIRALS' molecular engine, CYTOPORTER, is designed to
transport certain drugs with poor delivery characteristics across the lipid
barrier of cellular membranes into the interior of cells to reach their site of
action.
PRODUCTS
NEAR-TERM PRODUCT DEVELOPMENT SUMMARY
The first application of ANTIVIRALS' antisense technology is designed to
treat proliferation disorders; namely, cancer and restenosis. ANTIVIRALS' first
planned drug delivery products combine its CYTOPORTER delivery engine with two
FDA-approved drugs, paclitaxel (Taxol) and cyclosporin, each of which ANTIVIRALS
believes could have much broader usage if its delivery problems were reduced.
POTENTIAL
COMPOUND DRUG INDICATION DEVELOPMENT STATUS
- ------------------------ ----------------- ----------------- -------------------------------------------------
AVI-2221 Neu-Gene Resten-NG/R Restenosis Pre-clinical studies in 1998 and IND filing
expected in 1999
AVI-2221 Neu-Gene Resten-NG/C Cancer Pre-clinical studies in 1998 and IND filing
expected in 1999
AVI-2301 CytoPorter Paclitaxel-CP Cancer Pre-clinical studies in 1998 and IND filing
expected in 1999
AVI-2401 CytoPorter Cyclosporin-CP Transplantation Pre-clinical studies in 1998 and IND filing
expected in 1999
ANTISENSE--NEU-GENE TECHNOLOGY
TECHNICAL OVERVIEW
GENETIC STRUCTURE AND FUNCTION. All life forms contain genetic information
in molecules called DNA and RNA, which comprise the operating instructions for
life processes. The specific instructions are called genes, which are long
chains or strands of duplex DNA composed of the four genetic bases: adenine,
cytosine, guanine and thymine, represented by the letters A, C, G, and T,
respectively. The molecular structures of these letters are complementary, such
that A can pair with T, and C can pair with G. Consequently, each genetic strand
has the unique ability to bind specifically to a complementary strand and
thereby form a duplex.
The information encoded in the DNA by its sequence of genetic letters is
used to make proteins. To accomplish this, one strand (called the template
strand) of the duplex DNA is copied to make a new complementary strand, referred
to as messenger RNA. This messenger RNA is referred to as the sense
52
strand because it carries the information used to assemble a specific protein.
An antisense compound is a synthetic strand of bases in a sequence complementary
to a small portion of the messenger RNA. Antisense compounds pair with their
complementary messenger RNA sense strand to form a duplex, preventing the
decoding of message and resultant protein assembly.
GENE-TARGETED THERAPEUTICS. Most human diseases arise from the function or
dysfunction of genes within the body, either those of pathogens, such as
viruses, or of one's own genes. New techniques in molecular biology have led to
the identification of the genes associated with many major human diseases and to
the determination of the sequence of their genetic letters. Using modern methods
of chemical synthesis, an antisense compound can be prepared that is
complementary to a target sequence in a pathogen or pathogenic process. When
this complementary antisense compound binds tightly to the disease-causing
sequence, the synthesis of a selected protein is inhibited, and thus the
pathogen or pathogenic process is disabled.
Antisense compounds are composed of repeating structures or subunits that
are linked together forming a polymer, referred to as the antisense backbone.
Each subunit carries a genetic letter (A, C, G, or T) that pairs with its
corresponding letter in the genetic target. Although the genetic letters are a
feature common to all antisense compounds, the structure of the subunits and the
linkage groups that string them together may differ greatly. These differences
in the subunits and the linkages define the different types of antisense
backbones and their corresponding physical and biological properties. ANTIVIRALS
is distinguished from all other antisense companies by the characteristics of
its patented antisense backbone. The subunits, which carry the genetic letters
on ANTIVIRALS' backbone, are synthetic products rather than modified natural
materials. In addition, the linkages used to string the subunits together in
ANTIVIRALS' backbone carry no electrical charge. ANTIVIRALS believes these
differences will provide pharmaceutical advantages that are critical for
antisense drug development to meet the challenges of broad clinical utility.
FIRST-GENERATION COMPOUNDS. The first gene-inactivating compounds had
backbones composed of natural genetic materials and linkages. Development of
these compounds began in the late 1960s. As work continued in this new field, it
became increasingly clear that there were significant problems with these
structures. These natural compounds were degraded or broken down by enzymes in
the blood and within cells and had difficulty crossing cellular membranes to
enter the cells that contained their genetic target.
SECOND-GENERATION COMPOUNDS. To overcome these problems of degradation and
permeability, several research groups developed modified backbones in the late
1970s, which were designed to resist degradation by enzymes and to enter tissues
and cells more efficiently. The most common of these types, the phosphorothioate
backbones used by ISIS Pharmaceuticals, Inex, Hybridon, and others use natural
DNA subunits linked together by a sulfur-containing, charged linkages.
ANTIVIRALS was also extensively involved in developing second-generation
backbones through the mid-1980s. After extensive investigation, however,
ANTIVIRALS concluded that even after optimization, these second-generation
compounds might lack the pharmaceutical properties desirable for broad clinical
utility. For this reason, ANTIVIRALS abandoned development of second-generation
backbones in the mid-1980s and started development of third-generation backbones
designed to address these drawbacks. Today, in spite of extensive progress in
the field, ANTIVIRALS believes that there remain serious limitations to
second-generation compounds due to problems with the stability, specificity,
cost effectiveness, and delivery of these compounds.
NEU-GENE THIRD-GENERATION TECHNOLOGY. By the mid-1980s, the limitations of
the second-generation compounds led ANTIVIRALS to pursue the development of
antisense technology with improved pharmaceutical properties, which could be
produced and purified in a cost-effective manner. This effort culminated in
ANTIVIRALS' development of a new class of compounds having a backbone of
synthetic subunits carrying each genetic letter, with each subunit linked
together by a patented uncharged linkage group. The synthetic subunits and
linkages are not found in nature, but rather were designed and synthesized to
meet specific pharmaceutical parameters. These patented third-generation agents,
known as NEU-GENE compounds, display advantageous pharmaceutical properties
(stability, neutral charge, high
53
binding affinity and specificity). Moreover, they are made from less expensive,
more abundant starting materials, and ANTIVIRALS believes that they will cost
significantly less to produce than second-generation compounds.
ANTIVIRALS and others have shown in cell culture, animal and pre-clinical
studies that NEU-GENE compounds inhibit targeted genetic sequences. With these
scientific benchmarks in place, ANTIVIRALS' objective is to develop its
third-generation antisense compounds into effective and affordable therapeutics
for life-threatening diseases.
PHARMACEUTICAL PROPERTIES OF ANTISENSE COMPOUNDS. If antisense compounds
are to become widely applicable pharmaceutical agents, the following challenges
must be addressed.
- Stability: resistance to enzymatic degradation in blood and other tissues.
- Efficacy: ability to inhibit products of gene expression.
- Potency: greater pharmaceutical activity at lower doses.
- Specificity: binding restricted to the selected target, reducing toxicity.
- Cost effectiveness: manufacturing efficiency and economies of scale, which
allows a broad range of applications.
- Delivery/Pharmacokinetics: ability to enter tissues and cells in order to
reach disease targets in a clinical setting.
ANTIVIRALS' core NEU-GENE technology differentiates it from others
developing gene-inactivating compounds. ANTIVIRALS believes its principal
competitive advantage in the antisense area is the chemical structure of the
NEU-GENE backbone, which was developed to address all of the above parameters.
STABILITY. Biological stability is principally determined by the degree of
resistance to enzymatic degradation. ANTIVIRALS has conducted studies indicating
that NEU-GENE agents are stable to a broad range of degradative enzymes and are
stable in biological tissues.
EFFICACY, POTENCY, AND SPECIFICITY. These parameters refer to the
efficiency with which the antisense compounds block selected protein production.
In a direct comparison with second-generation compounds, ANTIVIRALS' NEU-GENE
compounds exhibited substantially greater efficacy, potency, and specificity in
animal and preclinical studies than competing technologies.
COST EFFECTIVENESS. The difficulty of synthesizing antisense compounds has
been a concern in the field since its inception. The cost of producing
gene-inactivating polymers depends to a considerable extent on the cost of the
subunits from which they are constructed. ANTIVIRALS believes that because of
abundant, low-cost materials, simpler production techniques and higher yields,
the subunits used for NEU-GENE synthesis will cost substantially less than those
used in the synthesis of second-generation backbones. After the genetic subunits
are prepared, they must be assembled in a defined order to form the desired
gene-inactivating polymer. ANTIVIRALS believes that the total cost of production
of commercial quantities of NEU-GENEs will be significantly less than that of
gene-inactivating compounds prepared from natural or modified subunits by
competitors.
DELIVERY. To reach their targets, antisense compounds must cross tissue and
cellular barriers, including cellular and nuclear membranes. Preliminary
research in animal and preclinical studies indicates that ANTIVIRALS' antisense
compounds are effective in reaching and inhibiting their targets inside of
cells. ANTIVIRALS also believes that improved cellular delivery may be required
for broad utilization of antisense technology and accordingly, has devoted a
substantial research effort to develop technology for improving delivery of
antisense compounds. See "Drug Delivery--CYTOPORTER."
54
NEAR-TERM ANTISENSE PRODUCT DEVELOPMENT--CANCER AND RESTENOSIS
The first application of ANTIVIRALS' antisense technology is designed to
treat proliferation disorders including cancer and restenosis, a cardiovascular
disease. ANTIVIRALS' NEU-GENE target for proliferative diseases is a
transcription factor, the oncogene named C-myc. ANTIVIRALS believes that this
target is applicable to a range of proliferative diseases including many types
of cancer, certain cardiovascular and inflammatory diseases, and some
nonmalignant proliferative disorders such as psoriasis.
The first cancer indication to be treated is expected to be osteogenic
sarcoma, a form of bone cancer. Cancer is the second leading cause of death in
the United States with an incidence of 1,500 deaths a day. There are
approximately 8.5 million Americans living with a history of cancer and 500,000
new cases diagnosed annually. Cancer is a variety of different diseases with
lung, prostate, breast and colorectal cancer the four most common types which
account for over 50% of all newly diagnosed cancers. The market for drugs to
treat each of these cancer types is estimated to be in excess of $1 billion
annually. Osteogenic sarcoma has been selected for ANTIVIRALS' initial clinical
trial because it provides an ideal study setting to determine clinical efficacy
and because ANTIVIRALS believes that clinical results in that setting would be
applicable to the four major cancer types.
ANTIVIRALS has selected restenosis as its first cardiovascular antisense
opportunity. When a patient has a blocked coronary artery, a procedure called
balloon angioplasty is frequently used to remove the blockage. In this
procedure, a balloon catheter is inserted in the artery up to the blockage and
the balloon is inflated to expand the artery channel. During this process,
vascular cells, including smooth muscle cells, which underlie the blockage, may
be damaged. This process may result in rapid cell division leading to closure of
the artery a second time. Restenosis occurs in approximately 30%-40% of these
procedures when stents are not placed, and cannot be predicted from patient to
patient. Even when stents are placed, the incidence of restenosis is
significant. The precise mechanisms which cause this reaction are not known.
However, scientific evidence suggests that, if the smooth muscle cells can be
prevented from dividing for a period of time until the integrity of the artery
is reestablished, restenosis could be prevented in a significant number of
cases. Although there are a few new clinical approaches that attempt to prevent
restenosis, none is very effective and all have significant risks associated
with them. There are approximately 500,000 balloon angioplasties done in the
U.S. each year with a market estimated at more than $1 billion annually.
ANTIVIRALS has selected target genetic sequences, has produced drug
candidates, and has demonstrated that its NEU-GENE compounds inhibit cell
division in laboratory models for both cancer and cardiovascular disease.
Compound AVI-2221, Resten-NG, is now in pre-clinical development for restenosis
and osteosarcoma, and the Company expects to file an IND to begin clinical
trials in these applications in 1999. See "Drug Approval Process and Other
Government Regulations." ANTIVIRALS intends to co-develop its NEU-GENE compound
with a pharmaceutical partner. There can be no assurance, however, that
ANTIVIRALS will be able to enter into any partnerships or establish any such
relationship on favorable terms, or at all.
DRUG DELIVERY--CYTOPORTER. Many FDA-approved drugs and drugs in development
including large molecules such as peptides and antisense compounds, do not
readily make their way into cells. ANTIVIRALS has been developing a delivery
mechanism that would allow drugs with delivery problems as well as NEU-GENE, to
be transported directly into the interior of cells. ANTIVIRALS has developed and
has filed a patent for a molecular engine, called CYTOPORTER, to transport drugs
across the lipid layers of cellular and endosomal membranes into the interior of
cells. This engine is powered by the acidic gradient across the endosomal
membrane.
TECHNICAL OVERVIEW
The body has protective barriers that shield it from penetration by foreign
agents. Two of these barriers, cell membranes and the outermost layer of the
skin, are composed of lipid layers (fat-like substances). The lipid composition
of these barriers prevents aqueous or water-soluble agents from the
55
environment or in the blood from penetrating into the interior of cells and
interfering with critical cellular functions. These lipid layers are the
principal barriers to effective drug delivery for many drugs that have an
intracellular site of action.
For optimal delivery, a drug should penetrate readily into both the aqueous
compartments of the body (body fluids and the interior of cells) and into the
lipid layers which enclose those compartments. This is rarely achieved, because
when lipid solubility is increased, water solubility is decreased, and vice
versa. In the past, to achieve delivery, the structure of a selected drug
candidate was chemically adjusted to produce a compromise in the solubility
profile (e.g., less than ideal water solubility in order to achieve some level
of lipid solubility). This trade-off has been successful with many drugs, but
markedly less successful for many others. Currently, a significant number of
FDA-approved drugs have delivery problems, and many others never make it into
clinical development due to delivery problems.
Small substances of low polarity can usually pass directly through the lipid
layers of cell membranes. This appears to be the principal route of entry for
most drugs without delivery problems. In contrast, substances with greater
polarity and/or larger molecular size generally enter cells by being taken up
and sequestered in a closed cellular compartment, or endosome, in a process
called endocytosis. In this process, the interior of the endosome is acidified
and the contents are exposed to degradative enzymes resulting in their
breakdown. This is a natural cellular mechanism that protects the interior of
the cell from exposure to foreign material.
Drugs that are polar in nature or are of a larger molecular size must cross
the lipid membrane of the endosome before being degraded in order to gain entry
into the interior of the cell. Many drugs in this category fail to achieve entry
rapidly enough to be practical for pharmaceutical purposes.
CYTOPORTER DRUG DELIVERY SOLUTION. ANTIVIRALS believes it has developed an
effective drug delivery engine, called CYTOPORTER, to facilitate the transport
of polar and larger size drugs across the lipid barriers of the skin, cell
membranes and endosomes into the interior of cells at a rate that is practical
to achieve pharmaceutical results. When drugs in this category are taken up by
cells, they are sequestered within an endosome surrounded by a lipid barrier.
ANTIVIRALS' CYTOPORTER drug delivery engine is designed to transport these
problem drugs from the endosome into the interior of cells without disruption of
the lipid membrane that traps them. CYTOPORTER is a synthetic peptide containing
specifically positioned acidic groups along its structure. In neutral
conditions, CYTOPORTER exists in a water-soluble form with its acidic groups
exposed and hydrated. On acidification in the endosome, CYTOPORTER undergoes a
transition to a lipid-soluble form where the acidic groups are masked by
associating as mated pairs, and other polar groups are shielded from the
environment. As the engine becomes lipid soluble, it penetrates across the
surrounding lipid membrane. As it enters into the interior of the cell, it
encounters a neutral environment, which induces a transition back to a
water-soluble form resulting in movement of the engine and drug into the
interior of the cell.
56
CYTOPORTER DRUG TRANSPORT MECHANISM. In preparation for enhanced drug
delivery, the selected drug is chemically linked to the CYTOPORTER engine. This
process is unique for each drug and must take into account each drug's mode and
site of action. Several steps are involved in the transport of the selected drug
from the blood or body fluids across lipid barriers into the interior of target
cells. After the drug is taken up by endocytosis, the endosome is acidified as
the cell attempts to degrade its contents. As this acidification takes place,
the engine converts from a water-soluble form into a lipophilic, needle-like
form. As the engine converts to its lipophilic form, it is pushed into the lipid
membrane. Because the engine is longer than the membrane is thick, continued
entry pushes the leading end of the engine into the interior of the cell. As the
engine enters the neutral environment of the interior of the cell, it reverts
automatically to its random, water-soluble form. This provides the motive force
to pull more of the engine across the membrane. Finally, ionization and
solvation of the engine, as it enters the cells neutral interior, pull the
attached drug into the interior of the cell. The interior of the cell contains
enzymes, which rapidly break down the engine into harmless by-products. This is
a natural process that results in freeing the drug to react with its
intracellular target.
ANTIVIRALS believes that its CYTOPORTER delivery engine can be chemically
adjusted to accommodate a range of delivery challenges. The transition from
water to lipid solubility can be manipulated to afford a wide range of
transitions to accommodate various endosome characteristics. Moreover, the
Company believes that its CYTOPORTER can be adjusted to accommodate various drug
loads from modest polar drugs to the more challenging large polymers such as
peptides and antisense compounds.
CYTOPORTER APPLICATIONS. ANTIVIRALS believes its CYTOPORTER molecular
engines may provide improved pharmaceutical properties for a wide variety of
drugs, including:
- Improved aqueous solubility for lipophilic drugs, such as Paclitaxel.
- Improved transport of peptides from endosomes into the interior of cells
(e.g., cyclosporin) and transport of antisense polymers, particularly
non-charged types such as NEU-GENE.
- Improved transport of small, polar nucleic acid analogs.
- Protection of polymer drugs from degradation by virtue of transport out of
endosomes prior to the start of the degradation process.
- Improved transport of drugs into cells of the brain by specialized
CYTOPORTER engines designed to provide both transport across the
blood/brain barrier and subsequent entry into the interior of the brain.
- Delivery of highly cytotoxic drugs into bacteria living in an acidic
environment, specifically H. PYLORI, a major cause of ulcers in the
stomach.
- Transdermal and intradermal delivery of lipophilic drugs.
TRANSDERMAL DRUG DELIVERY. ANTIVIRALS believes that its CYTOPORTER drug
delivery engine may have the potential for transdermal delivery of selected
substances. Placing an acidic, lipid-soluble form of the engine with an attached
drug in contact with the surface of the skin results in the diffusion of the
drug-engine through the lipid layers of the outer barrier of the skin (the
extracellular matrix of the stratum corneum). Upon contact with the aqueous
compartment underlying the stratum corneum, the drug-engine is drawn actively
into this compartment through progressive ionization and solvation of the engine
in the neutral conditions of this environment. This results in delivery of the
attached drug into the underlying tissues, with subsequent distribution
throughout the body.
NEAR-TERM DRUG DELIVERY PRODUCTS
ANTIVIRALS has selected paclitaxel (Taxol) and cyclosporin as the initial
drugs to be combined with its CYTOPORTER delivery engine for its enhanced drug
products. Additionally, ANTIVIRALS plans to apply its
57
drug delivery technology to current drugs used to treat inflammation, pain, and
infectious diseases. ANTIVIRALS plans to work with pharmaceutical collaborators
to bring its drug delivery technology to the market in a timely fashion.
ANTIVIRALS has not, however, entered into any arrangements with pharmaceutical
collaborators, and there can be no assurance that ANTIVIRALS will be able to do
so or that, if entered into, the arrangements will be successful in bringing the
technology to the market in a timely fashion.
PACLITAXEL-CP. Taxol is a Bristol-Myers Squibb drug whose patent life
expired in 1997. It is the largest selling cancer therapeutic worldwide, with
sales of $820 million in 1996. However, severe solubility and delivery problems
greatly limit its use and effectiveness.
Paclitaxel is indicated to treat ovarian cancer and is being used
experimentally to treat numerous cancers, including breast cancer. The current
paclitaxel formulation is not readily soluble in aqueous solutions, requiring
the use of the solvent Cremophor-EL. Injection of the drug/solvent combination
causes hypersensitivity reactions, leaching of plasticizer from PVC infusion
bags, haziness of diluted solutions and the need for in-line filters. The
Company believes that combining its CYTOPORTER delivery engine with paclitaxel
(Paclitaxel-CP) could eliminate the need for solvent in the formulation, thereby
eliminating solvent-associated problems. This development could result in more
optimized dosing, a reduction in side effects, and broader usage. ANTIVIRALS
expects to begin pre-clinical trials of Paclitaxel-CP in 1998 and expects to
file an IND to begin clinical trials with this agent in 12 to 24 months. There
can be no assurance that ANTIVIRALS will be able to file or obtain approval for
an IND in that time frame or at all.
CYCLOSPORIN-CP. Cyclosporin is a drug marketed by Sandoz AG whose patent
life expired in 1996. It is the transplantation anti-rejection drug of choice
worldwide, with an estimated market size of $1 billion. Difficulties with
delivery prevent broader systemic use and topical applications.
Cyclosporin is an immunosuppressive drug that inhibits the function of
lymphocytes involved in mounting a rejection response in patients undergoing
organ transplantation. It has both poor solubility and poor delivery to its site
of action. Consequently, larger doses of the drug are required in order to
achieve a clinical level of effectiveness than if the drug readily reached its
site of action. These higher dosages lead to renal toxicity and other problems
that limit broader use. ANTIVIRALS believes that combining its CYTOPORTER drug
delivery engine with cyclosporin (Cyclosporin-CP) potentially would eliminate
these delivery difficulties, resulting in lower dosages, fewer side effects, and
broader usage.
ANTIVIRALS expects to begin pre-clinical studies with Cyclosporin-CP in 1998
and expects to file an IND to begin clinical trials with this agent in 12 to 24
months. There can be no assurance that ANTIVIRALS will be able to file or obtain
approval for an IND in that time frame or at all.
LONG-TERM PRODUCT DEVELOPMENT
The following table summarizes ANTIVIRALS' broader drug development program.
These programs utilize ANTIVIRALS' NEU-GENE antisense technology and CYTOPORTER
drug delivery technology. In addition, ANTIVIRALS anticipates combining its
NEU-GENE antisense technology with its CYTOPORTER drug delivery technology to
produce combination drugs. For each indication, NEU-GENE have been designed to
target the disease process at the genetic level. ANTIVIRALS has designed
CYTOPORTER to deliver drugs to their intracellular site of action. Although
NEU-GENE may display clinical efficacy on their own, ANTIVIRALS believes that
broad use of NEU-GENE and other antisense compounds may require a drug delivery
strategy.
All of the development programs listed below are in the research or lead
compound stage. Disease targets have been identified and NEU-GENE compounds have
been produced and tested in laboratory and/ or animal models. In some cases,
lead compounds have been produced which are undergoing optimization
58
prior to pre-clinical development. ANTIVIRALS believes that several of these
compounds may move into pre-clinical development in the next two years.
NEU-GENE ANTISENSE DEVELOPMENT PROGRAM
ANTISENSE TARGET CLINICAL INDICATION
- ------------------------------------------------------------- -------------------------------
C-myc........................................................ cancer
cardiovascular restenosis
psoriasis
chronic graft rejection
Telomerase................................................... cancer
BCL2......................................................... cancer
Bcr/abl...................................................... leukemia
NOS.......................................................... cancer
psoriasis
chronic graft rejection
TNF alpha.................................................... rheumatoid arthritis
septic shock
asthma
psoriasis
NF kappa B................................................... Crohn's Disease
colitis
chronic inflammation
ICAM-1....................................................... arthritis
psoriasis
chronic graft rejection
inflammatory bowel disease
Hepatitis C virus............................................ hepatitis
liver cancer
Cytomegalovirus.............................................. retinitis
restenosis
C-MYC. C-myc is an oncogene that is involved in the initiation of cell
division at the genetic level and is therefore referred to as a transcription
factor. Inhibition of this factor blocks transcription and prevents or retards
cell division. NEU-GENE antisense compounds directed against C-myc have been
shown to block cell division in model systems and preclinical trials for
cardiovascular restenosis and cancer. NEU-GENE compounds against C-myc are
potentially applicable for the treatment of other proliferation disorders such
as psoriasis and chronic graft rejection.
TELOMERASE. Telomerase is an enzyme found in cancer cells but rarely in
normal cells and ANTIVIRALS believes that inhibiting it may provide a broad
general approach to treat most cancers. There are approximately one million new
cases of cancer of all types reported in the United States annually. This leads
to about 500,000 deaths in the United States attributed to cancer each year,
making it the country's second leading cause of death. ANTIVIRALS has developed
NEU-GENE compounds that block telomerase activity in model systems in the
laboratory.
BCL2. BCL2 is a proto-oncogene that acts as a major inhibitor of senescence
of cancer cells. The protein produced by this gene contributes to the
progression of cancer by conveying both a survival advantage to the malignant
cells over normal cells and a resistance to radiation and chemotherapy.
59
NEU-GENE compounds that target the BCL-2 gene are designed to block production
of this protein in prostate, breast and a broad range of other cancers.
BCR/ABL. Certain types of leukemia (CML) are characterized by a genetic
abnormality in which two genes referred to as BCR and ABL become linked to forma
hybrid BCR/ABL gene. This gene is only found in certain cancer cells and is
involved in the malignant process. NEU-GENE therapy directed at the BCR/ABL
hybrid gene has the potential to provide a unique treatment for this type of
leukemia.
NITRIC OXIDE SYNTHETASE (NOS). The NOS enzymes are involved in the
transmission of signals across cellular membranes that results in cellular
proliferation. Initial studies with NEU-GENE designed to block the NOS signaling
pathway indicate this strategy may be useful in the prevention of cellular
proliferation in a wide variety of proliferative diseases.
TNF ALPHA. TNF alpha has been implicated as a significant factor in
psoriasis, arthritis, asthma, and other inflammatory disorders. Psoriasis is a
serious chronic, recurring skin disease that involves proliferation of
keratinocytes within the epidermal layer of the skin. Approximately six million
individuals in the United States are afflicted by psoriasis and approximately
200,000 new cases are diagnosed annually. Current psoriasis therapies are varied
but offer limited results. ANTIVIRALS has demonstrated that its NEU-GENE
compounds are effective in inhibiting TNF alpha in laboratory and animal models
of inflammation.
NUCLEAR FACTOR KAPPA B (NFKB). NFkB is a protein complex involved in the
regulation of certain extracellular proteins at the genetic level. These matrix
proteins are an essential component in the cellular adhesion process of cells
that mediate immune and inflammatory responses. NEU-GENE inhibition of NF B is
potentially useful in the management of certain inflammatory diseases such as
Crohn's disease, colitis, and chronic inflammation.
ICAM-1. ICAM-1 facilitates the migration of immune cells involved in both
acute and chronic inflammation. Over-production of ICAM-1 is specifically
implicated in a wide variety of inflammatory disorders, such as rheumatoid
arthritis, asthma, psoriasis, organ transplant rejection, and inflammatory bowel
disease. ANTIVIRALS has targeted NEU-GENE against the adhesion molecule ICAM-1
and is testing these compounds in models of inflammation.
HEPATITIS C VIRUS ("HCV"). ANTIVIRALS has initiated a program to produce
and evaluate NEU-GENE compounds directed at HCV targets. HCV is a major health
problem in many parts of the world, including the United States where there are
approximately 150,000 new infections each year (about 40% of all acute hepatitis
cases). The mechanism of transmission may involve the exchange of blood,
although the route of transmission in many cases is obscure. There are no
FDA-approved vaccines or therapeutic drugs for the treatment of HCV.
CYTOMEGALOVIRUS ("CMV"). ANTIVIRALS is developing NEU-GENE compounds for
the treatment of CMV infections. CMV is a member of the herpes family of viruses
and is the most common cause of intrauterine and congenital infections in
newborns of infected mothers. CMV retinitis is a severe problem in transplant
patients and patients with immunosuppression (e.g., AIDS), often leading to
blindness and pneumonitis, one of the most lethal viral syndromes. Current
FDA-approved treatments for CMV retinitis suffer from dose-limiting side effects
and have been associated with the emergence of drug-resistant CMV strains.
COLLABORATIVE AGREEMENTS
ANTIVIRALS believes that antisense and drug delivery technologies are
broadly applicable for the potential development of pharmaceutical products in
many therapeutic areas. To exploit its core technologies as fully as possible,
ANTIVIRALS' strategy is to enter into collaborative research agreements with
major pharmaceutical companies directed at specific molecular targets. It is
anticipated that collaborative
60
research agreements may provide ANTIVIRALS with funding for programs conducted
by the Company aimed at discovering and developing antisense compounds to
inhibit the production of individual molecular targets. Partners may be granted
options to obtain licenses to co-develop and to market drug candidates resulting
from its collaborative research programs. ANTIVIRALS intends to retain
manufacturing rights to its antisense products. There can be no assurance,
however, it will be able to enter into collaborative research agreements with
large pharmaceutical companies on terms and conditions satisfactory to
ANTIVIRALS.
MANUFACTURING
ANTIVIRALS believes that it has developed significant proprietary
manufacturing techniques which will allow large-scale, low-cost synthesis and
purification of NEU-GENE products. Because ANTIVIRALS' NEU-GENE compounds are
based upon a malleable backbone chemistry, ANTIVIRALS believes that NEU-GENE
synthesis will be more cost-effective than those of competing technologies.
ANTIVIRALS has established sufficient manufacturing capacity to meet immediate
research and development needs.
ANTIVIRALS currently intends to retain manufacturing rights to all products
incorporating its proprietary and patented technology, whether such products are
sold directly by ANTIVIRALS or through collaborative agreements with industry
partners. ANTIVIRALS' current production capacity is insufficient for the
requirements of human clinical studies. ANTIVIRALS contracted with a Good
Manufacturing Practices ("GMP") facility in 1997 to produce its near term
therapeutic candidates for pre-clinical and clinical trial studies. There is no
assurance, however, that ANTIVIRALS' plans will not change as a result of
unforeseen contingencies.
In March 1993, ANTIVIRALS moved to its present laboratory facility. This
facility and the laboratory procedures followed by ANTIVIRALS have not been
formally inspected by the FDA and will have to be approved as products move from
the research phase through the clinical testing phase to commercialization.
ANTIVIRALS will be required to comply with FDA requirements for GMP in
connection with human clinical trials and commercial production. See "Drug
Approval Process and Other Government Regulations."
MARKETING STRATEGY
ANTIVIRALS plans to market the initial products for which it obtains
regulatory approval through marketing arrangements or other licensing
arrangements with large pharmaceutical companies. Implementation of this
strategy will depend on many factors, including the market potential of any
products ANTIVIRALS develops and ANTIVIRALS' financial resources. ANTIVIRALS
does not expect to establish a direct sales capability for therapeutic compounds
for at least the next several years. To market products that will serve a large,
geographically diverse patient population, ANTIVIRALS expects to enter into
licensing, distribution, or partnering agreements with pharmaceutical companies
that have large, established sales organizations. The timing of ANTIVIRALS'
entry into marketing arrangements or other licensing arrangements with large
pharmaceutical companies will depend on successful product development and
regulatory approval within the regulatory framework established by the Federal
Food, Drug and Cosmetics Act, as amended, and regulations promulgated
thereunder. Although the implementation of initial aspects of ANTIVIRALS'
marketing strategy may be undertaken before this process is completed, the
development and approval process typically is not completed in less than three
to five years after the filing of an IND application and ANTIVIRALS' marketing
strategy therefore may not be implemented for several years. See "Drug Approval
Process and Other Governmental Regulation."
61
PATENTS AND PROPRIETARY RIGHTS
The proprietary nature of, and protection for, ANTIVIRALS' product
candidates, processes and know-how are important to its business. ANTIVIRALS
plans to prosecute and defend aggressively its patents and proprietary
technology. ANTIVIRALS' policy is to patent the technology, inventions, and
improvements that are considered important to the development of its business.
ANTIVIRALS also relies upon trade secrets, know-how, and continuing
technological innovation to develop and maintain its competitive position.
ANTIVIRALS owns eleven U.S. patents covering various polymer compositions
effective in sequence-specific binding to single-stranded nucleic acids,
subunits used in producing the polymers, therapeutic and diagnostic applications
of the polymers, combinatorial library compositions formed from the subunits,
and polymer compositions effective in sequence-specific binding to
double-stranded nucleic acid. The issued patents expire between 2008 and 2014.
Corresponding patent applications have been filed in Europe, Japan, Australia,
and Canada, and nine of these foreign applications have been granted as patents,
with expiration dates between 2006 and 2012. ANTIVIRALS has additional pending
applications in the area of its NEU-GENE technology, and has filed patent
applications covering the basic compositions of matter, methods of synthesis,
and medical uses of CYTOPORTER compounds. ANTIVIRALS intends to protect its
proprietary technology with additional filings as appropriate.
There can be no assurance that any patents applied for will be granted or
that patents held by ANTIVIRALS will be valid or sufficiently broad to protect
ANTIVIRALS' technology or provide a significant competitive advantage, nor can
ANTIVIRALS provide assurance that practice of ANTIVIRALS' patents or proprietary
technology will not infringe third-party patents.
Although ANTIVIRALS believes that it has independently developed its
technology and attempts to ensure that its technology does not infringe the
proprietary rights of others, if infringement were alleged and proven, there can
be no assurance that ANTIVIRALS could obtain necessary licenses on terms and
conditions that would not have an adverse effect on ANTIVIRALS. ANTIVIRALS is
not aware of any asserted or unasserted claims that its technology violates the
proprietary rights of any person.
DRUG APPROVAL PROCESS AND OTHER GOVERNMENT REGULATION
The production and marketing of ANTIVIRALS' products and its research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous regulation. The
Federal Food, Drug and Cosmetics Act, as amended, and the regulations
promulgated thereunder, as well as other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of ANTIVIRALS' proposed products. Product development and approval within this
regulatory framework take a number of years and involve the expenditure of
substantial resources. In addition to obtaining FDA approval for each product,
each drug manufacturing establishment must be registered with, and approved by,
the FDA. Domestic manufacturing establishments are subject to regular
inspections by the FDA and must comply with regulations governing GMPs. To
supply products for use in the United States, foreign manufacturing
establishments must also comply with GMPs and are subject to periodic inspection
by the FDA or by regulatory authorities in countries under reciprocal agreement
with the FDA.
NEW DRUG DEVELOPMENT AND APPROVAL. The United States system of new drug
approval is the most rigorous in the world. According to a February 1993 report
by the Congressional Office of Technology Assessment, it cost an average of $359
million and took an average of 15 years from discovery of a compound to bring a
single new pharmaceutical product to market. Approximately one in 1,000
compounds that enter the pre-clinical testing stage eventually makes it to human
testing and only one-fifth of those are ultimately approved for
commercialization. In recent years, societal and governmental pressures have
created the expectation that drug discovery and development costs can be reduced
without sacrificing safety, efficacy and innovation. The need to significantly
improve or provide alternative strategies for
62
successful pharmaceutical discovery, research and development remains a major
health care industry challenge.
DRUG DISCOVERY. In the initial stages of drug discovery, before a compound
reaches the laboratory, typically tens of thousands of potential compounds are
randomly screened for activity in an assay assumed to be predictive of a
particular disease process. This drug discovery process can take several years.
Once a "screening lead" or starting point for drug development is found,
isolation and structural determination are initiated. Numerous chemical
modifications are made to the screening lead (called "rational synthesis") in an
attempt to improve the drug properties of the lead. After a compound emerges
from the above process, it is subjected to further studies on the mechanism of
action and further in vitro animal screening. If the compound passes these
evaluation points, animal toxicology is performed to begin to analyze the toxic
effect of the compound, and if the results indicate acceptable toxicity
findings, the compound emerges from the basic research mode and moves into the
pre-clinical phase. The Company has many compounds at the drug discovery phase
and three compounds that it expects to move to pre-clinical testing within 12 to
24 months.
PRE-CLINICAL TESTING. During the pre-clinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests can
take up to three years or more to complete. ANTIVIRALS' restenosis compound
currently is in pre-clinical testing, and ANTIVIRALS presently anticipates that
Cyclosporin-CP and Paclitaxel-CP will enter this phase in 1998.
INVESTIGATIONAL NEW DRUG APPLICATION. After pre-clinical testing, an IND is
filed with the FDA to begin human testing of the drug. The IND becomes effective
if the FDA does not reject it within thirty (30) days. The IND must indicate the
results of previous experiments, how, where and by whom the new studies will be
conducted, how the chemical compound is manufactured, the method by which it is
believed to work in the human body, and any toxic effects of the compound found
in the animal studies. In addition, the IND must be reviewed and approved by an
Institutional Review Board consisting of physicians at the hospital or clinic
where the proposed studies will be conducted. Progress reports detailing the
results of the clinical trials must be submitted at least annually to the FDA.
PHASE I CLINICAL TRIALS. After an IND becomes effective, Phase I human
clinical trials can begin. These studies, involving usually between 20 and 80
healthy volunteers, can take up to one year or more to complete. The studies
determine a drug's safety profile, including the safe dosage range. The Phase I
clinical studies also determine how a drug is absorbed, distributed, metabolized
and excreted by the body, as well as the duration of its action.
PHASE II CLINICAL TRIALS. In Phase II clinical trials, controlled studies
of approximately 50 to 300 volunteer patients with the targeted disease assess
the drug's effectiveness. These studies are designed primarily to evaluate the
effectiveness of the drug on the volunteer patients as well as to determine if
there are any side effects on these patients. These studies can take two (2)
years or more. In addition, Phase I/II clinical trials may be conducted that
evaluate not only the efficacy but also the safety of the drug on the patient
population. ANTIVIRALS anticipates that its Phase I/II clinical trials with
Resten-NG and Cyclosporin-CP will begin in 1999.
PHASE III CLINICAL TRIALS. This phase typically lasts up to three years or
more and usually involves 200 to greater than 1,000 patients with the targeted
disease. During the Phase III clinical trials, physicians monitor the patients
to determine efficacy and to observe and report any adverse reactions that may
result from long-term use of the drug.
NEW DRUG APPLICATION. After the completion of all three clinical trial
phases, the data are analyzed and if the data indicate that the drug is safe and
effective, a new drug application ("NDA") is filed with the FDA. The NDA must
contain all of the information on the drug that has been gathered to date,
including
63
data from the clinical trials. NDAs are often over 100,000 pages in length. The
average NDA review time for new pharmaceuticals approved in 1995 was
approximately nineteen (19) months.
FAST TRACK REVIEW. In December 1992, the FDA formalized procedures for
accelerating the approval of drugs to be marketed for the treatment of certain
serious diseases for which no satisfactory alternative treatment exists, such as
Alzheimer's disease and AIDS. If it is demonstrated that the drug has a positive
effect on survival or irreversible morbidity during Phase II clinical trials,
then the FDA may approve the drug for marketing prior to starting Phase III
testing.
APPROVAL. Historically, the FDA has approved approximately one out of every
five NDAS filed with the FDA. If the FDA approves the NDA, the drug becomes
available for physicians to prescribe. ANTIVIRALS must continue to submit
periodic reports to the FDA, including descriptions of any adverse reactions
reported. For certain drugs which are administered on a long-term basis, the FDA
may request additional clinical studies (Phase IV) after the drug has begun to
be marketed to evaluate long-term effects.
In addition to regulations enforced by the FDA, ANTIVIRALS also is or will
be subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and future federal, state or
local regulations. ANTIVIRALS' research and development activities involve the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. Although ANTIVIRALS believes that its safety procedures
for handling and disposing of such materials comply with the standard prescribed
by state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, ANTIVIRALS could be held liable for any damages that result, and any
such liability could exceed the resources of ANTIVIRALS.
For marketing outside the United States, ANTIVIRALS or its prospective
licensees will be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs and devices. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country.
COMPETITION
Several companies are pursuing the development of antisense technology,
including Glaxo, Boehringer Ingelheim, Gilead Sciences, Hybridon, Inex, and ISIS
Pharmaceuticals. All of these companies are in development stages, and, in some
cases, are in human trials with antisense compounds generally similar to
ANTIVIRALS' NEU-GENE compounds. While ANTIVIRALS believes that none of these
companies is likely to introduce an antisense compound into the commercial
market in the immediate future, many pharmaceutical and biotechnology companies,
including most of those listed above, have financial and technical resources
greater than those currently available to ANTIVIRALS and have more established
collaborative relationships with industry partners than does ANTIVIRALS.
ANTIVIRALS believes that the combination of pharmaceutical properties of its
NEU-GENE compounds for cancer and restenosis afford it competitive advantages
when compared with the antisense compounds of competitors. Many companies are
pursuing drug delivery technology, including Biovail, Cellegy Pharmaceuticals,
Cygnus, and Noven, among others. If ANTIVIRALS' antisense and drug delivery
product candidates attain regulatory and commercial acceptance as pharmaceutical
products, it is to be expected that additional companies, including large,
multinational pharmaceutical companies, will choose to compete in ANTIVIRALS'
markets, either directly or through collaborative arrangements.
ANTIVIRALS can also expect to compete with other companies exploiting
alternative technologies that address the same therapeutic needs, as does
ANTIVIRALS' technology. The biopharmaceutical market is subject to rapid
technological change, and it can be expected that competing technologies will
emerge and will present a competitive challenge to ANTIVIRALS.
64
RESEARCH AND DEVELOPMENT
ANTIVIRALS expensed $1,729,554 and $2,737,172 on research and development
activities during the years ended December 31, 1996 and 1997.
EMPLOYEES
As of March, 1998, the Company had 53 employees, 20 of whom hold advanced
degrees. Forty-seven employees are engaged directly in research and development
activities, and six are in administration. None of ANTIVIRALS' employees is
covered by collective bargaining agreements, and management considers relations
with its employees to be good.
PROPERTIES
The Company occupies 18,400 square feet of leased laboratory and office
space at 4575 S.W. Research Way, Suite 200, Corvallis, Oregon 97333. The
Company's executive office is located in 2,400 square feet of leased space at
One S.W. Columbia, Suite 1105, Portland, Oregon 97258. The Company believes that
its facilities are suitable and adequate for its present operational
requirements and that it is not dependent upon any individually leased premises.
LEGAL MATTERS
ANTIVIRALS is not currently involved in any litigation or legal proceedings
and is not aware of any litigation or proceedings threatened against it.
65
SELECTED ANTIVIRALS FINANCIAL DATA
The following selected historical financial information of ANTIVIRALS has
been derived from historical financial statements, and should be read in
conjunction with such financial statements and the notes thereto and in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations of ANTIVIRALS, which are included elsewhere in this Joint
Proxy Statement/Prospectus.
AT OR FOR YEAR ENDED AT OR FOR THREE MONTHS
DECEMBER 31, JULY 22, 1980 ENDED MARCH 31,
---------------------------- (INCEPTION) -------------------------
1996 1997 TO 12/31/97 1997 1998
------------- ------------- ------------- ---------- -------------
STATEMENT OF OPERATIONS DATA:
Revenues from grants and research contracts... $ 27,227 $ 14,345 $ 703,842 $ -- $ 5,650
Operating expenses:
Research and development.................... 1,729,554 2,737,172 11,748,746 451,723 1,294,264
General and administrative.................. 613,811 1,282,214 5,831,796 170,028 306,965
------------- ------------- ------------- ---------- -------------
Total operating expenses...................... $ 2,343,365 $ 4,019,386 $ 17,580,542 621,751 1,601,229
------------- ------------- ------------- ---------- -------------
Loss from operations.......................... $ (2,316,138) $ (4,005,041) $ (16,876,700) (621,751) (1,595,579)
Other income (expense):
Interest income, net........................ 132,026 389,051 738,477 29,055 170,721
Realized gain on sale of short-term
investments............................... 96,750 -- 96,750 -- --
------------- ------------- ------------- ---------- -------------
Net loss...................................... $ (2,087,362) $ (3,615,990) $ (16,041,473) $ (592,696) $ (1,424,858)
------------- ------------- ------------- ---------- -------------
------------- ------------- ------------- ---------- -------------
Net loss per share............................ $ (0.25) $ (0.36) $ (0.07) $ (0.13)
------------- ------------- ---------- -------------
------------- ------------- ---------- -------------
BALANCE SHEET DATA:
Cash and investments.......................... $ 3,041,229 $ 17,638,936 $ 15,790,550
Working capital............................... 2,738,677 17,193,526 15,858,374
Total assets.................................. 4,248,899 18,782,214 17,526,343
Common stock subject to rescission............ 3,121,965 -- --
Deficit accumulated during the development
stage....................................... (12,425,483) (16,041,473) (17,466,331)
Total shareholders' equity.................... 796,127 18,317,762 17,044,907
Book value per share.......................... 0.11 1.65 1.53
JULY 22, 1980
(INCEPTION)
TO 3/31/98
-------------
STATEMENT OF OPERATIONS DATA:
Revenues from grants and research contracts... $ 709,492
Operating expenses:
Research and development.................... 13,043,010
General and administrative.................. 6,138,761
-------------
Total operating expenses...................... 19,181,771
-------------
Loss from operations.......................... (18,472,279)
Other income (expense):
Interest income, net........................ 909,198
Realized gain on sale of short-term
investments............................... 96,750
-------------
Net loss...................................... $ (17,466,331)
-------------
-------------
Net loss per share............................
BALANCE SHEET DATA:
Cash and investments..........................
Working capital...............................
Total assets..................................
Common stock subject to rescission............
Deficit accumulated during the development
stage.......................................
Total shareholders' equity....................
Book value per share..........................
66
ANTIVIRALS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS WHICH ARE NOT HISTORICAL FACTS CONTAINED IN THIS DISCUSSION
ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING,
BUT NOT LIMITED TO, THE RESULTS OF RESEARCH AND DEVELOPMENT EFFORTS, THE RESULTS
OF PRE-CLINICAL AND CLINICAL TESTING, THE EFFECT OF REGULATION BY FDA AND OTHER
AGENCIES, THE IMPACT OF COMPETITIVE PRODUCTS, PRODUCT DEVELOPMENT,
COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES, AND OTHER RISKS DETAILED IN
"RISK FACTORS."
OVERVIEW
From its inception in 1980, ANTIVIRALS has devoted its resources primarily
to fund its research and development efforts. ANTIVIRALS has been unprofitable
since inception and, other than limited interest and grant revenue, has had no
material revenues from the sale of products or other sources, and does not
expect material revenues for at least the next twelve (12) months. ANTIVIRALS
expects to continue to incur losses for the foreseeable future as it expands its
research and development efforts. As of March 31, 1998, ANTIVIRALS' accumulated
deficit was $17,466,331. In connection with the IMMUNOTHERAPY acquisition,
ANTIVIRALS expects to take a charge of approximately $19,600,000 relating to
those research and development efforts in process that had not yet reached
technological feasibility and that had no alternative future uses. Accounting
rules require such costs to be reflected in operations during the period in
which the IMMUNOTHERAPY acquisition closes.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997, COMPARED WITH QUARTER ENDED MARCH 31,
1998. Operating expenses increased from $621,751 in 1997 to $1,601,229 in 1998
due to increases in research and development staffing and increased expenses
associated with outside collaborations and pre-clinical testing of ANTIVIRALS'
technologies. Additionally, increased general and administrative costs were
incurred to support the research expansion, and to broaden ANTIVIRALS' investor
and public relations efforts due to its change in status to a public company in
mid-1997. Net interest income increased from $29,055 in 1997 to $170,721 in 1998
due to earnings on increased cash balances, which consisted of proceeds from the
initial public offerings.
YEAR ENDED DECEMBER 31, 1996, COMPARED WITH YEAR ENDED DECEMBER 31,
1997. Operating expenses increased from $2,343,365 in 1996 to $4,019,386 in
1997 due to increases in research and development staffing and increased
expenses associated with outside collaborations and pre-clinical testing of the
Company's technologies. Additionally, increased general and administrative costs
were incurred to support the research expansion, and to broaden ANTIVIRALS'
investor and public relations efforts due to its change in status to a public
company in mid-1997. Interest income increased from $132,026 in 1996 to $389,051
in 1997 due to earnings on increased cash balances, which consisted of proceeds
from the initial public offerings. The 1997 interest income is net of interest
expense of $119,624 from payments on ANTIVIRALS' rescission offering.
LIQUIDITY AND CAPITAL RESOURCES
ANTIVIRALS has financed its operations since inception primarily through
equity sales totaling $34,648,030 and grants and contract research funding of
$709,492 from various sources. ANTIVIRALS' cash and cash equivalents were
$15,790,550 at March 31, 1998, compared with $17,638,936 at December 31, 1997.
The decrease of $1,848,386 was primarily due to increases in research and
development staffing and increased expenses associated with outside
collaborations and pre-clinical testing of ANTIVIRALS' technologies.
Additionally, increased general and administrative costs were incurred to
support the research expansion, to broaden ANTIVIRALS' investors and public
relations efforts due to its change in status to a
67
public company in mid-1997, and to advance funding to IMMUNOTHERAPY CORPORATION
as part of its acquisition thereof.
ANTIVIRALS' future expenditures and capital requirements will depend on
numerous factors, including, without limitation, the progress of its research
and development programs, the progress of its pre-clinical and clinical trials,
the time and costs involved in obtaining regulatory approvals, the cost of
filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market developments,
the ability of ANTIVIRALS to establish collaborative arrangements and the terms
of any such arrangements, and the costs associated with commercialization of its
products. ANTIVIRALS' cash requirements are expected to continue to increase
significantly each year as it expands its activities and operations. There can
be no assurance, however, that ANTIVIRALS will ever be able to generate product
revenues or achieve or sustain profitability.
ANTIVIRALS expects that its cash requirements over the next twelve months
will be satisfied by existing cash resources.
68
BUSINESS OF IMMUNOTHERAPY
GENERAL
IMMUNOTHERAPY is a biopharmaceutical company focused on the development of
therapeutic vaccines to treat cancer and infectious diseases. IMMUNOTHERAPY's
primary product, CTP-37, has completed three Phase I studies and is now being
evaluated in two multicenter Phase II clinical trials. Present and past clinical
experience with CTP-37 has provided evidence of apparent survival benefits in
patients with advanced or metastatic disease. CTP-37 represents a new class of
promising anti-cancer vaccines that are designed to utilize the human immune
system to control disease progression in patients who have failed conventional
therapy. IMMUNOTHERAPY's therapeutic goal for CTP-37 is to provide quality of
life and survival benefits for patients living with cancer without debilitating
toxicity.
Utilizing the body's natural ability to distinguish healthy cells from
potentially harmful ones, IMMUNOTHERAPY has developed a rationally designed
vaccine that stimulates an immune system response to human chorionic
gonadotropin (hCG), a hormone produced by tumors. Many years of focused research
using multiple analytical tools have shown that hCG is commonly produced by a
wide range of human malignancies. Several lines of evidence indicate that hCG is
capable of stimulating tumor cell growth while compromising immune responses
that normally defend against cancer. These tumor properties are believed to
render patients immunologically inert to their tumors (anergy), promote tumor
vascularization (angiogenesis) and lead to aggressive tumor behavior
(metastases). All of these phenomena are enhanced by hCG and indicate that this
human hormone/growth factor enhances cancer's ability to spread throughout the
body and kill its host. The therapeutic goal of CTP-37 immunotherapy is to
neutralize hCG's biological role in patients who have cancer by stimulating a
vigorous immune response to hCG and the tumors that produce the hormone.
MANAGING CANCER
IMMUNOTHERAPY believes today's emerging healthcare market recognizes the
value of treatments which allow for disease management in many common disorders,
including cancer. While a cure for cancer remains elusive, there is growing
realization that improved cancer management is well within the reach of current
medical science. The concept of immunological control of cancer as a chronic
disease is intended to improve the lives of cancer patients while preserving
scarce medical resources. This highly specific and well-tolerated therapeutic
approach represents an emerging paradigm shift in medical treatment and new
treatment options for patients living with cancer. Unlike a prophylactic vaccine
which is used to prevent disease occurrence, CTP-37 is being evaluated as a
therapeutic vaccine to treat patients with diagnosed disease.
INDUSTRY OVERVIEW
The concept of utilizing the human immune system to control tumors and their
metastases has been a long term goal of medical research. Recent advances in the
fundamental understanding of tumor immunology have increased the prospects for
the near-term development of non-toxic cancer vaccines. After years of
concentrated research, a wide variety of immunotherapeutic agents are now
beginning to reach the clinic with promising results. The need for new cancer
therapies stems from the high costs and limitations of current standard
treatments (i.e., surgery, radiation and chemotherapy). The past twenty years
have seen treatment advances in some cancers, but for the most prevalent human
malignancies such as lung, breast and colorectal cancer, little improvement has
been made. Viewed in context of today's shrinking health care environment, there
is a substantial unfulfilled need for new effective cancer immunotherapeutic
products. In a comprehensive 1996 cancer vaccine report by analysts following
new
69
trends in cancer therapy, the cancer vaccine market was described as "vast and
growing" and sales for all major cancer markets including those of interest to
IMMUNOTHERAPY, were projected as follows:
ESTIMATED WORLD MARKETS FOR THERAPEUTIC AND PROPHYLACTIC VACCINES (5TH YEAR
SALES)
PROPHYLACTIC TOTAL
THERAPEUTIC VACCINE WITH VACCINE WITH COMBINED
ANNUAL BOOSTER ANNUAL BOOSTER MARKET
------------------------- --------------- -----------
MARKET MARKET MARKET
TYPE OF CANCER ($MILLION) ($MILLION) ($MILLION)
- ----------------------------------------- ------------------------- --------------- -----------
Colorectal............................... 787.7 913.9 1,701.6
Breast................................... 604.4 998.6 1,603.0
Prostate................................. 844.6 1,188.7 2,033.3
IMMUNOTHERAPY'S PRODUCT DEVELOPMENT STRATEGY
IMMUNOTHERAPY has concentrated its resources on conducting CTP-37 clinical
trials in patients who have failed conventional standard therapy. Encouraging
data from three Phase I studies have resulted in advanced clinical trials for
colorectal and pancreatic cancer. At the conclusion of the current trials,
IMMUNOTHERAPY plans to evaluate improved formulations of CTP-37 in a Phase III
colorectal and/or pancreatic trial. Additional Phase II studies are planned for
prostate and breast cancer. If, as IMMUNOTHERAPY anticipates, its Phase II trial
results provide evidence of survival or quality of life benefits, IMMUNOTHERAPY
anticipates submission of a Biological License Application ("BLA") to the FDA
within 24 months, unless an earlier application is indicated under FDA's
accelerated approval process for novel and promising cancer therapies. Approval
of the BLA would permit the Company to market and sell CTP-37 in the United
States and selected additional world markets. IMMUNOTHERAPY's near-term product
development strategy includes seeking collaborative agreements with one or more
pharmaceutical companies to help commercialize its product portfolio.
IMMUNOTHERAPY believes this strategy will allow IMMUNOTHERAPY to focus on its
fundamental strengths in vaccine discovery and research, while capitalizing on
its corporate partners' strengths in finance, manufacturing, marketing and
sales.
PRODUCTS
CTP-37 is a synthetic peptide conjugate vaccine designed to elicit an
anti-hCG immune response that targets tumors that produce hCG. The hCG hormone
is naturally produced during pregnancy and shields developing embryos from
maternal immune rejection. It is also produced by a wide range of cancers, where
it concentrates in the tumor cell membrane. The hormone is found in highest
concentration among the most aggressive cancers (i.e., metastatic). The hCG
hormone is believed to stimulate tumor cell growth while compromising immune
responses that normally defend against cancer. This is analogous to the natural
role of hCG during pregnancy, where it promotes fetal development and
down-regulates the immune response against the developing fetus.
CTP-37 vaccine consists of a specific hCG antigen, which is synthesized by
IMMUNOTHERAPY and mimics the natural antigen commonly found on many cancers of
the colon, pancreas, prostate and breast (among others). The vaccine is composed
of a 37 amino acid hCG specific peptide conjugated to diphtheria toxoid, a
highly immunogenic carrier protein used in influenza vaccines. The peptide
conjugate is emulsified in combination with a synthetic dipeptide adjuvant
(nor-MDP, a potent immune stimulant) and delivered in a series of four
intermuscular immunizations over a 16-week period with subsequent booster
immunizations given periodically.
CTP-37 has been tested in over 125 patients with advanced colorectal,
pancreatic and other cancers. Results to date have indicated that CTP-37 is safe
and effective in stimulating tumor specific immune responses to hCG. Preliminary
evaluation of survival data in IMMUNOTHERAPY's Phase II colorectal
70
clinical trial suggests that patients who respond to CTP-37 immunotherapy enjoy
a survival benefit equal to or better than chemotherapy with a greatly enhanced
quality of life.
LATE STAGE PRODUCTS. Although CTP-37 has the potential of being used as a
therapeutic vaccine to treat a wide range of human malignancies, and potentially
other diseases, the most promising near term prospects are for treating patients
with advanced colorectal and pancreatic cancer. In August of 1996, IMMUNOTHERAPY
initiated a Phase II clinical trial in colorectal cancer that has treated 77
patients in total. Data from this trial is now being evaluated prior to meeting
with regulatory authorities to discuss the study design of a randomized Phase
III colorectal licensing trial of CTP-37. IMMUNOTHERAPY has also successfully
petitioned the FDA to conduct a randomized Phase II/III trial of CTP-37 versus
gemcitabine chemotherapy in pancreatic cancer. The Phase III licensing trial
will require production of additional clinical supplies.
INTERIM STAGE PRODUCTS. Interim plans for further evaluating CTP-37 in
other cancers include initiating Phase II clinical studies of the vaccine in
both breast and prostate cancer. A Phase II prostate clincial trial is expected
to begin shortly using existing clinical supplies.
EARLY STAGE PRODUCTS. IMMUNOTHERAPY has completed several preclinical
laboratory studies that suggest that CTP-37 may be useful in treating both
animal and human retroviral infections. Additional preclinical studies are
planned.
SUMMARY OF PRODUCTS IN DEVELOPMENT
PRODUCT APPLICATION DEVELOPMENT PHASE
- ----------------------------------------- ------------------------------------------ --------------------------
Therapeutic vaccines..................... Colorectal cancer Phase II/late stage
Pancreatic cancer Phase II/late stage
Breast cancer Preclinical/interim stage
Prostate cancer Preclinical/interim stage
Animal therapeutics...................... Feline Immunodeficiency Virus (FIV) Preclinical/early stage
Feline Leukemia Virus (FeLV) Preclinical/early stage
Infectious diseases...................... Retroviruses Preclinical/early stage
FORMULATION IMPROVEMENT. Advanced formulations of CTP-37 have been designed
to increase CTP-37's therapeutic activity. In a series of preclinical laboratory
studies, the biological potency of CTP-37 was significantly increased with the
addition of a second unique hCG specific antigen. Additional studies have
produced sustained immune responses to CTP-37 utilizing improved delivery
vehicles such as liposomes, polylactic/glycocolic microspheres and stable
high-pressure emulsions. One of these advanced CTP-37 formulations will be
selected to use in IMMUNOTHERAPY's planned Phase III colorectal clinical trial.
SUMMARY OF CLINICAL STUDIES. CTP-37 is being developed as a non-toxic
vaccine for the treatment of cancer in multiple clinical settings. The following
table sets forth IMMUNOTHERAPY's clinical trial program for CTP-37.
TRIAL DESCRIPTION AND TYPE PATIENTS STATUS
- ----------- ------------------------------------------------------ ------------ -----------------
1 Phase I safety study.................................. 43 treated Completed
2 Phase I metastatic cancer............................. 21 treated Completed
3 Phase Ib metastatic cancer............................ 23 treated Completed
4 Phase II colorectal................................... 77 treated Ongoing
5 Phase II colorectal extension......................... 16 treated Ongoing
71
TRIAL DESCRIPTION AND TYPE PATIENTS STATUS
- ----------- ------------------------------------------------------ ------------ -----------------
6 Phase II pancreatic................................... 6 treated Ongoing
7 Phase II pancreatic extension......................... 2 treated Ongoing
8 Phase II prostate..................................... 16 Beginning 1998
9 Phase II breast....................................... 16 Beginning 1999
10 Phase I/II Loop safety/immunogenicity................. 16 Beginning 1998
11 Phase II/III randomized pancreatic trial.............. 48 Beginning 1998
12 Phase III randomized colorectal trial................. 300 Beginning 1998
SUMMARY OF PHASE I CLINICAL RESULTS. IMMUNOTHERAPY has completed two Phase
I studies in cancer patients subsequent to a 43 subject Phase I dose escalation
safety study. In the first, 23 cancer patients were enrolled into one of three
dose levels and received three intermuscular vaccine injections at 21-day
intervals. In the second Phase I study, 21 patients were treated with CTP-37
using an alternative adjuvant. Overall these two studies demonstrated that the
vaccine was well-tolerated and effective at eliciting hCG specific immune
responses to vaccination. Evidence of CTP-37 efficacy included anti-tumor
responses and apparent survival benefits in patients with aggressive
malignancies who had failed conventional therapy.
PHASE II CLINICAL RESULTS (IN PROGRESS). As a result of the encouraging
results in the Phase I studies, IMMUNOTHERAPY initiated two additional clinical
trials of CTP-37 in 1996. Interim results, as summarized below, confirm the
safety of the vaccine as well as its ability to produce immune responses to hCG.
Most significantly, the results confirm data from the Phase I studies suggesting
a variety of metastatic tumors, including colorectal and pancreatic cancer, may
respond to treatment with this vaccine.
- CTP-37 continues to be well tolerated in both the colorectal and
pancreatic trials.
- Patients continue to elicit humoral responses to CTP-37 immunotherapy.
- hCG-specific immune response to vaccination appears to correlate with
patient survival; patients who respond to CTP-37 immunotherapy by week 12
demonstrate a survival benefit (95%) vs. chemotherapy (70%) through study
conclusion (week 24).
COMPETITION
As a consequence of medical science's expanding knowledge of tumor
immunology and lack of new effective cancer therapeutics, there is intense
competition to develop highly specific non-toxic cancer vaccines. IMMUNOTHERAPY
believes that it enjoys a favorable competitive position as compared to many
recent entries in the cancer vaccine field based upon the sustained investment
in IMMUNOTHERAPY's lead product over twenty years. During the past five years as
medical research has elucidated the complexities of the human immune system and
tumor biology, new laboratory and clinical studies have provided persuasive
evidence that cancer vaccines can be effectively used to treat and control
cancer. These advances, when viewed in context of the limited benefits offered
with standard therapeutic regimens, have prompted a renewed interest in cancer
vaccinology. Dozens of companies have recently entered this rapidly emerging
market, employing varied therapeutic and diagnostic treatment strategies. At
least four companies, Chiron/Biomira Inc. (breast cancer), Bristol-Myers Squibb
and Progenics Pharmaceuticals (melanoma and other cancers), Jenner Biotherapies
Inc. (prostate cancer), and Aphton Corporation (gastrointestinal cancers), have
products at a similar stage of development as CTP-37.
Due to their excellent specificity and safety profiles, cancer vaccines will
probably fulfill many therapeutic roles. It is likely that vaccines like CTP-37
will eventually be used in combination with chemotherapy and other biological
response modifiers in treating patients with advanced disease.
72
Although IMMUNOTHERAPY expects to conduct clinical trials that directly compare
CTP-37 and chemotherapy, the long term view is that cancer vaccines will
complement the existing standard therapeutic regimes of surgery, radiation and
chemotherapy.
IMMUNOTHERAPY believes that licensing for the first FDA-approved cancer
vaccine is unlikely to occur prior to the year 2001. It is also unlikely than
any single cancer vaccine will dominate its market since physicians are likely
to use vaccine combinations for treating their patients. Compared to other
vaccines, IMMUNOTHERAPY believes that CTP-37 may have widespread utility because
hCG appears to be commonly expressed by all types of cancer.
PROPRIETARY RIGHTS
IMMUNOTHERAPY has acquired a comprehensive body of intellectual rights and
product/technology licenses from Dr. Vernon Stevens and The Ohio State
University. These properties include exclusive world-wide licenses covering the
composition, manufacturing and use of CTP-37 in all fields of use with the
exception of fertility regulation including treating and/or preventing cancer.
IMMUNOTHERAPY's proprietary rights also include the unrestricted use of its
vaccine technology for non-hormonal cancer applications. IMMUNOTHERAPY enjoys
the right to commercialize any new intellectual property relating to its
licensed subject matter including access and use of all new experimental data
resulting from Dr. Stevens' research. IMMUNOTHERAPY's licenses have been granted
for a period of thirty (30) years or ten (10) years from the expiration of the
last issued patent, whichever comes later. Under these licensing agreements,
IMMUNOTHERAPY has the right to sublicense the Company's products and technology
throughout the world. For such rights, IMMUNOTHERAPY is obligated to pay the
licensors minimum annual royalties of $60,000 through the third quarter of 2001
and $55,000 thereafter. Subject to such minimums, the royalties are 5% of net
sales of products from licensed technology in the United States and Canada; 2%
of net sales in countries of the "European Economic Community"; and 25% of any
royalties received by IMMUNOTHERAPY for sublicenses in the United States, the
"European Economic Community" or in Korea. In addition, IMMUNOTHERAPY is
obligated to make a $50,000 payment to Ohio State University to support the
research of Dr. Vernon Stevens during 1998.
IMMUNOTHERAPY has pursued an aggressive policy of obtaining patent
protection for its licensed proprietary technology. IMMUNOTHERAPY enjoys
substantial domestic intellectual property that protects its product portfolio.
Currently, ten U.S. patents have issued embracing 181 claims relating to the
composition, manufacture and use of IMMUNOTHERAPY's cancer vaccine technology.
IMMUNOTHERAPY recently was granted an additional patent which protects the use
of CTP-37 for treating cancer an additional 17 years in the United States.
Presently, IMMUNOTHERAPY has thirteen (13) applications pending at the United
States Patent Office.
In 1992, IMMUNOTHERAPY filed an international PCT application for CTP-37 in
all major markets of the world. Australia, in 1998, was the first country to
grant IMMUNOTHERAPY patent protection as a result of its PCT application. In
addition to the pending PCT application which is now being prosecuted in the
national phase throughout the world, IMMUNOTHERAPY enjoys additional patent
protection in several countries of commercial interest, including Canada.
MANUFACTURING
CTP-37 is a rationally designed vaccine that is manufactured as a chemical
entity. CTP-37 is produced under Good Manufacturing Practices (GMPs) by licensed
pharmaceutical contract manufacturers. IMMUNOTHERAPY plans to produce all of the
supplies for its clinical studies using outside vendors. IMMUNOTHERAPY has no
immediate plans to establish its own in-house manufacturing capability.
73
GOVERNMENT REGULATION
The pharmaceutical industry is subject to a large number of changing
governmental regulations including the need to obtain regulatory approval for
clinical testing and product sales. In general, the FDA is engaged in advancing
new therapeutic cancer treatments, particularly in instances in which there is
no effective standard therapy. There can, however, be no assurance that
IMMUNOTHERAPY's CTP-37 vaccines will not be adversely affected by changing
governmental regulations in the future, or that such a change would not have
adverse effects on IMMUNOTHERAPY and its business. Finally, a change in
regulations requiring long testing periods could adversely affect
IMMUNOTHERAPY's ability to commercialize its products.
For a detailed description of the drug approval process, see "BUSINESS OF
ANTIVIRALS--Drug Approval Process and Other Government Regulation."
EMPLOYEES
As of March 31, 1998, IMMUNOTHERAPY CORPORATION employed three people on a
full-time basis.
PROPERTY
Pending the Merger, IMMUNOTHERAPY has terminated its lease of its corporate
headquarters and neither owns nor leases any real property.
LEGAL PROCEEDINGS
An action was brought against IMMUNOTHERAPY by Biomedical Link, Inc., a
California corporation, in a complaint filed December 19, 1997 (BIOMEDICAL LINK,
INC. V. IMMUNOTHERAPY CORPORATION, San Diego Superior Court, Case No. N076891).
The case arises out of a finder's agreement which IMMUNOTHERAPY entered into
with the plaintiff in 1997. Plaintiff alleges breach of contract, intentional
and negligent misrepresentation and false promise. In the complaint, plaintiff
seeks compensatory damages of $1.75 million, plus punitive damages.
IMMUNOTHERAPY's insurer has accepted coverage of this claim (subject to a
$25,000 deductible and a customary reservation of rights).
Under the terms of the finder's agreement, plaintiff could have been
entitled to a finder's fee had plaintiff brought IMMUNOTHERAPY an investor
ready, willing and able to invest, and had IMMUNOTHERAPY decided to accept the
investment. IMMUNOTHERAPY has asserted that neither event occurred.
IMMUNOTHERAPY accordingly, intends to defend the case vigorously and believes it
has meritorious defenses to all of plaintiff's claims.
IMMUNOTHERAPY is involved in routine legal matters incidental to their
business. Management believes the outcome of such proceedings will not have a
material effect on the business, financial position or results of operations of
IMMUNOTHERAPY.
74
SELECTED IMMUNOTHERAPY FINANCIAL DATA
The following selected historical financial information of IMMUNOTHERAPY has
been derived from historical financial statements, and should be read in
conjunction with such financial statements and the notes thereto and in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations of IMMUNOTHERAPY, which are included elsewhere in this
Joint Proxy Statement/ Prospectus.
AT OR FOR THREE
YEAR ENDED DECEMBER OCTOBER 7, MONTHS ENDED MARCH OCTOBER 7,
31, 1993 31, 1993
---------------------- (INCEPTION) --------------------- (INCEPTION)
1996 1997 TO 12/31/97 1997 1998 TO 3/31/98
---------- ---------- -------------- --------- ---------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues from grants and research
contracts.......................... $ -- $ -- $ 50,000 $ -- $ -- $ 50,000
Operating expenses:
Research and development........... 706,446 819,931 2,118,781 253,458 120,382 2,239,163
General and administrative......... 481,039 503,154 1,437,340 110,716 92,984 1,530,324
---------- ---------- -------------- --------- ---------- --------------
Total operating expenses............. $1,187,485 $1,323,085 $3,556,121 364,174 213,366 3,769,487
---------- ---------- -------------- --------- ---------- --------------
Loss from operations................. $(1,187,485) $(1,323,085) $(3,524,202) (364,174) (213,366) (3,737,568)
Other income (expense), net.......... (326) (1,408) 14,468 88 1,000 15,468
---------- ---------- -------------- --------- ---------- --------------
Net loss............................. $(1,187,811) $(1,324,493) $(3,511,385) $(364,086) $ (212,366) $(3,723,751)
---------- ---------- -------------- --------- ---------- --------------
---------- ---------- -------------- --------- ---------- --------------
Net loss per share................... $ (0.12) $ (0.13) $ (0.04) $ (0.02)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
BALANCE SHEET DATA:
Cash and investments................. $ 31,219 $ 21,702 $ 12,286
Working capital (deficit)............ (327,271) (762,244) (973,831)
Total assets......................... 102,414 45,457 45,763
Deficit accumulated during the
development stage.................. (2,196,450) (3,597,790) (3,835,743)
Total shareholders' equity
(deficiency in assets)............. (309,292) (758,813) (971,179)
Book value per share................. (0.03) (0.07) (0.09)
75
IMMUNOTHERAPY MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING, AMONG
OTHER THINGS, PRODUCT DEVELOPMENT PLANS, MARKET PROJECTIONS, PRODUCT EFFICACY
AND SAFETY, PARTNERING, CAPITAL AND OTHER EXPENDITURES, TIMING OF U.S. FOOD AND
DRUG ADMINISTRATION (FDA) FILINGS, FDA APPROVAL THEREOF AND CLINICAL TRIAL
PROGRESS, SUFFICIENCY OF CASH RESOURCES AND THE ABILITY OF IMMUNOTHERAPY TO
RAISE ADDITIONAL FUNDING IN THE FUTURE. THESE FORWARD-LOOKING STATEMENTS CONCERN
MATTERS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. WORDS
SUCH AS "BELIEVE," "EXPECTS," "LIKELY," "MAY" AND "PLANS" ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT ALL FORWARD-LOOKING STATEMENTS
CONTAIN THESE WORDS. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN
CONJUNCTION WITH IMMUNOTHERAPY'S FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
INCLUDED HEREIN.
OVERVIEW
IMMUNOTHERAPY, a development stage biopharmaceutical company, is engaged in
the discovery, development and commercialization of products for the treatment
of a wide variety of cancers. Since its formation in October 1993, IMMUNOTHERAPY
has devoted its resources primarily to fund research and development efforts
relating to its CTP-37 anti-cancer vaccine. IMMUNOTHERAPY has been unprofitable
since inception and, other than small amounts of interest and contract research
revenue, has had no revenue from the sale of products or other sources and does
not expect material revenues for at least the next 24 months. IMMUNOTHERAPY
expects to incur significant additional expenses for the foreseeable future as
it continues to undertake its clinical trial program for its vaccine products
and seeks drug approval from the FDA. IMMUNOTHERAPY has experienced significant
operating losses due to substantial expenses incurred to acquire licenses and
fund clinical trials of CTP-37 and as of March 31, 1998, and December 31, 1997,
respectively, had an accumulated deficit of $3,835,743 and $3,597,790.
IMMUNOTHERAPY believes that its anti-cancer vaccine, CTP-37, may be
effective in triggering the immune system to control disease progression in
patients who have failed conventional therapy. IMMUNOTHERAPY has licensed the
technology for CTP-37 from Dr. Vernon Stevens and the Ohio State University
pursuant to several license agreements. On February 2, 1998, IMMUNOTHERAPY and
ANTIVIRALS entered into an agreement and plan of reorganization and merger under
which ANTIVIRALS would acquire all of the outstanding capital stock of
IMMUNOTHERAPY in exchange for publicly traded shares and warrants to acquire
shares of ANTIVIRALS.
IMMUNOTHERAPY is currently concluding Phase II trials in colorectal and
pancreatic cancer at several university and other major hospitals throughout the
United States. IMMUNOTHERAPY utilizes the services of a third party to assist
its management in the administration and coordination of its clinical trials
program. IMMUNOTHERAPY intends to initiate additional clinical trials and to
enter into research relationships with other universities and research
institutions. In addition, after the Merger, IMMUNOTHERAPY, together with
ANTIVIRALS, plans to seek additional corporate partners for its research and
development activities. No assurance can be given that CTP-37 or any other of
IMMUNOTHERAPY's products will be approved for commercial sale in the near-term
or at all or that any of the foregoing proposed arrangements will be implemented
or prove to be successful.
Over the next 12 months, IMMUNOTHERAPY plans to increase its level of
activity to support its increased research and development efforts and its
clinical trials activity. However, should IMMUNOTHERAPY not be able to implement
such plans, IMMUNOTHERAPY will likely have difficulty continuing its current
level of operations, if the Merger is not completed or additional financing is
not obtained.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31,
1997. IMMUNOTHERAPY did not generate significant revenues for the period from
October 7, 1993 (inception of
76
IMMUNOTHERAPY through March 31, 1998. IMMUNOTHERAPY has devoted substantially
all its resources since inception to the payment of licensing fees and research
and development fees plus expenses relating to the startup of its business.
IMMUNOTHERAPY experienced a quarterly net loss of $212,366 for the three months
ended March 31, 1998, as compared with $364,086, for the same period in 1997.
This difference is attributed principally to the decreased level of expenditures
experienced by IMMUNOTHERAPY in connection with its research and development
expenses as its Phase II trials for CTP-37 drew toward completion. During the
same periods, the net cash used in operating activities more than doubled,
increasing to $533,358 in the three months ended March 31, 1998, from $249,492
in the three months ended March 31, 1997. The most significant reason for this
increase was the expenditure, during the first quarter of 1998, of loaned funds
that IMMUNOTHERAPY received from ANTIVIRALS to discharge accumulated current
liabilities payable.
With the inclusion of the unaudited net loss for the first quarter of 1998,
the accumulated deficit of IMMUNOTHERAPY at March 31, 1998, was $3,835,743.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31,
1996. Operating expenses, including general and administrative expenses and
research and development expenses, were $1,323,085 and $1,187,485, respectively,
for the years ended December 31, 1997, and December 31, 1996. Of these amounts,
the research and development expenses component was $819,931 and $706,446 for
the years ended December 31, 1997 and December 1, 1996, respectively. The
research and development component is composed primarily of financing clinical
trials and payment of the licensing fee for CTP-37. The 16% increase from 1996
to 1997 reflects increased clinical trial activity. The general and
administrative expense component of operating expenses were $503,154 and
$481,039 for the years ended December 31, 1997 and 1996, respectively,
representing primarily salary, consulting, legal and office rent expense. The
increase in general and administrative expense from 1996 to 1997 of 4.6% is due
primarily to increased costs associated with the proposed merger with
ANTIVIRALS.
LIQUIDITY AND CAPITAL RESOURCES
IMMUNOTHERAPY has financed its operations since inception through the sale
of its Common Stock and Preferred Stock in an aggregate amount of $2,864,564.
Its accumulated deficit through March 31, 1998, was $3,835,743 and its
stockholder deficit at the same period was $971,179. The accumulated deficit
through the years ended December 31, 1997 and 1996, was $3,597,790 and
$2,196,450, respectively, and its stockholder deficit for the same periods was
$758,813 and $309,292. The stockholder deficit increased in each period because
the Company continued to have operating losses. Current liabilities increased to
$794,270 at December 31, 1997 from $411,706 at December 31, 1996, due to
IMMUNOTHERAPY's decreasing ability to meet its current obligations during that
period.
IMMUNOTHERAPY's cash and cash equivalents were $12,286, $21,702 and $31,219
for the three months ended March 31, 1998, and the years ended December 31, 1997
and 1996, respectively. The continuing decrease in cash during these periods is
due to an increase in the net difference between expenditures and receipts when
the time periods are compared.
Under agreements with Dr. Vernon Stevens and the Ohio State University,
IMMUNOTHERAPY is obligated to pay certain minimum license fees to maintain its
rights to CTP-37. Under these licensing agreements, IMMUNOTHERAPY is obliged to
pay the licensors minimum annual royalties of $60,000 through the third quarter
of 2001, and $55,000 thereafter. The royalties themselves (subject to the above
minimums) are 5% of net sales of products from licensed technology in the US and
Canada; 2% in net sales in countries of the "European Economic Community"; and
25% of any royalties received by IMMUNOTHERAPY for sublicenses in the US, the
"European Economic Community" or in Korea. In addition, IMMUNOTHERAPY is obliged
to make a $50,000 payment to Ohio State University to support the research of
Dr. Vernon Stevens during 1998. As of March 31, 1998, IMMUNOTHERAPY owed $15,000
for all
77
license fee obligations under these agreements and had accrued $12,500 for the
mandatory research grant to OSU.
IMMUNOTHERAPY's operations to date have consumed substantial capital without
generating significant revenues, and IMMUNOTHERAPY will continue to require
substantial and increasing amounts of funds to conduct necessary research and
development, preclinical and clinical testing and marketing of its anti-cancer
vaccine, CTP-37. IMMUNOTHERAPY does not expect to generate revenue from
operations for at least the next 24 months, and IMMUNOTHERAPY's ability to meet
its cash obligations as they become due and payable is expected to depend on
funding through ANTIVIRALS if the merger closes and, if not, on its ability to
sell additional securities, borrow additional funds or some combination thereof.
Through first quarter 1998, IMMUNOTHERAPY's sole source of funds has been a
loan from ANTIVIRALS to meet its current obligations. The loan, bearing interest
at the rate of 9 1/2% per annum, is due and payable on April 30, 1999. In the
event IMMUNOTHERAPY defaults in the repayment of the principal or interest,
ANTIVIRALS' sole remedy is the obligation of IMMUNOTHERAPY to issue a number of
shares of Class B Preferred Stock of IMMUNOTHERAPY equal to the aggregate dollar
amount of principal and interest outstanding on April 30, 1999, divided by
$1.0161235. The Series B Preferred Stock will enjoy the same rights and
privileges as the Series A Preferred Stock of IMMUNOTHERAPY. ANTIVIRALS in
addition will have the right to designate two representatives to the
IMMUNOTHERAPY Board. See "THE MERGER--ANTIVIRALS' Loan to IMMUNOTHERAPY Pending
the Merger."
In the event the Merger does not close, IMMUNOTHERAPY's management believes
that its existing capital resources, including the debt from ANTIVIRALS
described above, will mandate that IMMUNOTHERAPY raise significant additional
funding in order to meet its operating expenses and capital requirements through
the end of 1998. If an alternative acquiror could not be located, IMMUNOTHERAPY
would be required to raise substantial additional capital through debt,
collaborative arrangements or private or public equity financings. There can be
no assurance that additional capital would be capable of arrangement in a timely
fashion for IMMUNOTHERAPY's needs or that it would be available on favorable
terms or at all. If additional funds were obtained through collaborative
arrangements or debt financing, IMMUNOTHERAPY would likely be required to
significantly reduce or refocus its operations or relinquish rights to certain
of its products, technologies or potential markets, which would likely have a
material adverse effect on IMMUNOTHERAPY's business, financial condition and
results of operations. To the extent that additional capital would be raised
through the sale of equity, the issuance of such securities would result in
ownership dilution to IMMUNOTHERAPY existing stockholders.
IMMUNOTHERAPY's future capital requirements will depend on many factors,
including progress with preclinical testing and clinical trials, the number and
breadth of such trials, the time and costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims and other proprietary
rights, the time and costs involved in obtaining regulatory approvals, competing
technological and market developments and the ability of IMMUNOTHERAPY to
establish collaborative relationships and effectively commercialize and market
CTP-37. There can be no assurance, in any event, that IMMUNOTHERAPY will ever
generate product revenues or achieve or sustain profitability, standing alone or
together with its proposed merger partner ANTIVIRALS.
78
ANTIVIRALS DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of ANTIVIRALS:
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
Denis R. Burger, Ph.D.(1)............. 55 President, Chief Executive Officer, Director
Gordon W. Duncan, Ph.D................ 65 Vice President of Regulatory Affairs and Clinical Development
Patrick L. Iversen, Ph.D.............. 43 Vice President of Research and Development, Director
Alan P. Timmins(1).................... 38 Chief Operating Officer, Chief Financial Officer, Director
Dwight D. Weller, Ph.D.(1)............ 46 Senior Vice President of Chemistry and Manufacturing, Director
Nick Bunick(3)........................ 61 Director
James B. Hicks, Ph.D.(2)(3)........... 51 Director
Joseph Rubinfeld, Ph.D.(2)............ 65 Director
- ------------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
DENIS R. BURGER, PH.D. has served as President and Chief Executive Officer
of ANTIVIRALS since January 1997, Chief Executive Officer of ANTIVIRALS since
January 1996, and as a director of ANTIVIRALS since 1991. From 1992 to 1995, he
was President and Chief Operating Officer of ANTIVIRALS. He co-founded Epitope,
Inc., a biotechnology company, and served as Chairman from 1981 to 1990. Dr.
Burger has also been a member of Sovereign Ventures, LLC, a biotechnology
consulting and merchant banking venture since 1991. Dr. Burger is a member of
the Board of Directors of Cellegy Pharmaceuticals, Inc. and SuperGen, Inc. Dr.
Burger held the positions of Assistant Professor, Associate Professor and
Professor at the Oregon Health Sciences University ("OHSU") from 1969 to 1986.
Dr. Burger received a B.A. in Bacteriology and Immunology from the University of
California, Berkeley, and his M.S. and Ph.D. degrees in Microbiology and
Immunology from the University of Arizona.
GORDON W. DUNCAN, PH.D. has served as Vice President of Regulatory Affairs
and Clinical development of ANTIVIRALS since 1997. From 1991 to 1996, he was
Vice President for Research and a Director of ProCyte Corporation, and
previously served as Vice President for Administration of Upjohn Laboratories
(now part of Pharmacia and Upjohn) for more than 20 years. He is a founding and
current director of the Program for Appropriate Technology in Health, a Senior
Project Officer with the Concept Foundation, and the Executive Vice President
and Chief Operating Officer for Women's Capital Corporation. Dr. Duncan received
a B.S. in Animal Husbandry from Cornell University and an M.S. and Ph.D. in
Physiology from Iowa State University.
PATRICK L. IVERSEN, PH.D. has served as Vice President of Research and
Development and a director of ANTIVIRALS since 1997. From 1987 through 1997, Dr.
Iversen was on staff at the University of Nebraska Medical Center, most recently
as a Professor in the College of Medicine. Dr. Iversen, who has published
extensively on antisense research and development, additionally served as a
consultant to various pharmaceutical and biotechnology companies, including
GLAXO Inc., Innovir Pharmaceuticals, Lynx Therapeutics, and Isis
Pharmaceuticals, as well as to ANTIVIRALS. Dr. Iversen holds a B.S. in Biology
from Westminster College and a Ph.D. in Biochemical Pharmacology and Toxicology
from the University of Utah, followed by post-doctoral work at the Eppley
Institute for Research in Cancer and Allied Diseases.
79
ALAN P. TIMMINS has served as Chief Operating Officer and Chief Financial
Officer of ANTIVIRALS since October 1996, as Executive Vice President and Chief
Financial Officer since 1992, and as a director of ANTIVIRALS since 1997. From
1981 to 1991, he served in a variety of positions at the firm of Price
Waterhouse LLP, most recently as a Senior Manager specializing in high
technology and emerging growth companies. Mr. Timmins received a B.B.A. in
Accounting and Management from the University of Portland and an M.B.A. from
Stanford University. He is a Certified Public Accountant.
DWIGHT D. WELLER, PH.D. has served as Senior Vice President of Chemistry and
Manufacturing since 1997, as Vice President of Research and Development of
ANTIVIRALS since 1992, and as a director of ANTIVIRALS since 1991. He joined the
faculty of Oregon State University in 1978 as Assistant Professor and was an
Associate Professor in the Chemistry Department from 1984 to 1992. Dr. Weller
received a B.S. in Chemistry from Lafayette College and a Ph.D. in Chemistry
from the University of California at Berkeley, followed by postdoctoral work in
Bio-Organic Chemistry at the University of Illinois.
NICK BUNICK has served as a director of ANTIVIRALS since 1992. Mr. Bunick is
the President and Chairman of the Board of three real estate development
companies and one investment management company. From 1987 to 1990, he was a
Vice President of In-Focus Systems, Inc., a company that specializes in the
design and manufacturing of flat panel display products. Mr. Bunick received a
B.S. in Business Administration and Marketing from the University of Florida.
JAMES B. HICKS, PH.D. has served as a director of ANTIVIRALS since 1997. He
has served as the Chief Executive Officer, Chief Scientist and a director of
Hedral Therapeutics, Inc., a biotechnology company, since its founding in 1993.
Previously, he was a founding scientist and a Senior Scientific Director at ICOS
Corporation from 1990 to 1993, and Director of the PPG Industries/Scripps Joint
Research Program at Scripps Clinic, as well as an Adjunct Member of the
Molecular Biology Department in the Research Institute of Scripps Clinic from
1986 to 1990. From 1978 through 1986, he was Senior Scientist and Lab Chief of
the Delbruck Laboratory at Cold Spring Harbor Laboratory. Dr. Hicks received his
B.A. degree in Biology from Willamette University and his Ph.D. in Molecular
Biology from the University of Oregon, followed by post-doctoral research at
Cornell University.
JOSEPH RUBINFELD, PH.D. has served as a director of ANTIVIRALS since 1996.
He has served as Chief Executive Officer, President, Chief Scientific Officer
and a director of SuperGen, Inc. since its inception in 1991. Dr. Rubinfeld was
one of the four initial founders of Amgen, Inc. in 1980 and served as Vice
President and Chief of Operations until 1983. From 1987 to 1990, he was Senior
Director at Cetus Corporation. From 1968 to 1980, Dr. Rubinfeld was employed at
Bristol-Myers Squibb (formerly Bristol-Myers International Corporation) in a
variety of positions, most recently as Vice President and Director of Research
and Development. He received his B.S. in Chemistry from C.C.N.Y., and his M.A.
and Ph.D. degrees in Chemistry from Columbia University.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During 1997, ANTIVIRALS' Board of Directors held seven (7) meetings. Each
incumbent director attended more than seventy-five percent (75%) of the
aggregate of the total number of meetings held by the Board of Directors and the
total number of meetings held by all committees of the Board on which he served
during the period that he served.
The Board of Directors has appointed a standing Audit Committee which,
during the fiscal year ended December 31, 1997, conducted no meetings. The
members of the Audit Committee currently are Nick Bunick and James B. Hicks,
Ph.D. The Audit Committee reviews the scope of the independent annual audit, the
independent public accountants' letter to the Board of Directors concerning the
effectiveness of ANTIVIRALS' internal financial and accounting controls and the
Board of Directors' response to that letter, if deemed necessary. The Board of
Directors also has appointed a Compensation Committee which reviews executive
compensation and makes recommendations to the full Board regarding changes in
compensation, and also administers ANTIVIRALS' stock option plans. During the
fiscal year
80
ended December 31, 1997, the Compensation Committee held two (2) meetings. The
members of the Compensation Committee currently are James B. Hicks, Ph.D., and
Joseph Rubinfeld, Ph.D.
DIRECTOR COMPENSATION
Directors who are not employees of ANTIVIRALS receive a nonqualified option
to purchase 33,334 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of the grant pursuant to
ANTIVIRALS' 1992 Stock Incentive Plan, which vest over four years. In addition,
Dr. Rubinfeld is reimbursed for expenses for attendance at Board meetings.
SCIENTIFIC ADVISORY COMMITTEE
ANTIVIRALS has established relationships with a group of scientific advisors
with expertise in their respective fields that complement ANTIVIRALS' product
research and development. The following individuals serve on the Scientific
Advisory Committee to ANTIVIRALS' Board of Directors:
CHRISTOPHER K. MATHEWS, PH.D. is Chairman of the Scientific Advisory
Committee. He is the Chairman of the Biochemistry-Biophysics Department at
Oregon State University. Dr. Mathews received a B.A. from Reed College and a
Ph.D. in Biochemistry from the University of Washington. He performed
postdoctoral work in Biochemistry at the University of Pennsylvania. Dr. Mathews
joined the Scientific Advisory Committee in 1994 and was a director of
ANTIVIRALS from 1991 to 1994.
STEVEN H. HEFENEIDER, PH.D. has been a staff immunologist at the Veterans
Administration Medical Center in Portland, Oregon since 1985 and Research
Associate Professor in the Department of Medicine at OHSU since 1987. He
received a B.S. in biology from the University of Oregon, an M.S. in genetics
from the University of Minnesota and a Ph.D. in Microbiology and Immunology from
OHSU in 1981.
DAVID J. HINRICHS, PH.D. is a Research Scientist at the Veterans
Administration Medical Center in Portland, Oregon and a Professor of
Microbiology and Immunology at OHSU. From 1976 to 1985 he was a Professor of
Microbiology at Washington State University. He received a Ph.D. in Microbiology
from the University of Arizona in 1967.
JEFFREY D. HOSENPUD, M.D. has been Chief of Cardiology and a Professor of
Medicine at the Medical College of Wisconsin in Milwaukee since 1994. Dr.
Hosenpud was Professor of Medicine and Head of the Cardiac Transplant Medicine
at OHSU from 1980 to 1994, and Medical Director for the Registry of the
International Society for Heart & Lung Transplantation since 1993. Dr. Hosenpud
completed his M.D. at the University of California, Los Angeles.
81
ANTIVIRALS EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation of ANTIVIRALS' Chief Executive Officer and each of the three (3)
other most highly compensated executive officers of ANTIVIRALS (the "named
executive officers") for the fiscal years ending December 31, 1997 and 1996.
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
UNDERLYING
--------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED COMPENSATION(1)
- --------------------------------------------------------- --------- ---------- --------- ------------- -----------------
Denis R. Burger, Ph.D. .................................. 1997 $ 216,650 $ 25,000 100,000 $ 3,558
President and Chief Executive Officer(1) 1996 121,925 -- 2,443
James E. Summerton, Ph.D. ............................... 1997 120,333 50,000 2,712
President and Chief Scientific Officer(1) 1996 92,483 -- 2,712
Alan P. Timmins ......................................... 1997 130,400 25,000 50,000 2,265
Chief Operating Officer and Chief Financial Officer 1996 76,959 -- 2,262
Dwight Weller, Ph.D. .................................... 1997 130,817 50,000 2,412
Senior Vice President of Chemistry and Manufacturing 1996 82,066 -- 2,412
- ------------------------
(1) Dr. Summerton resigned in September 1997, and Dr. Burger assumed the title
of President at that time.
STOCK OPTIONS
The following table sets forth information concerning options granted to the
named executives during the year ended December 31, 1997, under ANTIVIRALS' 1992
Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF PRICE APPRECIATION FOR
SECURITIES PERCENT OF TOTAL OPTION TERM(3)
UNDERLYING OPTIONS OPTIONS GRANTED EXERCISE PRICE EXPIRATION ------------------------
NAME GRANTED(2) EMPLOYEES IN 1997 PER SHARE DATE 5% 10%
- --------------------------- ------------------ ------------------- --------------- ------------ ---------- ------------
John Beaulieu(1)........... -- -- -- -- -- --
Denis Burger............... 100,000 19.91% $ 6.38 06/12/2007 $ 410,601 $ 1,031,722
Gordon Duncan.............. 50,000 9.95% 6.90 06/12/2007 223,411 560,204
Patrick L. Iversen......... 100,000 19.91% 6.69 09/11/2007 430,754 1,082,026
Alan Timmins............... 50,000 9.95% 6.38 06/12/2007 205,300 515,861
Dwight Weller.............. 50,000 9.95% 6.38 06/12/2007 205,300 515,861
Nick Bunick................ -- -- -- -- -- --
James B. Hicks............. 33,334 6.64% 6.00 02/28/2007 125,781 318,755
Joseph Rubinfeld........... -- -- -- -- -- --
- ------------------------
(1) Mr. Beaulieu resigned from the Board of Directors on June 12, 1998.
82
(2) 15,000 options granted in 1997 for Dr. Duncan and options granted for Drs.
Iversen and Hicks become exercisable starting 12 months after the grant
date, with one-quarter of the options becoming exercisable at that time with
an additional one-quarter of the options becoming exercisable on the second,
third and fourth anniversary dates of the option grant, respectively.
Options granted in 1997 for Dr. Duncan become exercisable starting 12 months
after the grant date, with 5,000 options becoming exercisable at that time
with an additional 5,000 options becoming exercisable on the second
anniversary date of the option grant, 12,500 options becoming exercisable on
the third anniversary of the option grant with the successful filing of an
IND and 12,500 options becoming exercisable on the fourth anniversary of the
option grant with the successful filing of an IND. All remaining options
granted in 1997 become exercisable immediately on the grant date.
(3) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock compounded annually for a ten-year
period. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the Common Stock will appreciate at any
particular rate or at all in future years.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the year ended
December 31, 1997, and unexercised options held as of December 31, 1997.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(3)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- --------------- ----------- ----------- ------------- ----------- -------------
John Beaulieu(1)......................... -- -- 33,334 -- $ 75,085 --
Denis Burger............................. -- -- 465,735 -- 860,897 --
Gordon Duncan............................ -- -- -- 50,000 -- $ 15,138
Patrick L. Iversen....................... -- -- -- 100,000 -- 12,500
Alan Timmins............................. 491 $ 1,137 123,333 33,334 166,008 62,085
Dwight Weller............................ -- -- 144,018 -- 229,233 --
Nick Bunick.............................. -- -- 33,334 -- 75,085 --
James B. Hicks........................... -- -- -- 33,334 -- 27,084
Joseph Rubinfeld......................... -- -- 8,333 25,001 6,771 20,313
- ------------------------
(1) Mr. Beaulieu resigned from the Board of Directors on June 12, 1998.
(2) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(3) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997, were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
per share option exercise price and the fair market value of $6.8125 per
share at December 31, 1997. An option is in-the-money if the fair market
value of the underlying shares exceeds the exercise price of the option.
SECTION 16 REPORTS
Section 16(a) of the Exchange Act requires ANTIVIRALS' directors and
officers, and persons who own more than ten percent (10%) of a registered class
of ANTIVIRALS' equity securities, to file initial reports of
83
ownership and reports of changes in ownership with the Commission. Such persons
also are required to furnish ANTIVIRALS with copies of all Section 16(a) reports
they file.
Based solely on its review of the copies of such reports received by it with
respect to fiscal 1997, or written representations from certain reporting
persons, ANTIVIRALS believes that all filing requirements applicable to its
directors, officers and persons who own more than ten percent (10%) of a
registered class of ANTIVIRALS' equity securities have been complied with for
fiscal 1997, except for the late filing of Forms 3, upon the company's becoming
a registrant under the Securities Exchange Act of 1934, by John A. Beaulieu,
Denis R. Burger, Ph.D., Alan P. Timmins, Dwight D. Weller, Ph.D., James E.
Summerton, Ph.D., Nick Bunick, Joseph Rubinfeld, Ph.D., James B. Hicks, Ph.D.,
James E. Reinmuth, Ph.D., Frederick C. Pearson, and Donald R. Johnson.
STOCK OWNED BY ANTIVIRALS MANAGEMENT AND
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of ANTIVIRALS Common Stock as of July 31, 1998, with respect to: (i) each person
known by ANTIVIRALS to beneficially own more than five percent (5%) of the
outstanding shares of ANTIVIRALS Common Stock, (ii) each of ANTIVIRALS'
directors, (iii) each of ANTIVIRALS' named executive officers and (iv) all
directors and executive officers as a group.
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ---------------------------------------------------------------------------------------- ----------- ---------------
James E. Summerton, Ph.D.(2) ........................................................... 2,294,587 20.5%
2680 S.W. 3rd Street
Corvallis, OR 97333
John A. Beaulieu(3)(4) ................................................................. 890,786 8.0%
4370 N.E. Halsey, Suite 233
Portland, OR 97213
Oregon Resource and Technology(3)(5) ................................................... 890,786 8.0%
Development Fund
4370 N.E. Halsey, Suite 233
Portland, OR 97213
Wayne Embree(3)(6) ..................................................................... 857,452 7.7%
4370 N.E. Halsey, Suite 233
Portland, OR 97213
Denis R. Burger, Ph.D.(7) .............................................................. 473,553 4.2%
AntiVirals Inc.
1 S.W. Columbia, Suite 1105
Portland, OR 97258
Dwight D. Weller, Ph.D(8) .............................................................. 448,869 4.0%
AntiVirals Inc.
4575 S.W. Research Way, Suite 200
Corvallis, OR 97333
Nick Bunick(9) ......................................................................... 200,734 1.8%
AntiVirals Inc.
1 S.W. Columbia, Suite 1105
Portland, OR 97258
84
SHARES PERCENT OF
BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ---------------------------------------------------------------------------------------- ----------- ---------------
Alan P. Timmins(10) .................................................................... 185,491 1.7%
AntiVirals Inc.
1 S.W. Columbia, Suite 1105
Portland, OR 97258
James B. Hicks, Ph.D.(11) .............................................................. 8,333 *
AntiVirals Inc.
1 S.W. Columbia, Suite 1105
Portland, OR 97258
Joseph Rubinfeld, Ph.D.(12) ............................................................ 16,667 *
AntiVirals Inc.
1 S.W. Columbia, Suite 1105
Portland, OR 97258
All executive officers and directors as a group (6 persons)............................. 1,333,369 11.9
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options and warrants currently exercisable or convertible, or
exercisable or convertible within sixty (60) days of July 31, 1998, are
deemed beneficially owned and outstanding for computing the percentage of
the person holding such securities, but are not considered outstanding for
computing the percentage of any other person.
(2) Includes 727,154 shares held jointly or by others over which Dr. Summerton
exercises voting and investment power.
(3) The Oregon Resource and Technology Development Fund ("ORTDF") is an
investment fund established by the State of Oregon. ORTDF has contracted
with Cascadia Pacific Management, LLC to manage the assets of ORTDF. ORTDF
also has contracted with Cascadia Pacific Management, LLC to hold of record
equity investments of ORTDF for the benefit of ORTDF. Mr. Beaulieu and Mr.
Embree are the sole member managers of Cascadia Pacific Management, LLC.
(4) Includes 33,334 shares subject to options exercisable within sixty (60)
days of July 31, 1998, of which Mr. Beaulieu is the record owner. ORTDF is
the beneficial owner of all of the 33,334 options for which Mr. Beaulieu is
the record owner. Includes 857,452 shares of Common Stock issued to
Cascadia Pacific Management, LLC for the benefit of ORTDF.
(5) Includes 33,334 shares subject to options held of record by Mr. Beaulieu
and exercisable within sixty (60) days of July 31, 1998, and 957,942 shares
issued to Cascadia Pacific Management, LLC for the benefit of ORTDF. See
Note 3 above.
(6) Includes 957,452 shares of Common Stock issued to Cascadia Pacific
Management, LLC for the benefit of ORTDF.
(7) Includes 34,434 shares held by Sovereign Ventures, LLC, a limited liability
company in which Dr. Burger is a general partner. Also includes 432,402
shares subject to options exercisable within sixty (60) days of July 31,
1998.
(8) Includes 247,634 shares held jointly or by others over which Dr. Weller
exercises voting and investment power, 172,018 shares subject to options
exercisable by Dr. Weller and 2,551 shares subject to options exercisable
by Dr. Weller's spouse within sixty (60) days of July 31, 1998.
85
(9) Includes 50,667 shares held jointly or by others over which Mr. Bunick
exercises voting and investment power. Includes 33,334 shares subject to
options exercisable within sixty (60) days of July 31, 1998.
(10) Includes 185,000 shares subject to options exercisable within sixty (60)
days of July 31, 1998.
(11) Includes 8,334 shares subject to options exercisable within sixty (60)
days of July 31, 1998.
(12) Includes 16,667 shares subject to options exercisable within sixty (60)
days of July 31, 1998.
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH ANTIVIRALS
James E. Summerton, Ph.D., the former President, former Chief Scientific
Officer, and a former director of ANTIVIRALS, is the general partner of
Anti-Gene Development Group ("AGDG"), and was the general partner of NEU-GENE
Development Group ("NGDG"). AGDG was founded in 1981 and NGDG was founded in
1984 to own and fund ANTIVIRALS' development of gene-targeted therapeutics and
NEU-GENE technology. NGDG and AGDG were combined in 1989, with AGDG as the
surviving entity. ANTIVIRALS entered into numerous research and development
contracts with AGDG and NGDG, all of which were completed or were superseded by
the Technology Transfer Agreement described below.
On February 9, 1993, the company and AGDG entered into a Technology Transfer
Agreement whereby effective May 19, 1993, AGDG conveyed all intellectual
property in its control related to antisense technology (the "Intellectual
Property") to ANTIVIRALS. As part of the conveyance, ANTIVIRALS tendered to AGDG
for liquidation all partnership units received pursuant to an exchange offer and
received a 49.37 percent undivided interest in the intellectual property.
ANTIVIRALS then purchased the remaining undivided interest in the Intellectual
Property in consideration of payments of 4.05 percent of gross revenues in
excess of $200 million, if any, sales of products by ANTIVIRALS which would, in
the absence of the Technology Transfer Agreement, infringe a valid claim under
any patent transferred to ANTIVIRALS (the "Technology Fees"). ANTIVIRALS'
obligation to make payments of the Technology Fees with respect to a particular
product terminates upon the expiration of all patents transferred to ANTIVIRALS
pursuant to the Technology Transfer Agreement related to that product.
Pursuant to a License and Option Agreement by and between AGDG and
ANTIVIRALS dated February 9, 1993 (the "License Agreement"), ANTIVIRALS granted
to AGDG a royalty-free nonexclusive license to use the Intellectual Property for
internal research and development and to sell small quantities of products
incorporating the Intellectual Property. In addition, if AGDG develops any
specific prototype products which incorporate any of the Intellectual Property,
ANTIVIRALS has the right to commercialize and market such products in
consideration of payments of 4.05 percent of gross revenues, in excess of the
$200 million exemption for all products utilizing the Intellectual Property, to
AGDG. If ANTIVIRALS elects not to commercialize the proposed AGDG product or
fails to meet certain product development milestones, ANTIVIRALS is required to
grant AGDG a license to develop and market the proposed product (an "AGDG
License"). ANTIVIRALS is entitled to payments for the AGDG license but only if
the proposed product incorporates patented improvements developed by ANTIVIRALS
to the Intellectual Property. The amount of the license fee payable to
ANTIVIRALS by AGDG for products sold by ANTIVIRALS and covered by the Technology
Transfer Agreement. AGDG also has the right to obtain an exclusive royalty-free
license to use, develop, make, sell, distribute and sublicense products
utilizing the Intellectual Property at such time as ANTIVIRALS has less than ten
(10) full-time employees engaged in developing, testing or marketing products
based upon the Intellectual Property for a period of at least 180 consecutive
days.
On January 20, 1997, AGDG and ANTIVIRALS amended the Technology Transfer
Agreement to reduce the Technology Fees arising from the sale of diagnostic
products from 4.05 percent to 2 percent and to remove the $200 million exemption
with respect to sales of such diagnostic products. ANTIVIRALS also granted to
AGDG royalty-bearing licenses to make, use and sell certain quantities of
product derived from the Intellectual Property.
86
Pursuant to an August 4, 1992, restatement of earlier agreements between
Oregon Resource and Technology Development Fund ("ORTDF"), ANTIVIRALS, AGDG and
Dr. Summerton, warrants to purchase 600,000 shares of ANTIVIRALS Common Stock
have been issued to ORTDF. John A. Beaulieu was president of ORTDF and a
director of ANTIVIRALS at that time. The warrants held by ORTDF are currently
exercisable at a purchase price of $.0003 per share. In connection with this
issuance to ORTDF, they acquired certain rights to register such shares under
the Securities Act. See "Description of Securities--Registration Rights." In May
1993, ORTDF acquired warrants to purchase an additional 357,500 shares in
exchange for 325 partnership units in AGDG conveyed to ANTIVIRALS. Such warrants
carry no registration rights. In March 1996, ORTDF exercised its warrants in a
cashless exercise for which ORTDF acquired 957,452 shares of ANTIVIRALS Common
Stock.
IMMUNOTHERAPY DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each executive
officer and director of IMMUNOTHERAPY who will become an executive officer or
director of ANTIVIRALS following the Merger.
NAME AND ADDRESS AGE POSITION(S)
- ----------------------------------------------------------------------- --- -----------------------------------
Jeffrey L. Lillard..................................................... 50 Director and Managing Officer
Bruce L. A. Carter, Ph.D............................................... 54 Director
JEFFREY L. LILLARD, a founder of IMMUNOTHERAPY, has been a director since
its incorporation in 1993 and Managing Officer since 1995. From 1993 to 1995,
Mr. Lillard was President and Chief Executive Officer of IMMUNOTHERAPY. From
1979 to 1993, Mr. Lillard was Chief Executive Officer of Clinetics Corporation,
a contract manufacturing firm serving the pharmaceutical and biopharmaceutical
markets with sterile parenteral services. Mr. Lillard received a B.S. degree
from Michigan State University in 1970.
BRUCE L. A. CARTER, PH.D. has been a director of IMMUNOTHERAPY since 1997
and a member of its Science Advisory Board since 1996. He is Executive Vice
President and Chief Science Officer of Novo Nordisk A/S in Copenhagen, Denmark
and Seattle, Washington. From 1988 through 1993, Dr. Carter was President and
CEO of ZymoGenetics, Inc. of Seattle, a wholly owned Novo Nordisk subsidiary.
Prior to that he was the Head of Molecular Genetics for G.D. Searle & Co. Dr.
Carter serves on several Boards of Directors, including Virginia Mason Hospital
Research Center, Anergen, Inc., as well as Novo Nordisk A/S and ZymoGenetics,
Inc. Dr. Carter received his Ph.D. in Microbiology from the University of
London, where he was a member of Queen Elizabeth College. He completed
post-doctoral fellowships at the University of Edinburgh and the University of
Wisconsin. Subsequently he was Lecturer in Genetics at (and an elected Fellow
of) Trinity College, Dublin. In 1996 he was elected to the Faculty of the
University of Washington as Associate Professor of BioChemistry.
Directors receive no cash compensation. Each director is compensated with
stock options which vest at the rate of 10,000 nonqualified options per year of
service on the Board. The exercise price of these options is $1.00. On January
8, 1998, the IMMUNOTHERAPY Board determined to cause to be accelerated,
immediately prior to consummation of the Merger, certain options to purchase
IMMUNOTHERAPY Common Stock held by directors and executive officers. Upon
vesting of such options, Messrs. Goolsbee, Lillard, Wilcock, Kwon, Martin,
Baxendale and Dr. Majnarich will each beneficially own an additional 30,000
shares, and Dr. Carter an additional 40,000 shares, of IMMUNOTHERAPY Common
Stock.
87
IMMUNOTHERAPY EXECUTIVE COMPENSATION
The following table sets forth the compensation earned in 1997 by Jeffrey L.
Lillard, IMMUNOTHERAPY's Managing Officer, who will serve as a director and
executive officer of ANTIVIRALS following the Merger.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
--------------------------------
SECURITIES ALL OTHER
RESTRICTED STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) AWARD(S) ($) OPTIONS (#) ($)
- -------------------------------------------------------- ---------- ------------------- ----------- -----------------
Jeffrey L. Lillard, Director and Managing Officer....... $ 120,000(1) -- 30,000(1) --
- ------------------------
(1) Certain portions of Mr. Lillard's compensation in 1997 was deferred at the
executive's election, as follows: $30,000 was paid in the form of a
promissory note payable by IMMUNOTHERAPY and an option to purchase 30,000
shares of Common Stock for a purchase price of $1.00; and $22,500 was paid
in the form of a promissory note payable by IMMUNOTHERAPY.
STOCK OPTION INFORMATION
The following tables set forth certain information regarding options for the
purchase of IMMUNOTHERAPY's Common Stock that were awarded to IMMUNOTHERAPY's
Managing Officer during 1997:
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) EXPIRATION DATE
- -------------------------------------- ------------------- ----------------------- --------------- ---------------
Jeffrey L. Lillard.................... 30,000(1) 10.8% $ 1.00 12/31/07
- ------------------------
(1) Mr. Lillard was granted options by the Board in partial consideration for
deferring his 1997 annual compensation. See "--Summary Compensation Table."
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS AT
UNEXERCISED OPTIONS AT DECEMBER 31,
SHARES DECEMBER 31, 1997 1997(1)
ACQUIRED ON VALUE -------------------------- ---------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------------- ----------------- ------------- ----------- ------------- ---------------
Jeffrey L. Lillard................... -- -- 82,500 30,000(2) $ 0
NAME UNEXERCISABLE
- ------------------------------------- -----------------
Jeffrey L. Lillard................... $ 0
- ------------------------
(1) Value is calculated assuming a fair value of $1.00 per share of
IMMUNOTHERAPY Common Stock at December 31, 1997.
(2) According to resolution of the IMMUNOTHERAPY Board, these options will vest
upon consummation of the Merger. See "STOCK OWNED BY IMMUNOTHERAPY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS."
88
STOCK OWNED BY IMMUNOTHERAPY MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1998, certain information
with respect to the beneficial ownership of shares of both classes of
IMMUNOTHERAPY Common Stock and Class A Preferred Stock by (i) each person (or
group of affiliated persons) known to IMMUNOTHERAPY to be the beneficial owner
of 5% or more of IMMUNOTHERAPY's outstanding shares of either class of
IMMUNOTHERAPY stock, (ii) each IMMUNOTHERAPY director, (iii) each executive
officer of IMMUNOTHERAPY who is named in the Summary Compensation Table and (iv)
all director and executive officers of IMMUNOTHERAPY as a group. Except as
otherwise listed below, IMMUNOTHERAPY believes that the beneficial owners of the
shares of IMMUNOTHERAPY Stock listed below, based on information furnished by
such owners, have sole voting and investment power with respect to such shares.
SHARES OF IMMUNOTHERAPY
SHARES OF ANTIVIRALS
SHARES OF IMMUNOTHERAPY PREFERRED STOCK COMMON STOCK
COMMON STOCK BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO MERGER(1) OWNED FOLLOWING MERGER
OWNED PRIOR TO MERGER
------------------------- ------------------------ -----------------------
BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER PERCENT NUMBER(2) PERCENT
- -------------------------------------------------- ---------- ------------- ----------- ----------- ---------- -----------
DIRECTORS:
Jeffrey L. Lillard(3)............................. 3,039,250 27.8 541,052 4.0
Michael P. Martin(4).............................. 1,020,000 9.4 185,812 1.4
Dong Il Kwon(5)................................... 688,963 6.3 128,212 1.0
James W. Wilcock(6)............................... 640,000 5.9 80,000 12.5% 151,053 1.1
William A. Goolsbee(7)............................ 502,500 4.6 95,767 *
John J. Majnarich(8).............................. 280,000 2.6 58,297 *
Bruce L.A. Carter, Ph.D.(9)....................... 30,000 * 16,537 *
GREATER THAN 5% SHAREHOLDERS:
4-G Investment Group.............................. 600,000 5.5 104,400 *
3140 Box Canyon Rd
Santa Ynez, CA 93460
Amy L. Lillard.................................... 812,500 7.5 141,375 1.1
Matthew L. Lillard................................ 812,500 7.5 141,375 1.1
James Baxendale(10)............................... 629,400 5.8 119,665 *
All directors and executive officers as a group (8
persons)(3-10).................................. 6,830,113 61.3 80,000 12.5% 1,296,395 9.7
- ------------------------
* Less than one percent.
(1) The IMMUNOTHERAPY Board has authorized a dividend to be paid to the holders
of Preferred Stock of 8% of the price paid by such holders for the
Preferred Stock, in the form of IMMUNOTHERAPY Common Stock, immediately
prior to closing of the Merger. The amount of the dividend will depend on
the date of closing of the Merger. For example, if the Merger closes on
August 31, 1998, the aggregate number of shares of Common Stock issued as a
dividend to the holders of IMMUNOTHERAPY Preferred Stock would be 154,545
shares and the aggregate percentage of IMMUNOTHERAPY Common Stock held by
the principal shareholders and directors would decrease to 60.6% from
61.3%. In particular, Mr. Wilcock's shares of Common Stock would increase
to 639,318 shares, representing 5.8% of the Common Stock outstanding
immediately prior to the Merger (taking into account the IMMUNOTHERAPY
Preferred Stock dividend).
(2) ANTIVIRALS Common Stock beneficially owned following the Merger is
calculated assuming there will be approximately 13,351,754 shares of
ANTIVIRALS Common Stock outstanding immediately
89
after the Merger and by using the exchange ratios for the IMMUNOTHERAPY
Common Stock and Preferred Stock, as applicable, calculated as set forth in
the Merger Agreement. The IMMUNOTHERAPY Options are converted using the
applicable exchange ratio at assumed ANTIVIRALS Common Stock and Nasdaq
Warrant prices of $5.00 per share and $1.75, respectively. See "THE
MERGER--Terms of the Merger Agreement--Exchange of IMMUNOTHERAPY Common
Stock and Options to Acquire Shares of IMMUNOTHERAPY Common Stock." In
addition, numbers and percentages reflect certain options to acquire
IMMUNOTHERAPY Common Stock which have been granted to executive officers
and directors of IMMUNOTHERAPY effective immediately prior to the closing
of the Merger, as described below under "Additional Options."
(3) Represents 2,956,750 shares owned jointly with his spouse and 82,500
options to purchase IMMUNOTHERAPY Common Stock which currently are or will
become exercisable in the next 60 days.
(4) Includes 20,000 options to purchase IMMUNOTHERAPY Common Stock which
currently are or will become exercisable in the next 60 days. Also includes
1,000,000 shares of IMMUNOTHERAPY Common Stock owned by AHERF, of which Mr.
Martin is Vice President--Treasury and Finance, as to which Mr. Martin
disclaims beneficial ownership. The address of AHERF is D.L. Clark
Building, 320 E. North Avenue, Pittsburgh, PA 15212.
(5) Represents 637,000 shares owned by Dong Kook Pharmaceuticals ("Dong Kook"),
of which Mr. Kwon is chairman; 31,963 shares owned by Clinetics Corporation
which is controlled by Dong Kook; and 20,000 options to purchase
IMMUNOTHERAPY Common Stock held by Mr. Kwon which currently are or will
become exercisable in the next 60 days.
(6) Represents 620,000 shares owned jointly with his spouse and 20,000 options
to purchase IMMUNOTHERAPY Common Stock which currently are or will become
exercisable in the next 60 days.
(7) Includes 20,000 options to purchase IMMUNOTHERAPY Common Stock which
currently are or will become exercisable in the next 60 days.
(8) Includes 40,000 options to purchase IMMUNOTHERAPY Common Stock which
currently are or will become exercisable in the next 60 days.
(9) Includes 30,000 options to purchase IMMUNOTHERAPY Common Stock which
currently are or will become exercisable in the next 60 days.
(10) Includes 49,200 options to purchase IMMUNOTHERAPY Common Stock which
currently are or will become exercisable in the next 60 days.
ADDITIONAL OPTIONS. On January 8, 1998, the IMMUNOTHERAPY Board determined
to cause to be accelerated, immediately prior to consummation of the Merger,
certain options to purchase IMMUNOTHERAPY Common Stock held by directors and
executive officers. Upon vesting of such options, in addition to the options
indicated as held by certain officers and directors in the footnotes above,
Messrs. Goolsbee, Lillard, Wilcock, Majnarich, Kwon, Martin and Baxendale will
each beneficially own an additional 30,000 shares, and Dr. Carter an additional
40,000 shares, of IMMUNOTHERAPY Common Stock.
90
CERTAIN TRANSACTIONS AND RELATIONSHIPS OF IMMUNOTHERAPY
All IMMUNOTHERAPY officers are employed by IMMUNOTHERAPY on a substantially
full-time basis, with the exception of William Goolsbee, current Chief Executive
Officer of IMMUNOTHERAPY, who also serves as President and CEO of Horizon
Laboratories, Inc.
Michael P. Martin, Esq., a director of IMMUNOTHERAPY, is the Vice
President-- Treasury and Finance of AHERF. He is a director of IMMUNOTHERAPY.
IMMUNOTHERAPY has a clinical trials agreement with AHERF to conduct a Phase II
colorectal trial and at one of the AHERF member institutions, a medical school
teaching hospital. Under the agreement, AHERF is entitled to payment at the
conclusion of the study, based on the number of patients treated. As of the date
of this Joint Proxy Statement/Prospectus, AHERF has treated four patients in
connection with these trials and will be entitled to compensation of $18,000 at
the conclusion of the trial, and upon the completion of the final trial report.
Gordon Duncan, Ph.D., has been a member of IMMUNOTHERAPY's Science Advisory
Board since 1996. He was appointed Vice President, Regulation, of ANTIVIRALS in
1998.
Dong Il Kwon is a director of IMMUNOTHERAPY. He is also the Chief Executive
Officer of Dong Kook Pharmaceuticals in Seoul, Korea. On June 10, 1994, the
Board of Directors of IMMUNOTHERAPY granted Dong Kook a license for CTP-37 on
the Korean peninsula (the Republic of Korea--South Korea and the People's
Republic of Korea--North Korea).
ELECTION OF ANTIVIRALS DIRECTORS
At the ANTIVIRALS Annual Meeting, four (4) directors will be elected, each
for a two-year term and until their successors are qualified and elected. Unless
otherwise specified on the proxy, it is the intention of the persons named in
the proxy to vote the shares represented by each properly executed proxy for the
election as directors of the persons named below as nominees. The Board of
Directors believes that the nominees will stand for election and will serve if
elected as directors. However, if any of the persons nominated by the Board of
Directors fails to stand for election or is unable to accept election, the
proxies will be voted for the election of such other person as the Board of
Directors may recommend.
Under ANTIVIRALS' bylaws, the directors are divided into two groups with
Group I consisting of four (4) directors and Group II consisting of five (5)
directors. The term of office of one group of directors expires in each year,
and their successors are elected for terms of two years and until their
successors are elected and qualified. There is no cumulative voting for election
of directors.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS. The following table
sets forth the names of the Board of Director's nominees for election as a
director and those directors who will continue to serve after the ANTIVIRALS
Annual Meeting. Also set forth is certain other information with respect to each
such person's age at April 28, 1998, the periods during which he has served as a
director of ANTIVIRALS and positions currently held with ANTIVIRALS.
DIRECTOR EXPIRATION
AGE SINCE OF TERM POSITIONS HELD WITH ANTIVIRALS
--- --------- ---------- ----------------------------------------------
NOMINEES:
James B. Hicks, Ph.D............... 51 1997 2000 Director
Joseph Rubinfeld, Ph.D............. 65 1996 2000 Director
Alan P. Timmins.................... 38 1997 2000 Chief Operating Officer, Chief Financial
Officer, and Director
Dwight D. Weller, Ph.D............. 46 1991 2000 Senior Vice President of Chemistry and
Manufacturing, and Director
91
DIRECTOR EXPIRATION
AGE SINCE OF TERM POSITIONS HELD WITH ANTIVIRALS
--- --------- ---------- ----------------------------------------------
CONTINUING DIRECTORS:
Denis R. Burger, Ph.D.............. 55 1991 1999 President, Chief Executive Officer, Director
Patrick L. Iversen, Ph.D........... 43 1997 1999 Vice President of Research and Development,
Director
Nick Bunick........................ 61 1992 1999 Director
See "ANTIVIRALS DIRECTORS AND OFFICERS--Board of Directors Meetings and
Committees" for certain information regarding ANTIVIRALS Board of Directors
meetings and Board committees. See "ANTIVIRALS DIRECTORS AND EXECUTIVE
OFFICERS--Director Compensation" for certain information regarding ANTIVIRALS'
compensation of its directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF ITS NOMINEES FOR DIRECTOR. If a quorum is present, ANTIVIRALS'
Bylaws provide that directors are elected by a plurality of the votes cast by
the shares entitled to vote. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum exists at the ANTIVIRALS Annual
Meeting, but are not counted and have no effect on the determination of whether
a plurality exists with respect to a given nominee.
APPROVAL OF AMENDMENT TO ANTIVIRALS STOCK INCENTIVE PLAN
A total of 1,333,334 shares of Common Stock have been reserved for issuance
under the ANTIVIRALS' 1992 Stock Incentive Plan (the "Plan"). As of December 31,
1997, only 33,221 shares remained available for grant under the 1992 Plan. The
ANTIVIRALS Board believes that the availability of stock incentives is an
important factor in ANTIVIRALS' ability to attract and retain experienced and
competent employees and to provide an incentive to them to exert their best
efforts on behalf of ANTIVIRALS. The ANTIVIRALS Board believes that additional
shares will be needed under the 1992 Plan to provide appropriate incentives.
Accordingly, on June 12, 1997, the ANTIVIRALS Board approved an amendment to the
1992 Plan, subject to shareholder approval, to reserve an additional 866,666
shares of Common Stock under the 1992 Plan, thereby increasing the total number
of shares reserved for issuance under the 1992 Plan from 1,333,334 shares to
2,200,000 shares.
ANTIVIRALS has utilized stock option grants broadly to recognize key
performers at every level throughout the organization. Grants have also been
used to provide a link between employees and the performance of ANTIVIRALS.
ANTIVIRALS believes it is critical in developing the organization to provide an
opportunity for employees to be equity holders and to understand the part their
contributions can have in the success of the organization.
The following is a summary of the basic terms and provisions of the 1992
Plan.
The 1992 Plan was adopted by the ANTIVIRALS Board and was approved by the
shareholders in 1992. The purposes of the 1992 Plan are to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to the employees and consultants of ANTIVIRALS and
to promote the success of ANTIVIRALS' business.
The 1992 Plan is administered by the Compensation Committee (the
"Committee"). Transactions under the 1992 Plan are intended to comply with all
applicable conditions of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934. In addition to determining who will be granted options, the
Committee has the authority and discretion to determine when options will be
granted and the number of options to be granted. The Committee may determine
which options may be intended to qualify ("Incentive Stock Options") for special
treatment under the Internal Revenue Code of 1986, as amended from time to time
(the "Code"), or whether options are Non-Qualified Options ("Non-Qualified Stock
92
Options") which are not intended to so qualify. The Committee also may determine
the time or times when each option becomes exercisable, the duration of the
exercise period for options and the form or forms of the instruments evidencing
options granted under the 1992 Plan. The Committee may adopt, amend and rescind
such rules and regulations as in its opinion may be advisable for the
administration of the 1992 Plan. The Committee also may construe the 1992 Plan
and the provisions in the instruments evidencing option granted under the 1992
Plan to employee and officer participants and is empowered to make all other
determinations deemed necessary or advisable for the administration of the 1992
Plan.
The 1992 Plan contains provisions for proportionate adjustment of the number
of shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares. In addition, the 1992 Plan provides for adjustments in the
purchase price and exercise period by the Committee in the event of a proposed
dissolution or liquidation of ANTIVIRALS, or any corporate separation or
division, including, but not limited to, split-up, split-off or spin-off, or a
merger or consolidation of ANTIVIRALS with another corporation, or in the event
there is a change in constitution of the Common Stock of ANTIVIRALS.
Participants in the 1992 Plan may be selected by the Committee from
employees, officers, directors and consultants of ANTIVIRALS. In determining the
persons to whom options will be granted and the number of shares to be covered
by each option, the Committee will take into account the duties of the
respective persons, their present and potential contributions to the success of
ANTIVIRALS and such other factors as the Committee deems relevant to accomplish
the purposes of the 1992 Plan.
Only employees of ANTIVIRALS as the term "employees" is defined for the
purposes of Code will be entitled to receive Incentive Stock Options. Incentive
Stock Options granted under the 1992 Plan are intended to satisfy all
requirements for incentive stock options under Section 422 of the Code and the
Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written option
agreement between ANTIVIRALS and the optionee. The option price of any Incentive
Stock Option may be not less than 100% of the fair market value per share on the
date of grant of the option; provided, however, that any Incentive Stock Option
granted under the 1992 Plan to a person owning more than 10% of the total
combined voting power of the Common Stock will have an option price of not less
than 110% of the fair market value per share on the date of grant of the
Incentive Stock Option. Each Non-Qualified Stock Option granted under the 1992
Plan will be at an exercise price as determined by the ANTIVIRALS Board. Fair
market value on the date of grant is defined as a value determined in the
discretion of the ANTIVIRALS Board; provided, however, that where there is a
public market for the Common Stock, the fair market value per share shall be the
closing price of the Common Stock for the date of grant or authorization of
sale, as reported in THE WALL STREET JOURNAL.
The exercise period of Incentive Stock Options granted under the 1992 Plan
generally may not exceed ten (10) years from the date of grant thereof.
Incentive Stock Options granted to a person owning more than 10 percent of the
total combined voting power of the Common Stock of ANTIVIRALS will be for no
more than five years. The Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of an Incentive Stock
Option beyond ten (10) years from the date of grant.
To exercise an option, the optionee must pay the full exercise price in
whole or in part consisting of cash or transfer to ANTIVIRALS of shares having a
fair market value at the time of such exercise equal to the option exercise
price.
An option may not be exercised unless the optionee then is an employee,
officer, director or consultant of ANTIVIRALS, and unless the optionee has
remained continuously as an employee, officer, director or consultant of
ANTIVIRALS since the date of grant of the option. If the optionee ceases to be
an
93
employee, officer, director or consultant of ANTIVIRALS, all options which are
not vested under the 1992 Plan by the time of death, disability, retirement or
termination of employment, immediately terminate. All options granted to such
optionee that are fully vested to such optionee but not yet exercised, will
terminate (i) twelve (12) months after the date the optionee ceases to be an
employee, officer or director of ANTIVIRALS by reason of death or disability; or
(ii) thirty (30) days after termination of employment for any other reason.
If an optionee dies while an employee, officer, director or consultant, or
is terminated by reason of disability, all options theretofore granted to such
optionee, unless earlier terminated in accordance with their terms, may be
exercised at any time within one year after the date of death or disability of
said optionee, by the optionee or by the optionee's estate or by a person who
acquired the right to exercise such options by request or inheritance, but only
to the extent of the right to exercise as of the date of death or disability.
Options granted under the 1992 Plan are not transferable other than by will
or by the laws of descent and distribution. Options may be exercised during the
lifetime of the optionee only by the optionee. An optionee has no rights as a
shareholder with respect to any shares covered by an option until the option has
been exercised.
ANTIVIRALS, to the extent permitted by law, may deduct a sufficient number
of shares due to the optionee upon exercise of the option to allow ANTIVIRALS to
pay federal, state and local taxes of any kind required by law to be withheld
upon the exercise otherwise due to the optionee. ANTIVIRALS is not obligated to
advise any optionee of the existence of any tax or the amount which ANTIVIRALS
will be required to withhold.
The 1992 Plan will continue in effect until all shares available for
issuance under the 1992 Plan have been issued and all restrictions on such
shares have lapsed, unless earlier terminated by the ANTIVIRALS Board, but such
termination will not affect the terms of any options outstanding at that time.
The ANTIVIRALS Board may amend, terminate or suspend the 1992 Plan at any time,
provided that no amendment regarding amount, price or timing of the grants may
be made more than once every six (6) months other than to comport with changes
in certain Securities Exchange Act and Code requirements. Amendments that would
materially increase the number of shares that may be issued, materially modify
the requirements as to eligibility for 1992 Plan participation, or materially
increase the benefits to 1992 Plan participants must be approved by
shareholders.
PROPOSED AMENDMENT. If the proposal is adopted, the second paragraph of the
1992 Stock Incentive Plan will be amended to read as follows:
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below
and in paragraph 14, the shares to be offered under the Plan shall consist
of Common Stock of the Company, and the total number of shares of Common
Stock that may be issued under the Plan shall not exceed 2,000,000 shares.
The shares issued under the Plan may be authorized and unissued shares or
reacquired shares. If an option, stock appreciation right or performance
unit granted under the Plan expires, terminates or is canceled, the unissued
shares subject to such option, stock appreciation right or performance unit
shall again be available under the Plan. If shares sold or awarded as a
bonus under the Plan are forfeited to the Company or repurchased by the
Company, the number of shares forfeited or repurchased shall again be
available under the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The proposal must be approved by the holders of at least a majority of the
shares of ANTIVIRALS Common Stock present in person or by proxy at the
ANTIVIRALS Annual Meeting. Abstentions and broker non-votes are treated as "no"
votes in determining whether the proposal is approved. The proxies will be voted
for or against the proposal, or as an abstention, in accordance with the
instructions specified on the proxy form. If no instructions are given, proxies
will be voted for approval of the amendment to the 1992 Plan.
94
APPROVAL OF ASSUMPTION OF IMMUNOTHERAPY 1997 STOCK OPTION PLAN
A total of 1,000,000 shares of IMMUNOTHERAPY Common Stock have been reserved
for issuance under the IMMUNOTHERAPY 1997 Stock Option Plan (the "IMMUNOTHERAPY
Plan").
At the Effective Time, contingent upon the approval by the ANTIVIRALS
Shareholders, ANTIVIRALS will assume the IMMUNOTHERAPY Plan, and all options to
acquire shares of IMMUNOTHERAPY Common Stock outstanding immediately prior to
the Effective Time will be converted into rights to acquire shares of ANTIVIRALS
Common Stock under the same terms and conditions as provided in the
IMMUNOTHERAPY Plan. Each IMMUNOTHERAPY Option will be converted into an option
to purchase that number of shares of ANTIVIRALS Common Stock determined by
multiplying the number of optioned shares of IMMUNOTHERAPY Common Stock
immediately prior to the Effective Time by the Option Conversion Number. The
"Option Conversion Number" is 0.175 multiplied by the result obtained by
dividing the sum of the closing prices of ANTIVIRALS Common Stock and Nasdaq
Warrant on the NASDAQ National Market by the closing price of ANTIVIRALS Common
Stock, each on the day of Closing of the Merger. The exercise price per share of
ANTIVIRALS Common Stock will be equal to the exercise price of such
IMMUNOTHERAPY Stock Option divided by the Option Conversion Number. For example,
assuming an ANTIVIRALS Common Stock and Nasdaq ANTIVIRALS warrant price of $7.25
and $2.50 per share, respectively, each IMMUNOTHERAPY Option having an exercise
price of $1.00 per share will be converted into a right to purchase 0.2353
shares of ANTIVIRALS Common Stock at an exercise price of $4.25 per share.
The Board of Directors of ANTIVIRALS does not anticipate that any additional
options to purchase shares of ANTIVIRALS Common Stock will be issued under the
IMMUNOTHERAPY Plan except for those options converted in connection with the
Merger.
The following is a summary of the basic terms and provisions of the
ImmunoTherapy Plan.
The IMMUNOTHERAPY Plan was adopted by the IMMUNOTHERAPY Board ("Board") in
1997. The purposes of the IMMUNOTHERAPY Plan are to (i) allow holders of an
option or options (a "Prior Option" or the "Prior Options") to purchase shares
of IMMUNOTHERAPY's Common Stock that have been granted under IMMUNOTHERAPY's
1994 Stock Option Plan, 1995 Stock Option Plan or outside of such plans to
receive a replacement option or replacement options under the Plan in exchange
for the cancellation of the Prior Option or Options, as the case may be; (ii)
attract and retain the best available personnel for positions of substantial
responsibility; (iii) provide additional incentive to the employees and
consultants of IMMUNOTHERAPY; and (iv) promote the success of IMMUNOTHERAPY's
business.
The IMMUNOTHERAPY Plan is administered by the IMMUNOTHERAPY Board which also
has the power to appoint a committee to administer the IMMUNOTHERAPY Plan.
Transactions under the IMMUNOTHERAPY Plan are intended to comply with all
applicable conditions of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934. In addition to determining who will be granted options, the Board
has the authority and discretion to establish such rules and regulations as it
may deem appropriate for proper plan administration and to make such
determinations under, and issue such interpretations of, the IMMUNOTHERAPY Plan
and any outstanding option grants or share issuances as it may deem necessary or
advisable. The Board has full authority to determine which eligible individuals
are to receive grants, the number of shares to be covered by each such grant,
the time or times at which each granted option is to become exercisable and the
maximum term for which the option may remain outstanding. The options granted
under the IMMUNOTHERAPY Plan are not incentive stock options and are not
entitled to special tax treatment under the Internal Revenue Code of 1986 as
amended from time to time.
The IMMUNOTHERAPY Plan contains provisions for proportionate adjustment of
the number of shares for outstanding options and the option price per share in
the event of stock dividends, recapitalizations resulting in stock splits or
combinations or exchanges of shares. In addition, the IMMUNOTHERAPY Plan
provides for adjustments in the purchase price and exercise period by the Board
in the event of certain sales of assets, mergers and other corporate
transactions involving IMMUNOTHERAPY.
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Participants in the IMMUNOTHERAPY Plan may be selected by the Board from
employees, officers, directors and consultants of IMMUNOTHERAPY. In determining
the persons to whom options will be granted and the number of shares to be
covered by each option, the Board may take into account the duties of the
respective persons, their present and potential contributions to the success of
IMMUNOTHERAPY and such other factors as the Board deems relevant to accomplish
the purposes of the IMMUNOTHERAPY Plan.
The options granted under the IMMUNOTHERAPY Plan will be at an exercise
price as determined by the Board.
The exercise period of options granted under the IMMUNOTHERAPY Plan may not
exceed ten (10) years from the date of grant thereof. The Board will have the
authority to accelerate or extend the exercisability of any outstanding option
at such time and under such circumstances as it, in its sole discretion, deems
appropriate. However, no exercise period may be extended to increase the term of
an option beyond ten (10) years from the date of grant.
To exercise an option, the optionee must pay the full exercise price in
whole or in part consisting of cash, check or, if IMMUNOTHERAPY's shares are
registered under Section 12(g) of the Securities Exchange Act of 1934 as
amended, then by the transfer of such shares to IMMUNOTHERAPY having a fair
market value at the time of such exercise equal to the option exercise price,
which transfer procedure is more fully described in the IMMUNOTHERAPY Plan.
Options granted under the IMMUNOTHERAPY Plan are not transferable other than
by will or by the laws of descent and distribution. Options may be exercised
during the lifetime of the optionee only by the optionee. An optionee has no
rights as a shareholder with respect to any shares covered by an option until
the option has been exercised.
The IMMUNOTHERAPY Plan will continue in effect until the latter of the date
when all shares available for issuance under the IMMUNOTHERAPY Plan have been
issued and all restrictions on such shares have lapsed, or, the date which is
ten years after adoption of the ImmunoTherapy Plan. The IMMUNOTHERAPY Board may
amend, terminate or modify the IMMUNOTHERAPY Plan at any time. However, no such
amendment or modification shall adversely affect the rights and obligations of
an optionee with respect to options at the time outstanding under the Plan,
unless the optionee consents to such amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The proposal must be approved by the holders of at least a majority of the
shares of ANTIVIRALS Common Stock present in person or by proxy at the
ANTIVIRALS Annual Meeting. Abstentions and broker non-votes are treated as "no"
votes in determining whether the proposal is approved. The proxies will be voted
for or against the proposal, or as an abstention, in accordance with the
instructions specified on the proxy form. If no instructions are given, proxies
will be voted for approval of the assumption of the IMMUNOTHERAPY Plan by
ANTIVIRALS.
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CHANGE OF NAME TO AVI BIOPHARMA
The Board of Directors has determined that it is in ANTIVIRALS' best
interest to change its name to AVI BioPharma Inc. pursuant to an amendment to
its Third Restated and Amended Articles of Incorporation. The ANTIVIRALS Board
adopted a resolution proposing the amendment and name change and directing that
it be submitted to a vote at a meeting of the shareholders on August 31, 1998.
The ANTIVIRALS Board believes that the change of corporate name is desirable
in view of the change in the character and strategic focus of the business of
ANTIVIRALS which will result from the Merger. This acquisition will result in
the addition of complementary proposed products which rely on a technology
platform which differs from ANTIVIRALS' antisense compounds and drug delivery
engines. The proposed name reflects ANTIVIRALS' development of a broader array
of biopharmaceutical products.
If the proposed name is adopted, it is the intent of the Company to use the
trade name AVI BioPharma in its communications with shareholders and the
investment community. If the amendment is adopted, shareholders will not be
required to exchange outstanding stock or warrant certificates for new
certificates.
PROPOSED AMENDMENT. If the proposal is adopted, Article I of ANTIVIRALS'
Third Amended and Restated Articles of Incorporation will be amended and read as
follows:
ARTICLE I
NAME
The name of the Corporation is AVI BioPharma Inc.
THE ANTIVIRALS BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. The
proposal must be approved by the holders of at least a majority of the shares of
ANTIVIRALS Common Stock present in person or by proxy at the ANTIVIRALS Annual
Meeting. Abstentions and broker non-votes are treated as "no" votes in
determining whether the proposal is approved. The proxies will be voted for or
against the proposal, or as an abstention, in accordance with the instructions
specified on the proxy form. If no instructions are given, proxies will be voted
for approval of the amendment to the Plan.
RATIFICATION OF APPOINTMENT OF ANTIVIRALS INDEPENDENT AUDITORS
The ANTIVIRALS Board has appointed Arthur Andersen LLP to act as independent
auditors for ANTIVIRALS for the fiscal year ending December 31, 1998, subject to
ratification of such appointment by ANTIVIRALS' shareholders.
Unless otherwise indicated, properly executed proxies will be voted in favor
of ratifying the appointment of Arthur Andersen LLP to audit the books and
accounts of ANTIVIRALS for the fiscal year ending December 31, 1998.
A representative of Arthur Andersen LLP is expected to be present at the
ANTIVIRALS Annual Meeting and will be given an opportunity to make a statement
if he or she desires to do so and will be available to respond to appropriate
questions.
THE ANTIVIRALS BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. The
proposal must be approved by the holders of at least a majority of the shares of
ANTIVIRALS Common Stock present in person or by proxy at the ANTIVIRALS Annual
Meeting. Abstentions and broker non-votes are treated as "no" votes in
determining whether the proposal is approved. The proxies will be voted for or
against the proposal, or as an abstention, in accordance with the instructions
specified on the proxy form. If no instructions are given, proxies will be voted
for approval of the amendment to the Plan.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of ANTIVIRALS consists of 50,000,000 shares of
Common Stock, par value $0.0001 per share, and 2,000,000 shares of Preferred
Stock, par value $0.01 per share. The following summary description of
ANTIVIRALS' capital stock does not purport to be complete and is qualified in
its entirety by the provisions of ANTIVIRALS' Restated Articles of Incorporation
and Bylaws.
TRANSFER AGENT
The transfer agent and registrar for ANTIVIRALS Common Stock is ChaseMellon
Shareholder Services, LLC.
COMMON STOCK
ANTIVIRALS is authorized to issue 50,000,000 shares of Common Stock. As of
July 31, 1998, 11,198,919 shares of Common Stock were outstanding, held of
record by 914 shareholders. The holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of shareholders
(and do not have any cumulative voting rights). Subject to preferences that may
be applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by ANTIVIRALS' Board out of funds legally available therefor. Holders of Common
Stock have no preemptive, subscription or redemption rights, and there are no
redemption, conversion or similar rights with respect to such shares. In the
event of a liquidation, dissolution or winding up of ANTIVIRALS, holders of the
Common Stock are entitled to share equally and ratably in the assets of
ANTIVIRALS, if any, remaining after the payment of all liabilities of ANTIVIRALS
and the liquidation preference of any outstanding class or series of Preferred
Stock. The outstanding shares of Common Stock are fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject to
any series of Preferred Stock that ANTIVIRALS may issue in the future, as
described below.
PREFERRED STOCK
ANTIVIRALS is authorized to issue up to 2,000,000 shares of undesignated
Preferred Stock. No shares of Preferred Stock have been issued. ANTIVIRALS Board
has the authority to issue the undesignated Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued shares of undesignated Preferred Stock,
as well as to fix the number of shares constituting any series and the
designation of such series, without any further vote or action by the
shareholders. ANTIVIRALS Board, without shareholder approval, may issue
Preferred Stock with voting and conversion rights which could materially
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock could also decrease the amount of earnings and assets
available for distribution to holders of Common Stock. In addition, the issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of ANTIVIRALS. At present, ANTIVIRALS has no plans to issue
any shares of Preferred Stock. See "Risk Factors--Anti-Takeover Effects of
Certain Charter Provisions and Oregon Law" and "Certain Provisions of
ANTIVIRALS' Articles of Incorporation and Bylaws."
WARRANTS
MERGER WARRANTS. Pursuant to the Merger Agreement and the warrants to be
issued thereunder, each ANTIVIRALS Warrant will entitle the holder to purchase
one share of Common Stock at a price of $13.50 per share. The Warrants will,
subject to certain conditions, be exercisable at any time until the date which
is four years and eight months after the Closing Date of the Merger, unless
earlier redeemed. The Warrants are redeemable by ANTIVIRALS at $.25 per Warrant
at any time after the Warrants are exercisable, upon thirty (30) days' written
notice, if the shares subject to the Warrants are registered pursuant to an
effective
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Registration Statement under the Securities Act and the Daily Price (as defined
in the Warrant Agreement described below) for each of the twenty (20)
consecutive trading days immediately preceding the date notice of redemption is
given equals or exceeds $27.00. If ANTIVIRALS gives notice of its intention to
redeem, a holder would be forced either to exercise his or her Warrant before
the date specified in the redemption notice or accept the redemption price.
The Warrants will be issued in registered form under a Warrant Agreement
(the "Warrant Agreement") between ANTIVIRALS and the IMMUNOTHERAPY Shareholders.
The shares of Common Stock underlying the Warrants, when issued upon exercise of
a Warrant, will be fully paid and nonassessable, and the holder will pay any
transfer tax incurred as a result of the issuance of Common Stock to the holder
upon exercise.
The Warrants contain provisions that protect the holders against dilution by
adjustment of the number of shares that may be purchased by the holders. Such
adjustments will occur in the event, among others, that ANTIVIRALS makes certain
distributions to holders of its Common Stock. ANTIVIRALS is not required to
issue fractional shares upon the exercise of a Warrant. The holder of a Warrant
will not possess any rights as a shareholder of ANTIVIRALS until such holder
exercises the Warrant.
A Warrant may be exercised upon surrender of the Warrant Certificate on or
before the expiration date of the Warrant at the offices of ANTIVIRALS, with the
form of "Election To Purchase" on the reverse side of the Warrant Certificate
completed and executed as indicated, accompanied by payment of the exercise
price (by certified or bank cashier's check payable to the order of ANTIVIRALS
or by wire transfer of good funds) for the number of shares with respect to
which the Warrant is being exercised.
ANTIVIRALS has agreed to use all commercially reasonable efforts to cause a
registration statement with respect to the issuance of ANTIVIRALS Common Stock
underlying the Warrants under the Securities Act to be filed and to become and
remain effective in anticipation of and prior to the exercise of the Warrants
and to take such other actions under the laws of various states as may be
required to cause the sale of Common Stock (or other securities) issuable upon
exercise of Warrants to be lawful. ANTIVIRALS will not be required to honor the
exercise of Warrants if, in the opinion of ANTIVIRALS' Board upon advice of
counsel, the sale of securities upon exercise would be unlawful.
The foregoing discussion of certain terms and provisions of the Warrants is
qualified in its entirety by reference to the detailed provisions of the Warrant
Agreement, the form of each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. ANTIVIRALS has agreed
to use all commercially reasonable efforts to cause the Warrants to be listed
for quotation on the Nasdaq National Market System not more than six months
after the Effective Date of the Merger.
For the life of the Warrants, the holders thereof have 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 Warrants. The warrant holders may be expected to exercise their warrants at
a time when ANTIVIRALS 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 warrants. Further, the terms on which ANTIVIRALS could
obtain additional capital during the life of the warrants may be adversely
affected.
REPRESENTATIVES' WARRANTS. In connection with the initial public offering,
ANTIVIRALS authorized the issuance of Representatives' warrants to the
underwriters of that offering and reserved 400,000 shares of Common Stock for
issuance upon exercise of such warrant (including the warrants issuable upon
exercise of the representatives' warrants). The representatives' warrants
entitle the holder to acquire up to an aggregate of 200,000 Units at an exercise
price of $10.80 per Unit and are exercisable one year from the date of the
initial public offering. Each Unit consists of one share of Common Stock and one
redeemable warrant. Each warrant initially entitles the holder thereof to
purchase one share of Common Stock at a price of $13.50 per share.
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NASDAQ WARRANTS. ANTIVIRALS has outstanding warrants to purchase 2,300,000
shares of Common Stock that were issued in ANTIVIRALS' initial public offering
and are traded on the Nasdaq National Market. All of these warrants are
exercisable at any time, unless previously redeemed, until the fifth anniversary
of ANTIVIRALS' initial public offering, subject to certain conditions.
ANTIVIRALS may redeem the outstanding warrants, in whole or in part, at any time
upon thirty (30) days prior written notice to the registered holders thereof, at
a price of $0.25 per warrant, provided that the closing bid price of the Common
Stock has been at least 200% of the then-current warrant exercise price for each
of the twenty (20) consecutive trading days immediately preceding the date of
the notice of redemption.
OTHER WARRANTS. Other than the warrants issuable in the Merger, the
Representatives' Warrants and the Nasdaq Warrants, ANTIVIRALS has outstanding
certain warrants to purchase 72,899 shares of Common Stock. Of these warrants,
28,565 are exercisable through the period ending ninety (90) days after the
expiration of lock-up agreements entered into in connection with the initial
public offering, of which 17,565 are exercisable at a price of $0.0003 per share
and 11,000 are exercisable at a price of $1.14 per share. Warrants to purchase
44,334 shares are currently exercisable and do not have a termination date;
warrants to purchase 11,000 of these shares are exercisable at a price of $1.14
per share and warrants to purchase 33,334 of these shares are exercisable at
$0.0003 per share.
ANTIVIRALS also has outstanding warrants to purchase 60,201 shares of Common
Stock at an exercise price of $9.00 per share. These warrants are exercisable
until the third anniversary of the closing of ANTIVIRALS' initial public
offering.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
ANTIVIRALS is subject to the Oregon Control Share Act (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
that results in the Acquiring Person holding more than 20.0%, 33.3% or 50.0% of
the total voting power of the corporation (a "Control Share Acquisition") cannot
vote the shares it acquires in the Control Share Acquisition ("control shares")
unless voting rights are accorded to the control shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the control shares held by the Acquiring
Person and shares held by ANTIVIRALS' officers and inside directors. The term
"Acquiring Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to ANTIVIRALS a
statement setting forth certain information about the Acquiring Person and its
plans with respect to ANTIVIRALS. The statement may also request that ANTIVIRALS
call a special meeting of shareholders to determine whether voting rights will
be accorded to the control shares. If the Acquiring Person does not request a
special meeting of shareholders, the issue of voting rights of control shares
will be considered at the next annual meeting or special meeting of
shareholders. If the Acquiring Person's control shares are accorded voting
rights and represent a majority or more of all voting power, shareholders who do
not vote in favor of voting rights for the control shares will have the right to
receive the appraised "fair value" of their shares which may not be less than
the highest price paid per share by the Acquiring Person for the control shares.
ANTIVIRALS is subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the
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Interested Shareholder. These restrictions do not apply if (i) the Interested
Shareholder, as a result of the transaction in which such person became an
Interested Shareholder, owns at least 85% of the outstanding voting stock of the
corporation (disregarding shares owned by directors who are also officers and
certain employee benefit plans), (ii) the board of directors approves the share
acquisition or business combination before the Interested Shareholder acquires
15% or more of the corporation's outstanding voting stock or (iii) the board of
directors and the holders of at least two-thirds of the outstanding voting stock
of the corporation (disregarding shares owned by the Interested Shareholder)
approve the transaction after the Interested Shareholder acquires 15% or more of
the corporation's voting stock. See "RISK FACTORS-- Anti-Takeover Effects of
Certain Charter Provisions and Oregon Law."
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COMPARATIVE RIGHTS OF IMMUNOTHERAPY SHAREHOLDERS
AND ANTIVIRALS SHAREHOLDERS
ANTIVIRALS and IMMUNOTHERAPY are incorporated in Oregon and California,
respectively. Shareholders of IMMUNOTHERAPY receiving ANTIVIRALS Common Stock in
connection with the Merger, whose rights as shareholders are currently governed
by the California Corporations Code ("California Law"), IMMUNOTHERAPY's Articles
of Incorporation (the "IMMUNOTHERAPY Articles") and IMMUNOTHERAPY's Bylaws (the
"IMMUNOTHERAPY Bylaws") will, upon the Effective Time of the Merger,
automatically become shareholders of ANTIVIRALS, and their rights will be
governed by the Oregon Business Corporation Act ("Oregon Law"), ANTIVIRALS'
Articles of Incorporation, as amended and restated (the "ANTIVIRALS' Articles")
and ANTIVIRALS' Bylaws (the "ANTIVIRALS' Bylaws"). The following is a summary of
material similarities and differences between the rights of ANTIVIRALS'
Shareholders under the ANTIVIRALS' Articles and ANTIVIRALS' Bylaws and Oregon
Law on the one hand and IMMUNOTHERAPY Shareholders under the IMMUNOTHERAPY
Articles and IMMUNOTHERAPY Bylaws and California Law on the other hand.
CLASSES OF STOCK
Oregon Law authorizes a corporation to have one or more classes of stock.
The ANTIVIRALS' Articles authorize common stock and preferred stock. See
"DESCRIPTION OF ANTIVIRALS CAPITAL STOCK."
California Law also authorizes a corporation to have one or more classes of
stock. All rights of shares of a class must have voting, conversion and
redemption rights, and other rights, preferences, privileges and restrictions
identical to those of other shares of the same class, unless the class is
divided into series. IMMUNOTHERAPY's Articles of Incorporation provide for two
classes: IMMUNOTHERAPY Common and Preferred Stock.
The following is a description of the preferences, limitations and relative
rights of the ANTIVIRALS Common Stock and the IMMUNOTHERAPY Common Stock.
DIVIDENDS. Dividends on both ANTIVIRALS and IMMUNOTHERAPY Common Stock may
be declared as, if and when declared by the respective Board. Dividends on
IMMUNOTHERAPY's Preferred Stock are set at 8% of the issue price per share per
annum.
VOTING RIGHTS. Each share of IMMUNOTHERAPY Common Stock is entitled to one
vote per share, and IMMUNOTHERAPY's Articles permit cumulative voting. Each
share of ANTIVIRALS Common Stock is entitled to one vote per share and no
cumulative voting rights exist for ANTIVIRALS' shareholders.
REDEMPTION PROVISIONS. IMMUNOTHERAPY Common Stock is not subject to any
redemption provisions. ANTIVIRALS Common Stock is not subject to any redemption
provisions.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
California law authorizes a corporation's Board of Directors to adopt
certain amendments to the corporation's Articles of Incorporation without
shareholder action, including, but not limited to, deleting the names and
addresses of the initial directors or the initial agent, and effecting a stock
split (unless the corporation has more than one class of shares outstanding).
The Board of Directors may propose other amendments to the shareholders. Unless
California law or the corporation's Articles of Incorporation require a greater
proportion, the amendment must generally be approved by the holders of a
majority of the outstanding shares. Amendments that would make shares
assessable, however, or authorize a remedy by judicial action for collecting an
assessment on fully paid shares, must be approved by all outstanding shares.
Furthermore, certain amendments to the Articles of Incorporation that
particularly affect one class of shares, such as amendments that change the
rights, preferences, privileges or restrictions of that class, must be approved
by the holders of a majority of the outstanding shares of that class.
Notwithstanding the
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foregoing, provisions in the Articles of Incorporation that require approval of
a larger proportion or all of the shares may be amended or repealed only by such
greater vote, unless the Articles of Incorporation provide otherwise.
California law generally authorizes either a corporation's Board of
Directors or its shareholders (by majority vote) to amend, repeal or adopt new
Bylaws. The Bylaws, Articles of Incorporation or California law may require
shareholder approval, however, and all amendments that: (i) change a fixed
number of directors; (ii) change the maximum or minimum number of directors; or
(iii) change a fixed number of directors to a variable number of directors, or
vice versa, must be approved by a majority of the outstanding shares.
Furthermore, an amendment reducing the fixed number or the minimum number of
directors to a number less than five cannot be adopted if more than 16 2/3% of
the outstanding voting shares are voted against such amendment.
Under Oregon law, an amendment to the Articles of Incorporation is approved
if, upon approval by the Board of Directors and referral to the shareholders, a
quorum exists and the votes cast favoring the amendment exceed the votes cast
opposing the action, unless the amendment would create dissenters' rights, in
which case a majority of the votes entitled to be cast is required for approval.
Supermajority voting requirements may be imposed and maintained by the Articles
of Incorporation. The ANTIVIRALS Articles contain supermajority rights with
respect to the staggered terms of directors.
Under Oregon law, a corporation's Board of Directors may amend or repeal the
corporation's Bylaws unless the corporation's Articles of Incorporation or
Oregon Law reserves the power to amend the Bylaws exclusively to the
shareholders in whole or in part, or the shareholders, in amending or repealing
a particular Bylaw, provide expressly that the Board of Directors may not amend
or repeal that Bylaw. The ANTIVIRALS Bylaws grant the Board of Directors the
authority to alter, amend or repeal, and adopt new Bylaws, subject to repeal or
change by action of the shareholders.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
California law provides that a special meeting of shareholders may be called
by a corporation's Board of Directors, the Chairman of the Board, the President,
the holders of at least ten percent (10%) of all the votes entitled to be cast
on any issue proposed to be considered at the proposed special meeting, or such
other persons as are authorized under the corporation's Articles of
Incorporation or Bylaws. The Bylaws of IMMUNOTHERAPY authorize IMMUNOTHERAPY's
officers, the Board of Directors or shareholders holding not less than 10% of
the voting power of the corporation to call a special meeting of shareholders.
Oregon law provides that a special meeting of shareholders may be called by
the holders of at least ten percent (10%) of all the votes entitled to be cast
on any issue proposed to be considered at the proposed special meeting, or by a
corporation's Board of Directors, or by such other persons as are authorized
under the corporation's Articles of Incorporation or Bylaws. The ANTIVIRALS
Bylaws authorize the President, Board of Directors or shareholders holding at
least 10% of the corporation's shares entitled to vote to call a special meeting
of shareholders.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS
Under California law, a merger agreement must generally be approved by the
corporation's Board of Directors of each constituent corporation and the
principal terms must be approved by the holders of both a majority of
outstanding shares entitled to vote thereon and by the holders of a majority of
the shares of each class of each constituent corporation, unless California law
otherwise requires a greater proportion or the corporation's Articles of
Incorporation require a greater proportion. IMMUNOTHERAPY has two classes of
stock outstanding.
California law provides that, in general, a corporation may sell, lease,
exchange or otherwise dispose of all, or substantially all, of its property or
assets outside of its ordinary course of business, if the Board of
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Directors and holders of a majority of the outstanding voting shares approve the
principal terms of the transaction, unless a greater proportion is otherwise
specified under California law or the corporation's Articles of Incorporation.
Under Oregon law, an agreement of merger must be approved by the Board of
Directors and by a majority of the outstanding shares entitled to vote thereon,
unless Oregon law, the corporation's Articles of Incorporation or the Board of
Directors requires a greater proportion. Oregon law also generally provides that
a merger need not be authorized by the shareholders of the surviving corporation
if (i) the agreement of merger does not amend the Articles of Incorporation,
(ii) each share of stock of the surviving corporation before the merger is to be
an identical outstanding share of stock of the surviving corporation after the
merger, (iii) generally, the number of voting shares outstanding immediately
after the merger, plus the voting shares issuable as a result of the merger,
will not exceed by more than 20% the total number of voting shares of the
surviving corporation outstanding immediately prior to the merger, and (iv)
generally, the number of participating shares outstanding immediately after the
merger, plus the participating shares issuable as a result of the merger, will
not exceed by more than 20% the total number of participating shares of the
surviving corporation outstanding immediately prior to the merger.
Oregon law provides that, in general, a corporation may at any meeting of
its Board of Directors sell, lease or exchange all, or substantially all, of its
property and assets, when and as authorized by a resolution adopted by the
holders of a majority of the outstanding shares entitled to vote thereon.
DISSENTERS' RIGHTS
Under California law, a shareholder is entitled to dissent from certain
corporate actions and obtain payment of the fair market value of his or her
shares, provided the shareholder complies with certain procedures. The actions
which trigger a shareholder's dissenter rights include reorganizations where
shareholder approval is required, such as certain mergers, share exchanges,
sales of all or substantially all of the corporation's assets in exchange for
the acquiror's securities, and share exchange tender offers.
Dissenters' rights generally do not apply to shares that are listed on a
national securities exchange certified by the Commissioner of Corporations or
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System.
Under Oregon law, a stockholder is entitled to dissent from, and obtain
payment of the fair value of the stockholder's shares in the event of, any of
the following corporate acts:
(i) consummation of a plan of merger to which the corporation is a party
if stockholder approval is required and the stockholder is entitled to vote
on the merger or if the corporation is a subsidiary that is merged with its
parent;
(ii) consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
stockholder is entitled to vote on the plan;
(iii) consummation of a sale or exchange of all or substantially all of
the property of the corporation other than in the usual and regular course
of business if the stockholder is entitled to vote on the sale or exchange,
unless the sale is for cash pursuant to which all or substantially all of
the net proceeds will be distributed to shareholders within one year;
(iv) an amendment of the Articles of Incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (A)
alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities or (B) reduces the number of shares owned
by the stockholder to a fraction of a share if the fractional share so
created is to be acquired for cash under Oregon law; or
104
(v) any corporate action taken pursuant to a stockholder vote to the
extent the Articles of Incorporation, Bylaws or a resolution of the Board of
Directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
Unless the Articles of Incorporation provide otherwise, dissenters' rights
do not apply to the holders of shares of any class or series if the shares of
the class or series were registered on a national securities exchange or quoted
on the Nasdaq National Market on the record date for the meeting of shareholders
at which the corporate action giving rise to dissenters' rights is to be
approved.
For a description of IMMUNOTHERAPY Shareholders rights of dissent in the
Merger, see "THE MERGER--Rights of Dissenting IMMUNOTHERAPY Shareholders."
ANTI-TAKEOVER PROVISIONS
California law does not contain any "anti-takeover" provisions. California
Law does, however, permit corporations to adopt certain provisions in their
Articles of Incorporation that might discourage unfriendly takeover bids--for
example, requiring the approval of a supermajority of the Board of Directors
and/or the shareholders for certain transactions. The IMMUNOTHERAPY Articles
contain no such "anti-takeover" provisions.
Oregon law regulates the process by which a person may acquire control of
any Oregon-based corporation with 100 or more shareholders without the consent
and cooperation of the Board of Directors. This law would apply to persons
seeking to acquire control of ANTIVIRALS. The law restricts the ability to vote
shares of stock acquired in a transaction that causes the acquiring person to
control at least one-fifth, one-third or one-half of the votes entitled to be
cast in the election of directors. Shares acquired in a control share
acquisition have no voting rights except as authorized by a vote of the
shareholders. Although a corporation may elect not to be governed by this law by
amendment to its Articles of Incorporation or Bylaws, ANTIVIRALS has not made
such an election. In addition, Oregon has enacted a business combination statute
that applies to ANTIVIRALS and whose material terms are discussed below.
Oregon's business combination statute provides that any person who acquires
15% or more of a corporation's voting stock (thereby becoming an "interested
stockholder") may not engage in certain "business combinations" with the target
corporation for a period of three years following the date the person became an
interested stockholder, unless (1) the Board of Directors of the corporation has
approved, prior to that acquisition date, either the business combination or the
transaction that resulted in the person becoming an interested stockholder, (2)
upon consummation of the transaction that resulted in the person becoming an
interested stockholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction is commenced (excluding
shares owned by persons who are both directors and officers and shares owned by
employee stock plans in which participants do not have the right to determine
confidentially whether shares will be tendered in a tender or exchange offer),
or (3) the business combination is approved by the Board of Directors and
authorized by the affirmative vote (at an annual or special meeting and not by
written consent) of at least two-thirds of the outstanding voting stock not
owned by the interested stockholder.
For purposes of determining whether a person is the "owner" of 15% or more
of a corporation's voting stock for the business combination statute, ownership
is defined broadly to include the right, directly or indirectly, to acquire the
stock or to control the voting or disposition of the stock. A "business
combination" is also defined broadly to include (1) mergers and sales or other
dispositions of 10% or more of the assets of a corporation with or to an
interested stockholder, (2) certain transactions resulting in the issuance or
transfer to the interested stockholder of any stock of the corporation or its
subsidiaries, (3) certain transactions which would result in increasing the
proportionate share of the stock of a corporation or its subsidiaries owned by
the interested stockholder, and (4) receipt by the interested stockholder of the
benefit (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges, or other financial benefits.
105
These restrictions placed on interested shareholders by the business
combination statute do not apply under certain circumstances, including, but not
limited to, the following: (1) if the corporation's original Articles of
Incorporation contain a provision expressly electing not to be governed by the
business combination statute, (2) if the corporation, by action of its
shareholders, adopts an amendment to its Bylaws or Articles of Incorporation
expressly electing not to be governed by the business combination statute,
provided that such an amendment is approved by the affirmative vote of not less
than a majority of the outstanding shares entitled to vote and that such an
amendment will not be effective until 12 months after its adoption and will not
apply to any business combination with a person who became an interested
stockholder at or prior to such adoption, or (3) if the corporation does not
have a class of voting stock that is listed on a national securities exchange,
authorized for quotation on an interdealer quotation system of a registered
national securities association, or held by more than 2,000 shareholders.
"BLANK CHECK" PREFERRED STOCK
Both IMMUNOTHERAPY's Articles and ANTIVIRALS' Articles contain a provision
granting "Blank Check" Preferred Stock authority.
REMOVAL OF DIRECTORS
Under California law, shareholders may remove one or more directors of a
corporation without cause subject to certain restrictions and requirements under
California law. In addition, the superior court of the proper county may, at the
suit of shareholders holding at least ten percent (10%) of the number of
outstanding shares of any class, remove from office any director for fraud,
dishonesty or gross abuse of authority or discretion with respect to the
corporation and may bar such removed director from re-election for a prescribed
period.
Under Oregon law, a director may be removed with or without cause unless the
Articles of Incorporation provide that directors may be removed only for cause.
ANTIVIRALS' Articles do not provide that the directors may be removed only for
cause. A director may be removed by the shareholders only at a meeting called
for the purpose of removing the director and the meeting notice must state that
the purpose, or one of the purposes of the meeting, is removal of the director.
CLASSIFIED BOARD OF DIRECTORS
California law permits a listed corporation (that is, a corporation whose
shares are listed on the New York Stock Exchange or American Stock Exchange, or
on NASDAQ if the corporation has at least 800 shareholders) to establish in the
corporation's Articles of Incorporation or Bylaws, a Board of Directors under
which directors can be divided into as many as three (3) classes to serve for
terms of as many as three (3) years. A listed corporation may also amend its
Articles of Incorporation or Bylaws to eliminate cumulative voting. An unlisted
corporation may amend its Articles of Incorporation or Bylaws to provide for a
classified Board of Directors and/or to eliminate cumulative voting when it
becomes a listed corporation. The IMMUNOTHERAPY Articles of Incorporation do not
provide for classes of directors.
Oregon law permits a corporation that has six (6) or more directors to
establish in the corporation's Articles of Incorporation or Bylaws, a Board of
Directors under which directors can be divided into as many as three (3) classes
to serve for terms of as many as three (3) years. If the corporation has
cumulative voting, terms of directors may only be staggered if there are at
least three (3) members of each group of directors. ANTIVIRALS' Articles provide
that if there are six (6) or more directors, they will be divided into two (2)
groups with each group serving a two (2) year term. The ANTIVIRALS Articles
require the affirmative vote of at least 66 2/3% of the outstanding shares to
amend or repeal the staggered terms of directors.
106
SIZE OF BOARD OF DIRECTORS
Both California law and Oregon law provide that the size of a corporation's
Board of Directors may be specified in, or fixed in accordance with, the
corporation's Bylaws. Oregon law also states that the number of directors may
also be specified in the corporation's Articles of Incorporation, and if so
specified, the number may only be changed by an amendment to the Articles of
Incorporation. The Bylaws of IMMUNOTHERAPY provide that the number of directors
shall be five (5). The ANTIVIRALS Bylaws provide that the number of directors
shall be nine (9).
DIVIDENDS AND REPURCHASE OF SHARES
California law generally prohibits a corporation from making a distribution
to its shareholders, unless the amount of the proposed distribution is less than
or equal to the corporation's retained earnings immediately prior thereto or
unless, after giving effect to such distribution, (i) the current assets of the
corporation would be at least equal to its current liabilities, and (ii) the sum
of the corporation's assets would be equal to at least one and one-quarter times
its liabilities. In addition, a corporation may not make any distribution
(including a repurchase of its own shares) if the corporation is, or after the
distribution would be, likely to be unable to pay its debts as they mature.
Under Oregon law, the Board of Directors of a corporation may authorize and
the corporation may make distributions (including dividends) to shareholders
only if after giving effect to the distribution (i) the corporation would be
able to pay its debts as they become due in the usual course of business and
(ii) the corporation's total assets would at least equal the sum of the total
liabilities plus, unless the corporation's Articles of Incorporation permit
otherwise, the amount that would be needed if the corporation were to be
dissolved at the time of the distribution to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
CLASS VOTING
California law and Oregon law provide that the holders of outstanding shares
of a class are entitled to vote as a separate voting group with respect to
amendments to the corporation's Articles of Incorporation that would affect such
class in certain ways, including, without limitation: changing the aggregate
number of authorized shares of such class, except for certain specified
increases (with respect to California law only); effecting an exchange,
reclassification or cancellation of all or part of the shares of such class,
other than a stock split (with respect to California law only); effecting an
exchange or creating a right of exchange of all or part of the shares of another
class into the shares of such class; changing the rights, preferences,
privileges or restrictions of the shares of such class; or creating a new class
of shares having rights, preferences or privileges prior to the shares of such
class.
LEGAL OPINION
The legality of the ANTIVIRALS Common Stock and Warrants to be issued in
connection with the Merger is being passed upon for ANTIVIRALS by Ater Wynne,
LLP, Portland, Oregon.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended for inclusion in the proxy statement and
form of proxy relating to ANTIVIRALS' 1999 annual meeting of Shareholders must
be received by ANTIVIRALS not later than April 12, 1999, pursuant to the proxy
soliciting regulations of the Securities and Exchange Commission (the "SEC"). In
addition, notice of shareholder proposals and nominations for director must be
delivered to the Secretary of ANTIVIRALS not less than sixty (60) days nor more
than ninety (90) days prior to the date of an annual meeting. Nothing in this
paragraph shall be deemed to require ANTIVIRALS to include in its proxy
statement and form of proxy for such meeting any shareholder proposal which does
not meet the requirements of the SEC in effect at the time.
107
EXPERTS
The financial statements of ANTIVIRALS INC. included in this Joint Proxy
Statement/Prospectus as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1997 and 1996, and for the period from inception (July 22,
1980) to December 31, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of IMMUNOTHERAPY Corporation included in this Joint
Proxy Statement/ Prospectus as of December 31, 1997, and the related statement
of operations, stockholders' equity (deficit) and cash flows for the year then
ended have been audited by Arthur Andersen LLP, independent public accountants.
The financial statements of IMMUNOTHERAPY Corporation included in this Joint
Proxy Statement/ Prospectus as of December 31, 1996, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the year then
ended and for the period from October 7, 1993 (inception) through December 31,
1996 (not presented herein), have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, which report
contains an unqualified opinion and includes an explanatory paragraph regarding
the Company's development stage, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
IMMUNOTHERAPY replaced its previous auditors, Deloitte & Touche LLP, with
Arthur Andersen LLP in January 1998. The decision to change accounting firms was
approved by IMMUNOTHERAPY's Board of Directors. There were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope of procedure, which
disagreements, if not resolved to the satisfaction of such accountants, would
have caused them to make reference to the subject matter of the disagreements in
connection with their report. Before engaging Arthur Andersen LLP as its new
independent public accountants, IMMUNOTHERAPY did not previously consult with
them regarding any matters related to the application of accounting principles,
the type of audit opinion that might be rendered on IMMUNOTHERAPY's financial
statements or any other such matters.
108
INDEX TO FINANCIAL STATEMENTS
ANTIVIRALS INC.
Report of Independent Public Accountants........................................... F-2
Balance Sheets..................................................................... F-3
Statements of Operations........................................................... F-4
Statements of Shareholders' Equity................................................. F-5
Statements of Cash Flows........................................................... F-9
Notes to Financial Statements...................................................... F-10
IMMUNOTHERAPY CORPORATION
Report of Independent Public Accountants........................................... F-19
Independent Auditors' Report....................................................... F-20
Balance Sheets..................................................................... F-21
Statements of Operations........................................................... F-22
Statements of Stockholders' Equity................................................. F-23
Statements of Cash Flows........................................................... F-24
Notes to Financial Statements...................................................... F-25
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
ANTIVIRALS INC.
We have audited the accompanying balance sheets of ANTIVIRALS INC. (an
Oregon corporation in the development stage) as of December 31, 1997 and 1996,
and the related statements of operations, shareholders' equity and cash flows
for the years ended December 31, 1997 and 1996 and for the period from inception
(July 22, 1980) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ANTIVIRALS INC. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996 and for the period from inception
(July 22, 1980) to December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
February 17, 1998
F-2
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31,
------------------------------
1996 1997
-------------- -------------- MARCH 31,
1998
--------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 3,011,229 $ 17,638,936 $ 15,790,550
Short-term investments--available for sale..................... 30,000 -- --
Other current assets........................................... 28,255 19,042 549,260
-------------- -------------- --------------
Total Current Assets......................................... 3,069,484 17,657,978 16,339,810
Property and Equipment, net of accumulated depreciation and
amortization of $1,858,359, $2,262,755 and $2,301,158.......... 531,652 438,820 403,660
Patent Costs, net of accumulated amortization of $168,153,
$218,773 and $233,773.......................................... 474,806 553,063 560,825
Deferred Offering Costs.......................................... 143,110 -- --
Deferred Acquisition Costs....................................... -- 102,506 192,201
Other Assets..................................................... 29,847 29,847 29,847
-------------- -------------- --------------
Total Assets................................................. $ 4,248,899 $ 18,782,214 $ 17,526,343
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 153,202 $ 219,083 $ 302,189
Accrued liabilities............................................ 177,605 245,369 179,247
-------------- -------------- --------------
Total Current Liabilities.................................... 330,807 464,452 481,436
Common Stock Subject to Rescission, $.0001 par value, 1,292,973,
zero and zero issued and outstanding........................... 3,121,965 -- --
Shareholders' Equity:
Preferred Stock, $.0001 par value, 2,000,000 shares authorized;
none issued and outstanding.................................. -- -- --
Common stock, $.0001 par value, 50,000,000 shares authorized;
7,486,790, 11,125,617 and 11,158,951 issued and
outstanding.................................................. 749 1,113 1,116
Additional paid-in capital..................................... 13,220,861 34,358,122 34,510,122
Deficit accumulated during the development stage............... (12,425,483) (16,041,473) (17,466,331)
-------------- -------------- --------------
Total Shareholders' Equity................................... 796,127 18,317,762 17,044,907
-------------- -------------- --------------
Total Liabilities and Shareholders' Equity................... $ 4,248,899 $ 18,782,214 $ 17,526,343
-------------- -------------- --------------
-------------- -------------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
YEAR ENDED DECEMBER
31, JULY 22, 1980
---------------------- (INCEPTION) TO
1996 1997 DECEMBER 31, 1997
---------- ---------- ----------------- THREE MONTHS ENDED MARCH JULY 22, 1980
31, (INCEPTION) TO
------------------------ MARCH 31, 1998
1997 1998 --------------
----------- ----------- (UNAUDITED)
(UNAUDITED) (UNAUDITED)
Revenues, from grants and research
contracts....................... $ 27,227 $ 14,345 $ 703,842 $ -- $ 5,650 $ 709,492
---------- ---------- ----------------- ----------- ----------- --------------
Operating expenses:
Research and development........ 1,729,554 2,737,172 11,748,746 451,723 1,294,264 13,043,010
General and administrative...... 613,811 1,282,214 5,831,796 170,028 306,965 6,138,761
---------- ---------- ----------------- ----------- ----------- --------------
2,343,365 4,019,386 17,580,542 621,751 1,601,229 19,181,771
---------- ---------- ----------------- ----------- ----------- --------------
Other Income:
Interest income, net............ 132,026 389,051 738,477 29,055 170,721 909,198
Realized gain on sale of
short-term investments........ 96,750 -- 96,750 -- -- 96,750
---------- ---------- ----------------- ----------- ----------- --------------
228,776 389,051 835,227 29,055 170,721 1,005,948
---------- ---------- ----------------- ----------- ----------- --------------
Net loss.......................... $(2,087,362) $(3,615,990) $ (16,041,473) $(592,696) ($1,424,858) $(17,466,331)
---------- ---------- ----------------- ----------- ----------- --------------
---------- ---------- ----------------- ----------- ----------- --------------
Net loss per share--basic and
diluted......................... $ (0.25) $ (0.36) $ (0.07) $ (0.13)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average number of common
shares outstanding for computing
basic and diluted earnings per
share........................... 8,233,548 10,078,962 8,233,548 11,147,840
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-4
UNREALIZED DEFICIT
GAIN ON ACCUMULATED
COMMON STOCK ADDITIONAL AVAILABLE- DURING THE
PARTNERSHIP ---------------------- PAID-IN FOR-SALE DEVELOPMENT
UNITS SHARES AMOUNT CAPITAL SECURITIES STAGE
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT JULY 22, 1980 (Inception) No
activity................................ -- -- $ -- $ -- $ -- $ --
BALANCE AT OCTOBER 31, 1980............... -- -- -- -- -- --
Issuance of partnership units and common
stock in October 1981 for equipment
and supplies valued at $3,500 and
technology............................ 1,000 1,666,667 167 3,333 -- --
Issuance of partnership units and common
stock for cash, $500 per unit......... 150 250,000 25 75,055 -- --
Issuance of partnership units for
consulting services, $500 per unit.... 10 -- -- 5,000 -- --
Issuance of common stock in connection
with financing agreement.............. -- 33,333 3 7 -- --
Net loss................................ -- -- -- -- -- (9,224)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1981............... 1,160 1,950,000 195 83,395 -- (9,224)
Issuance of common stock for consulting
services.............................. -- 54,600 5 11 -- --
Net loss................................ -- -- -- -- -- (57,962)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1982............... 1,160 2,004,600 200 83,406 -- (67,186)
Issuance of partnership units and common
stock for cash, $550 per unit......... 60 100,000 10 33,020 -- --
Issuance of common stock for consulting
services.............................. -- 21,733 2 5 -- --
Net loss................................ -- -- -- -- -- (27,475)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1983............... 1,220 2,126,333 212 116,431 -- (94,661)
Issuance of partnership units and common
stock for cash, $600 per unit......... 10 16,667 2 6,003 -- --
Issuance of partnership units and common
stock for consulting services and
$1,000 cash, $550 to $600 per unit.... 20 16,667 2 11,503 -- --
Issuance of common stock for consulting
services.............................. -- 2,533 -- 1 -- --
Issuance of common stock for donation to
charitable organizations.............. -- 100,000 10 20 -- --
Net loss................................ -- -- -- -- -- (21,463)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1984............... 1,250 2,262,200 226 133,958 -- (116,124)
Issuance of partnership units and common
stock in December 1984 for
technology............................ 1,000 166,667 16 (16) -- --
Issuance of partnership units and common
stock for cash, $50 to $100 per
unit.................................. 460 78,333 8 23,515 -- --
Issuance of partnership units for cash,
$50 to $550 per unit.................. 140 -- -- 17,000 -- --
Issuance of common stock for consulting
services.............................. -- 6,733 1 1 -- --
Net loss................................ -- -- -- -- -- (8,469)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1985............... 2,850 2,513,933 251 174,458 -- (124,593)
Issuance of partnership units and common
stock for cash, $50 to $500 per
unit.................................. 90 105,000 11 31,521 -- --
Issuance of common stock for consulting
services.............................. -- 8,500 1 1 -- --
Net loss................................ -- -- -- -- -- (32,353)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1986............... 2,940 2,627,433 263 205,980 -- (156,946)
TOTAL
SHAREHOLDERS'
EQUITY
-------------
BALANCE AT JULY 22, 1980 (Inception) No
activity................................ $ --
BALANCE AT OCTOBER 31, 1980............... --
Issuance of partnership units and common
stock in October 1981 for equipment
and supplies valued at $3,500 and
technology............................ 3,500
Issuance of partnership units and common
stock for cash, $500 per unit......... 75,080
Issuance of partnership units for
consulting services, $500 per unit.... 5,000
Issuance of common stock in connection
with financing agreement.............. 10
Net loss................................ (9,224)
-------------
BALANCE AT OCTOBER 31, 1981............... 74,366
Issuance of common stock for consulting
services.............................. 16
Net loss................................ (57,962)
-------------
BALANCE AT OCTOBER 31, 1982............... 16,420
Issuance of partnership units and common
stock for cash, $550 per unit......... 33,030
Issuance of common stock for consulting
services.............................. 7
Net loss................................ (27,475)
-------------
BALANCE AT OCTOBER 31, 1983............... 21,982
Issuance of partnership units and common
stock for cash, $600 per unit......... 6,005
Issuance of partnership units and common
stock for consulting services and
$1,000 cash, $550 to $600 per unit.... 11,505
Issuance of common stock for consulting
services.............................. 1
Issuance of common stock for donation to
charitable organizations.............. 30
Net loss................................ (21,463)
-------------
BALANCE AT OCTOBER 31, 1984............... 18,060
Issuance of partnership units and common
stock in December 1984 for
technology............................ --
Issuance of partnership units and common
stock for cash, $50 to $100 per
unit.................................. 23,523
Issuance of partnership units for cash,
$50 to $550 per unit.................. 17,000
Issuance of common stock for consulting
services.............................. 2
Net loss................................ (8,469)
-------------
BALANCE AT OCTOBER 31, 1985............... 50,116
Issuance of partnership units and common
stock for cash, $50 to $500 per
unit.................................. 31,532
Issuance of common stock for consulting
services.............................. 2
Net loss................................ (32,353)
-------------
BALANCE AT OCTOBER 31, 1986............... 49,297
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-5
UNREALIZED DEFICIT
GAIN ON ACCUMULATED
COMMON STOCK ADDITIONAL AVAILABLE- DURING THE
PARTNERSHIP ---------------------- PAID-IN FOR-SALE DEVELOPMENT
UNITS SHARES AMOUNT CAPITAL SECURITIES STAGE
----------- --------- ----------- ---------- ----------- ------------
TOTAL
SHAREHOLDERS'
EQUITY
-------------
BALANCE AT OCTOBER 31, 1986............... 2,940 2,627,433 $ 263 $ 205,980 $ -- $ (156,946)
Issuance of partnership units and common
stock for cash, $500 per unit......... 20 33,333 3 10,007 -- --
Issuance of partnership units and
warrants to purchase 400,000 shares of
common stock for cash, $500 to $2,500
per unit.............................. 80 -- -- 100,000 -- --
Issuance of common stock for consulting
services.............................. -- 28,533 3 6 -- --
Net loss................................ -- -- -- -- -- (71,616)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1987............... 3,040 2,689,299 269 315,993 -- (228,562)
Issuance of partnership units and common
stock for cash, $500 per unit......... 100 166,667 17 50,033 -- --
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 20 33,333 3 25,007 -- --
Issuance of partnership units for cash,
$50 per unit.......................... 20 -- -- 1,000 -- --
Issuance of partnership units and
warrants to purchase 400,000 shares of
common stock for cash, $1,250 per
unit.................................. 80 -- -- 100,000 -- --
Compensation expense related to issuance
of warrants for partnership units..... -- -- -- 10,000 -- --
Issuance of common stock for consulting
services and employee compensation.... -- 47,014 5 9 -- --
Net loss................................ -- -- -- -- -- (266,194)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1988............... 3,260 2,936,313 294 502,042 -- (494,756)
Exercise of warrants for common stock... -- 141,667 14 28 -- --
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 10 16,667 1 12,504 -- --
Issuance of partnership units and
warrants to purchase 800,000 shares of
common stock for cash, $1,250 per
unit.................................. 160 -- -- 200,000 -- --
Issuance of common stock for consulting
services and employee compensation.... -- 17,733 2 4 -- --
Compensation expense related to issuance
of warrants for partnership units..... -- -- -- 2,500 -- --
Net loss................................ -- -- -- -- -- (243,926)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1989............... 3,430 3,112,380 311 717,078 -- (738,682)
Exercise of warrants for common stock... -- 33,333 3 7 -- --
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 74 123,334 12 92,525 -- --
Issuance of partnership unit for cash,
$5,000 per unit....................... 1 -- -- 5,000 -- --
Issuance of common stock for cash, $4.56
per share............................. -- 1,100 -- 5,000 -- --
Issuance of partnership units and
warrants to purchase 200,000 shares of
common stock for cash, $1,250 per
unit.................................. 40 -- -- 50,000 -- --
Issuance of common stock for consulting
services and employee compensation.... -- 11,400 2 51,678 -- --
Compensation expense related to issuance
of warrants for partnership units..... -- -- -- 40,000 -- --
Exercise of warrant for partnership
units................................. 10 -- -- 12,500 -- --
Net loss................................ -- -- -- -- -- (351,772)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1990............... 3,555 3,281,547 328 973,788 -- (1,090,454)
BALANCE AT OCTOBER 31, 1986............... $ 49,297
Issuance of partnership units and common
stock for cash, $500 per unit......... 10,010
Issuance of partnership units and
warrants to purchase 400,000 shares of
common stock for cash, $500 to $2,500
per unit.............................. 100,000
Issuance of common stock for consulting
services.............................. 9
Net loss................................ (71,616)
-------------
BALANCE AT OCTOBER 31, 1987............... 87,700
Issuance of partnership units and common
stock for cash, $500 per unit......... 50,050
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 25,010
Issuance of partnership units for cash,
$50 per unit.......................... 1,000
Issuance of partnership units and
warrants to purchase 400,000 shares of
common stock for cash, $1,250 per
unit.................................. 100,000
Compensation expense related to issuance
of warrants for partnership units..... 10,000
Issuance of common stock for consulting
services and employee compensation.... 14
Net loss................................ (266,194)
-------------
BALANCE AT OCTOBER 31, 1988............... 7,580
Exercise of warrants for common stock... 42
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 12,505
Issuance of partnership units and
warrants to purchase 800,000 shares of
common stock for cash, $1,250 per
unit.................................. 200,000
Issuance of common stock for consulting
services and employee compensation.... 6
Compensation expense related to issuance
of warrants for partnership units..... 2,500
Net loss................................ (243,926)
-------------
BALANCE AT OCTOBER 31, 1989............... (21,293)
Exercise of warrants for common stock... 10
Issuance of partnership units and common
stock for cash, $1,250 per unit....... 92,537
Issuance of partnership unit for cash,
$5,000 per unit....................... 5,000
Issuance of common stock for cash, $4.56
per share............................. 5,000
Issuance of partnership units and
warrants to purchase 200,000 shares of
common stock for cash, $1,250 per
unit.................................. 50,000
Issuance of common stock for consulting
services and employee compensation.... 51,680
Compensation expense related to issuance
of warrants for partnership units..... 40,000
Exercise of warrant for partnership
units................................. 12,500
Net loss................................ (351,772)
-------------
BALANCE AT OCTOBER 31, 1990............... (116,338)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-6
UNREALIZED DEFICIT
GAIN ON ACCUMULATED
COMMON STOCK ADDITIONAL AVAILABLE- DURING THE
PARTNERSHIP ---------------------- PAID-IN FOR-SALE DEVELOPMENT
UNITS SHARES AMOUNT CAPITAL SECURITIES STAGE
----------- --------- ----------- ---------- ----------- ------------
TOTAL
SHAREHOLDERS'
EQUITY
-------------
BALANCE AT OCTOBER 31, 1990............... 3,555 3,281,547 $ 328 $ 973,788 $ -- $(1,090,454)
Issuance of partnership units for cash,
$5,000 per unit....................... 23.5 -- -- 117,500 -- --
Exercise of warrants for partnership
units and common stock................ 1 1,100 -- 1,250 -- --
Issuance of common stock for cash, $4.56
per share............................. -- 24,750 3 112,505 -- --
Compensation expense related to issuance
of warrants for common stock.......... -- -- -- 1,520 -- --
Issuance of common stock for consulting
services, $4.56 per share............. -- 1,657 -- 7,547 -- --
Common stock subject to rescission...... -- (7,127) (1) (32,499) -- --
Net loss................................ -- -- -- -- -- (274,844)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT OCTOBER 31, 1991............... 3,579.5 3,301,927 330 1,181,611 -- (1,365,298)
Issuance of partnership units for cash,
$5,000 per unit....................... 15.5 -- -- 77,500 -- --
Issuance of common stock for cash, $4.56
per share............................. -- 17,050 2 77,498 -- --
Compensation expense related to issuance
of warrants for common stock............ -- -- -- 7,500 -- --
Common stock subject to rescission...... -- (32,486) (3) (148,135) -- --
Net loss................................ -- -- -- -- -- (91,588)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1991.............. 3,595 3,286,491 329 1,195,974 -- (1,456,886)
Issuance of partnership units for cash,
$5,000 per unit....................... 30.5 -- -- 152,500 -- --
Exercise of warrants for partnership
units and common stock................ 22 2,200 -- 28,750 -- --
Conversion of debt into common stock and
partnership units..................... 9 9,634 1 87,859 -- --
Issuance of common stock for cash, $4.56
per share............................. -- 868,906 87 3,954,625 -- --
Issuance of common stock for consulting
services, $4.56 per share............. -- 22,872 2 104,167 -- --
Compensation expense related to issuance
of warrants for common stock and
partnership units..................... -- -- -- 262,833 -- --
Common stock subject to rescission...... -- (410,099) (41) (1,870,008) -- --
Net loss................................ -- -- -- -- -- (1,731,138)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1992.............. 3,656.5 3,780,004 378 3,916,700 -- (3,188,024)
Exercise of warrants for partnership
units................................. 9 -- -- 4,500 -- --
Issuance of common stock in exchange for
partnership units..................... (1,809.5) 1,632,950 163 (163) -- --
Withdrawal of partnership net assets
upon conveyance of technology......... (1,856) -- -- (176,642) -- --
Issuance of common stock for cash and
short-term investments, $4.95 per
share................................. -- 507,084 50 2,510,014 -- --
Exercise of warrants for common stock... -- 3,844 1 9,999 -- --
Common stock subject to rescission...... -- (808,902) (81) (901,119) -- --
Net loss................................ -- -- -- -- -- (2,346,939)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1993.............. -- 5,114,980 511 5,363,289 -- (5,534,963)
Issuance of common stock for cash, $4.95
per share............................. -- 565,216 57 2,797,761 -- --
Exercise of warrants for common stock... -- 24,667 2 122,098 -- --
Issuance of common stock for consulting
services, $4.95 per share............. -- 151 -- 749 -- --
Unrealized gain on available-for-sale
securities............................ -- -- -- -- 61,000 --
Common stock subject to rescission...... -- (34,359) (3) (170,075) -- --
Net loss................................ -- -- -- -- -- (2,246,272)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1994.............. -- 5,670,655 567 8,113,822 61,000 (7,781,235)
BALANCE AT OCTOBER 31, 1990............... $ (116,338)
Issuance of partnership units for cash,
$5,000 per unit....................... 117,500
Exercise of warrants for partnership
units and common stock................ 1,250
Issuance of common stock for cash, $4.56
per share............................. 112,508
Compensation expense related to issuance
of warrants for common stock.......... 1,520
Issuance of common stock for consulting
services, $4.56 per share............. 7,547
Common stock subject to rescission...... (32,500)
Net loss................................ (274,844)
-------------
BALANCE AT OCTOBER 31, 1991............... (183,357)
Issuance of partnership units for cash,
$5,000 per unit....................... 77,500
Issuance of common stock for cash, $4.56
per share............................. 77,500
Compensation expense related to issuance
of warrants for common stock............ 7,500
Common stock subject to rescission...... (148,138)
Net loss................................ (91,588)
-------------
BALANCE AT DECEMBER 31, 1991.............. (260,583)
Issuance of partnership units for cash,
$5,000 per unit....................... 152,500
Exercise of warrants for partnership
units and common stock................ 28,750
Conversion of debt into common stock and
partnership units..................... 87,860
Issuance of common stock for cash, $4.56
per share............................. 3,954,712
Issuance of common stock for consulting
services, $4.56 per share............. 104,169
Compensation expense related to issuance
of warrants for common stock and
partnership units..................... 262,833
Common stock subject to rescission...... (1,870,049)
Net loss................................ (1,731,138)
-------------
BALANCE AT DECEMBER 31, 1992.............. 729,054
Exercise of warrants for partnership
units................................. 4,500
Issuance of common stock in exchange for
partnership units..................... --
Withdrawal of partnership net assets
upon conveyance of technology......... (176,642)
Issuance of common stock for cash and
short-term investments, $4.95 per
share................................. 2,510,064
Exercise of warrants for common stock... 10,000
Common stock subject to rescission...... (901,200)
Net loss................................ (2,346,939)
-------------
BALANCE AT DECEMBER 31, 1993.............. (171,163)
Issuance of common stock for cash, $4.95
per share............................. 2,797,818
Exercise of warrants for common stock... 122,100
Issuance of common stock for consulting
services, $4.95 per share............. 749
Unrealized gain on available-for-sale
securities............................ 61,000
Common stock subject to rescission...... (170,078)
Net loss................................ (2,246,272)
-------------
BALANCE AT DECEMBER 31, 1994.............. 394,154
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-7
UNREALIZED DEFICIT
GAIN ON ACCUMULATED
COMMON STOCK ADDITIONAL AVAILABLE- DURING THE
PARTNERSHIP ---------------------- PAID-IN FOR-SALE DEVELOPMENT
UNITS SHARES AMOUNT CAPITAL SECURITIES STAGE
----------- --------- ----------- ---------- ----------- ------------
TOTAL
SHAREHOLDERS'
EQUITY
-------------
BALANCE AT DECEMBER 31, 1994.............. -- 5,670,655 $ 567 $8,113,822 $ 61,000 $(7,781,235)
Issuance of common stock for cash, $6.00
per share............................... -- 146,183 15 862,674 -- --
Compensation expense related to issuance
of warrants for common stock............ -- -- -- 213,000 -- --
Unrealized gain on available-for-sale
securities.............................. -- -- -- -- 35,750 --
Net loss.................................. -- -- -- -- -- (2,556,886)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1995.............. -- 5,816,838 582 9,189,496 96,750 (10,338,121)
Exercise of warrants for common stock..... -- 957,452 96 (96) -- --
Issuance of common stock for cash, $6.00
per share............................... -- 712,500 71 4,031,461 -- --
Liquidation of available-for-sale
securities.............................. -- -- -- -- (96,750) --
Net loss.................................. -- -- -- -- -- (2,087,362)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1996.............. -- 7,486,790 749 13,220,861 -- (12,425,483)
Exercise of warrants for common stock..... -- 50,000 5 5,010 -- --
Exercise of options for common stock...... -- 59,903 6 281,804 -- --
Issuance of common stock and warrants for
cash, $9.00 per unit, net of offering
costs................................... -- 2,300,000 230 18,017,400 -- --
Reclassified upon completion of rescission
offering................................ -- 1,228,924 123 2,833,047 -- --
Net loss.................................. -- -- -- -- -- (3,615,990)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1997.............. -- 11,125,617 $ 1,113 $34,358,122 $ -- ($16,041,473)
Exercise of options for common stock...... -- 33,334 3 152,000 -- --
Net loss.................................. -- -- -- -- -- (1,424,858)
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT MARCH 31, 1998 (Unaudited)..... -- 11,158,951 $ 1,116 $34,510,122 $ -- ($17,466,331)
----------- --------- ----------- ---------- ----------- ------------
----------- --------- ----------- ---------- ----------- ------------
BALANCE AT DECEMBER 31, 1994.............. $ 394,154
Issuance of common stock for cash, $6.00
per share............................... 862,689
Compensation expense related to issuance
of warrants for common stock............ 213,000
Unrealized gain on available-for-sale
securities.............................. 35,750
Net loss.................................. (2,556,886)
-------------
BALANCE AT DECEMBER 31, 1995.............. (1,051,293)
Exercise of warrants for common stock..... --
Issuance of common stock for cash, $6.00
per share............................... 4,031,532
Liquidation of available-for-sale
securities.............................. (96,750)
Net loss.................................. (2,087,362)
-------------
BALANCE AT DECEMBER 31, 1996.............. 796,127
Exercise of warrants for common stock..... 5,015
Exercise of options for common stock...... 281,810
Issuance of common stock and warrants for
cash, $9.00 per unit, net of offering
costs................................... 18,017,630
Reclassified upon completion of rescission
offering................................ 2,833,170
Net loss.................................. (3,615,990)
-------------
BALANCE AT DECEMBER 31, 1997.............. $18,317,762
Exercise of options for common stock...... 152,003
Net loss.................................. (1,424,858)
-------------
BALANCE AT MARCH 31, 1998 (Unaudited)..... $17,044,907
-------------
-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-8
YEAR ENDED DECEMBER FOR THE PERIOD
31, JULY 22, 1980 THREE MONTHS ENDED MARCH FOR THE PERIOD
---------------------- (INCEPTION) TO 31, JULY 22, 1980
1996 1997 DECEMBER 31, 1997 ------------------------ (INCEPTION) TO
---------- ---------- ----------------- 1997 1998 MARCH 31, 1998
----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows from operating
activities:
Net loss.......................... $(2,087,362) $(3,615,990) $ (16,041,473) $(592,696) $(1,424,858) $(17,466,331)
Adjustments to reconcile net
loss to net cash flows used in
operating activities:
Depreciation and
amortization................ 520,300 467,250 2,517,107 132,016 56,673 2,573,780
Realized gain on sale of
short-term
investments-available for
sale........................ (96,750) -- (96,750) -- -- (96,750)
Compensation expense on
issuance of common stock and
partnership units........... -- -- 182,392 -- -- 182,392
Compensation expense on
issuance of options and
warrants to purchase common
stock or partnership
units....................... -- -- 562,353 -- -- 562,353
Conversion of interest accrued
to common stock............. -- -- 7,860 -- -- 7,860
(Increase) decrease in:
Other current assets........ (21,019) 9,213 (19,042) -- (530,218) (549,260)
Other assets................ -- -- (29,847) -- -- (29,847)
Net increase in accounts
payable and accrued
liabilities................. 76,743 133,645 464,452 43,280 16,984 481,436
---------- ---------- ----------------- ----------- ----------- --------------
Net cash used in operating
activities.............. (1,608,088) (3,005,882) (12,452,948) (417,400) (1,881,419) (14,334,367)
---------- ---------- ----------------- ----------- ----------- --------------
Cash flows from investing
activities:
Proceeds from sale or redemption
of short-term investments..... 182,750 30,000 247,750 30,000 -- 247,750
Purchase of property and
equipment..................... (65,877) (323,798) (2,737,154) (55,337) (6,513) (2,743,667)
Patent costs.................... (66,870) (128,877) (771,836) (23,649) (22,762) (794,598)
Deferred acquisition costs...... -- (102,506) (102,506) -- (89,695) (192,201)
---------- ---------- ----------------- ----------- ----------- --------------
Net cash provided by (used
in) investing
activities.............. 50,003 (525,181) (3,363,746) (48,986) (118,970) (3,482,716)
---------- ---------- ----------------- ----------- ----------- --------------
Cash flows from financing
activities:
Proceeds from sale of common
stock, warrants, and
partnership units, net of
offering costs, and exercise
of options.................... 3,888,422 18,447,565 33,841,067 (239,492) 152,003 33,993,070
Buyback of common stock pursuant
to rescission offering........ -- (288,795) (288,795) -- -- (288,795)
Withdrawal of partnership net
assets........................ -- -- (176,642) -- -- (176,642)
Issuance of convertible debt.... -- -- 80,000 -- -- 80,000
---------- ---------- ----------------- ----------- ----------- --------------
Net cash provided by (used
in) financing
activities.............. 3,888,422 18,158,770 33,455,630 (239,492) 152,003 33,607,633
---------- ---------- ----------------- ----------- ----------- --------------
Increase (decrease) in cash and
cash equivalents................ 2,330,337 14,627,707 17,638,936 (705,878) (1,848,386) 15,790,550
Cash and cash equivalents:
Beginning of period............. 680,892 3,011,229 -- 3,011,229 17,638,936 --
---------- ---------- ----------------- ----------- ----------- --------------
End of period................... $3,011,229 $17,638,936 $ 17,638,936 $2,305,351 $15,790,550 $ 15,790,550
---------- ---------- ----------------- ----------- ----------- --------------
---------- ---------- ----------------- ----------- ----------- --------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-9
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
ANTIVIRALS INC., (the Company) was incorporated in the State of Oregon on
July 22, 1980. The mission of the Company is to develop and commercialize
improved therapeutic products based upon antisense and drug delivery technology.
Through May 1993, the financial statements include the combined accounts of
the Company and ANTI-GENE DEVELOPMENT GROUP, a limited partnership (AGDG or the
Partnership) founded in 1981 and registered in the State of Oregon.
Substantially all income generated and proceeds from the Partnership unit sales
have been paid to the Company under the terms of research and development
contracts entered into by the Partnership and the Company. Significant
transactions between the Company and the Partnership have been eliminated.
In March 1993, the Company offered to all partners in the Partnership the
opportunity to exchange their partnership units or warrants to purchase
partnership units (unit warrants) for common stock or warrants to purchase
common stock. Under the terms of the offer, which was completed May 1, 1993,
each partner could elect to exchange each unit held or unit warrant held for
1,100 shares of common stock or warrants to purchase 1,100 shares of common
stock of the Company, respectively. One partner exchanged 325 partnership units
for warrants to purchase 357,500 shares of common stock. Total shares and
warrants to purchase shares issued in the exchange offer were 1,632,950 and
381,700, respectively.
Effective May 19, 1993, the Company and the Partnership entered into a
Technology Transfer Agreement wherein the Partnership conveyed all intellectual
property in its control to the Company. As part of the conveyance, the Company
tendered to the Partnership for liquidation all partnership units received
pursuant to the exchange offer and received a 49.37 percent undivided interest
in the intellectual property. The Company then purchased the remaining undivided
interest in the intellectual property for rights to payments of 2 percent of
gross revenues from sales of products, which would, in the absence of the
Technology Transfer Agreement, infringe a valid claim under any patent
transferred to the Company. The Company also granted to the Partnership a
royalty-bearing license to make, use and sell small quantities of product
derived from the Intellectual Property for research purposes only.
The remaining net assets of the Partnership, $176,642 of cash, were no
longer combined with those of the Company in May 1993. Under the terms of the
Technology Transfer Agreement, the Partnership ceased active sales of
partnership units and income generating activities and no longer will enter into
research and development contracts with the Company. The Partnership currently
exists primarily for the purpose of collecting potential future payments from
the Company as called for in the Technology Transfer Agreement.
Beginning in 1991, the Company changed its fiscal year from a fiscal year
ending on October 31, to a calendar year. The new fiscal year was adopted
prospectively.
The Company is in the development stage. Since its inception in 1980 through
December 31, 1997, the Company has incurred losses of approximately $16 million,
substantially all of which resulted from expenditures related to research and
development and general and administrative expenses. The Company has not
generated any material revenue from product sales to date, and there can be no
assurance that revenues from product sales will be achieved. Moreover, even if
the Company does achieve revenues from product sales, the Company nevertheless
expects to incur operating losses over the next several years. The financial
statements have been prepared assuming that the Company will continue as a going
concern. The Company's ability to achieve a profitable level of operations in
the future will depend in large part on its
F-10
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS: (CONTINUED)
completing product development of its antisense and/or drug delivery products,
obtaining regulatory approvals for such products and bringing these products to
market. During the period required to develop these products, the Company will
require substantial financing. There is no assurance that such financing will be
available when needed or that the Company's planned products will be
commercially successful. If necessary, the Company's management will curtail
expenditures in an effort to conserve operating funds. The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in the development and
commercialization of new pharmaceutical products, competitive factors in the
marketplace as well as the burdensome regulatory environment in which the
Company operates. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
SHORT-TERM SECURITIES-AVAILABLE-FOR-SALE
The Company accounts for its securities under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). In accordance with SFAS 115, the Company has
classified its investment securities as available-for-sale and, accordingly,
such investment securities are stated on the balance sheet at their fair market
value, which approximated cost at December 31, 1996. These short-term securities
included state government obligations with a cost, which approximated fair
market value, of $30,000 at December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, generally five years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or the estimated useful life of the asset.
PATENT COSTS
Patent costs consist primarily of legal and filing fees incurred to file
patents on proprietary technology developed by the Company. Patent costs are
amortized on a straight-line basis over the shorter of the estimated economic
lives or the legal lives of the patents, generally 17 years.
F-11
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are recorded based on
the tax effected difference between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes, referred to as temporary
differences, using enacted marginal income tax rates.
NET LOSS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS
are computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128. Given that
the Company is in a loss position, there is no difference between basic EPS and
diluted EPS since the common stock equivalents would be antidilutive.
All earnings per share amounts in the following table are presented and,
where necessary, restated to conform to the SFAS 128 requirement.
YEAR ENDED DECEMBER 31, 1996 1997
- ---------------------------------------------------------------- ------------- -------------
Net loss........................................................ $ (2,087,362) $ (3,615,990)
Weighted average number of shares of common stock and common
stock equivalents outstanding:
Weighted average number of common shares outstanding for
computing basic earnings per share............................ 8,233,548 10,078,962
Dilutive effect of warrants and stock options after application
of the treasury stock method.................................. * *
------------- -------------
Weighted average number of common shares outstanding for
computing diluted earnings per share.......................... 8,233,548 10,078,962
------------- -------------
------------- -------------
Net loss per share--basic and diluted........................... $ (0.25) $ (0.36)
------------- -------------
------------- -------------
* The following common stock equivalents are excluded from earnings per share
calculation as their effect would have been antidilutive:
YEAR ENDED DECEMBER 31, 1996 1997
- -------------------------------------------------------------------- ---------- ----------
Warrants and stock options.......................................... 1,551,272 4,073,309
F-12
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principals have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These unaudited financial statements reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations, changes in
cash flows and financial position as of and the for periods presented. These
unaudited financial statements should be read in conjunction with the audited
financial statements and related notes thereto, appearing elsewhere herein. The
results of the interim periods presented are not necessarily indicative of
results to be expected for a full year.
3. SHAREHOLDERS' EQUITY:
In March 1996, the Company commenced a private offering wherein 712,500
shares of common stock were sold for net proceeds of $4,031,532, which included
warrants to purchase 60,201 shares of common stock at $9.00 per share. These
warrants are exercisable through the earlier of five years from issuance or
three years from the filing for an initial public offering.
In November 1996, the shareholders approved a reverse split of the Company's
outstanding Common Stock on the basis of one share for each three shares of the
then-outstanding common stock. The share information in the accompanying
financial statements has been retroactively restated to reflect the reverse
split. The Common Stock will continue to have $.0001 par value. The shareholders
approved the authorization of a new class of preferred stock which includes
2,000,000 shares at $.0001 par value.
In May 1997, as a condition to its planned initial public offering, the
Company offered to holders of 1,292,973 shares of its common stock, the right to
rescind their purchase of shares of the Company's common stock. In July 1997,
the Company completed its rescission offering to certain shareholders. In this
offering, the Company repurchased 64,049 shares of its common stock for payments
totaling $408,419, which included interest expense of $119,624.
In June 1997, in its initial public offering, the Company sold 2,000,000
units (the Units), each Unit consisting of one share of the Company's common
stock, and one warrant to purchase one share of common stock for $13.50. The
Units separated immediately following issuance and now trade only as separate
securities. Net proceeds of $15,555,230 were received by the Company.
In July 1997, the Company's Underwriters exercised their over-allotment
option and purchased 300,000 additional Units at $9 per Unit, the initial public
offering price. Proceeds of $2,462,400 were received by the Company.
At December 31, 1997, the Company had one stock option plan, the 1992 Stock
Incentive Plan (the Plan) which provides for the issuance of incentive stock
options to its employees and nonqualified stock options, stock appreciation
rights and bonus rights to employees, directors of the Company and consultants.
The Company has reserved 1,333,333 shares of common stock for issuance under the
Plan. Options
F-13
ANTIVIRALS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SHAREHOLDERS' EQUITY: (CONTINUED)
issued under the Plan generally vest ratably over four years and expire five to
ten years from the date of grant.
During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for an employee stock option and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by Accounting Principles Board Opinion No.
25 (APB 25). Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income (loss) and, if presented, earnings (loss)
per share, as if the fair value based method of accounting defined in SFAS 123
had been adopted. The Company has elected to account for its stock-based
compensation plans under APB 25; however, the Company has computed, for pro
forma disclosure purposes, the value of all options granted during 1997 and 1996
using the Black-Scholes options pricing model as prescribed by SFAS 123 using
the following weighted average assumptions for grants:
YEAR ENDED DECEMBER 31, 1996 1997
- -------------------------------------------------------------------- ------------ ---------
Risk-free interest rate............................................. 6% 6.25%
Expected dividend yield............................................. 0% 0%
Expected lives...................................................... 4 - 5 Years 6 Years
Expected volatility................................................. 70% 56%
Using the Black-Scholes methodology, the total value of options granted
during 1996 and 1997 was $148,866 and $1,984,033, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (typically
four years). The weighted average fair value of options granted during 1996 and
1997 was $3.72 and $3.95, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net income and net income per share
would approximate the pro forma disclosures below:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1997
---------------------------- ----------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ------------- ------------- -------------
Net loss.............................................. $ (2,087,362) $ (2,185,676) $ (3,615,990) $ (4,949,440)
Net loss per share--basic and diluted................. $ (0.25) $ (0.27) $ (0.36) $ (0.49)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to January
1, 1995, and additional awards are anticipated in future years.
F-14
ANTIVIRALS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3. SHAREHOLDERS' EQUITY: (CONTINUED)
A summary of the status of the Company's stock option plans and changes are
presented in the following table:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997
--------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- --------------- ---------- ---------------
Options outstanding at beginning of year.................. 1,109,839 $ 4.69 1,123,838 $ 4.73
Granted................................................... 40,000 6.00 502,361 6.51
Exercised................................................. -- -- (59,903) 4.70
Canceled.................................................. (26,001) 4.98 (326,087) 5.29
---------- ----- ---------- -----
Options outstanding at end of year........................ 1,123,838 4.73 1,240,209 5.30
---------- ----- ---------- -----
---------- ----- ---------- -----
Exercisable at end of year................................ 960,504 $ 4.67 980,206 $ 5.01
---------- ----- ---------- -----
---------- ----- ---------- -----
At December 31, 1997, 33,221 shares were available for future grant.
The following table summarizes information about stock options outstanding
at December 31, 1997:
OUTSTANDING WEIGHTED AVERAGE
SHARES AT REMAINING
DECEMBER 31, CONTRACTUAL LIFE EXERCISABLE
EXERCISE PRICE 1997 (YEARS) OPTIONS
- --------------- ------------ ------------------- -----------
$ 4.56 643,497 4.49 643,497
4.95 148,510 6.46 115,176
6.00 80,116 7.79 16,780
6.38 239,753 9.35 204,753
6.69 100,000 9.70 --
8.13 28,333 9.84 --
The Company has also issued warrants for the purchase of common stock in
conjunction with financing and compensation arrangements. The value of warrants
granted in 1996 and 1997 have not been considered in the fair value based method
of accounting defined in SFAS 123 as such warrant grants
F-15
ANTIVIRALS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SHAREHOLDERS' EQUITY: (CONTINUED)
related to the raising of additional equity. A summary of the status of the
Company's warrants and changes are presented in the following table:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ------------- ---------- -------------
Warrants outstanding at beginning of year................. 1,324,733 $ 1.02 427,434 $ 4.43
Granted................................................... 60,201 9.00 2,700,000 13.30
Exercised................................................. (957,500) 0.0003 (50,000) 0.1003
Canceled.................................................. -- -- (244,334) 5.39
---------- ------------- ---------- -------------
Warrants outstanding at end of year....................... 427,434 4.43 2,833,100 12.88
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
Exercisable at end of year................................ 402,437 $ 4.69 2,433,100 $ 12.99
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
In connection with the initial public offering, the Company authorized the
issuance of the Underwriters' Warrants (the Warrants) and reserved 400,000
shares of Common Stock for issuance upon exercise of such Warrants (including
the warrants to purchase common stock issuable upon exercise of the Warrants).
The Warrants entitle the holder to acquire up to an aggregate of 200,000 Units
at an exercise price of $10.80 per Unit and are exercisable one year from the
date of the initial public offering. Each Unit consists of one share of Common
Stock and one redeemable warrant. Each warrant initially entitles the holder
thereof to purchase one share of Common Stock at a price of $13.50 per share.
The following table summarizes information about warrants outstanding at
December 31, 1997:
OUTSTANDING WEIGHTED AVERAGE
WARRANTS AT REMAINING
EXERCISE DECEMBER 31, CONTRACTUAL LIFE EXERCISABLE
PRICE 1997 (YEARS) WARRANTS
- ------------- ------------ ----------------- ----------
$ 0.0003 50,899 Varies 50,899
1.14 22,000 Varies 22,000
9.00 60,201 Varies 60,201
10.80 200,000 4.42 --
13.50 2,500,000 Varies 2,300,000
4. INCOME TAXES:
At December 31, 1996 and 1997, the Company had federal and state tax net
operating loss carryforwards of approximately $9,410,000 and $12,622,000,
respectively. The difference between the operating loss carryforwards on a tax
basis and a book basis is due principally to differences in depreciation,
amortization, and treatment of research and development costs. The federal
carryforwards began to expire in 1997 and the state carryforwards will begin to
expire in 2008, if not otherwise used. The Internal Revenue Code rules under
Section 382 could limit the future use of these losses based on ownership
changes and the value of the Company's stock.
F-16
ANTIVIRALS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES: (CONTINUED)
The Company had a net deferred tax asset of $4,660,000 and $6,260,000 at
December 31, 1996 and 1997, primarily from net operating loss carryforwards. A
valuation allowance was recorded to reduce the net deferred tax asset to zero.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $852,000 and $1,600,000 for the years ended December
31, 1996 and 1997, respectively, mainly due to the increase in the net operating
loss carryforwards.
An analysis of the deferred tax assets and liabilities as of December 31,
1996, is as follows:
DEFERRED TAX DEFERRED TAX
ASSET LIABILITY TOTAL
------------ ------------ -------------
Net operating loss carryforwards....................................... $3,764,000 $ -- $ 3,764,000
Accrued expenses....................................................... 23,000 -- 23,000
Depreciation........................................................... 403,000 -- 403,000
Research and development tax credits................................... 660,000 -- 660,000
Patent costs........................................................... -- (190,000) (190,000)
------------ ------------ -------------
4$,850,000.. $ (190,000) 4,660,000
------------ ------------
------------ ------------
Valuation allowance.................................................... (4,660,000)
-------------
$ --
-------------
-------------
An analysis of the deferred tax assets and liabilities as of December 31,
1997, is as follows:
DEFERRED TAX DEFERRED TAX
ASSET LIABILITY TOTAL
------------ ------------ -------------
Net operating loss carryforwards....................................... $5,049,000 $ -- $ 5,049,000
Accrued expenses....................................................... 20,000 -- 20,000
Depreciation........................................................... 482,000 -- 482,000
Research and development tax credits................................... 930,000 -- 930,000
Patent costs........................................................... -- (221,000) (221,000)
------------ ------------ -------------
$6,481,000 $ (221,000) 6,260,000
------------ ------------
------------ ------------
Valuation allowance.................................................... (6,260,000)
-------------
$ --
-------------
-------------
5. LEASE OBLIGATIONS:
The Company leases office and laboratory facilities under various
noncancelable operating leases through December 2004. Rent expense under these
leases was $193,000 and $313,000 for the years ended December 31, 1996 and 1997,
respectively, and $1,148,000 for the period from July 22, 1980 through December
31, 1997.
F-17
ANTIVIRALS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASE OBLIGATIONS: (CONTINUED)
At December 31, 1997, the aggregate noncancelable future minimum payments
under these leases were as follows:
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
1998............................................................................ $ 285,000
1999............................................................................ 269,000
2000............................................................................ 277,000
2001............................................................................ 285,000
2002............................................................................ 294,000
Thereafter...................................................................... 614,000
------------
Total minimum lease payments.................................................... $ 2,024,000
------------
------------
6. SUBSEQUENT EVENTS:
In November 1997, the Company signed a letter of intent to acquire all of
the equity of IMMUNOTHERAPY CORPORATION (ITC), a privately held biotechnology
company based in Seattle, Washington. ITC is developing a therapeutic vaccine
targeting cancer. The transaction is expected to close in mid-1998, pending
shareholder approval. The preliminary purchase consideration is 2.1 million
shares of the Company's common stock and 2.1 million restricted warrants. The
transactions had an estimated total fair value of $19.6 million at December 31,
1997. The transaction will be accounted for as a purchase.
As part of this transaction, the Company agreed to loan ITC up to $925,000
plus the amounts of any contractual obligations with an outside vendor or
provider of services approved by ITC and the Company, at an interest rate of 9.5
percent. As of March 31, 1998, the amount owed to the Company under this
agreement was $548,942 and is included in other current assets. Upon completion
of this transaction, the total amount outstanding will be recorded as part of
the purchase price. ITC is obligated to repay the advances in one installment on
April 30, 1999. In the event that ITC defaults in the repayment of the advances
and interest, as the Company's sole remedy for such default, ITC shall issue to
the Company, subject to certain required approvals, in exchange for the
conversion of all amounts outstanding under the Loan Agreement a number of
shares of Class B Preferred Stock, which shares shall enjoy the same rights and
privileges as ITC's Class A Preferred Shares. The Company additionally shall
have the right to designate and ITC shall be required to appoint two designees
of the Company to the Board of Directors of ITC.
In connection with the purchase price allocation, the Company will obtain an
appraisal of the intangible assets acquired. It is anticipated that
substantially all of the intangible assets consist of research and development
in process, and will thus be charged to expense in accordance with generally
accepted accounting principles.
F-18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
IMMUNOTHERAPY CORPORATION:
We have audited the accompanying balance sheet of IMMUNOTHERAPY CORPORATION
(a California corporation in the development stage) (the Company) as of December
31, 1997, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the Company's financial statements for the period from October 7, 1993
(inception) to December 31, 1996. Such statements are included in the cumulative
inception to December 31, 1997 totals of the statements of operations and cash
flows and reflect total revenues and net loss of 100% and 62%, respectively, of
the related cumulative totals. Those statements were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to amounts for the period from inception to December 31, 1997, included in the
cumulative totals, is based solely upon the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of IMMUNOTHERAPY CORPORATION as of December 31, 1997, and
the results of its operations and its cash flows for the year then ended and for
the period from October 7, 1993 (inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and, at December 31, 1997, has a deficit accumulated during the development
stage of $3,597,790. Such factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
ARTHUR ANDERSEN LLP
Portland, Oregon
March 30, 1998
F-19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
IMMUNOTHERAPY CORPORATION
We have audited the accompanying balance sheets of IMMUNOTHERAPY CORPORATION
(a development stage company) (the Company) as of December 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
year ended December 31, 1996 and for the period from October 7, 1993 (inception)
through December 31, 1996 (not presented herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IMMUNOTHERAPY CORPORATION as of December 31,
1996, and the results of its operations and its cash flows for the year ended
December 31, 1996 and for the period from October 7, 1993 (inception), through
December 31, 1996 (not presented herein), in conformity with generally accepted
accounting principles.
The Company is in the development stage at December 31, 1996. As discussed
in Note 1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations are
dependent on future events, including obtaining sufficient financing to complete
the development of the Company's products, their successful testing, Food and
Drug Administration approval, and marketing of its products.
Deloitte & Touche LLP
Seattle, Washington,
April 15, 1997
F-20
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 31,219 $ 21,702 $ 12,286
Prepaid expenses and other current assets.......................... 39,122 2,921 13,422
Note receivable from stockholder................................... 14,094 7,403 7,403
------------- ------------- -------------
Total current assets........................................... 84,435 32,026 33,111
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $8,290,
$15,000 and $15,779................................................ 17,979 13,431 12,652
------------- ------------- -------------
$ 102,414 $ 45,457 $ 45,763
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................... $ 142,781 $ 397,098 $ 147,846
Accrued liabilities................................................ 60,250 157,622 95,604
Deferred compensation.............................................. 208,675 214,550 214,550
Current portion of notes payable to related parties................ -- 25,000 548,942
------------- ------------- -------------
Total current liabilities...................................... 411,706 794,270 1,006,942
LONG-TERM PORTION OF NOTES PAYABLE TO RELATED PARTIES................ -- 10,000 10,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value:
Class A--8% cumulative, convertible, voting, 5,000,000 shares
authorized; 245,000 shares issued and outstanding at December
31, 1996 and 639,686 shares issued and outstanding at December
31, 1997 and March 31, 1998, respectively...................... 499,558 1,365,777 1,391,364
Class B--5,000,000 shares authorized, no shares issued or
outstanding.................................................... -- -- --
Common stock, no par value, 50,000,000 shares authorized;
10,030,000 shares issued and outstanding at December 31, 1996 and
10,868,000 shares issued and outstanding at December 31, 1997 and
March 31, 1998, respectively..................................... 1,387,600 1,473,200 1,473,200
Deficit accumulated during development stage....................... (2,196,450) (3,597,790) (3,835,743)
------------- ------------- -------------
Total stockholders' equity (deficit)........................... (309,292) (758,813) (971,179)
------------- ------------- -------------
$ 102,414 $ 45,457 $ 45,763
------------- ------------- -------------
------------- ------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
F-21
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
OCTOBER 7,
1993
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------- DECEMBER 31,
1996 1997 1997
------------- ------------- ------------- THREE MONTHS ENDED MARCH OCTOBER 7,
31, 1993
------------------------ (INCEPTION)
1997 1998 THROUGH MARCH
----------- ----------- 31, 1998
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
REVENUE............................ $ -- $ -- $ 50,000 $ -- $ -- $ 50,000
COST OF REVENUE.................... -- -- 18,081 -- -- 18,081
Gross profit..................... -- -- 31,919 -- -- 31,919
GENERAL AND ADMINISTRATIVE
EXPENSES......................... 481,039 503,154 1,437,340 110,716 92,984 1,530,324
RESEARCH AND DEVELOPMENT
EXPENSES......................... 706,446 819,931 2,118,781 253,458 120,382 2,239,163
------------- ------------- ------------- ----------- ----------- -------------
Loss from operations............. (1,187,485) (1,323,085) (3,524,202) (364,174) (213,366) (3,737,568)
OTHER INCOME (EXPENSE), net........ (326) (1,408) 14,468 88 1,000 15,468
------------- ------------- ------------- ----------- ----------- -------------
NET LOSS BEFORE INCOME TAXES....... (1,187,811) (1,324,493) (3,509,734) (364,086) (212,366) (3,722,100)
PROVISION FOR INCOME TAXES......... -- -- (1,651) -- -- (1,651)
------------- ------------- ------------- ----------- ----------- -------------
NET LOSS........................... $ (1,187,811) $ (1,324,493) $ (3,511,385) $(364,086) $(212,366) $ (3,723,751)
------------- ------------- ------------- ----------- ----------- -------------
------------- ------------- ------------- ----------- ----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
F-22
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL
PREFERRED STOCK COMMON STOCK STOCKHOLDERS'
-------------------- -------------------- ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT DEFICIT (DEFICIT)
--------- --------- --------- --------- ------------ ------------
BALANCE, October 7, 1993................ -- $ -- -- $ -- $ -- $ --
Issuance for cash ($.0008 per share)
October 18, 1993.................... -- -- 2,993,250 2,403 -- 2,403
Issuance for cash ($.00077 per share)
October 18, 1993.................... -- -- 3,376,750 2,597 -- 2,597
Issuance for assignment of technology
rights October 18, 1993............. -- -- 130,000 100 -- 100
Issuance for cash ($.75 per share)
June 9, 1994........................ -- -- 1,000,000 750,000 -- 750,000
Net loss.............................. -- -- -- -- (446,974) (446,974)
--------- --------- --------- --------- ------------ ------------
BALANCE, September 30, 1994............. -- -- 7,500,000 755,100 (446,974) 308,126
Issuance for cash ($.25 per share)
November 9 to November 27, 1995..... -- -- 1,320,000 330,000 -- 330,000
Net loss.............................. -- -- -- -- (552,107) (552,107)
--------- --------- --------- --------- ------------ ------------
BALANCE, December 31, 1995.............. -- -- 8,820,000 1,085,100 (999,081) 86,019
Issuance for cash ($.25 per share)
January 3 to July 30, 1996.......... -- -- 1,080,000 270,000 -- 270,000
Issuance for services................. -- -- 130,000 32,500 -- 32,500
Issuance for cash ($2.00 per share)
August 8 to December 30, 1996....... 245,000 490,000 -- -- -- 490,000
Net loss.............................. -- -- -- -- (1,187,811) (1,187,811)
Dividends in arrears.................. -- 9,558 -- -- (9,558) --
--------- --------- --------- --------- ------------ ------------
BALANCE, December 31, 1996.............. 245,000 499,558 10,030,000 1,387,600 (2,196,450) (309,292)
Issuance for cash, services or
property rights ($2.00 per share)
January 10 to December 1, 1997...... 394,686 789,372 -- -- -- 789,372
Issuance for services................. -- -- 838,000 85,600 -- 85,600
Net loss.............................. -- -- -- -- (1,324,493) (1,324,493)
Dividends in arrears.................. -- 76,847 -- -- (76,847) --
--------- --------- --------- --------- ------------ ------------
BALANCE, December 31, 1997.............. 639,686 1,365,777 10,868,000 1,473,200 (3,597,790) (758,813)
Unaudited net loss.................... -- -- -- -- (212,366) (212,366)
Dividends in arrears.................. -- 25,587 -- -- (25,587) --
--------- --------- --------- --------- ------------ ------------
UNAUDITED BALANCE, March 31, 1998....... 639,686 $1,391,364 10,868,000 $1,473,200 $(3,835,743) $ (971,179)
--------- --------- --------- --------- ------------ ------------
--------- --------- --------- --------- ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS
F-23
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
OCTOBER 7,
1993
YEAR ENDED DECEMBER (INCEPTION)
31, THROUGH
---------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------ THREE MONTHS ENDED MARCH OCTOBER 7,
31, 1993
------------------------ (INCEPTION)
1997 1998 THROUGH
----------- ----------- MARCH 31,
1998
(UNAUDITED) (UNAUDITED) -----------
(UNAUDITED)
OPERATING ACTIVITIES:
Net loss................................ $(1,187,811) $(1,324,493) $(3,511,385) $(364,086) $(212,366) ($3,723,751)
Adjustments to reconcile net loss to net
cash used in operating activities--
Depreciation and amortization......... 4,575 9,000 17,290 377 779 18,069
Loss on disposal of assets............ -- 199 199 -- -- 199
Preferred stock issued for services
and technology rights............... -- 55,750 55,750 -- -- 55,750
Common stock issued for services and
technology rights................... 32,500 85,600 118,200 -- -- 118,200
Cash provided (used) by changes in
operating assets and liabilities:
Stockholder note receivable
affiliate......................... -- 6,691 (7,403) -- -- (7,403)
Prepaid expenses and other current
assets............................ (39,122) 36,201 (2,921) 21,304 (10,501) (13,422)
Current liabilities, excluding
current portion of notes
payable........................... 282,706 407,564 819,270 92,913 (311,270) 508,000
---------- ---------- ------------ ----------- ----------- -----------
Net cash used in operating
activities...................... (907,152) (723,488) (2,511,000) (249,492) (533,358) (3,044,358)
---------- ---------- ------------ ----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of property and equipment... (19,087) (4,651) (30,920) -- -- (30,920)
---------- ---------- ------------ ----------- ----------- -----------
Net cash used in investing
activities...................... (19,087) (4,651) (30,920) -- -- (30,920)
---------- ---------- ------------ ----------- ----------- -----------
FINANCING ACTIVITIES:
Payments on debt........................ -- -- -- -- (25,000) (25,000)
Net proceeds from sale of preferred
stock................................. 490,000 708,622 1,198,622 230,000 -- 1,198,622
Net proceeds from sale of common
stock................................. 270,000 -- 1,355,000 -- -- 1,355,000
Proceeds from related party note
payable............................... -- 10,000 10,000 -- 548,942 558,942
---------- ---------- ------------ ----------- ----------- -----------
Net cash provided by financing
activities...................... 760,000 718,622 2,563,622 230,000 523,942 3,087,564
---------- ---------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (166,239) (9,517) 21,702 (19,492) (9,416) 12,286
CASH AND CASH EQUIVALENTS:
Beginning of period..................... 197,458 31,219 -- 31,219 21,702 --
---------- ---------- ------------ ----------- ----------- -----------
End of period........................... $ 31,219 $ 21,702 $ 21,702 $ 11,727 $ 12,286 $ 12,286
---------- ---------- ------------ ----------- ----------- -----------
---------- ---------- ------------ ----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
F-24
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
OCTOBER 7, 1993 (INCEPTION) THROUGH DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
ImmunoTherapy Corporation (the Company) was formed on October 7, 1993, for
the purpose of developing therapeutic vaccines to treat cancer and infectious
diseases.
The Company is in the development stage. Since its inception in 1993 through
December 31, 1997, the Company has incurred losses of approximately $3.5
million, substantially all of which resulted from expenditures related to
research and development, and general and administrative expenses. The Company
has not generated any material revenue from product sales to date, and there can
be no assurance that revenues from product sales will be achieved. Moreover,
even if the Company does achieve revenues from product sales, the Company
nevertheless expects to incur operating losses over the next several years. The
financial statements have been prepared assuming that the Company will continue
as a going concern. Successful completion of the Company's development program
and, ultimately, the attainment of profitable operations are dependent on future
events, including obtaining sufficient financing to complete the development of
the Company's products, successful testing, Food and Drug Administration
approval, and product marketing. There is no assurance that such financing will
be available when needed or that the Company's planned products will be
commercially successful. If necessary, the Company's management will curtail
expenditures in an effort to conserve operating funds. The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in the development and
commercialization of new pharmaceutical products, competitive factors in the
marketplace as well as the burdensome regulatory environment in which the
Company operates. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of office equipment and furniture
and are depreciated on a straight-line basis over their estimated useful lives
of three to five years.
RESEARCH AND DEVELOPMENT EXPENSES
Expenses associated with the Company's research and development activities
are expensed as incurred.
F-25
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
OCTOBER 7, 1993 (INCEPTION) THROUGH DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED COMPENSATION
The Board of Directors of the Company has authorized a deferred compensation
plan. Under this plan, an employee may elect to have a portion of his or her
income deferred to a later date. In consideration for such deferral, the Company
will grant one fully vested option to purchase one share of common stock at an
exercise price of one dollar for each dollar of deferred compensation. As of
December 31, 1996 and 1997, all options granted under this plan had exercise
prices at or above the fair market value of the Company's common stock and the
Company had deferred compensation balances of $208,675 and $214,550,
respectively, as well as vested options to purchase shares of common stock in
the amount of 208,675 and 214,550, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS 109).
Under SFAS 109, deferred tax assets and liabilities are recorded based on the
tax effected difference between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes, referred to as temporary
differences, using enacted marginal income tax rates.
As of December 31, 1996 and 1997, the Company has a net operating loss
carryforward of approximately $2,200,000 and $3,200,000, respectively and a
research and development credit carryforward of approximately $50,000 and
$75,000, respectively, both of which will expire through 2012. The difference
between the net operating loss carryforwards on a tax basis and a book basis is
due to differences in deferred compensation and accrued payroll. Deferred tax
assets of approximately $800,000 and $1,200,000, as of December 31, 1996 and
1997, respectively, relating to these carryforwards have been entirely offset by
a valuation reserve. The Internal Revenue Code rules under Section 382 could
limit the future use of these losses based on ownership changes and the value of
the Company's stock.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principals have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These unaudited financial statements reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations, changes in
cash flows and financial position as of and for the periods presented. These
unaudited financial statements should be read in conjunction with the audited
financial statements and related notes thereto, appearing elsewhere herein. The
results of the interim periods presented are not necessarily indicative of
results to be expected for a full year.
F-26
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
OCTOBER 7, 1993 (INCEPTION) THROUGH DECEMBER 31, 1997
2. STOCKHOLDERS' EQUITY:
COMMON STOCK
The shares of common stock issued under the terms of some of the shareholder
agreements have restrictions with regard to voting for members of the Company's
Board of Directors. Additionally, several shareholder agreements contain
provisions whereby the Company has rights of first refusal to repurchase common
shares acquired under those agreements.
PREFERRED STOCK
The Class A Preferred stock entitles holders to their investment and all
accumulated dividends prior to any distribution of proceeds to the holders of
the common stock, in the event of liquidation, dissolution or winding up of the
Company. Dividends on the shares of Class A Preferred stock accumulate from day
to day at the rate of 8% per annum, on an uncompounded basis, whether earned or
declared.
The Class A Preferred stock may be converted into one share of common stock
any time after two years from the date of issuance. The Company may convert the
preferred shares to common if the Company makes a public offering of shares that
yields gross cash proceeds in excess of $2,000,000; if more than 50% of the
preferred stock has already been voluntarily converted into common stock by the
holders of the Class A Preferred, or upon merger, consolidation, or sale of the
Company. The conversion price is adjusted to compensate fully for splits,
combinations (reverse splits) or any dividends of stock to holders of common
stock.
The Company has not yet established the preferences, privileges, and other
special rights, nor the qualifications, limitations or restrictions that may
apply to the Class B Preferred stock.
STOCK OPTION PLANS
The Company has adopted Stock Option Plans (the Plans) under which incentive
or nonqualified stock options to acquire shares of the Company's common stock
may be granted to employees and nonemployees of the Company. The 1994 and 1995
plans permit the issuance of options for up to 250,000 and 500,000 shares,
respectively, of the Company's common stock. The Plans are administered by the
Compensation Committee of the Board of Directors (the Committee) and permit the
issuance of options at an exercise price of not less than the fair market value
of the underlying shares on the date of grant. Options granted under the Plans
are exercisable over a period of time, not to exceed ten years, designated by
the Committee and are subject to other terms and conditions as determined by the
Committee.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 123 ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
123), which defines a fair value based method of accounting for an employee
stock option and similar equity instruments and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by Accounting Principles
Board Opinion No. 25 (APB 25). Entities electing to remain with the accounting
in APB 25 must make pro forma disclosures of net income (loss) and, if
presented, earnings (loss) per share, as if the fair value based method of
accounting defined in SFAS 123 had been adopted. The Company has elected to
account for its stock-based compensation plans under
F-27
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
OCTOBER 7, 1993 (INCEPTION) THROUGH DECEMBER 31, 1997
2. STOCKHOLDERS' EQUITY: (CONTINUED)
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1996 and 1997 using the Black-Scholes
options pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants:
1996 1997
--------- ---------
Risk-free interest rate.................................................. 5.99% 6.0%
Expected life............................................................ 4 years 4 years
Using the Black-Scholes methodology, the total value of options granted
during both 1996 and 1997 was zero.
Stock option transactions are summarized as follows:
WEIGHTED
AVERAGE
EXERCISE EXERCISE
NUMBER PRICE PRICE
OF OPTIONS PER SHARE PER SHARE
----------- ------------- -------------
Outstanding, December 31, 1995........................ 27,500 $ .75-1.00 .82
Granted during 1996................................... 753,325 1.00 1.00
Outstanding, December 31, 1996........................ 780,825 .75-1.00 .99
Granted during 1997................................... 209,900 1.00-2.00 1.06
Cancellations during 1997............................. (269,783) 1.00 1.00
Outstanding, December 31, 1997........................ 720,942 .75-2.00 1.01
Stock options expire between four and ten years from the grant date. Stock
options vest and become exercisable on the date of grant or over a period of up
to ten years. The outstanding stock options at December 31, 1996 and 1997, have
a weighted average contractual life of 9.4 years and 9 years, respectively. The
number of stock option shares exercisable at December 31, 1996 and 1997, was
380,825 and 618,942, respectively. These stock options have a weighted average
exercise price of $0.99 and $1.01, respectively.
3. RELATED PARTY TRANSACTIONS:
The Company has a note receivable from a stockholder, who is a Company
officer, which is collateralized by 16,000 shares of common stock of the
Company. The note has a balance of $14,094 and $7,403 at December 31, 1996 and
1997, respectively, and accrues interest at a rate of 4% per annum.
The Company leases its corporate office under a month-to-month operating
lease. Rent expense totaled $18,387, $19,500 and $47,000 for the years ended
December 31, 1996 and 1997, and for the period from October 7, 1993 (inception)
through December 31, 1997, respectively. Prior to January 1996, the Company
leased its corporate office from an affiliated company.
During the period from October 7, 1993 (inception) to September 30, 1994,
the Company issued 130,000 shares of common stock to an affiliated company to
acquire rights to certain technology relative to
F-28
IMMUNOTHERAPY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
OCTOBER 7, 1993 (INCEPTION) THROUGH DECEMBER 31, 1997
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
the Company's principal product. The acquired technology rights were assigned a
value of $100 and were fully amortized over a one-year period.
The Company has granted one of its shareholders a license to manufacture and
market all future products of the Company on the Korean peninsula.
4. LICENSING AGREEMENT:
The Company has licensing agreements with Ohio State University, which
provides the Company with rights under certain licensed patents relating to the
manufacture, testing, and sale of certain peptides, antigens, and vaccines.
Under the terms of the agreement, the Company is liable for royalties of 5% on
net sales in the United States during the life of the patents; 2% on net sales
in the United States for a period of ten years after the expiration of the
patents covered under the 5% royalty arrangement; 2% on net sales to members of
the "European Economic Community;" and alternatively, 25% of any royalties
received from sublicenses of the licensed patents and know how in the United
States, "European Economic Community," and Korea.
5. SUBSEQUENT EVENT:
In November 1997, ANTIVIRALS signed a letter of intent to acquire the
Company by merger. The transaction is expected to close in mid-1998, pending
shareholder approval. As a part of this merger, ANTIVIRALS agreed to loan the
Company up to $925,000 plus the amounts of any contractual obligations with an
outside vendor or provider of services approved by ANTIVIRALS and the Company at
an interest rate of 9.5 percent. As of March 31, 1998, the balance outstanding
under this agreement was $548,942. The Company is obligated to repay the
advances in one installment on April 30, 1999. In the event that the Company
defaults in the repayment of the advances and interest, as ANTIVIRALS' sole
remedy for such default, the Company shall issue to ANTIVIRALS, subject to
certain required approvals, in exchange for the conversion of all amounts
outstanding under the Loan Agreement a number of shares of Class B Preferred
Stock equal to the aggregate dollar amount of principal and interest outstanding
on April 30, 1999, divided by $1.0161235, which shares shall enjoy the same
rights and privileges as the Company's Class A Preferred Shares. ANTIVIRALS
additionally shall have the right to designate and the Company shall be required
to appoint two designees of ANTIVIRALS to the Board of Directors of the Company.
F-29
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement") is
made as of February 2, 1998, among ANTIVIRALS INC., an Oregon corporation
("AntiVirals"), ANTIVIRALS ACQUISITION CORPORATION, a California corporation and
a wholly-owned subsidiary of AntiVirals ("Merger Sub"), and IMMUNOTHERAPY
CORPORATION, a California corporation ("ITC").
RECITALS:
A. AntiVirals, Merger Sub, ITC, and their respective Boards of Directors
deem it advisable to effect a reorganization within the meaning of Section
368(a)(1)(A) by reason of Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Tax Code"), pursuant to which ITC shall be merged with
and into Merger Sub in accordance with the terms and provisions of this
Agreement (the "Merger").
B. As a result of the Merger the shareholders of ITC ("ITC Shareholders")
will receive shares of Common Stock, $.0001 par value, of AntiVirals (the
"AntiVirals Common Stock") and Warrants of AntiVirals, having the rights and
privileges as set forth in the form of warrant accompanying the Warrant
Agreement attached hereto as Exhibit A (the "Warrants") in exchange for the
issued and outstanding shares of Common Stock or Preferred Stock, if any, of ITC
(collectively, the "ITC Stock"), all as more fully described in and subject to
the specific terms and provisions of this Agreement.
C. This Agreement sets forth the terms and conditions to which the parties
hereto have agreed and further contemplate the consummation of certain related
transactions hereinafter described.
NOW, THEREFORE, in consideration of the premises and the mutual promises and
covenants of the parties hereto, and subject to the terms and conditions set
forth herein, the parties herein agree as follows:
1. DEFINITIONS. Certain terms used in this Agreement are specifically
defined herein. Unless elsewhere defined in this Agreement, these definitions
are set forth or referred to in Section 15 of this Agreement. As used in this
Agreement, unless the context requires otherwise, the term "ITC" shall mean and
refer to ITC and its subsidiaries, if any.
2. REORGANIZATION AND MERGER. Subject to the terms and conditions of this
Agreement, the parties hereto agree that, following the Closing (as defined in
Section 3 below), Merger Sub and ITC shall execute and file the Certificates in
substantially the form attached hereto as Exhibit B and this Agreement with the
California Secretary of State, whereupon ITC shall be merged with and into
Merger Sub and Merger Sub shall be the surviving corporation in such merger and
shall become a wholly owned subsidiary of AntiVirals. It is intended that for
federal tax purposes the Merger shall constitute a reorganization within the
meaning of Section 368(a)(1)(A) by reason of Section 368(a)(2)(D) of the Code.
The parties intend that the Merger shall be accounted for using the purchase
method.
2.1 SURVIVING CORPORATION. Upon the effectiveness of the Merger
(hereinafter referred to as the "Effective Time of the Merger"), ITC shall
be merged with and into Merger Sub and the separate existence of ITC shall
cease. Merger Sub shall be the corporation surviving the Merger.
2.2 ARTICLES OF INCORPORATION AND BYLAWS OF ITC. The Articles of
Incorporation and Bylaws of Merger Sub at and immediately prior to the
Effective Time of the Merger shall be the Articles of Incorporation and
Bylaws of Merger Sub following the Effective Time of the Merger.
2.3 CONVERSION OF ITC STOCK. Subject to the other terms of this
Section 2, each share of ITC Common Stock outstanding immediately prior to
the Effective Time of the Merger shall, by virtue of the Merger and without
any action on the part of any holder thereof, be converted into a number of
shares of AntiVirals Common Stock equal to the Conversion Number, subject to
the provisions of Section 2.6 regarding the elimination of fractional
shares, and into a number of AntiVirals Warrants equal to the Common Warrant
Conversion Number, subject to the provisions of Section 2.6 regarding the
elimination of fractional Warrants. As used herein, the term "Conversion
Number" means .175.
A-1
As used herein, the "Common Warrant Conversion Number" means .17257. Subject
to the other terms of this Section 2, each share of ITC Preferred Stock
outstanding immediately prior to the Effective Time of the Merger shall, by
virtue of the Merger and without any action on the part of any holder
thereof, be converted into a number of shares of AntiVirals Common Stock
equal to the Conversion Number, subject to the provisions of Section 2.6
regarding the elimination of fractional shares, and into a number of
AntiVirals Warrants equal to the Preferred Warrant Conversion Number,
subject to the provisions of Section 2.6 regarding the elimination of
fractional warrants. As used herein, the term "Preferred Warrant Conversion
Number" means .35.
2.4 CONVERSION OF ITC OPTIONS. Subject to the other terms of this
Section 2, each Option to purchase ITC Common Shares outstanding immediately
prior to the Effective Time of the Merger (including, but not limited to,
all outstanding vested and unvested stock options) shall, by virtue of the
Merger and without any action on the part of any holder thereof, be
converted into the right to acquire that number of shares of AntiVirals
Common Stock determined by multiplying the number of shares of ITC Common
Stock into which such ITC Options are convertible immediately prior to the
Effective Time of the Merger by the Option Conversion Number, at an exercise
price per share of AntiVirals Common Stock equal to the exercise price per
share of such ITC Option divided by the Option Conversion Number, subject to
the provisions of Section 2.6 regarding the elimination of fractional
shares. Each ITC Option and the 1997 ITC Option Plan shall be assumed by
AntiVirals. The Option Conversion Number shall be the Conversion Number
multiplied by the result obtained by dividing the sum of the closing price
of the AntiVirals Common Stock (NASDAQ trading symbol AVII) and AntiVirals'
traded warrant (NASDAQ trading symbol AVIIW) with the closing price of the
AntiVirals Common Stock on the day of Closing. ITC may not allow more than
sixteen (16) holders of Options to purchase ITC Common Shares, prior to the
Closing, the right to exercise their Options by payment by promissory notes.
Provided that any such promissory notes will be for a term of not more than
thirteen (13) months from the day of Closing, bear interest at a rate of
nine and one-half percent (9.5%) per annum, provide for the mandatory
prepayment by the maker thereof upon the sale of any shares of AntiVirals
Common Stock obtained by reason of the Merger (such prepayment to equal the
net proceeds received by the Maker for such sale), are secured by a pledge
of the shares of ITC Common Stock purchased upon exercise of the Option,
AntiVirals shall convert the shares of ITC Common Stock obtained upon such
exercises in accordance with Section 2.3 hereof and shall succeed to all
interest of ITC in and to the promissory notes, if any, upon the Closing of
the Merger.
2.5 EXCHANGE OF STOCK CERTIFICATES. Immediately following the Closing,
ITC and AntiVirals shall jointly submit to AntiVirals' registrar and
transfer agent, ChaseMellon Shareholder Services LLC, 520 Pike Street, Suite
1220, Seattle, Washington 98101 (the "Exchange Agent"), an instruction
letter including a list of the names, addresses and social security
numbers/taxpayer identification numbers of each holder of shares of ITC
Stock outstanding immediately prior to the Effective Time of the Merger who
has delivered the certificate or certificates representing all ITC Stock
held by such ITC Shareholder to AntiVirals and for which the holders thereof
(i) are not entitled to claim dissenters' rights under the California
Business Corporation Act of 1987, as amended (the "California Code"), by
having the certificate endorsed with the statement required under Section
1302 of the California Code and (ii) have delivered a Lockup Agreement in
accordance with Section 10.12 hereof. As soon as reasonably practicable
following the Effective Time of the Merger, AntiVirals shall cause the
Exchange Agent to cause each such ITC Shareholder to receive, in exchange
for the ITC Stock held by such ITC Shareholder, a certificate or
certificates representing the number of whole shares of AntiVirals Common
Stock and AntiVirals Warrants into which the shares of ITC Stock so
surrendered shall have been converted by the Merger (less the shares of
AntiVirals Common Stock which are to be held in escrow pursuant to Section
2.11 below) and the cash payment in lieu of a fractional share of AntiVirals
Common Stock, if any, to which such ITC Shareholder shall be entitled. A
holder of ITC Stock whose stock certificate(s) have been lost or destroyed
shall, upon providing satisfactory evidence of ownership of such shares and
appropriate indemnification, have the right to the delivery of the
A-2
appropriate number of whole shares of AntiVirals Common Stock and AntiVirals
Warrants into which such stock shall have been converted upon the Merger.
Subject to any applicable escheat laws, until so surrendered and exchanged,
each certificate which prior to the Effective Time of the Merger represented
outstanding shares of ITC Stock shall be deemed for all corporate purposes
of AntiVirals, other than the payment of dividends or other distributions,
to evidence the ownership of the number of whole shares of AntiVirals Common
Stock into which the shares of ITC Stock represented thereby shall have been
converted and shall be deemed to represent, in lieu of a fractional share of
AntiVirals Common Stock, the right to receive cash. No cash or stock
dividend payable, no certificate representing split shares deliverable, and
no other distribution payable or deliverable to holders of record of
AntiVirals Common Stock at any time subsequent to the Effective Time of the
Merger shall be paid or delivered to the ITC Shareholder of any certificate
which at the Effective Time of the Merger represented ITC Stock unless and
until such certificate is surrendered to AntiVirals accompanied by a Lockup
Agreement. However, subject to any applicable escheat laws, upon such
surrender there shall be paid or delivered to the initial holder of record
of the certificate or certificates for AntiVirals Common Stock issued in
exchange therefor, the amount of cash, a certificate representing the number
of shares of AntiVirals Common Stock, or the other property resulting from
any such dividends, splits, or other distributions, as the case may be,
which shall have therefore become payable or deliverable with respect to
AntiVirals Common Stock subsequent to the Effective Time of the Merger. No
interest shall be payable with respect to such payment or delivery of
dividends or other distributions upon the surrender of certificates which
represented ITC Stock at the Effective Time of the Merger. Following the
Effective Time of the Merger, AntiVirals shall exchange, or cause to be
exchanged, agreements in respect of all ITC Options assumed pursuant to
Section 2.4 above for the existing agreements governing such ITC Options,
which agreements shall, in the case of options to purchase AntiVirals Common
Stock, be governed by the terms of the ITC 1997 Option Plan which shall be
assumed by AntiVirals at the Closing.
2.6 FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of AntiVirals Common Stock or AntiVirals Warrants shall be
issued upon surrender of certificates of ITC Stock converted in connection
with the Merger, and no dividend, stock split, or other distribution of
AntiVirals shall relate to any such fractional share interest, and no such
fractional share interest will entitle the owner thereof to vote or to any
other rights of a stockholder of AntiVirals. In lieu of any such fractional
share, each ITC Shareholder shall be entitled, upon surrender of such ITC
Shareholder's certificate or certificates representing ITC Stock, to receive
a cash payment therefor, without interest, at a pro rata amount based on the
closing price per share of AntiVirals Common Stock on the NASDAQ/NMS on the
trading day immediately preceding the Effective Date of the Merger and a
cash payment therefor, without interest, at a pro rata amount based on the
fair market value of the Warrants on the Effective Date as determined by
AntiVirals in its sole and absolute discretion. No interest shall accrue
with respect to any cash held for the benefit of ITC Shareholders of
unsurrendered certificates representing shares of ITC Stock. Securities
issued in exchange for ITC Options shall represent the right to purchase a
number of shares of AntiVirals Common Stock rounded to the nearest whole
number thereof.
2.7 ISSUANCE OF ANTIVIRALS COMMON STOCK. All shares of AntiVirals
Common Stock into which shares of the ITC Stock shall have been converted in
connection with the Merger shall be deemed to have been issued in full
satisfaction of all rights pertaining to such converted shares and shall,
when issued pursuant to the provisions hereof, be validly issued, fully paid
and nonassessable in compliance with all federal and state securities laws.
2.8 TRANSFER BOOKS. The stock transfer books of ITC pertaining to ITC
Stock outstanding at the Effective Time of the Merger shall be closed at the
Effective Time of the Merger, and thereafter no transfer of any such shares
of ITC Stock shall be recorded thereon. In the event a transfer of ownership
of shares of ITC Stock is not recorded on the stock transfer books of ITC, a
certificate or certificates representing the number of whole shares of
AntiVirals Common Stock and AntiVirals
A-3
Warrants into which such shares of ITC Stock shall have been converted in
connection with the Merger may be issued to the transferee of such shares of
ITC Stock if the certificate or certificates representing such shares of ITC
Stock is or are surrendered to the Exchange Agent accompanied by all
documents deemed necessary by the Exchange Agent to evidence and effect such
transfer of ownership of shares of ITC Stock and accompanied by the payment
of any applicable stock transfer tax with respect to such transfer.
2.9 ITC DISSENTING SHARES. ITC Shareholders holding any shares of ITC
stock that are eligible to be "Dissenting Shares" within the meaning of the
California Code with respect to the Merger and as to which dissenter's
rights to require the purchase of such shares have been properly exercised
will be entitled to their rights under the California Code with respect to
such shares. Shares of ITC Stock as to which dissenting shareholders' rights
of appraisal have not been properly perfected under the California Code will
be converted as provided in Section 2.3 above.
2.10 FURTHER ASSURANCES. AntiVirals and ITC agree that if, at any time
after the Effective Time of the Merger, any further deeds, assignments or
assurances are reasonably necessary or desirable to be obtained from ITC,
AntiVirals or its officers or directors, to consummate the Merger or to
carry out the purposes of this Agreement at or after the Effective Time of
the Merger, then AntiVirals, ITC and their respective officers and directors
will execute and deliver all such proper deeds, assignments and assurances
and do all other things necessary or desirable to consummate the Merger and
to carry out the purposes of this Agreement, in the name of ITC or
otherwise.
2.11 ESCROW AGREEMENT. Pursuant to an Escrow Agreement to be entered
into on or before the Closing (as defined in Section 3 below) in
substantially the form of Exhibit C (the "Escrow Agreement"), among
AntiVirals, the Escrow Agent and the Escrow Indemnitors (as those terms are
defined in the Escrow Agreement), AntiVirals will withhold from the shares
of AntiVirals Common Stock that would otherwise be delivered to the Escrow
Indemnitors, that number of shares equal to fifteen percent (15%) of the
total number of shares of AntiVirals Common Stock issued in the Merger upon
the conversion of outstanding ITC Stock (the "Escrow Shares"). In
determining the number of shares of Common Stock to withhold from each
Escrow Indemnitor, AntiVirals shall withhold shares on a pro rata basis
unless it shall have received written instruction requesting a different
allocation among the Escrow Indemnitors prior to the Effective Time of the
Merger, which instruction shall be executed by each of the Escrow
Indemnitors.
AntiVirals will deposit in an escrow pursuant to the Escrow Agreement
(the "Escrow") stock certificates representing the Escrow Shares and related
stock powers. The Escrow Shares and such stock powers, and any other
property with respect thereto delivered to the Escrow Agent as provided in
the Escrow Agreement will be held as collateral to secure the
indemnification obligations of the Escrow Indemnitors under Section 12
hereof and the Escrow Agreement in accordance with the Escrow Agreement.
3. THE CLOSING. The delivery of the various opinions, certificates,
consents, instruments and documents which this Agreement contemplates (the
"Closing") shall take place at the offices of Ater Wynne Hewitt Dodson &
Skerritt, LLP, counsel to AntiVirals, in Portland, Oregon, on May 1, 1998, or
such other day and time as shall be mutually agreed upon by AntiVirals and ITC.
The date of, and the time at which, the Closing takes place is herein referred
to as the "Closing Date." As soon as practicable after the Closing, the
appropriate officers of AntiVirals, Merger Sub and ITC shall take all necessary
action to bring about the Effective Time of Merger.
4. REPRESENTATIONS AND WARRANTIES OF ITC. ITC makes the representations
and warranties set forth below as of the date of this Agreement and, unless
otherwise stated, as of the date of the Closing. Except as otherwise provided to
the contrary, ITC makes the representations and warranties without qualification
as to knowledge. When a representation or warranty is made "to the best
knowledge of" ITC, such knowledge shall be deemed to include, without
limitation, the actual knowledge of the officers of ITC and
A-4
such information that any officer should reasonably be expected to have
knowledge of by virtue of his or her position and relationship with ITC.
4.1 ORGANIZATION AND EXISTENCE OF ITC. ITC is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has all requisite corporate power to carry on its business
as now conducted and as proposed to be conducted and to enter into and,
subject to shareholder approval, perform its obligations under this
Agreement and the other agreements contemplated hereby to which it is as
party. Except as set forth on Schedule 4.1, ITC is qualified to do business
as a foreign corporation and is in good standing in every jurisdiction in
which the character or location of the assets owned by it or the nature of
the business transacted by it requires such qualification where the failure
to so qualify would have a Material Adverse Effect. ITC has delivered to
AntiVirals, or will deliver at the Closing, true, correct and complete
copies of (a) the Articles of Incorporation (duly certified by the
California Secretary of State), (b) the Bylaws (certified by the Secretary
of ITC), and (c) the Minute and Stock Books (certified by the Secretary of
ITC) of ITC.
4.2 AUTHORITY AND BINDING EFFECT. The ITC signatory has the full
corporate power and authority to execute and deliver this Agreement and each
agreement referenced herein to which ITC is a party and to consummate the
transactions contemplated by, and comply with its obligations under, such
agreements. This Agreement and each agreement referenced herein to which ITC
is a party, and the consummation by ITC of its obligations herein and
therein, have been duly authorized by all necessary corporate action of ITC,
other than the approval of its shareholders in accordance with applicable
law. This Agreement has been, and at the Closing each agreement referenced
herein will be, duly executed and delivered by ITC. This Agreement is, and
when duly executed and delivered at the Closing each agreement referenced
herein will be, the valid and binding agreement of ITC in accordance with
their respective terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally and (ii) general principles of equity relating
to the availability of equitable remedies. Subject to approval by ITC's
Shareholders and except as set forth in Schedule 4.2, no further action is
required to be taken by ITC, nor is it necessary for ITC to obtain any
action, approval or consent by or from any third persons, governmental or
other, to enable each of the such parties to enter into or perform their
respective obligations under this Agreement and each agreement referenced
herein to which it is a party, except for the consents of third parties to
the Merger, as required by the Contracts, which shall be obtained by ITC on
or before the Closing (unless waived in writing by AntiVirals). Such
consents are set forth in Schedule 4.2 hereto.
4.3 AUTHORIZED CAPITAL STOCK OF ITC. As of the date hereof, the
authorized capital stock of ITC consists of 5,000,000 shares of Class A
Preferred Stock, no par value, 5,000,000 shares of Class B Preferred Stock,
no par value, and 50,000,000 shares of Common Stock, no par value, of which
639,686 shares of Preferred Stock, no shares of Class B Preferred Stock, and
10,868,000 shares of Common Stock are validly issued and outstanding, fully
paid and nonassessable and not issued in violation of the preemptive rights
of any person. All of the outstanding shares of Class A Preferred Stock and
Common Stock of ITC have been issued in transactions which were exempt from
registration under the Securities Act of 1933, (the "Securities Act") as
amended, and all applicable state securities laws and blue sky acts. All
shares of ITC Stock which have been reacquired by ITC have reverted to the
status of authorized but unissued shares and are no longer outstanding.
Schedule 4.3 hereto contains a true, correct and complete list of all
outstanding convertible securities, subscriptions, options, warrants,
preemptive rights or other agreements or commitments obligating ITC to issue
shares of ITC Stock or relating to the transfer or registration of ITC
Stock, none of which have been issued in violation of applicable securities
laws or the preemptive rights of any person. As of the date of Closing, ITC
has issued no shares of its stock in respect of such subscriptions, options,
warrants, preemptive rights or other agreements or commitments set forth on
Schedule 4.3, except where ITC has received full payment of the exercise
price therefor in cash or by a legally enforceable promissory note secured
by a pledge of such shares.
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4.4 NO SUBSIDIARIES. Except as set forth on Schedule 4.4 hereto, ITC
has no subsidiaries or equity investments in any person.
4.5 ITC FINANCIAL STATEMENTS; LIABILITIES. ITC has delivered to
AntiVirals (a) the audited balance sheets of ITC at December 31, 1996 and
1995 and the related audited statements of income and shareholders' equity
of ITC for each of the fiscal years then ended, together with the related
notes thereto, in each case as certified by Deloitte & Touche LLP, whose
opinion thereon is included therewith, and (b) the unaudited balance sheet
(the "ITC Balance Sheet") of ITC at December 31, 1997 (the "Balance Sheet
Date"), and the related unaudited statements of income and shareholders'
equity of ITC for the year then ended (hereafter collectively referred to as
the "Financial Statements"). Such financial statements are complete and
correct in all material respects and in accordance with the books of account
and records of ITC, and present fairly in all material respects the
financial position of ITC at the dates indicated and the results of its
operations and the changes in its financial position for the periods then
ended, in accordance with generally accepted accounting principles ("GAAP")
consistently applied, except that in the case of the unaudited balance sheet
dated December 31, 1997, and the related unaudited statements of income and
shareholder equity, they shall be subject to normal year-end adjustments.
4.6 LEASES, TITLE TO PROPERTIES, ETC. Attached hereto as Schedule 4.6
is a general description of each parcel of real property owned or leased by
ITC. Schedule 4.6 hereto also describes each lease agreement under which ITC
has any leasehold interest in any real property. ITC is in possession of all
such real properties owned or leased by it and described in Schedule 4.6
hereto. ITC has good title to all properties and assets owned by it,
including those reflected in the ITC Balance Sheet (other than properties
and assets reflected in the ITC Balance Sheet which have since been sold or
otherwise disposed of in the Ordinary Course of Business) and those
described in Schedule 4.6 hereto free and clear of all liens, mortgages,
security interests and encumbrances, including any conditional sale or other
title retention agreement (collectively, "Liens"), except:
(a) liens for taxes not yet due and payable;
(b) statutory liens in immaterial amounts which are not yet
delinquent;
(c) minor defects and irregularities in title or encumbrances which
do not impair the use thereof for the purposes for which they are held;
and
(d) as set forth in the ITC Balance Sheet or in Schedule 4.6 hereto.
Except as indicated in Schedule 4.6, the leases set forth in Schedule
4.6 hereto are in full force and effect and there is no existing default of
a material nature under any of such leases on the part of ITC or, to the
best knowledge of ITC, the other party thereunder. Such leases consist only
of documents described in Schedule 4.6 hereto, complete and correct copies
of which have been provided by ITC to AntiVirals. The buildings and any
major items of equipment and machinery reflected on the ITC Balance Sheet
are generally in such operating condition and repair, ordinary wear and tear
excepted, as is adequate for the conduct of ITC's business.
4.7 ABSENCE OF CERTAIN EVENTS. Except as set forth in Schedule 4.7
attached hereto or otherwise provided in this Agreement, since the Balance
Sheet Date, ITC has not:
(a) borrowed or agreed to borrow any funds or incurred, or become
subject to, any obligations or liability (absolute or contingent), except
obligations and liabilities incurred in the Ordinary Course of Business;
(b) paid any obligations or liability (absolute or contingent) other
than current liabilities reflected in or shown on the ITC Balance Sheet
and current liabilities incurred since the Balance Sheet Date in the
Ordinary Course of Business;
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(c) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kinds whatsoever in
respect of its capital stock, or purchased, redeemed or otherwise
acquired, or agreed to purchase, redeem or otherwise acquire, any of its
outstanding capital stock;
(d) except in the Ordinary Course of Business, sold, transferred, or
otherwise disposed of, or agreed to sell, transfer, or otherwise dispose
of, any of its assets, properties, or rights, or canceled or otherwise
terminated, or agreed to cancel or otherwise terminate, any debts or
claims;
(e) except in the Ordinary Course of Business, entered or agreed to
enter into any agreement or arrangement granting any preferential right
to purchase any of its assets, properties, or rights, or requiring the
consent of any party to the transfer and assignment of any such assets,
properties, or rights;
(f) waived any rights of value, without consideration therefor, which
in the aggregate would have a Material Adverse Effect on ITC;
(g) made or permitted any amendment or termination of any non-trade
contract, agreement, or license to which it is a party or to which it or
any of its assets or properties are subject;
(h) made, directly or indirectly, any accrual or arrangement for or
payment of bonuses or special compensation of any kind or any severance
or termination to pay any of its present or former officers, directors,
or employees;
(i) increased or agreed to increase the rate of compensation payable
or to become payable by it to any of its officers, directors, or
employees or adopted any new, or made any increase in, any existing,
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan, payment or
arrangement made to, for, or with any of such officers, directors, or
employees;
(j) made any capital expenditures (or commitments therefor) in excess
of $10,000 individually or in the aggregate;
(k) entered into any other material transaction other than in the
Ordinary Course of Business;
(l) experienced any labor trouble or been informed of the loss or
potential loss of any management or technical personnel which has, or can
be anticipated to have, a Material Adverse Effect;
(m) been cited for any material violations of the federal
Occupational Safety Health Act of 1970 or any rules or regulations
promulgated thereunder or any other act, rules or regulations of any
other governmental agency;
(n) suffered any damages, destruction or losses which in the
aggregate are material to ITC's business, or incurred or become subject
to any material claim or liability for any damages or alleged damages for
any actual or alleged negligence or other tort or breach of contract
which are in the aggregate material to ITC's business;
(o) failed to operate the business of ITC in the ordinary course so
as to use reasonable efforts to preserve the business intact, to keep
available to AntiVirals the services of ITC's employees, and to preserve
for AntiVirals the goodwill of ITC's suppliers, customers and others
having business relations with it, except where such failure would not
have a Material Adverse Effect;
(p) changed its accounting methods or practices by ITC materially
adversely affecting its assets, liabilities or business; or
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(q) experienced any change in ITC's condition (financial or
otherwise), assets, liabilities, working capital, reserves, earnings,
business or prospects, except for changes contemplated hereby or changes
which have not, individually or in the aggregate, been materially
adverse.
4.8 INDEBTEDNESS. The ITC Balance Sheet reflects all indebtedness for
borrowed money owed by ITC or to which any of its assets or properties are
subject as of the date thereof and which is required to be reflected by GAAP
therein. A complete and correct copy of each note, loan, credit or other
similar instrument pursuant to which any such indebtedness for borrowed
money was incurred has been delivered to AntiVirals.
4.9 GUARANTIES AND SURETYSHIP. ITC is not a party to or bound by any
guaranties, matters of suretyship, or other similar instruments.
4.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
ITC Balance Sheet or in Schedule 4.10, ITC does not have any debts,
obligations, liabilities or commitments of any nature, whether due or to
become due, absolute, contingent or otherwise, that, in accordance with
GAAP, are required to be disclosed in a balance sheet or the footnotes
thereto, and are not shown on the ITC balance sheet delivered pursuant
hereto, other than liabilities incurred after the balance sheet date in the
Ordinary Course of Business and consistent with past practice and other than
indebtedness for any advances under the loan contemplated in Section 8.5
hereof. Such post-balance sheet date liabilities are not material in amount
and have not had and are not expected to have, individually or in the
aggregate, a Material Adverse Effect. As to each liability, debt, obligation
or commitment, fixed or contingent, that is set forth on Schedule 4.10, ITC
shall provide the following information, in writing as an attachment to such
Schedule: (i) a summary description of the liability, debt, obligation or
commitment, together with copies of all relevant documentation relating
thereto, the amounts claimed and any other action or relief sought and, if
in connection with a claim, suit or proceeding, the name of the claimant and
all other parties involved therewith and the identity of the court or agency
in which such claim, suit or proceeding is being prosecuted, and (ii) the
best estimate of ITC of the maximum amount, if any, which is likely to
become payable with respect to any contingent liability. For purposes
hereof, if no written estimate is provided, such best estimate shall be
deemed to be zero. The total current liabilities of ITC (net of total
current assets and the principal balance of a note receivable-officer), as
of December 31, 1997, did not exceed six hundred sixty thousand dollars
($660,000).
4.11 TAXES AND TAX RETURNS.
(a) Except as set forth on Schedule 4.11: (i) ITC has accurately
prepared and duly filed all Tax Returns (as hereinafter defined) which are
required by law to be filed by it on or prior to the date hereof; (ii) ITC
has duly paid all Taxes (as hereafter defined) due or claimed to be due from
it with respect to all taxable periods or portions of periods ended on or
before the date hereof (whether or not shown on any Tax Return), and there
are no assessments or claims for payment of Taxes now pending or, to the
best knowledge of ITC, threatened, nor any audit of the records of ITC being
made or threatened by any taxing authority for any such periods or portions
thereof; and (iii) to the knowledge of ITC, there are no facts or
circumstances which could reasonably be expected to constitute a basis for
assessments or claims for the payment of additional Taxes. The amounts set
up as provisions for Taxes, if any, on the most recent balance sheet
included in the Financial Statements are sufficient for the payment of all
unpaid Taxes of ITC, accrued for or applicable to the periods ended on such
date and all years and periods prior thereto and for which ITC, at those
dates, was liable. True and correct copies of ITC's three most recently
filed tax returns have been delivered to AntiVirals. ITC has properly
withheld and paid, or accrued for payment, when due, to appropriate state
and/or federal authorities, all sales and use taxes, if any, and all amounts
required to be withheld from payments made to its employees, independent
contractors, creditors, shareholders, or other third parties and has also
paid all employment taxes as required under applicable laws.
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(b) ITC has not waived any statute of limitation in respect of any Taxes
or assessments by any federal, state, county, local, foreign or other taxing
jurisdiction or agreed to any extension of time with respect to an
assessment or deficiency in any Tax. ITC has not filed a consent under
Section 341(f) of the Tax Code concerning collapsible corporations. ITC has
not made a consent dividend election under Section 565 of the Code, and has
not been a personal holding company under Section 542 of the Code.
(c) ITC has not made any payments, and is not obligated to make any
payments, nor is ITC a party to any agreement that under any circumstances
could obligate it to make any payments, that would not be deductible under
Section 280G of the Tax Code. ITC has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Tax Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Tax Code. ITC is not a party to or bound by any tax indemnity, tax
allocation or tax sharing agreement, or any closing agreement or offer in
compromise with any taxing authority.
(d) Except as set forth on Schedule 4.11, ITC is not, and has never
been, required to file a consolidated or combined state or federal income
Tax Return with any other person or entity and is not liable for the Taxes
of any person under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as transferee or successor, by contract or
otherwise. ITC is not a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes. ITC has not been a distributing corporation in a
transaction described in Section 355(a)(1) of the Code.
(e) For purposes of this Agreement, the term "Tax" or "Taxes" means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Tax Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
(f) For purposes of this Agreement, the term "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any Schedule or attachment thereto,
and including any amendment thereof.
4.12 FIXED ASSETS. Schedule 4.12 is a list of all of the fixed assets
used in the Business, other than any fixed asset the replacement cost of
which would be less than $1,000.00 and which is not of material importance
to ITC's operations. The fixed assets are in good working order and
condition, ordinary wear and tear excepted, have been properly maintained,
are suitable for the uses in which they are being utilized in the Business,
do not require more than regularly scheduled maintenance in the ordinary
course, consistent with ITC's established maintenance policies, to keep them
in good operating condition and comply with all requirements under
applicable laws, regulations and licenses which govern the use and operation
thereof.
4.13 MATERIAL CONTRACTS. Except only as to contracts and documents
listed in Schedule 4.13 hereto or any other Schedule attached to this
Agreement, ITC is not a party to or bound by, and none of its assets and
properties are subject to, any:
(a) contract not made in the Ordinary Course of Business;
(b) employment, consulting, or representation contract;
(c) contract with any labor union or association;
(d) bonus, pension, profit sharing, retirement, stock purchase, stock
option, hospitalization, insurance or other plan or agreement providing
employee benefits;
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(e) lease with respect to any property, real or personal, whether as
lessor or lessee, providing for an annual rental in excess of $5,000;
(f) continuing contract which involves payments by ITC of in excess
of $5,000 individually or $20,000 in the aggregate;
(g) contract or commitment for any capital expenditures exceeding
$5,000 individually or in the aggregate; or
(h) executory contracts for the provision of services by ITC
exceeding $20,000 in any year.
A complete and correct copy of each contract listed on Schedule 4.14
hereto or on any other Schedule attached hereto (collectively, the
"Contracts") has been provided to AntiVirals, and each such contract is in
full force and effect and ITC is not, and to the best knowledge of ITC, no
other party thereto is in default thereunder.
Each of such contracts, agreements, leases, licenses and instruments so
listed, or required to be so listed, in Schedule 4.13 is a valid and binding
obligation of ITC and, to the best knowledge of ITC, the other parties
thereto, enforceable in accordance with its terms, except as may be affected
by bankruptcy, insolvency, moratorium or similar laws affecting creditors'
rights generally and general principles of equity relating to the
availability of equitable remedies. Except as otherwise set forth in
Schedule 4.13 hereto, there have not been any defaults by ITC or, to the
best knowledge of ITC, defaults or any claims of default or claims of
nonenforceability by the other party or parties which, individually or in
the aggregate, would have a Material Adverse Effect on ITC, and there are no
facts or conditions that have occurred or that are anticipated to occur
which, through the passage of time or the giving of notice, or both, would
constitute a default by ITC, or to the best knowledge of ITC, by the other
party or parties, under any of such contracts, agreements, leases, licenses
and instruments or would cause a creation of a lien, security interest or
encumbrance upon any of the assets of ITC or otherwise have a Material
Adverse Effect on ITC.
4.14 INTELLECTUAL PROPERTY.
(a) Attached hereto as Schedule 4.14 is an accurate list and description
of all patents, patent applications, patent licenses, copyrights, copyright
licenses, trademarks, trademark applications and trademark licenses,
tradenames, service marks (with separate listings of registered and
unregistered tradenames and service marks), and other trade secrets,
know-how or intellectual property rights (the "Intellectual Property")
owned, licensed or applied for by ITC. Except as set forth on Schedule 4.14
hereto:
(i) ITC owns or possesses sufficient rights to use all material
Intellectual Property used in or necessary for, and as to Third Party
Technology (as defined below) has sufficient rights necessary for, the
conduct of ITC's business as presently conducted, or as planned to be
conducted, by ITC, including, without limitation, all Intellectual
Property developed or discovered in connection with or contained in or
related to the ITC Products (as defined below) (including Third Party
Technology, the "ITC Rights").
(ii) Solely as to Third Party Technology (as defined below), the
representations in Section 4.14 are limited to ITC's interest pursuant to
the Third Party Licenses (as defined below), all of which are believed to
be valid and enforceable and in full force and effect. "Third Party
Licenses" means all licenses and other agreements with third parties
relating to any Intellectual Property or products that ITC is licensed or
otherwise authorized by such third parties to use, market, distribute or
incorporate into products marketed and distributed by ITC. "Third Party
Technology" means all Intellectual Property and products owned by third
parties and licensed pursuant to Third Party Licenses.
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(iii) For purposes of this Agreement, the term "ITC Products" shall
mean the CTP-37 and related products, including any Intellectual Property
related thereto.
(b) Except as set forth in Schedule 4.14, ITC has the exclusive right to
use, sell, license and dispose of, and has the right to bring actions for
infringement of, all ITC Rights, other than Third Party Technology.
(c) No claims have been asserted against ITC by any person challenging
ITC's use or distribution (including manufacture, marketing, license, or
sale) of any ITC Right or products utilized by ITC (including, without
limitation, the ITC Products and Third Party Technology) or challenging or
questioning the validity or effectiveness of any license or agreement
relating thereto (including, without limitation, the Third Party Licenses).
There is no valid basis for any claim of the type specified in this Section
4.14(c).
(d) The execution, delivery and performance of this Agreement and the
consummation of the Merger and the transactions contemplated hereby and by
the other Transaction Documents will not (i) breach, violate or conflict
with any instrument, agreement or other right governing any ITC Right or
portion thereof, (ii) cause the forfeiture or termination, or give rise to a
right of forfeiture or termination, of any ITC Right or portion thereof,
(iii) in any way impair the right of ITC to use (including distribute,
manufacture, market, license, sell or other disposition) of any ITC Right or
portion thereof, or (iv) give rise to any right to bring any action for
infringement of, any ITC Right or any portion thereof.
(e) Except as set forth on Schedule 4.14, there are no royalties,
honoraria, fees or other payments that would be payable by ITC to any person
by reason of the ownership, use, license, sale, distribution, or disposition
of any ITC Right, other than sales commissions that would be payable in the
Ordinary Course of Business.
(f) No ITC Right and no use by ITC of any ITC Right in its prior,
current or contemplated business (including distribution, manufacture,
marketing, license or sale), violates any rights of any third party,
including (i) infringement of or misappropriation of Intellectual Property,
(ii) unfair competition, (iii) defamation, (iv) contractual rights, or (v)
rights of privacy or publicity. Solely with respect to claims of
infringement of a third party patent or unregistered trademark or
infringement of Third Party Technology, the foregoing representations in
this Section are made to the best knowledge of ITC.
(g) To the best knowledge of ITC, no third party is violating,
infringing, or misappropriating any ITC Right or contract of ITC.
(h) ITC is not in default under or in breach or violation of, nor, is
there, to the best of ITC's knowledge, any valid basis for any claim of
default by ITC under, or breach or violation by ITC of, any contract,
commitment or restriction relating to any ITC Right, including any Third
Party License (each, an "Intellectual Property Contract"). No other party is
in default under or in breach or violation of, nor, to the best of ITC's
knowledge, is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any
Intellectual Property Contract. ITC has no reason to believe each
Intellectual Property Contract is not valid, binding, in full force and
effect, and enforceable by ITC in accordance with its terms. To the best
knowledge of ITC, no party to any Intellectual Property Contract intends to
cancel, withdraw, modify or amend such contract.
(i) No ITC Shareholder (other than Ohio State University and Vernon
Stevens, PhD.), employee or contractor has any right, title or interest in
or to any ITC Right, other than rights pertaining to Third Party Technology
obtained from the third party licensor.
(j) Except as set forth in Schedule 4.14: (i) no third party has any
right to manufacture, reproduce, distribute, sell, sublicense, market or
exploit any of the ITC Rights or any adaptations, translations, or
derivative works based on the ITC Rights, or any portion thereof, other than
rights pertaining to Third Party Technology obtained from the third party
licensor; (ii) ITC has no
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agreements, contracts or commitments that provide for the manufacture,
reproduction, distribution, sale, sublicensing, marketing, development,
exploitation, or supply by ITC of any ITC Right or any portion thereof or
otherwise material to the continued business of ITC; and (iii) ITC has not
granted to any third party any exclusive rights of any kind with respect to
any of the ITC Rights, including territorial exclusivity or exclusivity with
respect to the ITC Rights. Each document or instrument identified pursuant
to this Section is listed in Schedule 4.14 and true and correct copies of
such documents or instruments have been furnished to AntiVirals.
(k) ITC has made available to AntiVirals all materials relating to the
pre-clinical testing, investigational new drug application and clinical
testing of each ITC Product. The clinical testing has been undertaken in
compliance with the Federal Food, Drug and Cosmetics Act, as amended, and
regulations promulgated thereunder by the Food and Drug Administration.
(l) To the best of ITC's knowledge, ITC has not disclosed or otherwise
dealt with any aspect of any ITC Rights, other than Third Party Technology,
that would constitute a trade secret if not injected into the public domain
or if treated as secret, in such a manner as to cause such aspect not to
constitute a trade secret.
(m) To the best of ITC's knowledge, no employee of ITC is in violation
of any term of any employment contract, patent disclosure agreement or any
other contract or agreement relating to the relationship of any such
employee with ITC or, to ITC's best knowledge, any other party because of
the nature of the business conducted by ITC or proposed to be conducted by
ITC. To the best of ITC's knowledge, neither the execution or delivery of
any of the foregoing agreements, nor the carrying on of ITC's business as
employees by such persons, nor the conduct of ITC's business as currently
anticipated, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under any contract,
covenant or instrument under which any of such persons is obligated.
4.15 INSURANCE. Schedule 4.15 contains an accurate description of all
policies of insurance maintained by or on behalf of ITC in connection with
the Business as protection for ITC's assets and the Business. Except as set
forth in Schedule 4.15 hereto, all of such policies are now in full force
and effect and policies covering the same risks and in substantially the
same amounts have been in full force and effect since January 30, 1996. ITC
has not received any notice of cancellation or material amendment of any
such policies; no coverage thereunder is being disputed; and all material
claims thereunder have been filed in a timely fashion.
4.16 LICENSES, PERMITS, ETC. Attached hereto as Schedule 4.16 is a
list and description of all material licenses, franchises, permits,
easements, certificates, consents, rights and privileges, and other
governmental authorizations necessary or appropriate to the conduct of the
business of ITC other than those listed on Schedule 4.1. All such items are
in full force and effect and complete and correct copies thereof have been
furnished to AntiVirals. ITC is in compliance in all material respects with
all conditions or requirements imposed by or in connection with such
licenses and permits and with respect to its operation of the Business, and
ITC has not received any notice, nor does ITC have any knowledge that any
governmental authority intends to cancel, terminate or modify any of such
licenses or permits or that valid grounds for any such cancellation,
termination or modification currently exist.
4.17 LITIGATION. Except as set forth in Schedule 4.17 hereto, there is
neither (a) any action, suit, proceeding or investigation, nor (b) any
counter-or cross-claim in an action brought by or on behalf of ITC, whether
at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
or before any arbitrator of any kind, that is pending or, to the best
knowledge of ITC, threatened, against ITC, which (i) could reasonably be
expected to affect adversely ITC's ability to perform its obligations under
this Agreement or the agreements referenced herein or complete any of the
transactions contemplated hereby or thereby, or (ii) involves the reasonable
possibility of any judgment or liability, or which may become a claim,
against AntiVirals, Merger Sub, the Business or any of the assets of ITC
prior to or subsequent to the
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Effective Time of the Merger. Except as set forth in Schedule 4.17, ITC is
not subject to any judgment, order, writ, injunction or decree of any court,
arbitrator or governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over ITC, any of its assets or the
Business. ITC, AntiVirals and the Merger Sub will incur no loss, claim,
judgment, liability, charges, costs or expenses as a result of any action,
suit or proceeding set forth on Schedule 4.10.
4.18 COMPLIANCE WITH LAWS. Since the date of its incorporation ITC has
complied in all material respects with all applicable foreign, federal,
state, municipal and other political subdivision or governmental agency
statutes, ordinances and regulations, including, without limitation, those
imposing taxes, in every applicable jurisdiction, in respect of the
ownership of its assets and properties and the conduct of its business where
the effect of failure to so comply would have a Material Adverse Effect.
Except as disclosed in Schedule 4.18 hereto, and without limiting the
generality of this Section 4.18, there are no unresolved (i) proceedings or
investigations instituted or, to the best knowledge of ITC, threatened, by
any such governmental authorities against ITC or relating to the Business,
or (ii) citations issued or, to the best knowledge of ITC, threatened
against ITC or the Business by any governmental authorities, or (iii) other
notices of deficiency or charges of violation brought or, to the best
knowledge of ITC, threatened against ITC or the Business, including under
any federal or state regulation or otherwise, which could have, individually
or in the aggregate, a Material Adverse Effect, or interfere with the
maintenance of the permits, licenses, franchises, certificates,
authorizations or any right to operate held by ITC; and, to the best
knowledge of ITC, there are no facts or circumstances upon which any such
proceedings, investigations, citations, notices, disallowances or charges
may be instituted, issued or brought hereafter.
4.19 EMPLOYEES. Attached hereto as Schedule 4.19 is a list of the
names and annual rates of salary and other compensation of all the present
officers, directors, employees, and contractual agents of ITC. Schedule 4.19
hereto summarizes the bonus, profit sharing, incentive, percentage
compensation, vacation and other like benefits, if any, payable to such
officers, directors, employees, and agents as of the date hereof. Except as
disclosed in Schedule 4.19 the transactions contemplated by this Agreement
will not trigger any obligations of ITC under any employment, severance or
other agreement, whether written or oral, with any of ITC's employees, nor
will they give rise to any form of indemnity, claim or right to or of any
employee of ITC under any agreement, law, rule or regulation, whether as a
change in the condition of employment of such employee or otherwise. There
are no claims, actions, suits, proceedings, or investigations pending, or to
the best knowledge of ITC, threatened against ITC or any of its officers,
directors, employees or agents in regard to race, creed, gender, age or
other forms of discrimination, sexual harassment, wrongful discharge, or any
other similar allegations.
4.20 EMPLOYEE BENEFIT PLANS. Schedule 4.20 hereto contains a complete
list of ITC's Employee Plans. True, correct and complete copies or
descriptions of such Employee Plans have been delivered to AntiVirals. For
purposes of this Section 4.20, the term "Employee Plan" includes all present
(including those terminated or transferred within the past five years)
plans, programs, agreements, arrangements, and methods of contribution or
compensation (including all amendments to and components of the same, such
as a trust with respect to a plan) providing any remuneration or benefits,
other than current cash compensation, to any current or former employee of
ITC or to any other person who provides services to ITC, whether or not such
plan or plans, programs, agreements, arrangements, and methods of
contribution or compensation are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and whether or not such plan or
plans, programs, agreements, arrangements and methods of contribution or
compensation are qualified under the Tax Code. The term Employee Plan
includes, but is not limited to, pension, retirement, profit sharing, stock
option, stock bonus, and nonqualified deferred compensation plans and
includes any Employee Plan that is a multiemployer plan as defined in
Section 3(37) of ERISA. The term Employee Plan also includes, but is not
limited to, disability, medical, dental, health insurance, life insurance,
incentive plans, vacation benefits, and fringe benefits. Any and all tax
returns, reports,
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forms or other documents required to be filed by ITC under applicable
federal, state or local law with respect to ITC's Employee Plans have been
timely filed and are correct and complete in all respects; and any and all
amounts due by ITC to any governmental agency or entity with respect to the
Employee Plans have been timely and fully paid. Except as set forth in
Schedule 4.20, all Employee Plans are now, and have always been,
established, maintained and operated in accordance with all applicable laws
(including, but not limited to, ERISA and the Tax Code) and all regulations
and interpretations thereunder and in accordance with their plan documents.
All written communications with respect to each Employee Plan by any person
(including, but not limited, to the members of any plan committee, all plan
fiduciaries, plan administrators, ITC and its management, and ITC's
employees) accurately reflect the documents and operations of each such
Employee Plan. Except as disclosed in Schedule 4.20, each funded Employee
Plan providing for payment of deferred compensation is and always has been
qualified under Section 401 of the Code. Except as disclosed in Schedule
4.20, the Internal Revenue Service has issued one or more determination
letters with respect to each funded Employee Plan stating that, from the
inception of each such Employee Plan, such Employee Plan has been and is
qualified under Section 401 of the Tax Code and each trust maintained in
connection with each such Employee Plan has been and is exempt under Section
501 of the Tax Code. Except set forth in Schedule 4.20, there is no unfunded
liability for vested or nonvested benefits under any funded Employee Plan,
and all contributions required to be made to or with respect to each
Employee Plan have been completely and timely paid. All reports, forms and
other documents required to be filed with any governmental entity with
respect to any Employee Plan have been timely filed and, to the best
knowledge of ITC, are accurate. There have been no filings with respect to
any Employee Plan with the Pension Benefit Guaranty Corporation ("PBGC"). No
liability to the PBGC has been incurred or is expected with respect to any
Employee Plan except for insurance premiums, and all insurance premiums
incurred or accrued up to and including the Closing Date have been or will
be timely paid by ITC. No amount is, and as of the Closing Date no amount
will be, due or owing from ITC to any "multiemployer plan" (as defined in
Section 3(37) of ERISA) on account of any withdrawal therefrom. There has
been no event or condition, nor is any event or condition expected, that
would present a risk of termination of any Employee Plan, or which would
constitute a "reportable event" within the meaning of Section 404(3) of
ERISA and the regulations and interpretations thereunder. There has been no
merger, consolidation, or transfer of assets or liabilities (including, but
not limited to, a split-up or split-off) with respect to any Employee Plan.
There is and there has been no actual or, to the best knowledge of ITC,
anticipated, threatened or expected litigation or arbitration concerning or
involving any Employee Plan. No complaints to or by any governmental entity
have been filed or, to the best knowledge of ITC, have been threatened or
are expected with respect to any Employee Plan. No Employee Plan or any
other person has any liability to any plan participant, beneficiary or other
person under any provision of ERISA, the Tax Code or any other applicable
law by reason of any transaction as described in Section 406 of ERISA and
Section 4975 of the Code with respect to any Employee Plan. No Employee Plan
provides medical benefits to one or more former employees (including
retirees), other than benefits required to be provided under Section 4980B
of the Tax Code. There is no contract, agreement or benefit arrangement
covering any employee of ITC which individually or collectively would
constitute an "excess parachute payment" under Section 280G of the Tax Code.
4.21 BANK ACCOUNTS AND POWERS OF ATTORNEY. Attached hereto as Schedule
4.21 is a list setting forth:
(a) the name of each bank, savings and loan or other financial
institution in which ITC has any account or safe deposit box, the account
name and number of each such account or safe deposit box, and the names
of all persons authorized to draw thereon or have access thereto; and
(b) the name of each person, corporation, firm association, or
business entity or enterprise holding a general or special power of
attorney from ITC and a summary of the terms thereof.
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4.22 LABOR MATTERS. ITC is not a party to a collective bargaining
agreement with any labor union or association. There are no discussions,
negotiations, demands or proposals which are pending or have been conducted
or made with or by any labor union or association, and there are no pending
or threatened labor disputes, strikes, or work stoppages which may have a
Material Adverse Effect. ITC is in substantial compliance with all foreign,
federal and state laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and is not engaged in any
unfair labor practices.
4.23 QUESTIONABLE PAYMENTS. ITC has not made, and ITC does not have
any knowledge that any shareholder, officer, director, employee, agent or
other representative acting on its behalf has made, directly or indirectly,
any bribes, kickbacks, or political contributions with corporate funds,
payments from corporate funds not recorded on the books and records of ITC,
payments from corporate funds which were falsely recorded on the books and
records of ITC, payments from corporate funds to governmental officials in
their individual capacities or illegal payments from corporate funds to
obtain or retain business either within the United States of America or
abroad.
4.24 BROKERS. ITC is not a party to or in any way obligated under any
contract or other agreement regarding, and there are no outstanding claims
against it for the payment of, any broker's or finder's fee in connection
with the origin, negotiation, execution, or performance of this Agreement or
the transactions contemplated hereby.
4.25 CONFLICT OF INTEREST. Except as set forth in Schedule 4.25, no
officer or director of ITC or any Member of the Immediate Family of any such
person:
(a) has any direct or indirect interest in (i) any entity which does
business with ITC, or (ii) except by virtue of being a shareholder of
ITC, any property, asset or right which is used by ITC in the conduct of
its business;
(b) has any contractual relationship with ITC other than with respect
to the performance of services as an officer or director; or
(c) has been involved in any transaction with ITC during the past
three (3) years other than with respect to the performance of service as
an officer or director as to the issuance of securities of ITC.
4.26 BOOKS AND RECORDS. The books and records of ITC are in all
material respects complete and correct and have been maintained in
accordance with good business practice and generally accepted accounting
principles and reflect a true record of all meetings or proceedings of its
Board of Directors and shareholders to the knowledge of ITC.
4.27 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth in Schedule
4.27, ITC has complied with, and the operation of the Business is in
compliance with, in all material respects, all federal, state, local and
regional statutes, laws, ordinances, rules, regulations and orders relating
to the protection of human health and safety, natural resources or the
environment, including, but not limited to, air pollution, water pollution,
noise control, on-site or off-site hazardous substance discharge, disposal
or recovery, toxic or hazardous substances, training, information and
warning provisions relating to toxic or hazardous substances, and employee
safety relating to or adversely affecting the Business or ITC's assets
(collectively the "Environmental Laws"); and no notice of violation of any
Environmental Laws or of any permit, license or other authorization relating
thereto has been received, nor is any such notice pending or, to the best
knowledge of ITC, threatened. Except as set forth in Schedule 4.27, (i)
except in compliance with applicable Environmental Laws and any licenses or
permits relating thereto, there has been no generation, use treatment,
storage, transfer, disposal, release or threatened release, in, at, under,
from, to or into, or on such properties of toxic or hazardous substances
during the ownership or occupancy thereof by ITC or, to the best knowledge
of ITC, prior to such ownership or occupancy, and (ii) in no event has there
been any generation, use, treatment, storage, transfer, disposal, release or
threatened release, in, at, under, from, to or into, or on such properties
of toxic or
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hazardous substances that has resulted in or is reasonably likely to result
in a material adverse effect on the Business or any ITC's assets. For the
purposes of this Section 4.27, "toxic or hazardous substances" shall include
any material, substance or waste that, because of its quantity,
concentration or physical or chemical characteristics, is deemed under any
federal, state, local or regional statute, law, ordinance, regulation or
order, or by any governmental agency pursuant thereto, to pose a present or
potential hazard to human health or safety or the environment, including,
but not limited to, (i) any material, waste or substance which is defined as
a "hazardous substance" pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601,
ET SEQ.), as amended, and its related state and local counterparts, (ii)
asbestos and asbestos containing materials and polychlorinated biphenyls,
and (iii) any petroleum hydrocarbon including oil, gasoline (refined and
unrefined) and their respective constituents and any wastes associated with
the exploration, development or production of crude oil, nature gas or
geothermal energy.
4.28 CONFIDENTIALITY. Since the date of incorporation of ITC, ITC has
taken reasonable steps necessary to maintain the continuing protection of
its proprietary, confidential and trade secret information and Intellectual
Property. Such protections include, but are not limited to, having every ITC
employee or independent contractor who has had access to proprietary or
confidential information, except as disclosed on Schedule 4.28, sign a
confidentiality and nondisclosure agreement and assignment of inventions
agreement, true and correct copies of which have been delivered to
AntiVirals, containing standard provisions that are adequate to maintain,
the confidentiality of ITC's proprietary, confidential and trade secret
information and Intellectual Property and to assign to ITC certain work
product of such persons.
4.29 FULL DISCLOSURE. All of the representations and warranties made
by ITC in this Agreement, and all statements set forth in the certificates
delivered by ITC at the Closing pursuant to this Agreement, are true,
correct and complete in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make such representations, warranties or statements, in light of
the circumstances under which they were made, misleading.
5. REPRESENTATIONS AND WARRANTIES OF ANTIVIRALS AND MERGER SUB. AntiVirals
and Merger Sub, jointly and severally, make the representations and warranties
set forth below as of the date of this Agreement and as of the Closing Date.
Except as otherwise provided to the contrary, AntiVirals or Merger Sub makes the
representations and warranties without qualification as to knowledge. When a
representation or warranty is made "to the best knowledge of" AntiVirals or
Merger Sub, such knowledge shall be deemed to include, without limitation, the
actual knowledge of the officers of AntiVirals or Merger Sub and such
information that any officer should reasonably be expected to have knowledge of
by virtue of his or her position and relationship with AntiVirals or Merger Sub.
5.1 ORGANIZATION AND EXISTENCE. Each of AntiVirals and Merger Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the States of Oregon and California, respectively, and has all
requisite corporate power to carry on its business as now conducted. Each of
AntiVirals and Merger Sub is qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the
character or location of the assets owned by it or the nature of the
business transacted by it require such qualification where the failure to so
qualify would not have a Material Adverse Effect.
5.2 AUTHORITY. AntiVirals and Merger Sub have the corporate power and
have taken or will take all necessary and proper corporate action to
authorize and approve this Agreement and the consummation hereof, and the
execution and delivery of this Agreement and consummation hereof do not and
will not violate any provision of any judicial or governmental decree,
order, or judgment or conflict with, or result in a breach of or constitute
a default under, the Articles of Incorporation or Bylaws of either
AntiVirals or Merger Sub or any agreement or instrument to which either of
them is
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a party or by which either is bound. The execution, delivery, and
performance by AntiVirals and Merger Sub of this Agreement, each agreement
referenced herein to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized and
approved by the Board of Directors of AntiVirals and Merger Sub and by
AntiVirals as the sole shareholder of Merger Sub and no further corporate
action is necessary on the part of AntiVirals or Merger Sub, other than the
approval of the shareholders of AntiVirals, assuming due execution by the
other parties hereto and thereto. This Agreement has been, and at the
Closing each agreement referenced herein to which it is a party will be,
duly executed and delivered by AntiVirals and Merger Sub. This Agreement is,
and when duly executed and delivered at the Closing each agreement
referenced herein will be, the valid and binding agreement of AntiVirals,
and, to the extent it is a party thereto, Merger Sub, enforceable against it
in accordance with their respective terms, except as such enforceability may
be limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and (ii) general principles of equity
relating to the availability of equitable remedies.
5.3 ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, there has
been no change in the business, prospects, or condition, financial or
otherwise, of AntiVirals, except as set forth in the SEC Filings and changes
in the Ordinary Course of Business that in the aggregate have not been
materially adverse. To the knowledge of AntiVirals, except as set forth in
the SEC Filings, there are no new developments in any business conducted by
AntiVirals, nor any new or improved materials, products, processes, or
services useful in connection with the business of AntiVirals or its
customers or suppliers, which can reasonably be expected to have a Material
Adverse Effect.
5.4 VALIDITY OF ANTIVIRALS COMMON STOCK. The AntiVirals Common Stock
to be issued pursuant to the provisions of this Agreement in connection with
the Merger will be, when issued upon the terms and for the consideration
specified in this Agreement, validly issued and outstanding, fully paid and
nonassessable. The Warrants to be issued pursuant to the provisions of this
Agreement in connection with the Merger will, when issued, possess the
rights and privileges as represented in Exhibit A hereto and the shares of
Common Stock to be issued upon exercise of the Warrants, when issued and
delivered against payment therefor in accordance with the terms of the
Warrants, will be validly issued and outstanding, fully paid and
nonassessable.
5.5 CAPITAL STOCK OF MERGER SUB. The authorized capital stock of
Merger Sub consists of 15,000,000 shares of Common Stock, all of which
shares are validly issued and outstanding, fully paid and nonassessable, and
owned by AntiVirals as of the date hereof.
5.6 INVESTMENT INTENT. The ITC Stock to be acquired by AntiVirals as a
result of the Merger is being and will be acquired by AntiVirals for its own
account for investment and not with any present intention of distribution
thereof.
5.7 ANTIVIRALS FINANCIAL STATEMENTS. The financial statements of
AntiVirals for its third quarter ended September 30, 1997, as contained in
AntiVirals's Quarterly Report or Form 10-Q for such quarter, are complete
and correct in all material respects in accordance with the books of account
and records of AntiVirals, and present fairly the financial position of
AntiVirals, at the dates indicated and the results of its operations and the
changes in their respective shareholders equity for the periods then ended,
in accordance with generally accepted accounting principles consistently
applied.
5.8 BROKERS. Except as disclosed in Schedule 5.8, neither AntiVirals
nor Merger Sub is a party to or in any way obligated under any contract or
other agreement regarding, and there are no outstanding claims against
either of them for the payment of, any broker's or finder's fee in
connection with the origin, negotiation, execution, or performance of this
Agreement or the transactions contemplated hereby.
5.9 AUTHORIZED CAPITAL STOCK OF ANTIVIRALS. The authorized capital
stock of AntiVirals consists of 50,000,000 shares of Common Stock, $.0001
par value per share, and 2,000,000 shares of Preferred
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Stock, $.0001 par value per share. As of December 31, 1997, AntiVirals had
11,134,965 shares of Common Stock and no shares of Preferred Stock
outstanding. All such outstanding shares are validly issued and outstanding,
fully paid and nonassessable and not issued in violation of the preemptive
rights of any shareholder. As of December 31, 1997, AntiVirals had granted
options to purchase an aggregate of 1,240,209 shares of Common Stock under
stock option plans. As of December 31, 1997, AntiVirals had granted warrants
to purchase an aggregate of 2,633,300 shares of Common Stock.
5.10 SEC REPORTS OF ANTIVIRALS. AntiVirals has furnished ITC copies of
the reports of AntiVirals filed with the Securities and Exchange Commission
set forth in Section 7.4(a) ("SEC Reports"). None of the SEC Reports
contained, as of its date, any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. There is no event, fact or condition
which materially and adversely affects AntiVirals which has not been set
forth in this Agreement or the SEC Reports. AntiVirals has filed with the
Securities and Exchange Commission all reports required to be filed by it
since becoming subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended.
5.11 LITIGATION. There is neither (a) any action, suit, proceeding or
investigation, nor (b) any counter or cross-claim in an action brought by or
on behalf of AntiVirals, whether at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
that is pending or, to the best knowledge of AntiVirals, threatened, against
AntiVirals, which (i) could reasonably be expected to affect adversely
AntiVirals's ability to perform its obligations under this Agreement or the
agreements referenced herein or complete any of the transactions
contemplated hereby or thereby, or (ii) which may reasonably be expected to
have a Material Adverse Effect on AntiVirals or Merger Sub prior to or
subsequent to the Effective Time of the Merger. AntiVirals is not subject to
any judgment, order, writ, injunction or decree of any court, arbitrator or
governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over AntiVirals, any of its assets or
the Business.
5.12 EMPLOYEE BENEFIT PLANS. Schedule 5.12 hereto contains a complete
list of AntiVirals's Employee Plans. True, correct and complete copies or
descriptions of such Employee Plans have been delivered to ITC. For purposes
of this Section 5.12, the term "Employee Plan" includes all present
(including those terminated or transferred within the past five (5) years)
plans, programs, agreements, arrangements, and methods of contribution or
compensation (including all amendments to and components of the same, such
as a trust with respect to a plan) providing any remuneration or benefits,
other than current cash compensation, to any current or former employee of
AntiVirals or to any other person who provides services to AntiVirals,
whether or not such plan or plans, programs, agreements, arrangements, and
methods of contribution or compensation are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and whether or
not such plan or plans, programs, agreements, arrangements and methods of
contribution or compensation are qualified under the Tax Code. The term
Employee Plan includes, but is not limited to, pension, retirement, profit
sharing, stock option, stock bonus, and nonqualified deferred compensation
plans and includes any Employee Plan that is a multiemployer plan as defined
in Section 3(37) of ERISA. The term Employee Plan also includes, but is not
limited to, disability, medical, dental, health insurance, life insurance,
incentive plans, vacation benefits, and fringe benefits. Any and all tax
returns, reports, forms or other documents required to be filed by
AntiVirals under applicable federal, state or local law with respect to
AntiVirals's Employee Plans have been timely filed and are correct and
complete in all respects; and any and all amounts due by AntiVirals to any
governmental agency or entity with respect to the Employee Plans have been
timely and fully paid. Except as set forth in Schedule 5.12, all Employee
Plans are now, and have always been, established, maintained and operated in
accordance with all applicable laws (including, but not limited to, ERISA
and the Tax Code) and all regulations and interpretations thereunder and in
accordance with their plan documents. All written communications with
respect to each Employee Plan by any person (including, but not limited, to
the members of
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any plan committee, all plan fiduciaries, plan administrators, AntiVirals
and its management, and AntiVirals's employees) accurately reflect the
documents and operations of each such Employee Plan. Each funded Employee
Plan providing for payment of deferred compensation is and always has been
qualified under Section 401 of the Code. The Internal Revenue Service has
issued one or more determination letters with respect to each funded
Employee Plan stating that, from the inception of each such Employee Plan,
such Employee Plan has been and is qualified under Section 401 of the Tax
Code and each trust maintained in connection with each such Employee Plan
has been and is exempt under Section 501 of the Tax Code. Except set forth
in Schedule 5.12, there is no unfunded liability for vested or nonvested
benefits under any funded Employee Plan, and all contributions required to
be made to or with respect to each Employee Plan have been completely and
timely paid. All reports, forms and other documents required to be filed
with any governmental entity with respect to any Employee Plan have been
timely filed and, to the best knowledge of AntiVirals, are accurate. There
have been no filings with respect to any Employee Plan with the Pension
Benefit Guaranty Corporation ("PBGC"). No liability to the PBGC has been
incurred or is expected with respect to any Employee Plan except for
insurance premiums, and all insurance premiums incurred or accrued up to and
including the Closing Date have been or will be timely paid by AntiVirals.
No amount is, and as of the Closing Date no amount will be, due or owing
from AntiVirals to any "multiemployer plan" (as defined in Section 3(37) of
ERISA) on account of any withdrawal therefrom. There has been no event or
condition, nor is any event or condition expected, that would present a risk
of termination of any Employee Plan, or which would constitute a "reportable
event" within the meaning of Section 404(3) of ERISA and the regulations and
interpretations thereunder. There has been no merger, consolidation, or
transfer of assets or liabilities (including, but not limited to, a split-up
or split-off) with respect to any Employee Plan. There is and there has been
no actual or, to the best knowledge of AntiVirals, anticipated, threatened
or expected litigation or arbitration concerning or involving any Employee
Plan. No complaints to or by any governmental entity have been filed or, to
the best knowledge of AntiVirals, have been threatened or are expected with
respect to any Employee Plan. No Employee Plan or any other person has any
liability to any plan participant, beneficiary or other person under any
provision of ERISA, the Tax Code or any other applicable law by reason of
any transaction as described in Section 406 of ERISA and Section 4975 of the
Code with respect to any Employee Plan. No Employee Plan provides medical
benefits to one or more former employees (including retirees), other than
benefits required to be provided under Section 4980B of the Tax Code. There
is no contract, agreement or benefit arrangement covering any employee of
AntiVirals which individually or collectively would constitute an "excess
parachute payment" under Section 280G of the Tax Code.
5.13 FULL DISCLOSURE. All of the representations and warranties made
by AntiVirals in this Agreement, and all statements set forth in the
certificates delivered by AntiVirals at the Closing pursuant to this
Agreement, are true, correct and complete in all material respects and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make such representations, warranties or
statements, in light of the circumstances under which they were made,
misleading.
6. COVENANTS OF ITC. ITC covenants with AntiVirals and Merger Sub that:
6.1 CONDUCT OF BUSINESS. Except as specifically contemplated in this
Agreement, from the date of this Agreement to the Effective Time of the
Merger, the business of ITC will be operated diligently and only in the
Ordinary Course of Business, and, in particular, ITC, without the prior
written consent of AntiVirals, will not:
(a) cancel or permit any insurance of a material nature to lapse or
terminate, unless renewed or replaced by like coverage;
(b) amend its Articles of Incorporation or Bylaws;
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(c) be in material default under any material contract, agreement,
commitments or undertaking of any kind;
(d) violate or fail to comply with any laws applicable to it or its
properties or business where the effect of the failure to so comply would
have a Material Adverse Effect;
(e) commit any act or permit the occurrence of any event or the
existence of any condition of the type described in clauses (a) through
(s) of Section 4.7 hereof;
(f) enter into any contract, agreement or other commitment which
involves payment in excess of $1,000;
(g) fail to maintain and repair any material amount of its assets in
accordance with good standards of maintenance and as required in any
leases or other agreements pertaining thereto;
(h) acquire, purchase, or redeem any ITC Stock;
(i) issue or enter into any subscriptions, options, agreements or
other binding commitments in respect of the issuance, transfer, sale,
registration, or encumbrance of any shares of ITC Stock (these provisions
shall not apply to the exercise of any outstanding options referenced in
the schedules to the Agreement);
(j) cause or voluntarily permit a change in any method of accounting
for tax purposes during or applicable to its current tax year which would
render inaccurate, misleading or incomplete the information concerning
Taxes set forth or referred to in Section 4.11 hereof, or that would have
a Material Adverse Effect for any period prior to the Effective Time of
the Merger; or
(k) permit any affiliate to sell or reduce its risk relative to the
shares received by such affiliate until financial results covering at
least thirty (30) days of post-merger combined results have been
published.
6.2 ACCESS TO INFORMATION. From and after the date of this Agreement,
ITC shall give to AntiVirals, its counsel, accountants, and other
representatives, reasonable access to all the properties, books, contracts,
commitments and records of ITC so that AntiVirals may have the opportunity
to make such investigation as it deems necessary, provided that such
investigation shall not (i) unreasonably interfere with the employees,
business, or operations of ITC, or (ii) violate any governmental regulations
or laws or any customers or vendor confidentiality agreements now in effect
and to which ITC is a party. Any such investigation shall not affect the
representations and warranties of ITC contained in this Agreement.
6.3 PRESERVATION OF GOODWILL. ITC will use its reasonable best efforts
to preserve its business organization, to keep available to AntiVirals the
services of the respective officers and employees of ITC and to preserve for
AntiVirals the goodwill of all suppliers, customers, and others having
business relations with ITC.
6.4 SHAREHOLDERS' APPROVAL. This Agreement and the transaction
contemplated hereby have been approved by the Board of Directors of ITC. ITC
shall, as promptly as practicable, but in no event later than April 30,
1998, take any and all action necessary in accordance with applicable law
and its Articles of Incorporation and Bylaws (i) to convene a meeting of its
shareholders to consider and vote upon the approval of this Agreement and
the Merger, or (ii) to obtain the written consent of its shareholders
thereto. Promptly after setting a record date, if applicable, for the
shareholders entitled to vote at such meeting and immediately upon any
subsequent change thereof, ITC shall send written notice thereof to
AntiVirals. The Board of Directors of ITC shall, subject to its fiduciary
duty to the Shareholders, recommend such approval and shall take all lawful
action and use all reasonable efforts to solicit such approval. Within
thirty (30) days of the date of this Agreement, Jeffrey Lillard and each
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other member of the Board of Directors of ITC who holds shares of ITC's
Common Stock or Class A Preferred Stock in his individual capacity or has
the power to vote any such shares shall have given an irrevocable proxy to
AntiVirals to vote their shares of ITC stock in favor of the Merger. A
correct, complete and fully-executed copy of such irrevocable proxy has been
delivered to AntiVirals concurrent with the execution and delivery of this
Agreement.
6.5 TRADE SECRETS. From and after the date hereof, ITC will not
divulge to any competitor of ITC or any unauthorized person, and will use
its reasonable best efforts to insure that the employees and agents of ITC
do not divulge to any competitor or any unauthorized persons any
confidential information, trade secrets, processes, formulas or know-how
relating to the business or properties of ITC at the date hereof.
6.6 TRANSACTION EXPENSES. Each party will pay all expenses incurred by
them in connection with the negotiation, execution and performance of this
Agreement or any other agreement or transaction, whether or not the
transactions contemplated hereby are consummated, including the fees and
expenses of counsel and brokers, if any, for ITC and the ITC Shareholders,
except that ITC may pay or Schedule up to Forty Thousand Dollars ($40,000)
of its attorneys' and accountants' fees incurred in connection with this
transaction through December 31, 1997, which amount may be in addition to
the current liabilities limit of Six Hundred Sixty Thousand Dollars
($660,000) provided for in Section 4.10. Any additional amounts incurred
through December 31, 1997, may be included in the current liabilities
provided the limit is not exceeded.
6.7 NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENTS. Each person
listed (or required to be listed) on Schedule 4.28 hereto shall have
executed and delivered to ITC a Nondisclosure and Assignment of Inventions
Agreement, in form acceptable to AntiVirals.
6.8 MAINTENANCE OF INSURANCE. ITC shall maintain its Directors and
Officers insurance coverage so as to provide ITC's Directors and Officers
coverages on terms at least as broad as they have enjoyed with ITC for an
additional term of three (3) years from the Closing. ITC may pay or Schedule
up to Fifteen Thousand Dollars ($15,000) of the premiums related thereto,
which amount may be in addition to the current liabilities limit of Six
Hundred Sixty Thousand Dollars ($660,000) provided in Section 4.10. Any
additional amounts may be included in the current liabilities provided the
limit is not exceeded.
6.9 FURTHER ASSURANCES. ITC hereby agrees to execute and deliver from
time to time at the request of AntiVirals and without consideration such
additional instruments of conveyance and transfer and to take such other
actions as AntiVirals may reasonably require to more effectively carry out
and effectuate the Merger and the transactions contemplated hereby.
7. MUTUAL COVENANTS. AntiVirals, Merger Sub, and ITC covenant and agree,
each with the other, that:
7.1 REGISTRATION STATEMENT/PROXY MATERIALS.
(a) ITC shall cooperate with AntiVirals and AntiVirals shall use all
reasonable efforts to promptly prepare and file with the SEC and cause to be
made effective a Registration Statement (on such appropriate form therefor
as AntiVirals shall select, including a prospectus which shall be in such
form as permitted in the form of such Registration Statement so selected and
a proxy statement complying with the 1934 Act) under the 1933 Act covering
the shares of AntiVirals Common Stock, the Warrants and the shares of
AntiVirals Common Stock underlying the Warrants. As used in this Agreement,
the term Registration Statement refers to and means said Registration
Statement when it becomes effective under the 1933 Act, and the term "Proxy
Statement/Prospectus" refers to and means the proxy statement included in
the Registration Statement when it becomes effective. AntiVirals shall also
take any action required to be taken under any and all state blue sky or
securities
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laws, statutes, codes, ordinances, rules and regulations in connection with
the issuance of shares of AntiVirals Common Stock and Warrants contemplated
hereunder.
(b) AntiVirals and ITC will use all reasonable efforts to have the
Registration Statement, or cause it to be, declared effective as promptly as
practicable, and also will take any other action required to be taken under
federal or state securities laws, and will use all reasonable efforts to
cause the Proxy Statement/Prospectus to be mailed to stockholders of
AntiVirals and the ITC shareholders at the earliest practicable date or
dates. If at any time prior to the Effective Time any event relating to or
affecting ITC or AntiVirals shall occur as a result of which it is
necessary, in the opinion of counsel for ITC, to supplement or amend the
Registration Statement in order to make such document not misleading in
light of the circumstances existing at the time approvals of the
shareholders of ITC and AntiVirals, respectively, are sought, ITC and
AntiVirals will forthwith prepare and file with the SEC an amendment or
supplement to the Registration Statement so that each document, as so
supplemented or amended, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances existing at such time, not
misleading. With respect to matters requiring supplement or amendment to the
Registration Statement, each party undertakes to inform the other party and
its counsel immediately of any such event that becomes known to it.
7.2 PUBLIC ANNOUNCEMENTS. Neither AntiVirals nor ITC shall make any
public announcement or statement with respect to this Agreement or the
Merger without the prior written consent of the other party; provided,
however, AntiVirals may disclose the existence and terms of this Agreement
or the Merger if, in its judgment, it is required to do so under applicable
securities laws. If any party desires to make a joint announcement or
statement, the parties will consult with each other and exercise reasonable
efforts to agree upon the text of a joint public announcement or statement
to be made by AntiVirals and ITC.
7.3 REASONABLE EFFORTS TO SATISFY CONDITIONS. Consistent with
applicable law and with their fiduciary duties to their respective
shareholders, (i) ITC agrees to use its reasonable best efforts to bring
about the satisfaction of the covenants and conditions specified in sections
6, 7, 9 and 10 hereof, and (ii) AntiVirals and Merger Sub agree to use their
reasonable best efforts to bring about the satisfaction of the covenants and
conditions specified in sections 7, 8 and 10 hereof.
8. COVENANTS OF ANTIVIRALS. AntiVirals and the Merger Sub covenant that:
8.1 PRESENTATION OF GOODWILL. AntiVirals will use its reasonable best
efforts to preserve its business organization, to keep available to
AntiVirals the services of its officers and employees and to preserve the
goodwill of its suppliers, customers and others having business with
AntiVirals.
8.2 ANTIVIRALS AND MERGER SUB STOCKHOLDER'S
MEETING/APPROVAL. AntiVirals shall, as promptly as practicable, but in no
event later than April 30, 1998, take any and all action necessary in
accordance with applicable law, Section 1(c) of Schedule D to the Bylaws of
the NASD, and AntiVirals' Articles of Incorporation and Bylaws to convene a
meeting of its stockholders to consider and vote upon the approval of the
issuance of shares of AntiVirals' Common Stock and Warrants in connection
with the Merger (the "Issuance"). Promptly after setting a record date, if
applicable, for the stockholders entitled to vote at such meeting and
immediately upon any subsequent change thereof, AntiVirals shall send
written notice thereof to ITC. The Board of Directors of AntiVirals shall,
subject to its fiduciary duty to AntiVirals' stockholders, recommend such
approval and shall take all lawful action and use all reasonable efforts to
solicit such approval. AntiVirals, as the sole shareholder of Merger Sub,
shall, as promptly as practicable, but in no event later than March 30,
1998, act by written consent to approve the Merger and to ratify the
execution, delivery and performance of this Agreement by Merger Sub.
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8.3 REGISTRATION AND QUOTATION OF ANTIVIRALS COMMON STOCK.
(a) AntiVirals will use all reasonable efforts to register the shares of
AntiVirals Common Stock to be issued pursuant to this Agreement, in
connection with the exercise of the Warrants and under ITC's 1997 Stock
Option Plan under the applicable provisions of the 1933 Act.
(b) AntiVirals will use all reasonable efforts to cause the shares of
AntiVirals Common Stock to be issued pursuant to this Agreement, in
connection with the exercise of the Warrants and under ITC's 1997 Stock
Option Plan to be quoted for trading on the Nasdaq/NMS.
8.4 ELECTION OF DIRECTORS. AntiVirals will appoint Jeffrey Lillard to
fill a vacancy on its Board of Directors within 30 days after execution of
this Agreement and will nominate and recommend the election of, at its next
annual meeting, Jeffrey Lillard and a candidate designated by ITC, for
election to the Board of Directors of AntiVirals; provided, however, that if
such designee is not a current member of the Board of Directors of ITC, such
candidate shall be acceptable to AntiVirals.
8.5 LOAN TO ITC. AntiVirals agrees, on the terms and conditions set
forth in the Loan Agreement substantially in the form of Exhibit D hereto,
to make advances to ITC from time to time to pay current liabilities of the
type referred to in Schedule 8.5 or such other liabilities as are mutually
agreed upon by ITC and AntiVirals. Such advances may be made for the period
commencing December 31, 1997, until the earlier of the date of Closing or
May 1, 1998, and shall not exceed, in the aggregate, $650,000. Such advances
shall bear interest at the rate of nine and one-half percent (9- 1/2%) per
annum. ITC shall repay, and shall pay full interest on, the advances in one
installment on April 30, 1999. In the event ITC defaults in the repayment of
the advances and interest, as AntiVirals' sole remedy for such default, ITC
shall issue to AntiVirals, subject to approval by ITC Shareholders, in
exchange for the conversion of all amounts outstanding under the Loan
Agreement, a number of shares of its Class B Preferred Stock equal to that
number of shares outstanding of ITC's Class A Preferred Stock, which Class B
Preferred Shares shall enjoy the same rights and privileges as ITC's Class A
Preferred Shares, but the Class B Preferred Shareholders shall have the
right to designate and ITC shall be required to appoint the two designees of
AntiVirals to the Board of Directors of ITC.
8.6 RELEASE OF LOCKED UP SHARES. Six (6) months after the effective
date of the Merger, AntiVirals shall release from the operation of the
Lockup Agreements delivered to AntiVirals in accordance with Section 10.11
hereof an aggregate of 210,000 shares of AntiVirals Common Stock issued to
ITC Shareholders by reason of the Merger. For purposes of allocating such
shares among the ITC Shareholders, that number of shares of AntiVirals
Common Stock shall be released equal to fifty percent (50%) of the shares of
AntiVirals Common Stock received by ITC Shareholders by reason of the
conversion of shares of ITC Preferred Stock upon the Merger ratably among
the holders thereof. The balance of the shares of AntiVirals Common Stock to
be released shall be allocated ratably among all ITC Shareholders, other
than Jeffrey Lillard and Paula Lillard, trustees of the Lillard Family Trust
dated April 28, 1989, Matthew Lyn Lillard and Amy Lynn Lillard, based on
their respective holdings of AntiVirals Common Stock arising from the
conversion of shares of ITC Common Stock upon the Merger. One (1) year after
the effective date of the Merger, AntiVirals shall release from the
operation of the Lockup Agreements delivered to AntiVirals in accordance
with Section 10.11 hereof an aggregate number of shares of AntiVirals Common
Stock issued to ITC Shareholders by reason of the Merger equal to the
remainder of 840,000 minus that number of shares of AntiVirals Common Stock
released to AntiVirals under the terms of the Escrow Agreement or which are
subject to pending claims thereunder. For purposes of allocating such shares
among the ITC Shareholders, that number of shares of AntiVirals Common Stock
shall be released equal to fifty percent (50%) of the shares of AntiVirals
Common Stock received by ITC Shareholders by reason of the conversion of
shares of ITC Preferred Stock upon the Merger ratably among the holders
thereof. The balance of the shares of AntiVirals Common Stock to be released
shall be allocated ratably among all ITC Shareholders, other than Jeffrey
Lillard and Paula Lillard, trustees of the Lillard
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Family Trust dated April 28, 1989, Matthew Lyn Lillard and Amy Lynn Lillard,
based on their respective holdings of AntiVirals Common Stock arising from
the conversion of shares of ITC Common Stock upon the Merger.
9. CONDITIONS TO OBLIGATIONS OF ITC. The obligations of ITC to complete
the Closing as set forth in Section 3 under this Agreement shall, at the option
of ITC, be subject to the following conditions precedent, unless otherwise
waived in writing by ITC:
9.1 ANTIVIRALS' AND MERGER SUB'S REPRESENTATIONS AND WARRANTIES TRUE AT
CLOSING. ITC shall not have discovered any material error, misstatement or
omission in the representations and warranties made by AntiVirals and Merger
Sub in Section 5 hereof; the representations and warranties made by
AntiVirals and Merger Sub herein shall be deemed to have been made again at
and as of the time of Closing and shall then be true in all material
respects; AntiVirals and Merger Sub shall have performed and complied with
all agreements and conditions required by this Agreement to be performed by
them at or prior to the Closing; and ITC shall have received a certificate,
dated the Closing Date, of the President of each of AntiVirals and Merger
Sub to the effect set forth in this Section 9.1.
9.2 ESCROW AGREEMENT. AntiVirals shall have executed and delivered to
ITC an Escrow Agreement in the form of Exhibit C hereto.
9.3 OPINION OF ANTIVIRALS'S AND MERGER SUB'S COUNSEL. ITC shall have
received an opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel for
AntiVirals and Merger Sub, dated the Closing Date, substantially in the form
and to the effect of Exhibit E hereto.
9.4 EMPLOYMENT AGREEMENT. AntiVirals shall have executed and delivered
to Jeffrey L. Lillard an Employment Agreement in the form of Exhibit F
hereto, and to James Baxendale a letter confirming (i) payment by AntiVirals
of the obligations arising under the Employment Agreement in the form of
Exhibit I hereto, and (ii) the issuance by AntiVirals of the options
contemplated by such Employment Agreement in accordance with the terms
thereof.
9.5 ITC SHAREHOLDER APPROVAL. This Agreement, the Merger and the other
transactions contemplated hereby shall have been approved and adopted by the
requisite vote of the Shareholders in accordance with the California
Corporations Code and ITC's Articles of Incorporation and Bylaws.
9.6 ANTIVIRALS STOCKHOLDER APPROVAL. This Agreement, the Merger, the
Issuance and the other transactions contemplated hereby shall have been
approved and adopted by the requisite vote of AntiVirals' stockholders in
accordance with the Oregon Business Corporation Act and AntiVirals' Articles
of Incorporation and Bylaws. ITC shall have received a certificate signed on
behalf of AntiVirals by the Secretary of AntiVirals to such effect.
9.7 REGISTRATION STATEMENT AND SECURITIES LAWS AUTHORIZATIONS. The
Registration Statement shall have been declared effective and shall be
effective at the Effective Time, and no Stop Order suspending effectiveness
shall have been issued, no proceeding by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary authorizations from Nasdaq/NMS or under state securities laws or
the 1933 Act or 1934 Act relating to the issuance or trading of the shares
of AntiVirals common stock or options or warrants therefor (including,
without limitation, those shares, options and warrants to be issued in
connection with the Merger) shall have been received.
9.8 NO MATERIAL ADVERSE CHANGES. Prior to Closing there shall have
been no changes in the business, properties, or operations of AntiVirals
since September 30, 1997, which would have, or could reasonably be expected
to have, a Material Adverse Effect.
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10. CONDITIONS TO OBLIGATIONS OF ANTIVIRALS AND MERGER SUB. The
obligations of AntiVirals and Merger Sub under this Agreement shall, at the
option of AntiVirals and Merger Sub, be subject to the following conditions,
unless otherwise waived in writing by AntiVirals and Merger Sub:
10.1 ITC'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. AntiVirals
and Merger Sub shall have not discovered any material error, misstatement,
or omission in the representations and warranties made by ITC in Section 4
hereof; provided, however, that no such representation or warranty shall be
deemed materially incorrect if (i) it results from the consummation of any
transactions specifically permitted or contemplated by this Agreement, (ii)
it is not materially adverse and significant to the business, financial
condition, or operations of ITC taken as a whole, or (iii) its effect could
not reasonably be expected to have a Material Adverse Effect, and, ITC shall
have performed and complied with all material agreements required by this
Agreement to be performed or complied with by it at or prior to the Closing.
10.2 OPINION OF ITC'S COUNSEL. AntiVirals shall have received an
opinion of Tonkon Torp LLP, counsel for ITC, dated the Closing Date,
substantially in the form and to the effect of Exhibit G hereto.
10.3 NO DAMAGE OR DESTRUCTION. Prior to Closing there shall not have
occurred any casualty to any facility, property, or equipment owned or used
by ITC which is materially adverse and significant to the business,
financial condition, or operations of ITC taken as a whole.
10.4 CERTIFICATES. AntiVirals shall have received the following
documents:
(a) A Certificate of Existence, as of a recent date, from the
California Secretary of State and a Tax Clearance Certificate from the
California Franchise Tax Board;
(b) A certificate signed by a duly authorized officer of ITC and
dated as of the Closing Date, certifying that (i) all representations and
warranties of such parties were true and correct in all material respects
when made and remain true and correct in all material respects as of the
Closing Date; and (ii) all of the respective covenants, agreements,
obligations and conditions of such parties required to have been
performed as of or prior to the Closing have been fully performed and
complied with;
(c) A certificate signed by the Secretary of ITC, and dated as of the
Closing Date, as to the incumbency of each officer of ITC executing this
Agreement and the other agreements being delivered pursuant hereto, and
certifying the effectiveness, accuracy and completeness of the copies
attached to such certificate of resolutions duly adopted by ITC's Board
of Directors and its shareholders, as the case may be, authorizing the
execution and delivery of this Agreement by ITC, and the performance by
ITC of its obligations hereunder and the consummation of the transactions
contemplated hereby;
(d) Consents to the assignment of all agreements, licenses and/or
permits listed or required to be listed on Schedules 4.2 and 4.16 hereto;
and
(e) A schedule listing the aggregate price paid by the ITC
Shareholders and received by ITC for the shares of ITC Stock held by the
ITC Shareholders or, if different, such ITC Shareholders' basis in their
shares.
10.5 UCC TERMINATION STATEMENTS. ITC shall have delivered or caused to
be delivered to AntiVirals, at or before the Closing, UCC Termination
Statements and such other releases as AntiVirals may reasonably request,
duly completed and executed by each person having any security interest,
lien, claim or other encumbrances or adverse interests in or on any of the
assets of ITC listed on Schedule 10.5 hereto, in order to evidence the
termination thereof.
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10.6 NO MATERIAL ADVERSE CHANGES. There shall have been no change in
the business, financial condition, or results of operations of ITC since the
date hereof which has had a Material Adverse Effect or could reasonably be
expected to have a Material Adverse Effect.
10.7 ITC SHAREHOLDER APPROVAL. This Agreement, the Merger and the
other transactions contemplated hereby shall have been approved and adopted
by the requisite vote of the Shareholders in accordance with the California
Corporations Code and ITC's Articles of Incorporation and Bylaws. AntiVirals
shall have received a certificate signed on behalf of ITC by the Secretary
of ITC to such effect. Holders of no more than three percent (3%) of the
shares of ITC Stock outstanding shall be entitled to claim dissenters'
rights under Chapter 13 of the California Corporation Code with respect to
such shares.
10.8 ANTIVIRALS STOCKHOLDER APPROVAL. This Agreement, the Merger, the
issuance of AntiVirals stock and the other transactions contemplated hereby
shall have been approved and adopted by the requisite vote of AntiVirals'
stockholders in accordance with the Oregon Business Corporation Act and
AntiVirals' Restated Certificate of Incorporation and Restated Bylaws.
10.9 REGISTRATION STATEMENT AND SECURITIES LAWS AUTHORIZATIONS. The
Registration Statement shall have been declared effective and shall be
effective at the Effective Time, and no stop Order suspending effectiveness
shall have been issued, no proceeding by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary authorizations under state securities laws or the 1933 Act or 1934
Act relating to the issuance or trading of the shares of AntiVirals Common
Stock or options or warrants therefor (including, without limitation, those
shares, options and warrants to be issued in connection with the Merger)
shall have been received.
10.10 ESCROW AGREEMENT. Each Escrow Indemnitor shall have executed and
delivered to AntiVirals the Escrow Agreement, substantially in the form of
Exhibit C attached hereto.
10.11 LOCK-UP AGREEMENTS. Each ITC Shareholder shall have executed and
delivered to AntiVirals a Lock-up Agreement, substantially in the form of
Exhibit H attached hereto.
10.12 EMPLOYMENT AGREEMENTS. Jeffrey L. Lillard shall have executed
and delivered to AntiVirals an Employment Agreement in the form of Exhibit F
hereto and James Baxendale shall have executed and delivered to ITC an
Employment Agreement in the form of Exhibit I hereto.
10.13 WAIVER OF FIRST REFUSAL RIGHT. Prior to the meeting of the
holders of AntiVirals stock to vote upon the Agreement, the Merger and the
issuance of AntiVirals stock, Dong Il Kwon and Dong Kook Pharmaceuticals
Co., Ltd. shall have executed and delivered to AntiVirals an undertaking
waiving any right of first refusal or other similar rights to license ITC
Products in markets other than the Korean Peninsula.
11. MUTUAL CONDITIONS TO OBLIGATIONS OF ANTIVIRALS, MERGER SUB AND
ITC. The obligations of AntiVirals, Merger Sub and ITC under this Agreement
shall, at the option of any of them, be subject to the following conditions,
unless otherwise waived by all of them in writing:
11.1 APPROVALS. AntiVirals, Merger Sub and ITC shall have received any
necessary consents to, or approvals of, the transactions contemplated by
this Agreement of any governmental agencies and authorities, including,
without limitation, the Tax Clearance Certificate from the California
Franchise Tax Board, and such approvals and the transactions contemplated
hereby shall not have been contested by any federal or state governmental
authority by formal proceeding and no party hereto shall have any knowledge
of the existence of any fact or the occurrence of any event forming the
basis for a reasonable belief that such approvals or the transactions
contemplated hereby will be contested by any federal or state governmental
authority or by any other third party by formal proceeding.
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11.2 NO LITIGATION. No material claim, action, suit, proceeding,
litigation, or investigation which challenges the consummation of the
transactions contemplated in this Agreement or which seeks to enjoin any of
the transactions contemplated herein, shall be instituted or threatened
against any party hereto by any governmental authority or by any other third
party and no party hereto shall have any knowledge of the existence of any
fact or the occurrence of any event forming the basis for a reasonable
belief that any such claim, action, suit, proceeding, litigation, or
investigation will be instituted or threatened against any party hereto.
11.3 NATURE OF STATEMENTS. All covenants, agreements, and statements
contained herein, in any Schedule hereto or in any certificate or other
instrument delivered by or on behalf of ITC or AntiVirals and Merger Sub
pursuant to this Agreement or in connection with the transactions
contemplated hereby, shall be deemed representations and warranties by ITC
or AntiVirals and Merger Sub, as the case may be.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
provided in this Agreement, all representations and warranties made in this
Agreement or in any certificate delivered pursuant hereto or otherwise shall
survive the consummation of the transactions contemplated hereby for a period of
one (1) year following the Closing and after one (1) year shall be terminated
and extinguished, except insofar as the damaged party shall have asserted in
writing pursuant to the Escrow Agreement, a specific claim setting forth the
specific facts and circumstances relating thereto with respect to such
representations, warranties, covenants and agreements prior to the expiration of
such rights, in which event the party liable shall remain liable with respect to
such claim.
13. INDEMNITY.
13.1 INDEMNIFICATION OF ANTIVIRALS. Subject to the limitations
contained in this section, the Escrow Indemnitors who are party to the
Escrow Agreement shall, jointly but not severally, on a pro rata basis,
defend, indemnify and hold harmless AntiVirals, its officers, directors,
shareholders, employees and agents from and against any and all losses,
claims, judgments, liabilities, demands, charges, suits, penalties, costs or
expenses, including court costs and attorneys' fees ("Claims and
Liabilities") with respect to or arising from (i) the breach of any warranty
or any inaccuracy of any representation made by ITC in this Agreement, or
(ii) the breach of any covenant or agreement made by ITC in this Agreement.
13.2 LIMITATIONS. Anything to the contrary notwithstanding, AntiVirals
shall not be indemnified and held harmless in respect of any Claims and
Liabilities which are covered by insurance owned by ITC to the extent that
any net loss is reduced by such insurance. AntiVirals' recourse in respect
of its right to indemnify by and from the Escrow Indemnitors shall be
limited to the Escrow Shares. AntiVirals shall not be permitted to enforce
any claim for indemnification which is less than $10,000 in value until the
aggregate of all claims for indemnification exceeds $50,000 (the
"Threshold"). Once claims in excess of the Threshold have been asserted by
AntiVirals, all claims may be pursued by AntiVirals, including, without
limitation, any claim for indemnification which is less than $10,000 in
value, unless otherwise limited by this Agreement. The parties understand
and agree that: (i) the obligation of the Escrow Indemnitors to indemnify
AntiVirals and its related parties as provided in this Section 13.1 shall be
the exclusive remedy for AntiVirals and such related parties in the event of
any breach of any express or implied representation, warranty or covenant of
ITC under this Agreement; (ii) the only recourse for AntiVirals and such
related parties to enforce such indemnification obligations shall be through
the Escrow Agreement against the Escrow Shares; (iii) the indemnity
obligations of the Escrow Indemnitors shall terminate one year from the
Closing, except insofar as AntiVirals has properly asserted a claim for
indemnification under this Section 13, pursuant to the terms of the Escrow
Agreement and such claim has not been resolved in accordance with the terms
of the Escrow Agreement; and (iv) the Escrow Indemnitors are intended
third-party beneficiaries of each of the agreements referenced in (i)
through (iv).
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13.3 INDEMNIFICATION OF ITC. AntiVirals shall defend, indemnify and
hold harmless ITC, and its officers, directors, shareholders, employees and
agents against and in respect to all Claims and Liabilities with respect to
or arising from (i) breach of any warranty or any inaccuracy of any
representation made by AntiVirals or Merger Sub, or (ii) breach of any
covenant or agreement made by AntiVirals or Merger Sub in this Agreement.
13.4 CLAIMS PROCEDURE. Promptly after the receipt by any indemnified
party (the "Indemnitee") of notice of the commencement of any action or
proceeding against such Indemnitee, such Indemnitee shall, if a claim with
respect thereto is or may be made against any indemnifying party (the
"Indemnifying Party") pursuant to this Section 13, give such Indemnifying
Party written notice of the commencement of such action or proceeding and
give such Indemnifying Party a copy of such claim and/or process and all
legal pleadings in connection therewith. The failure to give such notice
shall not relieve any Indemnifying Party of any of his or its
indemnification obligations contained in this Section 13, except where, and
solely to the extent that, such failure actually and materially prejudices
the rights of such Indemnifying Party. Such Indemnifying Party shall have,
upon request within sixty (60) days after receipt of such notice, but not in
any event after the settlement or compromise of such claim, the right to
defend, at his or its own expense and by his or its own counsel, any such
matter involving the asserted liability of the Indemnitee; provided,
however, that if the Indemnitee determines that, as a result of an existing
or prospective business relationship between AntiVirals or any of its
subsidiaries on the one hand and any other party or parties to such claim on
the other hand, or as a result of other reasonable circumstances, there is a
reasonable probability that a claim may materially and adversely affect him
or it, other than solely as a result of money payments required to be
reimbursed in full by such Indemnifying Party under this Section 13, the
Indemnitee shall have the right to defend, compromise or settle such claim
or suit; and, provided, further, that such settlement or compromise shall
not, unless consented to in writing by such Indemnifying Party, be
conclusive as to the liability of such Indemnifying Party to the Indemnitee.
In any event, the Indemnitee, such Indemnifying Party and his or its counsel
shall cooperate in the defense against, or compromise of, any such asserted
liability, and in cases where the Indemnifying Party shall have assumed the
defense, the Indemnitee shall have the right to participate in the defense
of such asserted liability at the Indemnitee's own expense. In the event
that such Indemnifying Party shall decline to participate in or assume the
defense of such action, prior to paying or settling any claim against which
such Indemnifying Party is, or may be, obligated under this Section 13 to
indemnify an Indemnitee, the Indemnitee shall first supply such Indemnifying
Party with a copy of a final court judgment or decree holding the Indemnitee
liable on such claim or, failing such judgment or decree, the terms and
conditions of the settlement or compromise of such claim. An Indemnitee's
failure to supply such final court judgment or decree or the terms and
conditions of a settlement or compromise to such Indemnifying Party shall
not relieve such Indemnifying Party of any of his or its indemnification
obligations contained in this Section 13, except where, and solely to the
extent that, such failure actually and materially prejudices the rights of
such Indemnifying Party. If the Indemnifying Party is defending the claim as
set forth above, the Indemnifying Party shall have the right to settle the
claim only with the consent of the Indemnitee; provided, however, that if
the Indemnitee shall fail to consent to the settlement of such a claim by
the Indemnifying Party, which settlement (i) the claimant has indicated it
will accept, and (ii) includes an unconditional release of the Indemnitee
and its affiliates by the claimant and imposes no material restrictions on
the future activities of the Indemnitee and its affiliates, the Indemnifying
Party shall have no liability with respect to any payment required to be
made to such claimant in respect of such claim in excess of the proposed
amount of settlement. If the Indemnitee is defending the claim as set forth
above, the Indemnitee shall have the right to settle or compromise any claim
against it after consultation with, but without the prior approval of, any
Indemnifying Party; provided, however, that such settlement or compromise
shall not, unless consented to in writing by such Indemnifying Party, be
conclusive as to the liability of such Indemnifying Party to the Indemnitee.
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14. TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval by the
shareholders of ITC and Merger Sub:
(a) by the mutual consent of the respective Boards of Directors of
AntiVirals, Merger Sub, and ITC;
(b) by the Board of Directors of AntiVirals if any condition to the
obligation of AntiVirals or Merger Sub under this Agreement to be complied
with or performed by ITC at or before the Closing shall not have been
complied with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall not have been
waived by AntiVirals;
(c) by the Board of Directors of ITC if any condition to the obligation
of ITC under this Agreement to be complied with or performed by AntiVirals
or Merger Sub at or before the Closing shall not have been complied with or
performed at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by ITC; or
(d) by the Board of Directors of either ITC or AntiVirals if the Closing
shall not have been consummated on or before June 30, 1998.
Notice of such termination by any party hereto pursuant to this Section 14
shall be given as soon as practicable to the other parties hereto. In the event
of a termination of this Agreement pursuant to this Section 14, this Agreement,
and any further obligation of AntiVirals, ITC and the Principal Shareholder
under this Agreement, shall terminate without any obligation or liability of any
party to any other parties hereto.
15. DEFINITIONS.
15.1 CERTAIN DEFINITIONS. The following terms shall have the following
meanings:
(a) Business. The term "Business" shall mean the business as now
operated by ITC or as it evolves.
(b) Generally Accepted Accounting Principles. The term "generally
accepted accounting principles" shall mean generally accepted accounting
principles, as defined by the Financial Accounting Standards Board as of
the date hereof.
(c) Material Adverse Effect. The term "Material Adverse Effect"
shall mean any change in or effect on the business, operations, assets or
financial condition of ITC or AntiVirals, as applicable, which is
materially adverse to such party.
(d) Member of the Immediate Family. The term "Member of the
Immediate Family" shall mean, with respect to any individual, each
spouse, parent, brother, sister or child of such individual, each trust
created in whole or in part for the benefit of the aforementioned and
each custodian or guardian of any property of one or more of the
aforementioned.
(e) Ordinary Course of Business. The term "Ordinary Course of
Business" shall mean the ordinary course of business consistent with past
custom and practice (including, without limitation, with respect to
quantity and frequency).
16. MISCELLANEOUS.
16.1 EXPENSES. Whether or not the merger is consummated, each party
hereto shall pay its own expenses (including, without limitation, counsel
and accounting fees and expenses) incident to the presentation and carrying
out of this Agreement and the consummation of the transactions contemplated
herein.
16.2 NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have
been properly given or made on the date personally delivered or
A-29
on the date mailed, by first class registered or certified mail with postage
prepaid, by private nationally recognized courier service or by facsimile
and confirmed, if delivered, mailed, courier or facsimile to the respective
parties hereto at the following addresses:
If to AntiVirals or Merger Sub, to:
AntiVirals Inc.
Suite 1105
One S.W. Columbia
Portland, OR 97258
Attn: Alan P. Timmins
With a copy to:
Ater Wynne Hewitt Dodson & Skerritt, LLP
Suite 1800
222 S.W. Columbia
Portland, OR 97201
Attn: Byron W. Milstead, Esq.
If to ITC to:
ImmunoTherapy Corporation
Suite 1200
222 S.W. Columbia
Portland, OR 97201
Attn: James C. L. Baxendale, Esq.
With a copy to:
Tonkon Torp LLP
Suite 1600
888 S.W. Fifth Avenue
Portland, OR 97204
Attn: Brendan R. McDonnell, Esq.
Any party hereto may designate a different address by providing written
notice of such new address to the other parties hereto.
16.3 ASSIGNMENT. This Agreement may not be assigned by ITC without the
written consent of AntiVirals. This Agreement may not be assigned by
AntiVirals without the written consent of ITC.
16.4 SUCCESSORS BOUND. Subject to the provisions of Section 16.3, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
16.5 CAPTIONS. The captions of the sections and paragraphs of this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16.6 AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
16.7 ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules,
certificates, and documents referred to herein constitute the entire
agreement of the parties hereto, and supersede all prior understandings with
respect to the subject matter hereof, and no representation or warranty not
included herein has been relied upon by any party hereto.
16.8 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
the same instrument.
A-30
16.9 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the state of Oregon.
16.10 ATTORNEYS' FEES. In the event of any dispute, controversy, or
proceeding between the parties concerning this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to receive from
the other party its costs and expenses, including attorneys' fees.
16.11 WAIVER. All waivers hereunder must be made in writing, and
failure of any party at any time to require another party's performance of
any obligation under this Agreement shall not affect, limit or waive a
party's right of any time to require strict performance of that obligation
thereafter. Any waiver of any breach of any provision of this Agreement
shall not be construed in any way as a waiver of any continuing or
succeeding breach of such provision or waiver or modification of the
provision.
16.12 SEVERABILITY. In the event any court, administrative agency or
other governmental entity with appropriate jurisdiction and authority
determines that any term or part of this Agreement is invalid or
unenforceable, the remainder of this Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
ANTIVIRALS INC., an Oregon corporation ANTIVIRALS ACQUISITION CORPORATION, a California
corporation
By: /s/ DENIS R. BURGER By: /s/ ALAN P. TIMMINS
--------------------------------------- ---------------------------------------
Denis R. Burger, Ph.D. Alan P. Timmins
Chief Executive Officer and President
and President
IMMUNOTHERAPY CORPORATION, a California corporation
By: /s/ JEFFREY L. LILLARD
---------------------------------------
Jeffrey L. Lillard
Managing Officer
A-31
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This First Amendment is made as of this 27th day of May, 1998, by and among
ANTIVIRALS, INC., an Oregon corporation ("AntiVirals"), ANTIVIRALS ACQUISITION
CORPORATION, a California corporation all of the outstanding stock of which is
owned by AntiVirals ("Merger Sub"), and IMMUNOTHERAPY CORPORATION, a California
corporation ("ITC").
WITNESSETH:
A. AntiVirals, Merger Sub and ITC are parties to that certain Agreement and
Plan of Reorganization and Merger ("Agreement") dated February 2, 1998, pursuant
to which ITC will merge with and into the Merger Sub with Merger Sub being the
surviving corporation and remaining a wholly-owned subsidiary of AntiVirals.
B. AntiVirals, the Merger Sub, and ITC desire to amend the Agreement in the
manner set forth herein.
C. Capitalized terms not otherwise defined herein shall have the same
meaning given them in the Agreement.
NOW, THEREFORE, in consideration of the premises, the provisions and the
respective agreements hereinafter set forth, the parties hereby agree as
follows:
1. The date referenced in the second sentence of Section 6.4 is hereby
changed to July 20, 1998.
2. The April 30, 1998 date referenced in the first sentence of Section
8.2 is hereby changed to July 20, 1998.
3. Section 8.4 is hereby amended to read as follows:
"8.4 ELECTION OF DIRECTORS. AntiVirals will nominate and recommend
the election of Jeffrey Lillard and Bruce Carter for election to the
Board of Director of AntiVirals."
4. Section 8.5 is hereby deleted in its entirety and replaced with the
following:
"8.5 LOAN TO ITC. AntiVirals agrees, on the terms and conditions set
forth in the Loan Agreement substantially in the form of Exhibit D hereto,
to make advances to ITC from time to time to pay current liabilities of the
type referred to in Schedule 8.5 or such other liabilities as are mutually
agreed upon by ITC and AntiVirals. Such advances may be made for the period
commencing December 31, 1997, until the earlier of the date of Closing or
July 15, 1998, and shall not exceed, in the aggregate, $925,000 plus the
amount of any multi-month contractual obligations with an outside vendor or
provider of services approved by AntiVirals and ITC, or such greater amount
as AntiVirals and ITC shall mutually agree in writing. Such advances shall
bear interest at the rate of nine and one-half percent (9 1/2%) per annum.
ITC shall repay, and shall pay full interest on, the advances in one
installment on April 30, 1999. In the event ITC defaults in the repayment
of the advances and interest, as AntiVirals' sole remedy for such default,
ITC shall issue to AntiVirals, subject to approval by ITC Shareholders, in
exchange for the conversion of all amounts outstanding under the Loan
Agreement, a number of shares of its Class B Preferred Stock equal to a
quotient resulting from dividing the amount of principal and interest
outstanding on April 30, 1999 by $1.0161235, which Class B Preferred Shares
shall enjoy the same rights and privileges as ITC's Class A Preferred
Shares, but the Class B Preferred Shareholders shall have the right to
designate and ITC shall be required to appoint the two designees of
AntiVirals to the Board of Directors of ITC."
5. The June 30, 1998 date referenced in SubSection (d) of new Section
14.1 is hereby changed to August 15, 1998.
B-1
6. Except as specifically set forth herein, the Agreement shall remain
unaffected and shall remain in full force and effect. This First Amendment
shall be deemed part of, and construed in accordance with, the Agreement.
IN WITNESS WHEREOF, the parties have executed this First Amendment and
caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
ANTIVIRALS INC., an Oregon corporation ANTIVIRALS ACQUISITION CORPORATION, a California
corporation
By: /s/ DENIS R. BURGER By: /s/ ALAN P. TIMMINS
--------------------------------------- ---------------------------------------
Denis R. Burger, Ph.D. Alan P. Timmins
CEO Chief Executive Officer and President
and President
IMMUNOTHERAPY CORPORATION, a California corporation
By: /s/ JAMES BAXENDALE
---------------------------------------
James Baxendale
Vice President and General Counsel
B-2
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Second Amendment is made as of this 4th day of August, 1998, by and
among ANTIVIRALS INC., an Oregon corporation ("ANTIVIRALS"), ANTIVIRALS
Acquisition Corporation, a California corporation all of the outstanding stock
of which is owned by ANTIVIRALS ("Merger Sub"), and IMMUNOTHERAPY CORPORATION, a
California corporation ("ITC").
WITNESSETH:
A. ANTIVIRALS, Merger Sub and ITC are parties to that certain Agreement and
Plan of Reorganization and Merger dated February 2, 1998, as amended by a First
Amendment to Agreement and Plan of Reorganization and Merger dated as of May 27,
1998 (the "First Amendment"). The Agreement and Plan of Reorganization and
Merger, as amended by the First Amendment, is herein referred to as the
"Agreement."
B. ANTIVIRALS, the Merger Sub, and ITC desire to further amend the
Agreement in the manner set forth herein.
C. Capitalized terms not otherwise defined herein shall have the same
meaning given them in the Agreement.
NOW, THEREFORE, in consideration of the premises, the provisions and the
respective agreements hereinafter set forth, the parties hereby agree as
follows:
1. Section 2.3 of the Agreement is hereby restated in its entirety to read
as follows:
"SECTION 2.3 CONVERSION OF ITC STOCK. Subject to the other terms of this
Section 2, each share of ITC Common Stock outstanding immediately prior
to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of any holder thereof, be converted into
a number of shares of ANTIVIRALS Common Stock equal to the Common Stock
Conversion Number, subject to the provisions of Section 2.6 regarding
the elimination of fractional shares, and into a number of ANTIVIRALS
Warrants equal to the Common Warrant Conversion Number, subject to the
provisions of Section 2.6 regarding the elimination of fractional
Warrants. As used herein, the term "Common Stock Conversion Number"
means .174. As used herein, the "Common Warrant Conversion Number" means
.17257. Subject to the other terms of this Section 2, each share of ITC
Preferred Stock outstanding immediately prior to the Effective Time of
the Merger shall, by virtue of the Merger and without any action on the
part of any holder thereof, be converted into a number of shares of
ANTIVIRALS Common Stock equal to the Preferred Stock Conversion Number,
subject to the provisions of Section 2.6 regarding the elimination of
fractional shares, and into a number of ANTIVIRALS Warrants equal to the
Preferred Warrant Conversion Number, subject to the provisions of
Section 2.6 regarding the elimination of fractional warrants. As used
herein, the terms "Preferred Stock Conversion Number" and "Preferred
Warrant Conversion Number" each mean .35."
2. The third sentence of Section 2.4 of the Agreement is hereby replaced
with the following sentence:
"The Option Conversion Number shall be .175 multiplied by the result
obtained by dividing the sum of the closing price of the ANTIVIRALS
Common Stock (NASDAQ trading symbol AVII) and ANTIVIRALS' traded warrant
(NASDAQ trading symbol AVIIW) with the closing price of the ANTIVIRALS
Common Stock on the day of Closing."
3. The Agreement and any other agreements contemplated thereby are hereby
amended in all respects so that they are consistent with Section 2.3 of the
Agreement as amended herein, such that for each share of ITC Common Stock
outstanding on the effective date of the Merger, such share shall be
C-1
automatically converted into (i) that number of shares of ANTIVIRALS Common
Stock equal to the Common Stock Conversion Number and (ii) that number of
ANTIVIRALS Warrants equal to the Common Warrant Conversion Number, and for each
share of ITC Preferred Stock outstanding at the effective date of the Merger,
such share shall be automatically converted into (1) that number of shares of
ANTIVIRALS Common Stock equal to the Preferred Stock Conversion Number and (2)
that number of ANTIVIRALS Warrants equal to the Preferred Warrant Conversion
Number, all as set forth in item 1 above.
4. The following changes are hereby made to the first sentence of Section
8.5 of the Agreement: (i) the July 31, 1998, date is replaced with October 7,
1998; and (ii) the $925,000 is replaced with $1,075,000.
5. Subsection (d) of Section 14 of the Agreement is hereby amended and
restated in its entirety as follows:
"(d) by the Board of Directors of either ITC or ANTIVIRALS if the Closing
shall not have been consummated on or before September 15, 1998;
provided, however, that if more than three percent of ITC Shareholders
voted against the proposal for adoption of the Agreement, then the date
by which the Closing must have occurred under this subsection (d) shall
be extended to October 7, 1998."
6. The title of the Warrant Agreement Between ANTIVIRALS INC. and ITC
Shareholders which is referenced in the Agreement as Exhibit A ("Warrant
Agreement") is hereby amended such that the title of the Warrant Agreement shall
be "Warrant Agreement Among ANTIVIRALS INC., ITC Shareholders and the ITC
Shareholders' Representative."
7. The first paragraph of the Warrant Agreement is hereby amended and
restated to read in its entirety as follows:
"This Agreement, dated as of , 1998, is among ANTIVIRALS INC.,
an Oregon corporation (the "Company"), the parties listed on Exhibit A
attached hereto (collectively, the "ITC Shareholders," and each
individually, as "ITC Shareholder") and James Baxendale as representative
of the ITC Shareholders (the "Representative").
8. A new Section 3 is hereby added to the Warrant Agreement to read as
follows (and all internal cross references in the Warrant Agreement are hereby
amended to provide for the addition of this new Section 3):
"SECTION 3. REPRESENTATIVE.
As a material inducement to the Company to consummate the Merger, the ITC
Shareholders agree to be expressly subject to the terms and conditions of
this Agreement and to appoint the Representative as the ITC Shareholders'
representative, attorney-in-fact and agent for purposes of this Agreement
to act for and on behalf of each ITC Shareholder as provided herein, and
to the taking by the Representative of any and all actions and the making
of any decisions required or permitted to be taken or made by the
Representative on the ITC Shareholders' behalf under this Agreement,
including, without limitation, the amendment of this Agreement."
9. A new paragraph is hereby added to the end of Section 9 of the Warrant
Agreement (as the Section numbers were revised to account for the new Section 3
contained in item 7 above) as follows:
"The Company will use all commercially reasonable efforts to cause the
Warrants to be quoted for trading on the NASDAQ/NMS or, if the Warrants
are not eligible for trading on NASDAQ/ NMS, such other exchange as shall
be mutually acceptable to the Company and the Representative no later than
six (6) months after the effective date of the Merger."
C-2
10. Section 20 of the Warrant Agreement (as the section numbers were revised
to account for the new Section 3 contained in item 7 above) is amended and
restated in its entirety to read as follows:
"SECTION 20. ENTIRE AGREEMENT.
As of the date hereof, this Agreement contains the entire and only
agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes
any and all other agreements between the parties hereto relating to such
matters, and may be modified or amended only by a written agreement
signed by the Company and the Representative."
11. The Lock-up Agreement which is referenced in the Agreement as Exhibit H
is hereby amended by the addition of the terms "or warrants" after the terms
"Common Stock" in the second paragraph thereof.
12. Section 8.6 of the Agreement is amended and restated to read as follows:
"8.6 RELEASE OF LOCKED UP SHARES. Six (6) months after the effective date
of the Merger, ANTIVIRALS shall release from the operation of the Lockup
Agreements delivered to ANTIVIRALS in accordance with Section 10.11
hereof an aggregate of 210,000 Shares of ANTIVIRALS Common Stock and
210,000 Warrants to purchase ANTIVIRALS Common Stock issued to ITC
Shareholders by reason of the Merger. For purposes of allocating such
shares and warrants among the ITC Shareholders, that number of shares of
ANTIVIRALS Common Stock and Warrants shall be released equal to fifty
percent (50%) of the shares of ANTIVIRALS Common Stock and fifty percent
(50%) of the Warrants received by ITC Shareholders by reason of the
conversion of shares of ITC Preferred Stock upon the Merger ratably among
the holders thereof. The balance of the shares of ANTIVIRALS Common Stock
and Warrants to be released shall be allocated ratably among all ITC
Shareholders, other than Jeffrey Lillard and Paula Lillard, trustees of
the Lillard Family Trust, dated April 28, 1989, Matthew Lyn Lillard and
Amy Lynn Lillard, based on their respective holdings of ANTIVIRALS Common
Stock and Warrants arising from the conversion of shares of ITC Common
Stock upon the Merger. One (1) year after the effective date of the
Merger, ANTIVIRALS shall release from the operation of the Lockup
Agreements delivered to ANTIVIRALS in accordance with Section 10.11
hereof (i) an aggregate number of shares of ANTIVIRALS Common Stock
issued to ITC Shareholders by reason of the Merger equal to the remainder
of 840,000 minus that number of shares of ANTIVIRALS Common Stock
released to ANTIVIRALS under the terms of the Escrow Agreement or which
are subject to pending claims thereunder; and (ii) an aggregate number of
warrants to purchase ANTIVIRALS Common Stock equal to 840,000. For
purposes of allocating such shares among the ITC Shareholders, that
number of shares of ANTIVIRALS Common Stock and Warrants shall be
released equal to fifty percent (50%) of the shares of ANTIVIRALS Common
Stock and fifty percent (50%) of the Warrants received by ITC
Shareholders by reason of the conversion of shares of ITC Preferred Stock
upon the Merger ratably among the holders thereof. The balance of the
shares of ANTIVIRALS Common Stock and Warrants to be released shall be
allocated ratably among all ITC Shareholders, other than Jeffrey Lillard
and Paula Lillard, trustees of the Lillard Family Trust, dated April 28,
1989, Matthew Lyn Lillard and Amy Lynn Lillard, based on their respective
holdings of ANTIVIRALS Common Stock and Warrants arising from the
conversion of shares of ITC Common Stock upon the Merger.
13. Except as specifically set forth herein, the Agreement shall remain in
full force and effect. This Second Amendment shall be deemed part of, and
construed in accordance with, the Agreement.
C-3
IN WITNESS WHEREOF, the parties have executed this Second Amendment and
caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
ANTIVIRALS INC., an Oregon corporation ANTIVIRALS Acquisition Corporation, a
California corporation
By: /s/ DENIS R. BURGER By: /s/ ALAN P. TIMMINS
- ---------------------------------------- ------------------------------------------
Denis R. Burger Alan P. Timmins
CEO CHIEF EXECUTIVE OFFICER AND PRESIDENT
IMMUNOTHERAPY CORPORATION, a
California corporation
By: /s/ JAMES BAXENDALE
- ----------------------------------------
James Baxendale
VICE PRESIDENT AND GENERAL COUNSEL
C-4
WARRANT AGREEMENT AMONG ANTIVIRALS INC., ITC SHAREHOLDERS AND ITC SHAREHOLDERS'
REPRESENTATIVE
This Agreement, dated as of , 1998, is among AntiVirals Inc., an
Oregon corporation (the "Company"), the parties listed on Exhibit A attached
hereto (collectively, the "ITC Shareholders," and each individually, as "ITC
Shareholder"), and as representative of the ITC Shareholders (the
"Representative").
The ITC Shareholders are shareholders of ImmunoTherapy Corporation, a
California corporation ("ITC"). ITC and AVI have entered into an Agreement and
Plan of Reorganization and Merger dated as of February 2, 1998, pursuant to
which AntiVirals Acquisition Corp., a California corporation ("Merger Sub"), a
wholly-owned subsidiary of AVI, shall be merged with ITC (the "Merger"), with
Merger Sub to be the surviving corporation of the Merger. In the Merger, the
outstanding shares of ITC Common and Preferred Stock ("ITC Stock") will be
converted into up to 2,300,000 shares of AVI Common Stock, $.0001 par value
("Common Stock") and up to 2,300,000 warrants to purchase AVI Common Stock (the
"Warrants").
The Company wishes to enter into this Agreement to set forth the terms and
conditions of the Warrants and the rights of the holders thereof
("Warrantholders"), to provide for the issuance, transfer, exchange and
replacement of lost warrant certificates, and to set forth the respective rights
and obligations of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES.
The Warrant Certificates (and the Form of Election to Purchase and the Form
of Assignment to be printed thereon) shall be in registered form only and shall
be substantially of the tenor and purport recited in Exhibit B hereto, and may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law, or
with any rule or regulation made pursuant thereto. Each Warrant Certificate
shall entitle the registered holder thereof, subject to the provisions of this
Agreement and of the Warrant Certificate, to purchase, after
[two (2) years from the effective date of
the Merger], but prior to the close of business on
[four (4) years and eight (8) months after
the effective date of the Merger] (the "Expiration Date"), one fully paid and
non-assessable share of Common Stock for each Warrant evidenced by such Warrant
Certificate, subject to adjustments as provided in Section 6 hereof, for $13.50
(the "Exercise Price"). Each Warrant Certificate shall be dated ,
1998; each other Warrant Certificate shall be dated the date on which the
Company receives valid issuance instructions from a transferring holder of a
Warrant Certificate or, if such instructions specify another date, such other
date.
For purposes of this Agreement, the term "close of business" on any given
date shall mean 5:00 p.m., Pacific Time, on such date; provided, however, that
if such date is not a business day, it shall mean 5:00 p.m., Pacific Time, on
the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in New York are authorized or obligated by law to be
closed.
Each Warrant Certificate shall be executed on behalf of the Company by the
Chairman of the Board or its President or a Vice President, either manually or
by facsimile signature printed thereon, and have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company.
D-1
SECTION 2. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES.
Subsequent to their original issuance, no Warrant Certificates shall be
reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable thereunder pursuant to Section 22 hereof.
SECTION 3. REPRESENTATIVE.
As a material inducement to the Company to consummate the Merger, the ITC
Shareholders agree to be expressly subject to the terms and conditions of this
Agreement and to appoint the Representative as the ITC Shareholders'
representative, attorney-in-fact and agent for purposes of this Agreement to act
for and on behalf of each ITC Shareholder as provided herein, and to the taking
by the Representative of any and all actions and the making of any decisions
required or permitted to be taken or made by the Representative on the ITC
Shareholders' behalf under this Agreement, including without limitation the
amendment of this Agreement.
SECTION 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES.
The Company will keep or cause to be kept books for registration of
ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
The Company shall, from time to time, register the transfer of any
outstanding Warrants upon the books to be maintained by the Company for that
purpose, upon surrender of the Warrant Certificate evidencing such Warrants,
with the Form of Assignment duly filled in and executed with such signature
guaranteed by a banking institution or NASD member and such supporting
documentation as the Company may reasonably require, to the Company at its
office at One S.W. Columbia Street, Suite 1105, Portland, Oregon 97258, at any
time on or before the Expiration Date, and upon payment to the Company of an
amount equal to any applicable transfer tax. Payment of the amount of such tax
may be made in cash, or by certified or official bank check, payable in lawful
money of the United States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment duly
filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Company shall promptly cancel the surrendered
Warrant Certificate and deliver to the transferee a new Warrant Certificate for
the number of full Warrants transferred to such transferee; PROVIDED, HOWEVER,
that in case the registered holder of any Warrant Certificate shall elect to
transfer fewer than all of the Warrants evidenced by such Warrant Certificate,
the Company in addition shall promptly deliver to such registered holder a new
Warrant Certificate or Certificates for the number of full Warrants not so
transferred.
Any Warrant Certificate or Certificates may be exchanged at the option of
the holder thereof for another Warrant Certificate or Certificates of different
denominations, of like tenor and representing in the aggregate the same number
of Warrants, upon surrender of such Warrant Certificate or Certificates, with
the Form of Assignment duly filled in and executed, to the Company, at any time
or from time to time after the close of business on the date hereof and prior to
the close of business on the Expiration Date. The Company shall promptly cancel
the surrendered Warrant Certificate and deliver the new Warrant Certificate
pursuant to the provisions of this Section.
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Notwithstanding the foregoing, no holder shall sell, assign, transfer,
pledge or in any other manner alienate any of the Warrants or any right or
interest therein, whether voluntary or by operation of law or otherwise, except
as follows. A Holder may, during his or her lifetime or on death by will or
intestacy, transfer any or all of the Holder's Warrants to his or her Immediate
Family. Immediate Family shall mean any spouse, lineal descendant, father,
mother, brother or sister of the Holder making such transfer. Provided that the
Holder shall have provided the Company a written undertaking evidencing the
Holder's donative intent, the Holder may, during his or her lifetime, transfer
any or all of the Holder's Warrants by gift. Upon any transfer described in this
paragraph, the transferee shall be bound by the terms and conditions of this
Warrant Agreement, and the Company may require the written agreement of the
transferee to be bound hereby prior to entering the transfer in the Company's
books and records. Following any such transfer, the transferee shall make no
further transfers, except as herein provided.
The Company may place conspicuously in each Warrant Certificate the
following legend:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO TERMS AND CONDITIONS OF A
WARRANT AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE COMPANY, WHICH AGREEMENT
INCLUDES, AMONG OTHER PROVISIONS,
RESTRICTIONS ON THE TRANSFER OF THE WARRANT.
SECTION 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES.
Upon receipt by the Company of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of any Warrant Certificate, and in
the case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to them of all reasonable expenses
incidental thereto, and, in the case of mutilation, upon surrender and
cancellation of the Warrant Certificate, the Company shall issue and deliver a
new Warrant Certificate of like tenor for the same number of Warrants.
SECTION 6. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND EXERCISE
PRICE.
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. In case the Company shall (1) pay a dividend in, or make a distribution
of, shares of capital stock on its outstanding Common Stock, (2) subdivide its
outstanding shares of Common Stock into a greater number of such shares or (3)
combine its outstanding shares of Common Stock into a smaller number of such
shares, the total number of shares of Common Stock purchasable upon the exercise
of each Warrant outstanding immediately prior thereto shall be adjusted so that
the holder of any Warrant Certificate thereafter surrendered for exercise shall
be entitled to receive at the same aggregate Exercise Price the number of shares
of capital stock (of one or more classes) which such holder would have owned or
have been entitled to receive immediately following the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the record date with respect to such event. Any adjustment made pursuant to
this Subsection shall, in the case of a stock dividend or distribution, become
effective as of the record date therefor and, in the case of a subdivision or
combination, be made as of the effective date thereof. If, as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
Certificate thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive and shall be
evidenced by a Board resolution) shall determine the allocation of the adjusted
Exercise Price between or among shares of such classes of capital stock.
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B. In the event of a capital reorganization or a reclassification of the
Common Stock (except as provided in Subsection A. above or Subsection E. below),
any Warrantholder, upon exercise of Warrants, shall be entitled to receive, in
substitution for the Common Stock to which he would have become entitled upon
exercise immediately prior to such reorganization or reclassification, the
shares (of any class or classes) or other securities or property of the Company
(or cash) that he would have been entitled to receive at the same aggregate
Exercise Price upon such reorganization or reclassification if such Warrants had
been exercised immediately prior to the record date with respect to such event;
and in any such case, appropriate provision (as determined by the Board of
Directors of the Company, whose determination shall be conclusive and shall be
evidenced by a Board resolution) shall be made for the application of this
Section 6 with respect to the rights and interests thereafter of the
Warrantholders (including but not limited to the allocation of the Exercise
Price between or among shares of classes of capital stock), to the end that this
Section 6 (including the adjustments of the number of shares of Common Stock or
other securities purchasable and the Exercise Price thereof) shall thereafter be
reflected, as nearly as reasonably practicable, in all subsequent exercises of
the Warrants for any shares or securities or other property (or cash) thereafter
deliverable upon the exercise of the Warrants.
C. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant is adjusted as provided in this Section
6, the Company by first-class, postage prepaid mail, a brief summary thereof (to
be supplied by the Company) to the registered holders of the outstanding Warrant
Certificates; provided, however, that failure to file or to give any notice
required under this Subsection, or any defect therein, shall not affect the
legality or validity of any such adjustments under this Section 6; and provided,
further, that, where appropriate, such notice may be given in advance and
included as part of the notice required to be given pursuant to Section 12
hereof.
D. In case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, shall execute and deliver
to the registered holders of the outstanding Warrant Certificates a supplemental
warrant agreement providing that the holder of each Warrant then outstanding
shall have the right thereafter (until the expiration of such Warrant) to
receive, upon exercise of such Warrant, solely the kind and amount of shares of
stock and other securities and property (or cash) receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided in this
section. The above provision of this Subsection shall similarly apply to
successive consolidations, mergers, sales or transfers.
E. Irrespective of any adjustments in the number or kind of shares issuable
upon exercise of Warrants, Warrant Certificates theretofore or thereafter issued
may continue to express the same price and number and kind of shares as are
stated in the similar Warrant Certificates initially issuable pursuant to this
Warrant Agreement.
F. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, to make any computation required under this Section, and a
certificate signed by such firm shall, in the absence of fraud or gross
negligence, be conclusive evidence of the correctness of any computation made
under this Section.
G. For the purpose of this Section, the term "Common Stock" shall mean (i)
the class of stock designated as Common Stock in the Articles of Incorporation
of the Company, as amended, at the date of this Agreement, or (ii) any other
class of stock resulting from successive changes or reclassification of such
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Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. In the event that at any time as a
result of an adjustment made pursuant to this Section, the holder of any Warrant
thereafter surrendered for exercise shall become entitled to receive any shares
of capital stock of the Company other than shares of Common Stock, thereafter
the number of such other shares so receivable upon exercise of any Warrant shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in this Section, and all other provisions of this Agreement, with
respect to the Common Stock, shall apply on like terms to any such other shares.
H. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release, and shall take such other steps as may be required
under applicable law in connection with any offers or sales of securities at the
reduced price.
SECTION 7. EXERCISE AND REDEMPTION OF WARRANTS.
Unless the Warrants have been redeemed as provided in this Section 8, the
registered holder of any Warrant Certificate may exercise the Warrants evidenced
thereby, in whole at any time or in part from time to time after
[two (2) years from the effective date of
the Merger] and at or prior to the close of business, on the Expiration Date,
subject to the provisions of Section 9, at which time the Warrant Certificates
shall be and become wholly void and of no value. Warrants may be exercised by
their holders or redeemed by the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Election to Purchase on
the reverse side thereof duly filled in and executed, to the Company at its
office at One S.W. Columbia Street, Suite 1105, Portland, Oregon 97258, together
with payment to the Company of the Exercise Price (as of the date of such
surrender) of the Warrants then being exercised and an amount equal to any
applicable transfer tax and, if requested by the Company, any other taxes or
governmental charges which the Company may be required by law to collect in
respect of such exercise. Payment of the Exercise Price and other amounts may be
made by wire transfer of good funds, or by certified or bank cashier's check,
payable in lawful money of the United States of America to the order of the
Company. No adjustment shall be made for any cash dividends, whether paid or
declared, on any securities issuable upon exercise of a Warrant.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and of an amount equal to any applicable
taxes or government charges as aforesaid), the Company shall promptly request
from the Transfer Agent with respect to the securities to be issued and deliver
to or upon the order of the registered holder of such Warrant Certificate, in
such name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of the securities to be purchased,
together with cash made available by the Company pursuant to Section 8 hereof in
respect of any fraction of a share of such securities otherwise issuable upon
such exercise. If the Warrant is then exercisable to purchase property other
than securities, the Company shall take appropriate steps to cause such property
to be delivered to or upon the order of the registered holder of such Warrant
Certificate. In addition, if it is required by law, the Company will deliver to
each Warrantholder a prospectus which complies with the provisions of Section 8
of the Securities Act of 1933, as amended.
C. In case the registered holder of any Warrant Certificate shall exercise
fewer than all of the Warrants evidenced by such Warrant Certificate, the
Company shall promptly countersign and deliver to the registered holder of such
Warrant Certificate, or to his duly authorized assigns, a new Warrant
Certificate or Certificates evidencing the number of Warrants that were not so
exercised.
D-5
D. Each person in whose name any certificate for securities is issued upon
the exercise of Warrants shall for all purposes be deemed to have become the
holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price (and of any
applicable taxes or other governmental charges) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date on which the stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares as of, and the certificate for such
shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Company shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a period of
more than 20 consecutive business days except upon consolidation, merger, sale
of all or substantially all of its assets, dissolution or liquidation or as
otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may be redeemed at
the option of the Company, in whole or in part on a pro rata basis, at any time
after the warrant is exercisable and the shares subject to the Warrants are
registered pursuant to an effective Registration Statement under the Securities
Act of 1933, as amended, if, at the time notice of such redemption is given by
the Company as provided in Paragraph F, below, the Daily Price has exceeded
$27.00 for the 20 consecutive trading days immediately preceding the date of
such notice, at a price equal to $0.25 per Warrant (the "Redemption Price"). The
twenty (20) day trading period described in the preceding sentence must occur
after this Warrant becomes exercisable and while the shares subject to the
Warrants are covered by an effective Registration Statement under the Securities
Act of 1933, as amended. For the purpose of the foregoing sentence, the term
"Daily Price" shall mean, for any relevant day, the closing bid price on that
day as reported by the principal exchange or quotation system on which prices
for the Common Stock are reported. On the redemption date the holders of record
of redeemed Warrants shall be entitled to payment of the Redemption Price upon
surrender of such redeemed Warrants to the Company at its office at One S.W.
Columbia Street, Suite 1105, Portland, Oregon 97258.
F. Notice of redemption of Warrants shall be given at least 30 days prior
to the redemption date by mailing, by registered or certified mail, return
receipt requested, a copy of such notice to all of the holders of record of
Warrants at their respective addresses appearing on the books or transfer
records of the Company or such other address designated in writing by the holder
of record to the Company not less than 40 days prior to the redemption date.
G. From and after the redemption date, all rights of the Warrantholders
(except the right to receive the Redemption Price) shall terminate, but only if
(a) no later than one day prior to the redemption date the Company shall have
irrevocably deposited in a segregated bank account a sufficient amount to pay on
the redemption date the Redemption Price for all Warrants called for redemption
and (b) the notice of redemption shall have stated the intention of the Company
to deposit such amount no later than one day prior to the redemption date.
H. The Company shall pay to the holders of record of redeemed Warrants all
monies to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled.
I. Any amounts deposited that are not required for redemption of Warrants
may be withdrawn by the Company.
J. If the Company fails to make a sufficient deposit as provided above, the
holder of any Warrants called for redemption may at the option of the holder (a)
by notice to the Company declare the notice of redemption a nullity as to such
holder, or (b) maintain an action against the Company for the Redemption Price.
If the holder brings such an action, the Company will pay reasonable attorneys'
fees of the holder. If the holder fails to bring an action against the Company
for the Redemption Price within 60 days after the redemption date, the holder
shall be deemed to have elected to declare the notice of redemption to be a
nullity as to such holder and such notice shall be without any force or effect
as to such holder. Except as
D-6
otherwise specifically provided in this Paragraph J, a notice of redemption,
once mailed by the Company as provided in Paragraph F shall be irrevocable.
SECTION 8. FRACTIONAL INTERESTS.
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall purchase such fraction for an amount in cash equal to the current
fair market value of such fraction computed on the basis of the closing market
price (as quoted on NASDAQ) on the trading day immediately preceding the day
upon which such Warrant Certificate was surrendered for exercise in accordance
with Section 7 hereof or issue the required fractional Warrant or share. By
accepting a Warrant Certificate, the holder thereof expressly waives any right
to receive a Warrant Certificate evidencing any fraction of a Warrant or to
receive any fractional share of securities upon exercise of a Warrant, except as
expressly provided in this Section 8.
SECTION 9. RESERVATION OF EQUITY SECURITIES; REGISTRATION.
The Company covenants that it will at all times reserve and keep available,
free from any preemptive rights, out of its authorized and unissued equity
securities, solely for the purpose of issue upon exercise of the Warrants, such
number of shares of equity securities of the Company as shall then be issuable
upon the exercise of all outstanding Warrants ("Equity Securities"). The Company
covenants that all Equity Securities which shall be so issuable shall, upon such
issue, be duly authorized, validly issued, fully paid and nonassessable.
The Company covenants that it will use all commercially reasonable efforts
to cause the Equity Securities to be duly registered, or approved, as the case
may be, and, to the extent practicable, take all such action in anticipation of
and prior to the exercise of the Warrants, including, without limitation, filing
any Registration Statement necessary to permit the immediate sale of the
securities underlying the Warrants at any and all times during the term of this
Agreement, PROVIDED, HOWEVER, that in no event shall such securities be issued,
and the Company is authorized to refuse to honor the exercise of any Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any securities law. The Company will
use all commercially reasonable efforts to cause the shares subject to the
Warrants to be quoted for trading on the NASDAQ/NMS. The Company will use all
commercially reasonable efforts to cause the Warrants to be quoted for trading
on the NASDAQ/NMS no later than six (6) months after the effective date of the
Merger.
SECTION 10. REDUCTION OF CONVERSION PRICE BELOW PAR VALUE.
Before taking any action that would cause an adjustment pursuant to Section
5 hereof reducing the portion of the Exercise Price required to purchase one
share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
SECTION 11. PAYMENT OF TAXES.
The Company covenants and agrees that it will pay when due and payable any
and all federal and state documentary stamp and other original issue taxes which
may be payable in respect of the original issuance of the Warrant Certificates,
or any shares of Common Stock or other securities upon the exercise of Warrants.
The Company shall not, however, be required (i) to pay any tax which may be
payable in respect of any transfer involved in the transfer and delivery of
Warrant Certificates or the issuance or delivery of
D-7
certificates for Common Stock or other securities in a name other than that of
the registered holder of the Warrant Certificate surrendered for purchase or
(ii) to issue or deliver any certificate for shares of Common Stock or other
securities upon the exercise of any Warrant Certificate until any such tax shall
have been paid, all such tax being payable by the holder of such Warrant
Certificate at the time of surrender.
SECTION 12. NOTICE OF CERTAIN CORPORATE ACTION.
In case the Company after the date hereof shall propose (i) to offer to the
holders of Common Stock, generally, rights to subscribe to or purchase any
additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect any
reclassification of Common Stock (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common Stock) or any
capital reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
any sale, transfer or other disposition of its property and assets substantially
as an entirety, or the liquidation, voluntary or involuntary dissolution or
winding-up of the Company, then, in each such case, the Company shall mail (by
first-class, postage prepaid mail) to all registered holders of the Warrant
Certificates notice of such proposed action, which notice shall specify the date
on which the books of the Company shall close or a record be taken for such
offer of rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up shall take place
or commence, as the case may be, and which shall also specify any record date
for determination of holders of Common Stock entitled to vote thereon or
participate therein and shall set forth such facts with respect thereto as shall
be reasonably necessary to indicate any adjustments in the Exercise Price and
the number or kind of shares or other securities purchasable upon exercise of
Warrants which will be required as a result of such action. Such notice shall be
filed and mailed in the case of any action covered by clause (i) above, at least
10 days prior to the record date for determining holders of the Common Stock for
purposes of such action or, if a record is not to be taken, the date as of which
the holders of shares of Common Stock of record are to be entitled to such
offering; and, in the case of any action covered by clause (ii) above, at least
20 days prior to the earlier of the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up is expected to
become effective and the date on which it is expected that holders of shares of
Common Stock of record on such date shall be entitled to exchange their shares
for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up.
Failure to give any such notice or any defect therein shall not affect the
legality or validity of any transaction listed in this Section 12.
SECTION 13. INSPECTION RIGHT.
The Company shall keep copies of this Agreement available for inspection by
Warrantholders during normal business hours at its principal executive office.
Copies of this Agreement may be obtained upon written request addressed to the
Company at its office at One S.W. Columbia Street, Suite 1105, Portland, Oregon
97258.
SECTION 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER.
No Warrantholder, as such, shall be entitled to vote, receive dividends or
be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Warrants represented
thereby for any purpose whatever, nor shall anything contained herein or in any
Warrant Certificate be construed to confer upon any Warrantholder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted
D-8
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
12 hereof), or to receive dividend or subscription rights, or otherwise, until
such Warrant Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise.
SECTION 15. RIGHT OF ACTION.
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of any other holder of a
Warrant Certificate, may, in his own behalf for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, his right to exercise the
Warrants evidenced by such Warrant Certificate, for the purchase of shares of
the Common Stock in the manner provided in the Warrant Certificate and in this
Agreement.
SECTION 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES.
Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company and with every other holder of a Warrant Certificate
that:
A. The Warrant Certificates are transferable on the registry books of the
Company only upon the terms and conditions set forth in this Agreement; and
B. The Company may deem and treat the person in whose name the Warrant
Certificate is registered as the absolute owner of the Warrant (notwithstanding
any notation of ownership or other writing thereon made by anyone other than the
Company) for all purposes whatever and the Company shall not be affected by any
notice to the contrary.
SECTION 17. CANCELLATION OF WARRANT CERTIFICATES.
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be canceled by it and retired. The
Company shall also cancel any Warrant Certificate delivered to it for exercise,
in whole or in part, or delivered to it for transfer, split-up, combination or
exchange.
SECTION 18. ISSUANCE OF NEW WARRANT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
SECTION 19. NOTICES.
Notice or demand pursuant to this Agreement to be given or made on the
Company or by the registered holder of any Warrant Certificate shall be
sufficiently given or made if sent by first-class or registered mail, postage
prepaid, addressed (until another address is filed in writing by the Company) as
follows:
AntiVirals Inc.
One S.W. Columbia, Suite 1105
D-9
Portland, Oregon 97258
Attn: Chief Financial Officer
Any notice or demand authorized to be given or made to the registered holder
of any Warrant Certificate under this Agreement shall be sufficiently given or
made if sent by first-class or registered mail, postage prepaid, to the last
address of such holder as it shall appear on the registers maintained by the
Company.
SECTION 20. ENTIRE AGREEMENT.
As of the date hereof, this Agreement contains the entire and only
agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by the Company
and the Representative.
SECTION 21. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of
the Company shall bind and inure to the benefit of their respective successors
and assigns hereunder.
SECTION 22. OREGON CONTRACT.
This Agreement and each Warrant Certificate issued hereunder shall be deemed
to be a contract made under the laws of the state of Oregon and for all purposes
shall be construed in accordance with the laws of said State.
SECTION 23. TERMINATION.
This Agreement shall terminate as of the close of business on the Expiration
Date, or such earlier date upon which all Warrants shall have been exercised or
redeemed.
SECTION 24. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement or in the Warrant Certificates shall be construed
to give to any person or corporation other than the Company and its successors
and assigns hereunder and the registered holders of the Warrant Certificates any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, its
respective successors and assigns hereunder and the registered holders of the
Warrant Certificates and their respective successors and assigns.
SECTION 25. DESCRIPTIVE HEADINGS.
The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
SECTION 26. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
ANTIVIRALS INC.
By:
Title:
ITC SHAREHOLDERS:
REPRESENTATIVE:
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ANTIVIRALS INC.
LOCK-UP AGREEMENT
The undersigned is a beneficial owner of Common Stock, Preferred Stock,
options, warrants, or other securities of ImmunoTherapy Corporation, a
California corporation (the "Company"), and wishes to facilitate a merger (the
"Merger") of ImmunoTherapy Corporation with and into a wholly-owned subsidiary
of AntiVirals Inc., an Oregon corporation (the "Company"). Upon consummation of
the Merger, the undersigned will become the beneficial owner of Common Stock,
options, warrants or other securities of the Company. The undersigned recognizes
that the Merger will be of benefit to the undersigned.
In consideration of the foregoing, the undersigned hereby agrees that he,
she or it will not, without the prior written approval of the Company, directly
or indirectly, sell, contract to sell, make any short sale, pledge, transfer, or
otherwise dispose of any shares of the Common Stock or warrants which he, she or
it may own (including, without limitation, any shares of the Common Stock or
warrants that may be deemed to be beneficially owned by the undersigned in
accordance with the rules of the Securities and Exchange Commission ("SEC")
during the period commencing on the date hereof and ending on the date which is
two (2) years after the effective date of the Merger; provided, however, that
the foregoing shall not include any shares of Common Stock or warrants purchased
in or after the Merger in the public market.
If the Merger is not completed on or before , 1998, this
agreement shall be null and void and of no further force or effect.
The undersigned confirms that he, she or it understands and agrees that the
Company will rely on this agreement in proceeding with the Merger. The
undersigned further confirms and agrees that the undersigned cannot revoke this
agreement and that this agreement shall be binding on the undersigned and the
undersigned's heirs, legal and personal representatives, successors and assigns,
upon the execution and delivery of this agreement. The undersigned agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of securities held by the undersigned except in
compliance with this agreement.
Dated: , 1998.
Signature:
Print name:
Address:
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ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made and entered into as of
, 1998 (the "Effective Date"), by and among ANTIVIRALS INC., an
Oregon corporation ("AVI"), the parties listed on Exhibit A attached hereto
(collectively, the "Escrow Indemnitors," and each individually, an "Escrow
Indemnitor"), JEFFREY LILLARD as the representative of the Escrow Indemnitors
(the "Representative"), and an escrow agent (the "Escrow Agent").
R E C I T A L S
A. The Escrow Indemnitors are shareholders of ImmunoTherapy Corporation, a
California corporation ("ITC"). ITC and AVI have entered into an Agreement and
Plan of Reorganization and Merger dated as of January , 1998 (the "Plan"),
pursuant to which AntiVirals Acquisition Corp., a California corporation
("Merger Sub"), a wholly-owned subsidiary of AVI, shall be merged with ITC (the
"Merger"), with Merger Sub to be the surviving corporation of the Merger (the
"Surviving Corporation"). In the Merger, the outstanding shares of ITC Common
and Preferred Stock ("ITC Stock") will be converted into shares of AVI Common
Stock, $.0001 par value ("AVI Common Stock") and warrants to purchase AVI Common
Stock.
B. The Plan provides that an aggregate of fifteen percent (15%) of the
total number of shares of AVI Common Stock issued in respect of the conversion
of outstanding ITC Stock in the Merger will be withheld from certain ITC
shareholders and will be placed in an escrow established in accordance with this
Agreement to secure the indemnification obligations under section 13 of the
Plan.
C. The parties desire to enter into this Agreement to establish the terms
and conditions under which the escrow will be established and maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINED TERMS.
1.1 TERMS DEFINED IN PLAN. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the same meanings given to such
terms in the Plan.
1.2 ESCROW. As used herein, the "Escrow" means the escrow and the
Escrow Account (as defined in section 3.1 below) established pursuant to
this Agreement in which the Escrowed Property (as defined in section 1.3
below) will be held to secure indemnification obligations of the Escrow
Indemnitors in accordance with section 13 of the Plan.
1.3 ESCROWED PROPERTY. As used herein, the "Escrowed Property" means,
collectively: (a) fifteen percent (15%) of the total number of shares of AVI
Common Stock issued in respect of the conversion of all outstanding shares
of ITC Stock in the Merger (the "Escrow Shares") and the Stock Powers (as
defined in section 3.1 below) executed and delivered by the Escrow
Indemnitors with respect to such Escrow Shares; and (b) all other property
(not including cash dividends but including Distributions and Secondary
Distributions (as defined in section 3.2 below)) other than cash dividends
issued or paid with respect to any Escrow Shares that are deposited in the
Escrow Account-- pursuant to this Agreement, all of which items shall be
deemed to be "Escrowed Property" upon deposit in the Escrow Account. The
number of Escrow Shares of each Escrow Indemnitor that will be placed in the
Escrow is shown in Exhibit A hereto and will be equal to such Escrow
Indemnitor's Pro Rata Share (as defined in section 2.1) of the Escrowed
Property unless AVI shall have received written instructions requesting a
different allocation among the Escrow Indemnitors.
1.4 TERMINATION DATE. "Termination Date" means the one-year
anniversary of the Effective Time of the Merger.
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2. AGREEMENT.
2.1 OBLIGATIONS OF ITC SHAREHOLDERS. As a material inducement to AVI
to enter into the Plan and consummate the transactions contemplated thereby,
the Escrow Indemnitors agree to be expressly subject to the terms and
conditions of this Agreement:
(a) to establish the Escrow pursuant to this Agreement to secure the
indemnification obligations under section 13 of the Plan and to assume
such indemnification obligations;
(b) that in the event AVI or any other Indemnitee (as that term is
defined in the Plan) (hereinafter, collectively, "AVI") incurs any Claims
and Liabilities provided in section 13 of the Plan, the Escrowed Property
shall, subject to the provisions of the Plan and this Agreement, be
transferred to AVI to compensate AVI for such Claims and Liabilities,
with the portion of the Escrowed Property to be so transferred to be pro
rata as to each Claim and Liability among the Escrow Indemnitors
according to each Escrow Indemnitor's proportionate share of the Escrowed
Property set forth on Exhibit A hereto (the "Pro Rata Share");
(c) to appoint the Representative as the Escrow Indemnitors'
representative, attorney-in-fact and agent for purposes of this Agreement
to act for and on behalf of each Escrow Indemnitor as provided herein,
and to the taking by the Representative of any and all actions and the
making of any decisions required or permitted to be taken or made by the
Representative on the Escrow Indemnitors' behalf under this Agreement;
and
(d) to all of the other terms and conditions of this Agreement.
3. FORMATION OF ESCROW ACCOUNTS.
3.1 DELIVERY AND DEPOSIT OF ESCROWED PROPERTY. Upon the execution of
this Agreement by all parties hereto:
(a) AVI will promptly deliver to the Escrow Agent the Escrow Shares
in the form of duly authorized and executed stock certificates issued in
the respective names of the Escrow Indemnitors, representing each Escrow
Indemnitor's Pro Rata Share of the Escrow Shares; and
(b) each Escrow Indemnitor will promptly deliver to the Escrow Agent
duly executed Stock Powers and Assignments Separate From Certificate for
such Escrow Indemnitor's Escrow Shares in the form of Exhibit B ("Stock
Powers"), signed in blank by such Escrow Indemnitor.
The Escrow Agent agrees to accept delivery of the above-mentioned
Escrowed Property, which shall be clearly designated by AVI as "Escrowed
Property," and to hold the same in escrow in an escrow account (the "Escrow
Account"), subject to the terms and conditions of this Agreement.
3.2 DISTRIBUTIONS, CONVERSIONS, VOTING AND RIGHTS OF OWNERSHIP. So
long as the Escrow is in effect, distributions (other than dividends paid in
respect of such shares which shall be distributed to ITC shareholders) of
any kind (including without limitation shares of AVI Common Stock issued in
connection with a subdivision or split of AVI's Common Stock) that are paid,
issued or made by AVI in respect of the Escrow Shares that are issuable by
AVI or a third party upon the conversion or other exchange of Escrow Shares
in a merger, consolidation or other transaction affecting the Escrow Shares
(the "Distributions"), or in respect of any such Distributions ("Secondary
Distributions"), will be immediately delivered to the Escrow Agent and will
be held in the Escrow on the same terms and conditions as those applied
hereunder to the Escrow Shares and the Escrow Indemnitors will promptly sign
and deliver to the Escrow Agent new Stock Powers or other applicable
instruments of transfer for such Distributions and/or Secondary
Distributions (duly executed in blank by the Escrow Indemnitors to be held
in the Escrow as Escrowed Property pursuant to this Agreement. As used
herein, the terms "Escrowed Property" includes all Distributions and
Secondary Distributions on Escrowed Property and the term "Escrow Shares"
includes all Distributions and Secondary Distributions on Escrowed Property
consisting of stock or other securities. The Escrow Indemnitors) will have
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the right to exercise any and all rights to vote the Escrow Shares deposited
in the Escrow Account for their account so long as such Escrow Shares are
held in the Escrow and have not been released to AVI as provided herein and
AVI will take all steps necessary to allow the exercise of such rights.
While the stock certificates representing, and Stock Powers for, Escrow
Shares remain in the Escrow Agent's possession pursuant to this Agreement,
the Escrow Indemnitors, will (subject to the provisions of sections 3.3 and
3.4 below) retain and be able to exercise all other incidents of ownership
of the Escrow Shares that are not inconsistent with the terms and conditions
of this Agreement. If reasonably requested to do so by AVI or the Escrow
Agent, each Escrow Indemnitor shall promptly execute and deliver to the
Escrow Agent (or to AVI, as to Escrow Shares that are released to AVI as
provided herein) replace-ment Stock Powers for any Escrow Shares or other
shares of stock or securities that are or become Escrowed Property. If
requested by AVI, due to the failure of any Escrow Indemnitor to promptly
execute and deliver replacement Stock Powers as herein provided, the
Representative, acting as attorney-in-fact for each Escrow Indemnitor, shall
promptly execute on behalf of such Escrow Indemnitor, and deliver to the
Escrow Agent, replacement Stock Powers for any Escrow Shares or other shares
of stock or securities that are or become Escrowed Property.
3.3 NO TRANSFER OR ENCUMBRANCE. Except to the extent expressly
permitted by the provisions of this section 3.3, no Escrowed Property or any
beneficial interest therein may be sold, assigned, pledged, encumbered or
otherwise transferred (including without limitation by operation of law,
other than a conversion of shares in a merger or consolidation) by any
Escrow Indemnitor or be taken or reached by any legal or equitable process
in satisfaction of any debt or other liability of an Escrow Indemnitor
(other than such Escrow Indemnitor's obligations under this Agreement) prior
to the delivery and release to the Escrow Indemnitors of the Escrowed
Property by the Escrow Agent in accordance with the provisions of section 5
hereof. Provided, however, an Escrow Indemnitor may transfer its share of
the Escrowed Property hereunder so long as such transfer is by gift or upon
death or permanent incapacity to his guardian, conservator, executor,
administrator, trustees or beneficiaries under his will, spouse, children,
stepchildren, grandchildren, parents, siblings or legal dependents, to a
trust of which the beneficiary or beneficiaries of the corpus and the income
shall be such a person and all such persons agree to be bound by the terms
hereof or to partners of an Escrow Indemnitor that is a partnership,
provided that all of such partners agree to be bound by the terms hereof.
3.4 TREATMENT OF ESCROWED PROPERTY. The Escrowed Property shall be
held by the Escrow Agent as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any
creditor of any party hereto.
4. ADMINISTRATION OF ESCROW ACCOUNT. The Escrow Agent shall administer the
Escrow Account as follows:
4.1 CLAIM NOTICE. If AVI asserts a claim for indemnification under
section 13 of the Plan on or prior to the Termination Date, then AVI shall
promptly give written notice of such claim (a "Claim Notice"), including a
copy of such claim and/or process and all legal pleadings in connection
therewith, to the Representative in accordance with section 13 of the Plan
and the Escrow Agent in accordance with section 13 hereof. Each Claim Notice
shall state the amount of claimed Claims and Liabilities (the "Claimed
Amount") and the basis for such claim. AVI shall assert any claim for
indemnification promptly following its discovery of the facts giving rise to
such claim and in no event less than sixty (60) days from such discovery so
long as such period does not extend beyond the Termination Date of this
Agreement.
4.2 RESPONSE NOTICE. Within thirty (30) days after delivery of a Claim
Notice to the Representative, the Representative shall give to AVI, with a
copy to the Escrow Agent, a written response (the "Response Notice") in
which the Representative shall either:
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(a) agree that such portions of the Escrowed Property having a value
(computed in accordance with section 4.4 below) equal to the full Claimed
Amount may be released from the Escrow Account and delivered to AVI; or
(b) agree that a portion of the Escrowed Property having a value
(computed in accordance with section 4.4 below) equal to a specified
part, but not all, of the Claimed Amount (the "Agreed Amount") may be
released from the Escrow Account to AVI; or
(c) contest that any of the Escrowed Property may be released from
the Escrow Account to AVI.
The Representative may contest the release of Escrowed Property only
based upon a good faith belief that all or such portion of the Claimed
Amount does not constitute Claims and Liabilities, or does not constitute
the actual amount of Claims and Liabilities incurred, for which AVI is
entitled to indemnification under section 13 of the Plan. If no Response
Notice is delivered by the Representative within such thirty (30) day
period, then the Representative shall be deemed to have agreed that the full
Claimed Amount may be released and delivered from the Escrow Account to AVI.
4.3 RELEASE WITHOUT CONTEST.
(a) If in his Response Notice the Representative agrees (or if the
Representative fails to deliver a Response Notice within the required
time period and as such is deemed to have agreed) that the Escrowed
Property having a value (computed in accordance with section 4.4 below)
equal to the full Claimed Amount may be released from the Escrow Account
to AVI, then the Escrow Agent shall promptly thereafter deliver to AVI
from the Escrow Account Escrowed Property having a value (computed in
accordance with section 4.4 below) equal to the Claimed Amount (or such
lesser amount as is then held in the Escrow Account).
(b) If the Representative in the Response Notice agrees that Escrowed
Property having a value (computed in accordance with section 4.4 below)
equal to the Agreed Amount may be released from the Escrow Account to AVI
in the respective amounts set forth in the Response Notice, then the
Escrow Agent shall promptly thereafter deliver to AVI such Agreed Amount
or such lesser amount as is then held in the Escrow Account, and the
provisions of section 5 shall apply. The amounts of Escrowed Property
equal to the Agreed Amount that are to be released by the Escrow Agent to
AVI from the Escrow Account under this section shall be in such
proportions of Escrow Shares and other Escrowed Property as may be
requested by the Representative (subject to the availability of such
type(s) of Escrowed Property at such time).
4.4 VALUE OF ESCROWED PROPERTY. For purposes of determining the amount
of Escrowed Property to be delivered out of the Escrow to AVI as all or part
of any Claimed Amount hereunder and determining the value of any Escrowed
Property for any other purpose hereunder (a) Escrowed Property that is cash
will be deemed to have a value equal to the amount of such cash in U.S.
Dollars; (b) shares of AVI Common Stock will be deemed to have a value per
share equal to the average closing price of the shares as traded on Nasdaq
during the ten (10) trading days prior to the date of delivery of the
Escrowed Property to AVI as all or a part of any Claimed Amount; (c) all
other Escrowed Property shall be deemed to have a value that is equal to its
then-current market value (if such value is readily determinable); and (d)
Escrowed Property that has no readily determinable market value will be
deemed to have the value determined by the mutual agreement of AVI and the
Representative, or, in the absence of such an agreement by the decision of
any arbitrator deciding the claim in question under section 5.
5. ARBITRATION OF CONTESTED RELEASES.
5.1 ARBITRATION OF DISPUTES OVER ESCROW RELEASE. If the Representative
gives a Response Notice contesting the release of Escrowed Property equal to
all or any part of the Claimed Amount set forth in the applicable Claim
Notice, as provided in section 4.2 above (the "Contested Amount"), then such
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dispute shall be settled by mandatory binding arbitration in Portland,
Oregon in accordance with the provisions of this section 5 and the
Commercial Arbitration Rules of the American Arbitration Association then in
effect (the "AAA Rules"), unless AVI and the Representative settle such
dispute in a written settlement agreement executed by AVI and the
Representative on behalf of and binding on each of the ITC Shareholders and
AVI. The provisions of this section 5 shall prevail and govern in the event
of any conflict between such provisions and the AAA Rules.
5.2 ARBITRATOR. Unless otherwise mutually agreed by AVI and the
Representative, the arbitration will be heard and decided by a single
arbitrator who shall be selected as provided in section 5.3.
5.3 SELECTION OF ARBITRATOR. AVI and the Representative will have the
authority to select the arbitrator from a list of arbitrators who are
attorneys-at-law who practice business law and have significant experience
with respect to the representation of biotechnology companies; provided that
the arbitrator cannot have represented either AVI or any of the Escrow
Indemnitors in any previous matter. If AVI and the Representative cannot
agree on the selection of the arbitrator from the above list of arbitrators,
then the arbitrator shall be chosen by the American Arbitration Association.
5.4 TIME FOR ARBITRATION DECISION: EFFECT. The arbitrator shall decide
each dispute to be arbitrated pursuant hereto within ninety (90) days after
the selection of the arbitrator. The arbitrator's decision shall relate
solely to whether AVI is entitled to receive the Contested Amount (or a
portion thereof) pursuant to the applicable terms of the Plan and this
Agreement. The final decision of the arbitrator shall provide directions to
the Escrow Agent as provided in section 5.5 and shall be furnished to AVI,
the Representative, and the Escrow Agent in writing and shall constitute a
conclusive determination of all issues in question, binding upon AVI, the
Representative, the Escrow Indemnitors and the Escrow Agent and shall not be
contested by any of them. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of
law and a written opinion setting forth the basis and reasons for any
decision reached and instructions (if applicable) to the Escrow Agent as to
the release of Escrowed Property and will deliver such documents to AVI, the
Representative and the Escrow Agent, along with a signed copy of the award
and the instructions (if any) to the Escrow Agent. The arbitrator chosen in
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of this section 5 or the provisions of this
Agreement or the Plan. Judgment upon the award rendered by the arbitrator
may be entered in any court having competent jurisdiction over the subject
matter thereof.
5.5 ACTIONS OF ESCROW AGENT PENDING ARBITRATION. After delivery of a
Response Notice in which any or all of the Claimed Amount is contested by
the Representative, the Escrow Agent shall continue to hold in the Escrow
Account Escrowed Property having a value (computed in accordance with
section 4.4 of this Agreement) sufficient to cover the Contested Amount (but
only to the extent that there is Escrowed Property remaining in the Escrow
after payment to AVI of all uncontested Claimed Amounts), notwithstanding
the occurrence of the Termination Date, until: (a) delivery of a copy of a
settlement agreement executed by AVI and the Representative setting forth
instructions to the Escrow Agent as to the release of such Escrowed Property
that shall be made with respect to the Contested Amount; (b) delivery of a
copy of the final decision of the arbitrator setting forth instructions to
the Escrow Agent as to the release of Escrowed Property that shall be made
with respect to the Contested Amount; or (c) receipt of a court order or
judgment directing Escrow Agent to act with respect to the distribution of
any Escrowed Property. The Escrow Agent shall thereupon release Escrowed
Property from the Escrow Account (to the extent Escrowed Property is then
held in the Escrow Account) in accordance with such settlement agreement,
arbitrator's instructions, court order or judgment, as applicable. The
Escrowed Property released by the Escrow Agent to AVI from the Escrow
Account shall be in such proportions of Escrow Shares and/or other Escrowed
Property, as may be requested by the Representative (subject to the
availability of such type(s) of Escrowed Property at such time).
5.6 NO RESPONSIBILITY OF ESCROW AGENT TO RESOLVE DISPUTE. If any
controversy arises involving any party to this Agreement (other than the
Escrow Agent) concerning the subject matter of this
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Agreement, including a Contested Amount, the Escrow Agent will not be
required to determine the controversy or to take any action until such
dispute has been resolved.
5.7 RIGHT TO COUNSEL. AVI (on behalf of itself and any Indemnified
Person(s)) and the Representative shall each have the right to employ its or
his own legal counsel to represent such person in any disputes arising under
this Agreement.
5.8 COMPENSATION OF ARBITRATOR. The arbitrator will be compensated for
his or her services at a rate to be determined by the parties or by the
American Arbitration Association, but based upon reasonable hourly or daily
consulting rates for the arbitrator in the event the parties are not able to
agree upon his or her rate of compensation. AVI, on the one hand, and the
Escrow Indemnitors, on the other hand, will each pay 50% of the initial
compensation to be paid to the arbitrator in any such arbitration and 50% of
the costs of transcripts and other normal and regular expenses of the
arbitration proceedings (collectively, the "Arbitration Expenses"), with the
portion of such Arbitration Expenses required to be borne by the Escrow
Indemnitors to be shared by the Escrow Indemnitors based on the Escrow
Indemnitor's respective Pro Rata Shares.
5.9 BURDEN OF PROOF. For any claim submitted to an arbitration
hereunder, the burden of proof will be as it would be if the claim were
litigated in a judicial proceeding.
5.10 EXCLUSIVE REMEDY. Except to the extent provided in section 13 of
the Plan, and except as specifically otherwise provided in this Agreement,
arbitration in accordance with this section 5 will be the sole and exclusive
remedy of the parties for any dispute arising over the release of Escrowed
Property from the Escrow hereunder.
6. PAYMENT OF REMAINING ESCROWED PROPERTY TO ITC SHAREHOLDERS.
6.1 ON TERMINATION DATE. On the Termination Date, the Escrow Agent
shall deliver to AVI and the Representative a statement of the value
(computed in accordance with section 4.4 hereof) of the remaining balance of
the Escrowed Property then remaining in the Escrow Account, and the total
amount of all claims made pursuant to sections 4 or 5 hereof in connection
with the Escrow Account and not therefore resolved and paid (the excess, if
any, of such remaining balance in such Escrow Account over the total amount
of such claims against such Escrow Account shall be referred to as the
"Final Escrow Balance"). AVI and the Representative each shall review the
accuracy of the Final Escrow Balance and notify the Escrow Agent and each
other of any asserted discrepancy within ten (10) business days of receipt
of the foregoing statement. If the Escrow Agent has not been notified of any
discrepancy by AVI or the Representative within the ten (10) business day
period specified in the preceding sentence, then within twenty (20) business
days after receipt by AVI and the Representative of such statement, the
Escrow Agent shall deliver to each of the Escrow Indemnitors an amount of
the Escrowed Property representing such Escrow Indemnitor's Pro Rata Share
of the Final Escrow Balance constituting Escrowed Property, free and clear
of the Escrow created by this Agreement. After the last claim shall have
been resolved pursuant to sections 4 and 5 hereof and all Escrowed Property
deliverable to AVI upon the resolution of all such claims has been delivered
to AVI, the remaining balance, if any, of the Escrowed Property shall be
delivered by the Escrow Agent to each Escrow Indemnitor pro rata, based on
the Escrow Indemnitor's Pro Rata Share, free and clear of the Escrow created
by this Agreement.
6.2 DISTRIBUTION OF THE ESCROWED PROPERTY. All distributions of
Escrowed Property to the Escrow Indemnitors, to be made by the Escrow Agent
under this section shall be made so that each Escrow Indemnitor receives his
or her Pro Rata Share of the total amount of each type of property
(principally AVI Common Stock) constituting the Escrowed Property held in
the Escrow immediately before such distribution.
6.3 DELIVERY METHODS. Delivery of Escrowed Property by the Escrow
Agent shall be by registered mail or by nationally recognized overnight
courier. The Escrow Agent shall not be responsible for obtaining insurance
in connection with such delivery.
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6.4 POWER TO TRANSFER ESCROW SHARES AND DISTRIBUTIONS. The Escrow
Agent is hereby granted the power to effect any transfer of Escrowed
Property permitted or required by this Agreement in accordance with its
terms.
7. FEES AND EXPENSES OF ESCROW AGENT AND REPRESENTATIVE.
7.1 REPRESENTATIVE. AVI shall pay the fees of the Escrow Agent for the
services to be rendered by the Escrow Agent hereunder, provided, however,
that any extraordinary fees and expenses referred to in section 7.3 below,
including, without limitation, any fees or expenses incurred by the Escrow
Agent in connection with a dispute over the distribution of Escrowed
Property will be paid fifty percent (50%) by AVI and fifty percent (50%) by
the Escrow Indemnitors.
7.2 REPRESENTATIVE. The Representative will not be entitled to receive
any compensation from AVI in connection with this Agreement; however, the
Escrow Indemnitors shall indemnify and promptly reimburse the Representative
for all reasonable expenses actually incurred by the Representative in
connection with the performance of his duties hereunder (including, but not
limited to, all losses, costs and expenses which the Representative may
incur as a result of involvement in any legal proceedings arising from the
performance of his duties hereunder) pro rata according to the Escrow
Indemnitors' respective Pro Rata Shares. AVI shall not have any obligation
to reimburse the Representative for any expenses whatsoever.
7.3 ESCROW AGENT'S EXTRAORDINARY FEES. AVI and the Representative
hereby acknowledge that all fees and usual charges for services of the
Escrow Agent hereunder shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the Escrow
Agent renders any service not provided for in this Agreement, or if the
parties hereto request a substantial modification of the terms of this
Agreement, or if any controversy arises and the Escrow Agent is made a party
to any litigation pertaining to this Agreement or its subject matter, then
the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all reasonable costs, attorney's fees and
expenses incurred by the Escrow Agent in rendering such extraordinary
services, which costs, fees and expenses shall be borne by AVI and the
Escrow Indemnitors as provided in section 7.1 above.
8. LIABILITY AND AUTHORITY OF REPRESENTATIVE; SUCCESSORS AND ASSIGNEES.
8.1 LIMITS ON LIABILITY. The Representative shall incur no liability
with respect to any action taken or suffered by him in his capacity as
Representative in reliance upon any note, direction, instruction, consent,
statement or other documents believed by him to be genuinely and duly
authorized, nor for other action or inaction except his own willful
misconduct or gross negligence. The Representative may, in all questions
arising under this Escrow Agreement, rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Representative based
on such advice, the Representative shall not be liable to anyone.
8.2 SUCCESSOR REPRESENTATIVES. In the event of the death or permanent
disability of the Representative, or the resignation of Representative as
the representative of the Escrow Indemnitors hereunder, a successor
Representative shall be elected by a majority vote of the Escrow
Indemnitors, with each such Escrow Indemnitor (or his or her successors or
assigns) to be given a weighted vote based on such Escrow Indemnitor's Pro
Rata Share. Each successor Representative shall have all of the power,
authority, rights and privileges conferred by this Agreement upon the
original Representative, and the term "Representative" as used herein shall
be deemed to include each successor Representative.
8.3 AUTHORITY OF REPRESENTATIVE. The Representative shall have full
power and authority to represent the Escrow Indemnitors and their successors
with respect to all matters arising under this Agreement or related to the
subject matter hereof and all actions taken by the Representative hereunder
shall be binding upon each and all of the Escrow Indemnitors and their
successors, as if expressly confirmed and ratified in writing by each of
them. Without limiting the generality of the
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foregoing, the Representative shall have full power and authority to
interpret all of the terms and provisions of this Agreement, to compromise
and settle any claims asserted hereunder and to authorize payments to be
made with respect thereto, on behalf of the Escrow Indemnitors and their
successors. The Escrow Indemnitors (with respect to the Escrowed Property,
in their capacity as Escrow Indemnitors) have consented to the appointment
of the Representative as representative of the Escrow Indemnitors (with
respect to the Escrowed Property, in their capacity as Escrow Indemnitors)
and as the attorney-in-fact and agent for and on behalf of each Escrow
Indemnitor for the purposes of taking actions and executing agreements and
documents on behalf of any of the Escrow Indemnitors as provided in this
Agreement, and, subject to the express limitations set forth below, the
taking by the Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this Agreement,
including, but not limited to, the exercise of the power to authorize
delivery to AVI of Escrowed Property and to take all actions necessary in
the judgment of the Representative for the accomplishment of the foregoing
and all of the other terms, conditions and limitations of this Agreement.
The Representative will have unlimited authority and power to act on behalf
of each Escrow Indemnitor with respect to this Agreement and the
disposition, settlement or other handling of all claims, rights or
obligations arising under this Agreement with respect to Escrowed Property
so long as all Escrow Indemnitors are treated in the same manner (unless the
ITC Shareholders otherwise consent). The Escrow Indemnitors will be bound by
all actions taken by the Representative in connection with this Agreement,
and AVI will be entitled to rely on any action or decision of the
Representative.
9. LIMITATION OF ESCROW AGENT'S RESPONSIBILITY AND LIABILITY.
9.1 LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are
limited to those set forth in this Agreement, and the Escrow Agent, acting
as such under this Agreement, is not charged with knowledge of or any duties
or responsibilities under any other document or agreement, including,
without limitation, the Plan. The Escrow Agent may execute any of its powers
or responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys. Nothing in this Escrow
Agreement will be deemed to impose upon the Escrow Agent any duty to qualify
to do business or to act as a fiduciary or otherwise in any jurisdiction.
The Escrow Agent will not be responsible for, and will not be under a duty
to examine into or pass upon, the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement mandatory or
supplemental hereto.
9.2 LIMITATION OF LIABILITY. The Escrow Agent will incur no liability
with respect to any action taken, not taken or suffered by it in reliance
upon any notice, direction, instruction, consent, statement or other
document believed by it to be genuine and duly authorized, nor for any other
action or inaction, except its own willful misconduct or gross negligence.
In all questions arising under this Agreement, the Escrow Agent may rely on
the advice of counsel, and for anything done, omitted or suffered in good
faith by the Escrow Agent based on such advice, the Escrow Agent will not be
liable to anyone. The Escrow Agent will not be required to take any action
hereunder involving any expense unless the payment of such expense is made
or provided for in a manner satisfactory to it. The Escrow Agent will not be
liable for any action taken or omitted to be taken by it in good faith
unless a court of competent jurisdiction determines that the Escrow Agent's
willful misconduct or gross negligence was the cause of any loss to AVI, the
Representative, any Escrow Indemnitor. The Escrow Agent makes no
representation or warranty with respect to, and is not responsible for the
validity of, the Escrow Shares. The Escrow Agent is not responsible for the
receipt of any dividend or other distribution on behalf of any Escrow
Indemnitor or for the voting of or exercise of any other rights with respect
to the Escrow Shares. The Escrow Agent will have no duty to solicit the
delivery of any Escrowed Property. The Escrow Agent will have no obligation
with respect to the Escrowed Property other than either to withhold the
release of Escrowed Property to the Escrow Indemnitors or to release
Escrowed Property to AVI, as the case may be, to the extent expressly
provided in this
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Agreement. The Escrow Agent will have no obligations with respect to the
investment of any cash that becomes Escrowed Property except as expressly
provided in section 3.
9.3 INDEMNITY. AVI and each of the Escrow Indemnitors (each an
"Indemnifying Party" and together the "Indemnifying Parties"), each hereby
jointly and severally covenants and agrees to reimburse, indemnify and hold
harmless the Escrow Agent and its employees and agents from and against any
loss, damage or liability suffered, incurred by or asserted against the
Escrow Agent (including amounts paid in settlement of any action, suit,
proceeding, or claim brought or threatened to be brought and including
reasonable expenses of legal counsel) arising out of, in connection with or
based upon any act or omission by the Escrow Agent relating in any way to
this Agreement or the Escrow Agent's services hereunder; provided, however,
that the liability of any Escrow Indemnitor shall be limited to such Escrow
Indemnitor's pro rata share of the liability of all of the Escrow
Indemnitors hereunder, based on the number of shares of ITC stock held by
such Escrow Indemnitor. This indemnity will not apply to any such loss,
damage or liability arising from the gross negligence or willful misconduct
on the Escrow Agent's part. Anything in this Agreement to the contrary
notwithstanding, in no event will the Escrow Agent be liable for special,
indirect or consequential damage or loss of any kind whatsoever (including
but not limited to lost profits), even if the Escrow Agent has been advised
of the likelihood of such loss or damage and regardless of the form of
action.
9.4 PARTICIPATION IN DEFENSE OF THE ESCROW AGENT. Each Indemnifying
Party may participate at its own expense in the defense of any claim or
action that may be asserted against the Escrow Agent, and if the
Indemnifying Parties so elect, the Indemnifying Parties may assume the
defense of such claim or action; provided, however, that if there exists a
conflict of interest that would make it inappropriate for the same counsel
to represent both the Escrow Agent and the Indemnifying Parties, the Escrow
Agent's retention of separate counsel will be reimbursable as provided in
section 9.3. The Escrow Agent's right to indemnification hereunder will
survive the Escrow Agent's resignation or removal as escrow agent hereunder
and will survive the termination of this Agreement by lapse of time or
otherwise.
9.5 NOTICE OF CLAIMS AGAINST ESCROW AGENT. The Escrow Agent will
notify each Indemnifying Party by letter, or by telephone or telecopy
confirmed by letter sent U.S. first class mail, registered or certified, of
any receipt by the Escrow Agent of a written assertion of a claim against
the Escrow Agent related to this Agreement, or any action commenced against
the Escrow Agent, within ten (10) business days after the Escrow Agent's
receipt of written notice of such claim. However, the Escrow Agent's failure
to so notify each Indemnifying Party will not operate in any manner
whatsoever to relieve an Indemnifying Party from any liability that it may
have otherwise than on account of this section 9. In the event the Escrow
Agent fails to so notify each Indemnifying Party and an Indemnifying Party
is prejudiced thereby, then such Indemnifying Party will not have liability
to Escrow Agent under this section 9.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign at any time and be discharged from its duties or obligations
hereunder by giving a written resignation to the parties to this Escrow
Agreement, specifying not less than thirty (30) days prior written notice of the
date when such resignation shall take effect; provided, however, that no such
resignation shall become effective until the appointment of a successor Escrow
Agent and acceptance of such appointment by such successor Escrow Agent. AVI may
appoint a successor Escrow Agent without the consent of the Representative so
long as such successor is a bank with assets of at least Five Hundred Million
Dollars ($500,000,000) which has no direct depository or lending relationship
with AVI and which is qualified to do business in the State of Oregon, and may
appoint any other successor Escrow Agent with the consent of the Representative,
which shall not be unreasonably withheld. If, within such notice period, AVI
provides to the Escrow Agent written instructions with respect to the
appointment of a successor Escrow Agent in accordance with this section 10 and
directions for the transfer of any Escrowed Property then held by the Escrow
Agent to such successor, the
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Escrow Agent shall act in accordance with such instructions and promptly
transfer such Escrowed Property to such designated successor. If no successor
Escrow Agent is appointed within sixty (60) days of the date specified for the
Escrow Agent's resignation to take effect, the Escrow Agent shall have the right
to apply to a court of competent jurisdiction for such appointment at the
expense of AVI. Each successor Escrow Agent shall execute and deliver an
instrument accepting such appointment and shall, without further acts, be vested
in all the estates, properties, rights, powers and duties of the Escrow Agent or
any other predecessor Escrow Agent as if originally named as Escrow Agent
hereunder.
11. TERMINATION. This Agreement shall terminate upon the earlier of (a)
the Termination Date, or (b) the release by the Escrow Agent of all of the
Escrowed Property in accordance with this Agreement.
12. NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been properly given or
made on the date personally delivered or on the date mailed, by first class
registered or certified mail with postage prepaid, by private nationally
recognized courier service or by facsimile and confirmed, if delivered, mailed,
courier or facsimile to the respective parties hereto at the following
addresses:
If the Escrow Agent:
Attn:
If to AVI or Merger Sub, to:
AntiVirals Inc.
One S.W. Columbia--Suite 1105
Portland, OR 97258
Attn: Alan Timmins
With a copy to:
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 S.W. Columbia--Suite 1800
Portland, OR 97201
Attn: Byron W. Milstead, Esq.
If to the Escrow Indemnitors and the Representative, to:
Attn:
With a copy to:
James Baxendale, Esq.
1209 S.W. Sixth Avenue
Portland, OR 97204
and
Tonkon Torp LLP
888 S.W. Fifth Avenue--Suite 1600
Portland, OR 97204
Attn: Brendan R. McDonnell, Esq.
Any party hereto may designate a different address by providing written
notice of such new address to the other parties hereto.
13. MISCELLANEOUS.
13.1 GOVERNING LAW; ASSIGNS. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Oregon
without regard to conflict-of-law principles and
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will be binding upon, and inure to the benefit of, the parties hereto and
their respective successors and permitted assigns.
13.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
13.3 ENTIRE AGREEMENT; SEVERABILITY. Except as otherwise set forth in
the Plan, this Agreement constitutes the entire understanding and agreement
of the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements or understandings, written or oral, between
the parties with respect to the subject matter hereof. If any provision of
this Agreement is held to be illegal or unenforceable by a tribunal of
competent jurisdiction, then such provision shall not be voided, but shall
be deemed modified to the extent necessary to make such provision lawful and
enforceable, and the other provisions of this Agreement shall remain in full
force and effect.
13.4 WAIVERS. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
13.5 AMENDMENT. This Agreement may be amended by the written agreement
of AVI, the Escrow Agent and the Representative, provided that, if the
Escrow Agent does not agree to an amendment agreed upon by AVI and the
Representative, the Escrow Agent will resign (which resignation shall be
effective immediately and, in any event, prior to the effective date of the
amendment) and AVI will appoint a successor Escrow Agent in accordance with
section 10 hereof. No such amendment may treat any one Escrow Indemnitor
differently from the other Escrow Indemnitors unless consented to in writing
by Escrow Indemnitors having beneficial ownership in a majority of the
outstanding Escrowed Property, including the consent of any Escrow
Indemnitor who is to be treated differently.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
AVI: ANTIVIRALS INC.,
an Oregon corporation
By:
Its:
Escrow Agent:
Representative and By:
Escrow Indemnitor: Print Name:
Escrow Indemnitors:
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TERM LOAN AGREEMENT
DATED AS OF FEBRUARY 2, 1998
THIS TERM LOAN AGREEMENT ("Agreement") is made by and between IMMUNOTHERAPY
CORPORATION, a corporation organized under the laws of the state of California
(the "Borrower") and ANTIVIRALS INC., a corporation organized under the laws of
the state of Oregon (the "Lender"). The borrower and the Lender agree as
follows:
ARTICLE 1.
AMOUNT AND TERMS OF THE TERM LOAN
Section 1.01 THE TERM LOAN AND ADVANCES. The Lender agrees, on the terms
and conditions herein set forth, to make advances (the "Advances") to the
Borrower, from time to time during the period from the date hereof to and
including the earlier of (i) that date on which the Merger, as defined therein,
is closed under the terms and conditions that certain Agreement and Plan of
Reorganization and Merger, dated February 2, 1998, among Lender, Borrower and
AntiVirals Acquisition Corporation (the "Merger Agreement"), (ii) that date on
which the Merger Agreement is terminated in accordance with section 14 thereof
(the "Termination Date"), or (iii) May 1, 1998, in an aggregate amount not to
exceed Nine Hundred Twenty-Five Thousand Dollars ($925,000) (the outstanding
amount of such Advances constituting the "Term Loan").
Section 1.02 MAKING THE ADVANCES. Other than the initial Advance of Three
Hundred Fifty Thousand Dollars ($350,000) (the "Initial Advance") to be made
within three (3) Business Days of the date of this Agreement for the uses set
forth on Exhibit "A," each Advance shall be made on at least five (5) Business
Days' notice from the Borrower to the Lender, specifying the date thereof. Not
later than 1:00 p.m. Pacific Time on the date of such Advance and upon
fulfillment of the applicable conditions set forth in Article 2, the Lender will
make the Term Loan available to the Borrower by check at Lender's address at One
S.W. Columbia, Suite 1105, Portland, Oregon 97258, or, upon request of Borrower
by wire transfer to Borrower's checking account.
Section 1.03 INTEREST AND REPAYMENT. The Borrower shall repay, and shall
pay interest in full on, the Term Loan as follows:
(a) The Borrower shall repay the principal amount of the Term Loan in
one installment of principal on April 30, 1999.
(b) The Borrower shall pay interest on the outstanding principal amount
of the Term Loan from the date the Term Loan is made until repayment in full
thereof on or prior to April 30, 1999, at a rate of interest (the "Loan
Rate") per annum equal to nine and one-half percent (9 1/2%).
(c) Interest on the outstanding principal amount of the Term Loan, at
the rate for which provision is made in subsection (b), shall be payable on
April 30, 1999.
Section 1.04 OPTIONAL PREPAYMENTS. The Borrower may, without penalty, upon
at least five (5) Business Days' notice to the Lender, prepay the Term Loan in
whole or in part, plus accrued interest to the date of such prepayment on the
among prepaid; PROVIDED, that each partial prepayment shall be in a principal
amount of not less than Ten Thousand Dollars ($10,000).
Section 1.05 PAYMENTS AND COMPUTATIONS. The Borrower shall make each
payment hereunder and under the Term Note (as defined in Section 2.01(a)(i) of
this Agreement) not later than 1:00 p.m. Pacific Time on the day when due in
lawful money of the United States of America, in same day funds, to the Lender
at One S.W. Columbia, Suite 1105, Portland, Oregon 97258, or at such other place
as the Lender may specify in writing from time to time. All computations of
interest as to the amount of the Term Loan
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outstanding at the Loan Rate shall be made by the Lender on the basis of a year
of 365 days, as the case may be, for the actual number of days (including the
first day, but excluding the last day) elapsed.
Section 1.06 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Term Note shall be stated to be due on a Saturday, a
Sunday or a public or bank holiday or the equivalent for banks generally under
the laws of the state of Oregon (any other day being a "Business Day"), such day
may be made on the next succeeding Business Day, and such extensions of time
shall in such case be included in the computation of payment of interest
hereunder.
ARTICLE 2.
CONDITIONS OF LENDING
Section 2.01 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the
Lender to make any Advance is subject to the conditions precedent that on or
before the date the Advance is made:
(a) the Lender shall have received in form and substance satisfactory to
the Lender a promissory note in substantially the form of Exhibit "B"
attached hereto;
(b) the following statements shall be true and the Lender shall have
received a certificate signed by an officer of the Borrower, dated such day,
stating that:
(i) the representations and warranties contained in section 3.01 of
this Agreement are correct on and as of the date the Advance is made as
though such representations and warranties were made on and as of such
date;
(ii) no event has occurred and is continuing, or would result from
the making of the Advance, which constitutes an Event of Default (as
defined in section 5.01 hereof) or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both;
(iii) the funds will be used exclusively by the Borrower for the
purposes identified in a schedule accompanying the certificate (the "Uses
Schedule"), which uses are within the categories of permissible uses set
forth in Exhibit "C" hereto; and
(iv) all funds previously advanced by the Lender to the Borrower were
used exclusively for the purposes identified in any Uses Schedule which
accompanied any Officer's Certificate previously delivered by Borrower
hereunder or in the case of the Initial Advance were used exclusively for
the purposes identified in Exhibit "A"; and
(c) the Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Section 3.01 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the state of California.
(b) The execution, delivery and performance by the Borrower of each Loan
Document to which it is or will be a party are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene
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(i) the Borrower's charter or bylaws,
(ii) any law, rule or regulation (including, without limitation,
Regulation U or Regulation X of the Federal Reserve Board) applicable to
Borrower, or
(iii) any contractual commitment or restriction binding on or
affecting Borrower, its properties or assets;
(c) No authorization or approval or other action by, and no notice to or
filing or registration with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by Borrower of
this Agreement or the Term Note;
(d) This Agreement is, and the Term Note when delivered hereunder will
be, legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms;
(e) No proceeds of the Term Loan will be used to acquire any security in
any transaction which is subject to Sections 13 and 14 of the Securities
Exchange Act of 1934; and
(f) Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of the Term Loan will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing
or carrying any margin stock.
ARTICLE 4.
COVENANTS OF THE BORROWER
Section 4.01 AFFIRMATIVE COVENANTS. So long as the Term Note shall remain
unpaid, Borrower will, unless the Lender shall otherwise consent in writing:
(a) COMPLIANCE WITH LAW, ETC. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments
and governmental charges imposed upon Borrower or upon Borrower's property,
except to the extent contested in good faith.
(b) REPORTING REQUIREMENTS. Furnish to the Lender the following:
(i) As soon as possible and in any event within five (5) days after
the occurrence of each Event of Default or each event which, with the
giving of notice or lapse of time, or both, would constitute an Event of
Default, continuing on the date of such statement, a statement of the
chief financial officer of the Borrower setting forth details of such
Event of Default or event and the action which the Borrower proposes to
take with respect thereto;
(ii) As soon as available and in any event within thirty (30) days
after the end of each of the first three quarters of each fiscal year of
the Borrower, balance sheets of the Borrower and its subsidiaries as of
the end of such quarter and statements of income and retained earnings of
the Borrower and its subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter,
certified by the chief financial officer of the Borrower;
(iii) As soon as available and in any event within sixty (60) days
after the end of each fiscal year of the Borrower, a copy of the annual
report for such year for the Borrower and its subsidiaries, containing
financial statements for such years certified in a manner acceptable to
the Lender by a firm of independent public accountants acceptable to the
Lender;
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(iv) Such other information respecting the condition of operations,
financial, or otherwise, of the Borrower or any of subsidiaries as the
Lender may from time to time reasonably request; and
(v) Upon Borrower's request, evidence that any Advances that Lender
has made to Borrower have been applied in accordance with the Uses
Schedule delivered to Lender by Borrower in connection with such Advance.
(c) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause its subsidiaries to preserve and maintain, its corporate existence,
rights and franchises.
Section 4.02 NEGATIVE COVENANTS. So long as the Term Note shall remain
unpaid and provided the outstanding amounts of principal and interest under the
Term Loan have not been converted to equity pursuant to section 6.01, Borrower
will not, without the written consent of the Lender:
(a) OWNERSHIP OF BORROWER. Except for any issuance of shares of
Borrower's capital stock to Lender under section 6.01, issue, sell, grant,
convey, assign or otherwise transfer shares of any class of stock of
Borrower (a "Share Issuance"), or permit any other party to issue, sell,
grant, convey, assign or otherwise transfer any shares of any outstanding
stock of any class of stock of Borrower, which issuance, sale, grant,
conveyance, assignment or other transfer shall materially change the
ownership of Borrower, unless the proceeds from such Share Issuance are
applied toward the payment of amounts outstanding under the Term Loan until
such amounts have been paid in full. For purposes of this section 4.02(a), a
material change in the ownership of Borrower shall be deemed to have
occurred if less than ninety-five percent (95%) of any issued and
outstanding stock of any class of stock of Borrower shall be owned, legally
or beneficially, directly or indirectly, by any party other than the
shareholders and optionholders of the Borrower as of the date hereof.
(b) MERGERS, ETC. Merge with or consolidate with or sell, convey,
transfer, lease, or otherwise dispose of (whether in one transaction or a
series of transactions) all or substantially all of its assets to, or
acquire all or substantially all of the assets of, any individual,
partnership, corporation, trust, unincorporated association, joint venture,
limited liability entity or other entity (a "Corporate Transaction"), unless
all amounts outstanding under the Term Loan are paid in full as a condition
to such Corporate Transaction.
ARTICLE 5.
EVENTS OF DEFAULT
Section 5.01 EVENTS OF DEFAULT. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) Borrower shall fail to pay when due any installment of the Term
Note; or
(b) any representation or warranty made by Borrower under or in
connection with any Loan Document shall prove to have been incorrect in any
material respect when made; or
(c) Borrower shall fail to perform or observe any other term, covenant
or agreement contained in any Loan Document on its part to be performed or
observed and any such failure shall remain unremedied for ten (10) days
after written notice thereof shall have been given to Borrower by the
Lender; or
(d) Borrower or any subsidiary of Borrower, direct or indirect, shall
fail to pay any Debt as defined hereafter (but excluding Debt evidenced by
the Term Note) of such party, or any interest or premium thereon, when due
(whether by schedule maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; or any other default under any
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agreement or instrument relating to any such Debt, or any other event, shall
occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof. For purposes of this
section 5.01(d), "Debt" shall mean:
(i) indebtedness for borrowed money or for the deferred purchase
price of property or services,
(ii) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles,
recorded as capital leases,
(iii) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss and respect of,
indebtedness or obligations of other of the kinds referred to in clause
(i) or (ii) above, and
(iv) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA; and
(e) Any proceedings shall be instituted by or against Borrower or any
subsidiary of Borrower seeking to adjudicate such party a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of such party or such party's
insolvency or reorganization or relief of debtors, or seeking appointment of
a receiver, trustee or other similar official for such party or for any
substantial part of such party's or subsidiary's property; or any party or
subsidiary shall take any action to authorize any of the actions set forth
above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of One
Hundred Thousand Dollars ($100,000) shall be rendered against Borrower or
any subsidiary of Borrower and either (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii) there
shall be any period of ten (10) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
then, and in any such event, the Lender may, by notice to the Borrower, declare
the outstanding principal amount of the Term Note, all interest thereon and all
other amounts payable under this Agreement and the Term Note to be forthwith due
and payable whereupon the outstanding principal amount of the Term Note, all
such interest and all such other amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower.
ARTICLE 6.
CONVERSION RIGHT
Section 6.01 RIGHT TO CONVERT PRINCIPAL AND INTEREST. Provided that no
Event of Default has occurred and is continuing, on April 30, 1999, Borrower
shall enjoy the right by providing written notice to the Lender to convert the
principal balance of the Term Loan and all accrued interest thereon which has
not been paid into shares of preferred stock, which shares shall enjoy the same
rights and privileges as Borrower's Class A Preferred Stock, except that Lender
shall thereafter have the right to designate and Borrower shall be required to
appoint two (2) designees of Lender to the Board of Directors of Borrower. The
number of shares to be issued to Lender upon conversion shall be equal to the
product of the Loan Percentage multiplied by the number of shares outstanding of
Borrower's Class A Preferred Stock. For purposes of this section, the Loan
Percentage shall be determined by dividing the sum of the outstanding
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principal balance of the Term Loan and accrued interest thereon by Six Hundred
Fifty Thousand Dollars ($650,000). For purposes of this calculation, the Loan
Percentage shall not exceed one hundred percent (100%). In the event that the
Borrower's Class A Preferred Stock is converted or redeemed, or the rights with
respect thereto are modified after the date hereof, this Agreement shall be
amended by the parties to give effect to this provision with the intention of
placing Lender in the position Lender would have enjoyed in the absence of such
conversion, redemption or modification.
ARTICLE 7.
MISCELLANEOUS
Section 7.01 AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement of the Term Note, nor consent to any departure by Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
Section 7.02 NOTICES, ETC. All notices and other communications provided
for hereunder shall be in writing (including telegraphic communication) and
mailed (postage prepaid) or telegraphed or delivered as follows:
If to the Borrower:
ImmunoTherapy Corporation
c/o James Baxendale
1209 S.W. Sixth Avenue
Portland, OR 97204
with a copy to:
Tonkon Torp LLP
Suite 1600
888 S.W. Fifth Avenue
Portland, OR 97204
Attn: Brendan R. McDonnell, Esq.
If to the Lender:
AntiVirals Inc.
One S.W. Columbia--Suite 1105
Portland, OR 97258
Attn: Denis Burger
with a copy to:
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 S.W. Columbia--Suite 1800
Portland, OR 97201
Attn: Byron W. Milstead, Esq.
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. All such notices and communications,
when mailed (postage prepaid) or telegraphed, shall be effective when deposited
in the mails or delivered to the telegraph company, respectively, addressed as
aforesaid, except that notices to the Lender, pursuant to the provisions of
Article 1 of this Agreement, shall not be effective until received by the
Lender.
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Section 7.03 NO WAIVER; REMEDIES. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under the Term Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder or under the Term Note preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 7.04 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated herein.
Section 7.05 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by difference parties hereto in separate
counterparts, each of which, when so executed, shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Section 7.06 BINDING EFFECT; GOVERNING LAW. This Agreement shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that Borrower shall not have the right
to assign Borrower's rights hereunder or any interest herein, without the prior
written consent of Lender. This Agreement and the Term Note shall be governed
by, and construed in accordance with, the laws of the state of Oregon.
IN WITNESS WHEREOF, the parties hereto have executed or have caused this
Agreement to be executed by their respective officers or representatives
thereunto duly authorized, as of the date first above written.
Borrower: IMMUNOTHERAPY CORPORATION,
a California corporation
By:
Print Name:
Title:
Lender: ANTIVIRALS INC.,
an Oregon corporation
By:
Print Name:
Title:
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IMMUNOTHERAPY CORPORATION
1997 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1997 Stock Option/Stock Issuance Plan of ImmunoTherapy Corporation
("Corporation") has been adopted by the Corporation's Board of Directors in
anticipation of the closing of the merger ("Merger") contemplated by that
certain Agreement and Plan of Reorganization and Merger ("Merger Agreement") to
be entered into by and among the Corporation, Antivirals, Inc. ("AVI") and
Antivirals Acquisition Corporation. The purpose of the Plan is to allow holders
of an option or options (a "Prior Option" or the "Prior Options") to purchase
shares of the Corporation's Common Stock that have been granted under the
Corporation's 1994 Stock Option Plan, 1995 Stock Option Plan or outside of such
plans to receive a replacement option or replacement options under this Plan in
exchange for the cancellation of the Prior Option or Options, as the case may
be. Each replacement options shall be for the same number of shares, at the same
exercise price, and for the same term as the Prior Option that is being replaced
by it. In addition, the Plan is also intended to promote the interests of the
Corporation by providing eligible individuals who are responsible for the
management, growth and financial success of the Corporation or who otherwise
render valuable services to the Corporation with the opportunity to acquire a
proprietary interest, or increase their proprietary interest, in the Corporation
and thereby encourage them to remain in the service of the Corporation. The
options granted under the Plan have not been structured to qualify for the
favorable tax treatment provided to options meeting the statutory requirements
prescribed by Section 422 of the Internal Revenue Code of 1986, as amended.
Capitalized terms used herein shall have the meanings ascribed to such terms
in Paragraph 5 of this Article I.
2. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Board. The Board, however, may at
any time appoint a committee ("Committee") of two (2) or more Board members and
delegate to such Committee one or more of the administrative powers allocated to
the Board pursuant to the provisions of the Plan. Members of the Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of the Committee and reassume all powers and authority previously
delegated to the Committee.
(b) The Plan Administrator (either the Board or the Committee, to the extent
the Committee is at the time responsible for the administration of the Plan)
shall have full power and authority (subject to the provisions of the Plan) to
establish such rules and regulations as it may deem appropriate for the proper
plan administration and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding option grants or share
issuances as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any outstanding option or share issuance.
3. OPTION GRANTS
(a) The persons eligible to receive option grants pursuant to the Plan are
limited to the following:
(1) The holder of any Prior Option or Options;
(2) Key employees (including officers and directors) of the Corporation
(or its parent or subsidiary corporations, if any) who render services which
contribute to the success and growth of the
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Corporation (or any parent or subsidiary corporations) or which may
reasonably be anticipated to contribute to the future success and growth of
the Corporation (or any parent or subsidiary corporations);
(3) The non-employee members of the Board or the non-employee members of
the board of directors of any parent or subsidiary corporations; and
(4) Those consultants or independent contractors who provide valuable
services to the Corporation (or any parent or subsidiary corporations).
(b) The Plan Administrator shall have full authority to determine which
eligible individuals are to receive option grants, the number of shares to be
covered by each such grant, the time or times at which each granted option is to
become exercisable and the maximum term for which the option may remain
outstanding.
4. STOCK SUBJECT TO THE PLAN
(a) The stock issuable under the Plan shall be shares of the Corporation's
authorized but unissued or reacquired Common Stock, no par value (the "Common
Stock"). The maximum number of shares which may be issued over the term of the
Plan shall not exceed One Million (1,000,000) shares of Common Stock. The total
number of shares issuable under the Plan shall be subject to adjustment from
time to time in accordance with the provisions of Section 4(c).
(b) Shares subject to (I) the portion of one or more outstanding options
which are not exercised or surrendered prior to expiration or termination and
(II) outstanding options canceled in accordance with the cancellation-regrant
provisions of Section 4 of Article II will be available for subsequent option
grants or stock issuances under the Plan. The shares which shall NOT be
available for subsequent option grants under the Plan include shares issued upon
exercise of an option under the Plan (whether as vested or unvested shares)
which are subsequently repurchased by the Corporation pursuant to a repurchase
right, if any, retained by the Corporation in the stock option documents
evidencing such option.
(c) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock dividend, stock split, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without receipt of consideration, then appropriate adjustments shall be
made to (I) the aggregate number and/or class of shares issuable under the Plan
and (II) the aggregate number and/or class of shares and the option price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
(d) Common Stock issuable under the Plan may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be determined by the
Plan Administrator.
5. DEFINITIONS
The following definitions shall apply to the respective capitalized terms
used herein:
BOARD means the Board of Directors of ImmunoTherapy Corporation.
CODE means the Internal Revenue Code of 1986, as amended.
CORPORATION means ImmunoTherapy Corporation, a California corporation,
and its successors.
CORPORATE TRANSACTION means one or more of the following transactions:
(a) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state of the Corporation's incorporation,
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(b) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation, or
(c) any reverse merger in which the Corporation is the surviving
entity but in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to such merger.
EXERCISE DATE shall be the date on which written notice of the exercise
of an outstanding option under the Plan is delivered to the Corporation.
Such notice shall be in the form of a stock purchase agreement incorporating
any repurchase rights or first refusal rights retained by the Corporation,
if any, with respect to the Common Stock purchased under the option.
FAIR MARKET VALUE of a share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(a) If the Common Stock is at the time listed or admitted to trading
on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
Fair Market Value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(b) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter
market, the Fair Market Value shall be the mean between the highest bid
and the lowest asked prices (or if such information is available the
closing selling price) per share of Common Stock on the date in question
in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ National
Market System or any successor system. If there are no reported bid and
asked prices (or closing selling price) for the Common Stock on the date
in question, then the mean between the highest bid and lowest asked
prices (or closing selling price) on the last preceding date for which
such quotations exist shall be determinative of Fair Market Value.
(c) If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market,
or if the Plan Administrator determines that the valuation provisions of
subparagraphs (a) and (b) above will not result in a true and accurate
valuation of the Common Stock, then the Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate under the
circumstances.
NON-STATUTORY OPTION means an option not intended to meet the statutory
requirements prescribed under Section 422 of the Code.
PARENT corporation means any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
such corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
PLAN means this ImmunoTherapy Corporation 1997 Stock Option.
PLAN ADMINISTRATOR means the Board or the Committee, to the extent the
Committee is responsible for plan administration in accordance with Article
I, Section 2.
SERVICE means the performance of services for the Corporation or one or
more Parent or Subsidiary corporations by an individual in the capacity of
an employee, a non-employee member of
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the board of directors or an independent consultant or advisor, unless a
different meaning is specified in the option agreement evidencing the option
grant, the purchase agreement evidencing the purchased option shares or the
issuance agreement evidencing any direct stock issuance. An optionee shall
be deemed to remain in Service for so long as such individual renders
services to the Corporation or any Parent or Subsidiary corporation on a
periodic basis in the capacity of an employee, a non-employee member of the
board of directors or an independent consultant or advisor.
SUBSIDIARY corporation means each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be Non-Statutory Options. Each
granted option shall be evidenced by one or more instruments in the form
approved by the Plan Administrator; PROVIDED, HOWEVER, that each such instrument
shall comply with and incorporate the terms and conditions specified below.
(a) OPTION PRICE.
(1) The option price per share shall be fixed by the Plan Administrator.
(2) The option price shall become immediately due upon exercise of the
option, and subject to the provisions of Article III, Section 1, shall be
payable in cash or check drawn to the Corporation's order. Should the
Corporation's outstanding Common Stock be registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") at the time
the option is exercised, then the option price may also be paid as follows:
(A) in shares of Common Stock held by the optionee for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(B) through a special sale and remittance procedure pursuant to which
the Optionee (I) is to provide irrevocable written instructions to a
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds, an amount
sufficient to cover the aggregate option price payable for the purchased
shares plus all applicable Federal and State income and employment taxes
required to be withheld by the Corporation by reason of such purchase and
(II) concurrently provides written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to effect the sale transaction.
(b) TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan shall
be exercisable at such time or times, during such period, and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
stock option agreement evidencing such option. However, no option granted under
the Plan shall have a term in excess of ten (10) years from the grant date.
During the lifetime of the Optionee, the option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee otherwise
than by will or by the laws of descent and distribution following the Optionee's
death.
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(c) SHAREHOLDER RIGHTS. An Optionee shall have none of the rights of a
shareholder with respect to any shares covered by the option until such Optionee
shall have exercised the option and paid the option price.
2. CORPORATE TRANSACTION
(a) In the event of any Corporate Transaction other than the Merger with
AVI, each option outstanding under the Plan shall terminate upon the
consummation of such Corporate Transaction and cease to be exercisable, unless
assumed by the successor corporation or parent thereof. Upon the consummation of
the Merger with AVI, this Plan and the options granted hereunder shall be
assumed by AVI and the number of shares subject to each option granted under
this Plan and the exercise price of such options shall be adjusted as set forth
in the Merger Agreement.
(b) In connection with any such Corporate Transaction, the Plan
Administrator shall arrange for each or any outstanding option to either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof, or arrange for the option to be replaced by a
comparable cash incentive program of the successor corporation based on the
option spread (the amount by which the Fair Market Value of the shares of Common
Stock at the time subject to the option exceeds the option price payable for
such shares).
(c) If the outstanding options under the Plan are assumed by the successor
corporation (or parent thereof) in the Corporate Transaction or are otherwise to
continue in effect following such Corporate Transaction (other than the Merger),
then each such assumed or continuing option shall, immediately after such
Corporate Transaction, be appropriately adjusted to apply and pertain to the
number and class of securities or other property that would have been issuable
to the option holder, in consummation of the Corporate Transaction, had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the option price payable per
share, PROVIDED the aggregate option price payable for such securities or other
property shall remain the same. In addition, the number and class of securities
or other property available for issuance under the Plan following the
consummation of such Corporate Transaction shall be appropriately adjusted. This
Section 2(c) shall not apply to the Merger with AVI since the adjustments to any
options outstanding on the date of the Merger shall be made in accordance with
the terms of the Merger Agreement as provided in Section 2(a) above.
(d) The grant of options under this Plan shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
4. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under the Plan and to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of Common Stock.
5. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend (either
at the time while the option is granted or at any time while the option remains
outstanding) the period of time for which the option is to remain exercisable
following the period set forth in the option agreement, to such greater period
of time as the Plan Administrator may deem appropriate under the circumstances.
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ARTICLE III
MISCELLANEOUS
1. LOANS
(a) The Plan Administrator may assist any Optionee (including an Optionee
who is an officer or director of the Corporation) in the exercise of one or more
options granted to such Optionee under this Plan including the satisfaction of
any Federal and State income and employment tax obligations arising therefrom,
by:
(1) authorizing the extension of a loan from the Corporation to such
Optionee;
(2) permitting the Optionee to pay the option price or purchase price
for the purchased Common Stock in installments over a period of years.
(b) The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.
2. AMENDMENT OF THE PLAN
(a) The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects whatsoever. However, no such amendment
or modification shall adversely affect the rights and obligations of an Optionee
with respect to options at the time outstanding under the Plan, unless the
Optionee consents to such amendment.
3. EFFECTIVE DATE AND TERM OF PLAN
(a) The Plan shall become effective when adopted by the Corporation's Board
of Directors. The options granted under this Plan to replace the Prior Option or
Options shall be effective regardless of whether the Merger with AVI is
consummated.
(b) The Plan shall terminate upon the earliest to occur of the following
dates (the "Termination Date"): of (I) ten years after the adoption of the Plan
or (II) the date on which all shares available for issuance under the Plan have
been issued or canceled pursuant to the exercise or surrender of options granted
under Article II. The Corporation's Board of Directors may terminate this Plan,
in the Board's sole discretion, at any time prior to the Termination Date. If
the Termination Date is determined under clause (I) above or if this Plan is
terminated by the Board of Directors prior to the Termination Date, then no
options outstanding at such time shall be affected by the termination of the
Plan, and such securities shall thereafter continue to have full force and
effect in accordance with the provisions of the stock option and related stock
purchase documents evidencing such options.
4. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of shares of
Common Stock under the Plan shall be used for general corporate purposes.
5. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise or
surrender of any options granted under Article II shall be subject to the
satisfaction of all applicable Federal, State and local income and employment
tax withholding requirements.
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August 6, 1998
AntiVirals Inc.
One S.W. Columbia Street, Suite 1105
Portland, OR 97258
ImmunoTherapy Corporation
1209 S.W. Sixth Avenue, Suite 603
Portland, OR 97204
Gentlemen and Ladies:
We are acting as tax counsel to AntiVirals Inc. ("AntiVirals") in connection
with a proposed transaction (the "Merger") involving AntiVirals, a corporation
organized under the laws of the State of Oregon, AntiVirals Acquisition
Corporation ("Merger Sub"), a corporation organized under the laws of the State
of California, and ImmunoTherapy Corporation ("ITC"), a corporation organized
under the laws of the State of California.
The Merger is structured as a statutory merger of ITC with and into Merger
Sub, in which Merger Sub will be the surviving entity in accordance with that
certain Agreement and Plan of Reorganization and Merger by and among AntiVirals,
Merger Sub and ITC, dated as of February 2, 1998 and the exhibits thereto (the
"Agreement"). Except as otherwise indicated herein, capitalized terms used in
this opinion are defined in the Agreement.
Our opinion has been requested in connection with the filing of a
Registration Statement with the Securities and Exchange Commission on August 7,
1998 on Form S-4 (as thereafter amended at any time up to and including the date
hereof, the "Registration Statement"). While this opinion is addressed to both
AntiVirals and ITC, we have functioned solely as counsel to AntiVirals, and this
opinion shall not be construed to reflect or create an attorney client
relationship between ourselves and either ITC or holders of ITC Stock or options
to acquire shares of ITC Stock.
For purposes of rendering this opinion, we have examined and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, representations and
warranties contained in the following documents:
1. The Agreement (including exhibits thereto);
2. A Certificate of AntiVirals, dated July 28, 1998, signed by an
authorized officer of AntiVirals and delivered to us by AntiVirals
and incorporated herein by reference;
3. A Certificate of ITC, dated August 5, 1998, signed by an authorized
officer of ITC and delivered to us by ITC and incorporated herein by
reference;
4. A Certificate of Merger Sub, dated July 28, 1998, signed by an
authorized officer of Merger Sub, and delivered to us by Merger Sub
and incorporated herein by reference; and
5. Such other instruments and documents related to the formation,
organization and operation of AntiVirals, Merger Sub and ITC or the
consummation of the Merger and the transactions contemplated thereby
as we have deemed necessary or appropriate.
In rendering this opinion, we have assumed or obtained representations and
are relying thereon (without any independent investigation or review thereof)
that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and
there has been (or will be by the Effective Time of the Merger) due
execution and delivery of all documents where due execution and
delivery are prerequisites to effectiveness thereof;
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2. Any representation or statement referred to above made "to the best
of knowledge" or otherwise similarly qualified is correct without
such qualification;
3. The Merger will be effective under the applicable states' laws;
4. The fair market value of the AntiVirals Common Stock, Antivirals
Warrants and other consideration to be received by each ITC
Shareholder will be approximately equal to the fair market value of
ITC Stock surrendered in the Merger;
5. Neither AntiVirals, nor a related party to AntiVirals, nor a
partnership of which AntiVirals is a partner has a present plan or
intention to reacquire any of the AntiVirals Common Stock or
AntiVirals Warrants issued in the Merger to ITC Shareholders. For
this purpose, "related party" means (i) any corporation that is a
member of the same affiliated group as AntiVirals as defined in
Section 1504 of the Internal Revenue Code (determined without regard
to Section 1504(b)), either before or after the Merger, or (ii) any
corporation in which AntiVirals owns, directly or indirectly, at
least 50 percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total value of
shares of all classes of stock, either before or after the Merger;
6. In the merger, the ITC Shareholders will receive Antivirals Common
Stock with an aggregate value, as of the date of the Merger, of not
less than 50 percent of the value of all of the formerly outstanding
ITC Stock as of the same date. For this purpose, (i) shares of ITC
Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of ITC
Stock will be treated as outstanding ITC Stock on the date of the
merger, and (ii) shares of AntiVirals Common Stock received by an ITC
Shareholder and subsequently sold, exchanged, or otherwise
transferred to a related party of AntiVirals or a partnership of
which AntiVirals is a partner will not be treated as received in the
Merger by such ITC Shareholder. For purposes of this representation,
"related party" means (i) any corporation that is a member of the
same affiliated group as AntiVirals as defined in Section 1504 of the
Internal Revenue Code (determined without regard to Section 1504(b)),
either before or after the Merger, or (ii) any corporation in which
AntiVirals owns, directly or indirectly, at least 50 percent of the
total combined voting power of all classes of stock entitled to vote,
or at least 50 percent of the total value of shares of all classes of
stock, either before or after the Merger;
7. Merger Sub will acquire at least (a) 90 percent of the fair market
value of the net assets held by ITC immediately prior to the Merger,
and (b) 70 percent of the fair market value of the gross assets held
by ITC immediately prior to the Merger. For purposes of this
representation, the assets of ITC shall include assets disposed of by
ITC prior to or subsequent to the Merger and in contemplation thereof
(including without limitation any asset disposed of by ITC, other
than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending on the Effective Time of the Merger
and beginning with the commencement of negotiations (whether formal
or informal) with AntiVirals regarding the Merger). For this purpose,
any amounts paid by ITC to dissenters, amounts paid by ITC to ITC
Shareholders who receive cash or other property, ITC assets used to
pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by ITC
immediately preceding the transfer, will be included as assets of ITC
held immediately prior to the Merger;
8. Following the Merger, Merger Sub will continue the historic business
of ITC or use a significant portion of ITC's historic business assets
in a business;
9. AntiVirals, Merger Sub, ITC and the ITC Shareholders will each pay
their respective expenses, if any, incurred in connection with the
Merger;
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10. There is no intercorporate indebtedness existing between AntiVirals
and ITC or between Merger Sub and ITC that was issued, acquired, or
will be settled at a discount;
11. AntiVirals has no present plan or intention of liquidating Merger
Sub;
12. AntiVirals has no present plan or intention to merge Merger Sub with
and into another corporation; to sell or otherwise dispose of the
stock of Merger Sub; or to cause Merger Sub to sell or otherwise
dispose of any of the assets of ITC acquired in the transaction,
except for dispositions made in the ordinary course of business or
transfers to a corporation controlled by Merger Sub. For this
purpose, "control" means the direct ownership of stock possessing at
least 80 percent of the total combined voting power for the election
of directors of all classes of stock entitled to vote and at least 80
percent of the total number of shares of each nonvoting class of
stock of the corporation;
13. Neither AntiVirals, nor a related party to AntiVirals, nor a
partnership of which AntiVirals is a partner, nor a predecessor to
AntiVirals owns, or has owned during the past five years, any ITC
Stock. For this purpose, "related party" means (i) any corporation
that is a member of the same affiliated group as AntiVirals as
defined in Section 1504 of the Internal Revenue Code (determined
without regard to Section 1504(b)), either before or after the
Merger, or (ii) any corporation in which AntiVirals owns, directly or
indirectly, at least 50 percent of the total combined voting power of
all classes of stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of stock, either before or after
the Merger;
14. Prior to the Merger, AntiVirals will be in control of Merger Sub. For
this purpose, "control" means the direct ownership of stock
possessing at least 80 percent of the total combined voting power of
all classes of Merger Sub stock entitled to vote and at least 80
percent of the total number of shares of each nonvoting class of
stock of Merger Sub;
15. Merger Sub has been formed solely in order to consummate the
transactions contemplated by the Agreement, and Merger Sub has not
conducted and will not conduct any business activities or other
operations of any kind other than the issuance of its stock to
AntiVirals, prior to the Effective Time of the Merger;
16. No ITC Shareholder is acting as agent for AntiVirals in connection
with the Merger or approval thereof, and AntiVirals will not
reimburse any ITC Shareholder for shares of ITC Stock such
Shareholder may have purchased or for other obligations such
Shareholder may have incurred;
17. Any purchase of ITC Stock by AntiVirals stockholders prior to the
Merger was made by such stockholders on their own behalf and with
their own funds and not as a representative, or for the benefit of,
AntiVirals;
18. AntiVirals has no present plan or intention to cause Merger Sub to
issue additional shares of Merger Sub stock that would result in
AntiVirals losing control of Merger Sub. For this purpose, "control"
means the direct ownership of stock possessing at least 80 percent of
the total combined voting power for the election of directors of all
classes of Merger Sub stock entitled to vote and at least 80 percent
of the total number of shares of each nonvoting class of stock of
Merger Sub;
19. No stock of Merger Sub will be issued to ITC Shareholders in the
Merger;
20. The fair market value of the assets of ITC as of the Effective Time
of the Merger will exceed or equal the sum of the liabilities assumed
by Merger Sub plus the amount of liabilities, if any, to which the
assets of ITC are subject;
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21. Neither AntiVirals nor ITC is an investment company as defined in
Section 368(a)(2)(F)(3)(iii) and (iv) of the Internal Revenue Code;
22. Other than amounts paid to dissenters and amounts paid in lieu of
fractional shares, the only consideration to be received, directly or
indirectly, by ITC Shareholders in the Merger is AntiVirals Common
Stock and AntiVirals Warrants. No part of the consideration to be
exchanged for ITC Stock will be received by an ITC Shareholder as a
creditor, employee, or in any capacity other than that of an ITC
Shareholder;
23. Any liabilities of ITC in existence at the Effective Time of the
Merger and any liabilities to which the assets of ITC are subject as
of the Effective Time of the Merger were incurred by ITC in the
ordinary course of business;
24. At all times during the five-year period ending on the Effective Time
of the Merger, the fair market value of all of ITC's United States
real property interests was and will have been less than 50 percent
of the total fair market value of (a) its United States real property
interests, (b) its interests in real property located outside the
United States, plus (c) any other of its assets which are used or
held for use in a trade or business. United States real property
interests (other than an interest solely as a creditor) is real
property and associated personal property (such as movable walls and
furnishings) located in the United States or the Virgin Islands and
interests in any corporation (other than a controlled corporation)
owning any United States real property interest. ITC is treated as
owning its proportionate share (based on the relative fair market
value of its ownership interest to all ownership interests) of the
assets owned by any controlled corporation or any partnership, trust,
or estate in which ITC is a partner or beneficiary, and any such
entity in turn is treated as owning its proportionate share of the
assets owned by any controlled corporation or any partnership, trust,
or estate in which the entity is a partner or beneficiary. As used in
this paragraph, "controlled corporation" means any corporation at
least 50 percent of the fair market value of the stock of which is
owned by ITC, in the case of a first-tier subsidiary of ITC, or by a
controlled corporation, in the case of a lower-tier subsidiary;
25. Neither ITC, a related party to ITC, a partnership of which ITC is a
partner, nor a predecessor of ITC has redeemed or purchased any of
ITC's outstanding Common Stock or Preferred Stock during the past
five years. For this purpose, "related party" means (i) any
corporation that is a member of the same affiliated group as ITC as
defined in Section 1504 of the Internal Revenue Code (determined
without regard to Section 1504(b)), either before or after the
Merger, or (ii) any corporation in which ITC owns, directly or
indirectly, at least 50 percent of the total combined voting power of
all classes of stock entitled to vote, or at least 50 percent of the
total value of shares of all classes of stock, either before or after
the Merger;
26. ITC is not under the jurisdiction of a court in a case under Title 11
of the United States Code, or a receivership, foreclosure, or similar
proceeding in a federal or state court;
27. AntiVirals has not agreed to assume, nor will it directly or
indirectly assume, any expense or liability, whether contingent or
fixed, of any holder of ITC Stock. AntiVirals has no present plan or
intention to contribute any additional capital to ITC or Merger Sub
or to make any loans to ITC or Merger Sub for the purpose of directly
or indirectly paying any additional consideration to any holders of
ITC Stock. None of the ITC Stock exchanged for AntiVirals Common
Stock and AntiVirals Warrants in the Merger will be subject to any
liabilities;
28. No part of the consideration to be exchanged for ITC Stock will be
received by an ITC Shareholder as a creditor, employee, or in any
capacity other than that of an ITC Shareholder;
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29. ITC has not made any extraordinary distributions to its shareholders
subsequent to the commencement of negotiations with AntiVirals
regarding the Merger or in anticipation of the Merger;
30. ITC has not had and will not have prior to the Effective Time of the
Merger any earnings and profits. For this purpose, "earnings and
profits" means the U.S. federal taxable income of ITC adjusted by
Section 312 of the Internal Revenue Code and the regulations
promulgated thereunder;
31. ITC has not issued and will not issue prior to the Effective Time of
the Merger any ITC Common Stock or ITC Preferred Stock in exchange
for stock of another corporation;
32. No outstanding indebtedness of ITC has or will represent equity for
tax purposes; no outstanding equity of ITC has represented
indebtedness for tax purposes; no outstanding security, instrument,
agreement or arrangement that provides for, contains, or represents a
right to acquire ITC Stock (or to share in the appreciation thereof)
constitutes "stock" for purposes of Section 368(c) of the Code;
33. Any payments of cash by AntiVirals to ITC Shareholders in lieu of
fractional shares of AntiVirals Common Stock will be made by
AntiVirals solely for the purpose of saving AntiVirals the expense
and inconvenience of issuing and transferring fractional shares, and
is not separately bargained-for consideration; and
34. No outstanding equity of AntiVirals has represented indebtedness for
tax purposes.
Based on the foregoing documents, materials, assumptions and information,
and subject to the qualifications and assumptions set forth herein, it is our
opinion that, if the Merger is consummated in accordance with the provisions of
the Agreement and the exhibits thereto:
(1) the Merger of ITC with and into Merger Sub, with Merger Sub
surviving the Merger, will qualify as a reorganization within the meaning of
Section 368(a) of the Code;
(2) each of AntiVirals, Merger Sub, and ITC will be a party to a
reorganization within the meaning of Section 368(b) of the Code; and
(3) no income, gain, or loss will be recognized by the ITC Shareholders
as a result of the Merger with respect to the shares of ITC Stock converted
into shares of AntiVirals Common Stock and AntiVirals Warrants (except (i)
an amount that does not exceed any cash received as a result of exercising
dissenters' rights, (ii) an amount arising as a result of the return of
Escrowed Shares to AntiVirals, and (iii) an amount that does not exceed any
cash received in lieu of fractional shares).
Our opinions set forth above are based on the existing provisions of the
Code, Treasury Regulations (including Temporary and Proposed Treasury
Regulations) promulgated under the Code, published Revenue Rulings, Revenue
Procedures and other announcements of the Internal Revenue Service (the "IRS")
and existing court decisions, any of which could be changed at any time. Any
such changes might be retroactive with respect to transactions entered into
prior to the date of such changes and could significantly modify the tax results
described in the opinions set forth above. We undertake no responsibility to
advise you of any subsequent developments in the application, operation or
interpretation of the federal income tax laws.
Our opinion concerning certain of the federal income tax consequences of the
Merger is limited to the specific federal income tax consequences presented
above. No opinion is expressed as to any transaction other than the Merger,
including any transaction undertaken in connection with the Merger. In addition,
this opinion does not address any estate, gift, state, local or foreign tax
consequences that may result from the Merger. In particular, we express no
opinion regarding (1) the amount, existence, or availability after the Merger,
of any of the federal income tax attributes of ITC, Merger Sub or AntiVirals
(including,
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without limitation, foreign tax credits or net operating loss carryforwards, if
any, of ITC, Merger Sub, or AntiVirals); (2) any transaction in which ITC Stock
is acquired or AntiVirals Common Stock is disposed of, (3) the potential
application of the "disqualifying disposition" rules of Section 421 of the Code
to dispositions of ITC Stock; (4) the effects of any ITC Stock acquired by the
holder thereof in exchange for stock acquired subject to the provisions of
Section 83(a) of the Code; (5) the effects of the Merger on any payment that is
or may be subject to Section 280G of the Code; or (6) the effects of the Merger
on a holder of options to acquire ITC Stock, whether vested or nonvested,
compensatory or noncompensatory, incentive stock options or nonqualified stock
options.
In addition to your request for our opinion on these specific matters of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed the
discussion entitled "Certain Federal Income Tax Considerations" contained in the
Registration Statement and believe that such information fairly presents the
current federal income tax law applicable to the Merger, and the material
federal income tax consequences to ITC, Merger Sub, AntiVirals, and ITC
Shareholders as a consequence of the Merger.
No ruling has or will be requested from the IRS concerning the federal
income tax consequences of the Merger. In reviewing this opinion, you should be
aware that the opinions set forth above represent our conclusions regarding the
application of existing federal income tax law to the Merger. If the facts vary
from those relied upon (including if any representations, covenants, warranties
or assumptions upon which we have relied are inaccurate, incomplete, breached or
ineffective), our opinions contained herein could be inapplicable. You should be
aware that an opinion of counsel represents only the best legal judgment of
counsel, and has no binding official status of any kind, and that no assurance
can be given that contrary positions may not be taken by the IRS or that a court
considering the issues would not hold otherwise.
This opinion is being delivered solely for the purposes of being included as
an exhibit to the Registration Statement; it may not be relied upon or utilized
for any other purpose or by any other person or entity, and may not be made
available to any other person or entity, without our prior written consent. We
do however, consent to (a) the use of this opinion as an exhibit to the
Registration Statement, (b) the reliance upon this opinion by holders of ITC
Stock and holders of options to acquire ITC Stock, and (c) to the use of our
name in the Registration Statement wherever it appears. In giving such consent,
we do not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
ATER WYNNE LLP
/s/ Byron W. Milstead
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CALIFORNIA DISSENTERS' RIGHTS STATUTE
CALIFORNIA CORPORATIONS CODE CHAPTER 13
Section 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the
corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by
its outstanding shares (Section 152) within 10 days after the date of such
approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this
section, a statement of the price determined by the corporation to represent
the fair market value of the dissenting shares, and a brief description of
the procedure to be followed if the shareholder
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desires to exercise the shareholder's right under such sections. The
statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand
upon the corporation for the purchase of such shares and payment to the
shareholder in cash of their fair market value. The demand is not effective
for any purpose unless it is received by the corporation or any transfer
agent thereof (1) in the case of shares described in clause (i) or (ii) of
paragraph (1) of subdivision (b) of Section 1300 (without regard to the
provisos in that paragraph), not later than the date of the shareholders'
meeting to vote upon the reorganization, or (2) in any other case within 30
days after the date on which the notice of the approval by the outstanding
shares pursuant to subdivision (a) or the notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement
of the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at
such price.
Section 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date
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on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT
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Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set
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aside or rescinded, the shareholder shall not thereafter have any right to
demand payment of cash for the shareholder's shares pursuant to this chapter.
The court in any action attacking the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination by
the court that clearly no other remedy will adequately protect the complaining
shareholder or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short- form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article VI of the Company's Third Restated Articles of Incorporation (the
"Articles") eliminates the liability of the Company's directors to the Company
or its stockholders, except for any liability related to breach of the duty of
loyalty, actions not in good faith and certain other liabilities.
Section 60.387, ET SEQ., of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims unless the party is adjusted liable to the
corporation. Corporations may not indemnify if the party is adjudged liable for
receiving improper personal benefit. The OBCA provides for mandatory
indemnification of directors against all reasonable expenses incurred in the
successful defense of any claim made or threatened whether or not such claim was
by or in the right of the corporation. Finally, a court may order
indemnification if it determines that the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant circumstances
whether or not the director or officer met the good faith and reasonable belief
standards of conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
stockholders or otherwise.
Article VII of the Articles requires the Company to indemnify its directors
and officers to the fullest extent not prohibited by law. The Bylaws of the
Company also permit the Company to indemnify its directors and officers to the
fullest extent permitted by the OBCA.
ITEM 21. EXHIBITS.
2.0 Agreement and Plan of Reorganization and Merger dated as of February
2, 1998, among ANTIVIRALS INC., ANTIVIRALS Acquisition Corporation
and IMMUNOTHERAPY CORPORATION (Incorporated by reference to Annex A
to Joint Proxy Statement/Prospectus)
2.1 First Amendment to Plan of Reorganization and Merger dated as of May
27, 1998, among ANTIVIRALS INC., Acquisition Corporation and
IMMUNOTHERAPY CORPORATION (Incorporated by reference to Annex B to
Joint Proxy Statement/Prospectus)
2.2 Second Amendment to Plan of Reorganization and Merger dated as of
August 4, 1998, among ANTIVIRALS INC., ANTIVIRALS Acquisition
Corporation and IMMUNOTHERAPY CORPORATION (Incorporated by reference
to Annex C to Joint Proxy Statement/Prospectus)
2.3 Form of Escrow Agreement among ANTIVIRALS INC., the Escrow Indemnitors
and Jeffrey Lillard (Incorporated by reference to Annex F to Joint
Proxy Statement/Prospectus)
2.4 Term Loan Agreement dated as of February 2, 1998, between ANTIVIRALS
INC. and IMMUNOTHERAPY CORPORATION (Incorporated by reference to
Annex G to Joint Proxy Statement/Prospectus)
3.1 Third Restated Articles of Incorporation of ANTIVIRALS INC.(1)
3.2 Bylaws of ANTIVIRALS INC.(1)
4.1 Form of Specimen Certificate for Common Stock(1)
4.2 Form of Warrant for Purchase of Common Stock(1)
4.3 Form of Warrant Agreement(1)
4.4 Form of Representative's Warrant(1)
4.5 Form of Warrant Agreement between ANTIVIRALS INC. and IMMUNOTHERAPY
Shareholders (Incorporated by reference to Annex D to Joint Proxy
Statement/Prospectus)
4.6 Form of Lock-up Agreement (Incorporated by reference to Annex E to
Joint Proxy Statement/Prospectus)
5.0 Opinion of Ater Wynne LLP as to the legality of the securities being
registered
8.0 Opinion of Ater Wynne LLP as to tax matters (Incorporated by reference
to Annex I to Joint Proxy Statement/Prospectus)
10.1 1992 Stock Incentive Plan(1)
10.2 Employment Agreement with Denis R. Burger, Ph.D., dated November 4,
1996(1)
10.3 Employment Agreement with James Summerton, Ph.D., dated November 4,
1996(1)
10.4 Employment Agreement with Alan P. Timmins, dated November 4, 1996(1)
10.5 Employment Agreement with Dwight Weller, Ph.D. dated November 4,
1996(1)
10.6 Technology Transfer Agreement between Anti-Gene Development Group and
ANTIVIRALS INC., dated February 9, 1992(1)
10.7 Amendment to Technology Transfer Agreement between Anti-Gene
Development Group and ANTIVIRALS INC., dated January 20, 1996(1)
10.8 License and Option Agreement between Anti-Gene Development Group and
ANTIVIRALS INC., dated February 9, 1993(1)
10.9 Commercial Lease between Research Way Investments, Landlord, and
ANTIVIRALS INC., Tenant, dated June 15, 1992(1)
10.10 Lease between Benjamin Franklin Plaza, Inc., Landlord and ANTIVIRALS
INC., Tenant, dated June 17, 1992(1)
10.11 First Amendment to Lease between Benjamin Franklin Plaza, Inc.,
Landlord, and ANTIVIRALS INC., Tenant, dated July 24, 1995(1)
10.12 Employment Agreement with Patrick L. Iversen, Ph.D., dated July 14,
1997(2)
10.13 Immunotherapy Corporation 1997 Stock Option Plan (Incorporated by
reference to Annex H to Joint Proxy Statement/Prospectus)
10.14 Form of Employment Agreement with Jeffrey Lillard
10.15 Promissory Note dated June, 1998 made by the Lillard Family Trust to
ANTIVIRALS INC.
10.16 Oregon Deed of Trust Security Agreement and Fixture Filing dated June,
1998 granted by the Lillard Family Trust to Fidelity National Title
Company of Oregon, as trustee, for the benefit of ANTIVIRALS INC.
10.17 License Agreement between IMMUNOTHERAPY CORPORATION and Ohio State
University, dated March 12, 1996
10.18 License Agreement between IMMUNOTHERAPY CORPORATION and Ohio State
University, dated December 26, 1996
10.19 Amendment to License Agreement between IMMUNOTHERAPY CORPORATION and
Ohio State University, dated September 23, 1997
23.1 Consent of Ater Wynne LLP (included in legal opinion filed as Exhibit
5.0)
23.2 Consent of Ater Wynne LLP (included in tax opinion filed as Exhibit
8.0)
23.3 Consent of Arthur Andersen LLP - ANTIVIRALS INC.
23.4 Consent of Arthur Andersen LLP - IMMUNOTHERAPY CORPORATION
23.5 Consent of Deloitte & Touche LLP - IMMUNOTHERAPY CORPORATION
99.1 Form of Proxy for ANTIVIRALS INC. Annual Meeting of Shareholders
99.2 Form of Proxy for IMMUNOTHERAPY CORPORATION Special Meeting of
Shareholders
99.3 Irrevocable Proxy of the Lillard Family Trust dated April 10, 1998
99.4 Irrevocable Proxy of William Goolsbee dated April 10, 1998
99.5 Irrevocable Proxy of Allegheny Health, Education and Research
Foundation dated April 30, 1998
99.6 Irrevocable Proxy of Dong Kook Pharmaceutical Company and Clinetics
Corporation dated May 27, 1998
99.7 Irrevocable Proxy of Dr. John Majnarich dated April , 1998
- ------------------------
(1) Incorporated by reference to Exhibits to Registrant's Registration Statement
on Form SB-2, as amended and filed with the Securities and Exchange
Commission on May 29, 1997 (Commission Registration No. 333-20513).
(2) Incorporated by reference to Exhibits to Registrant's Annual Report on From
10-KSB for the fiscal year ended December 31, 1997, and filed with the
Securities and Exchange Commission on March 30, 1998.
ITEM 22. 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 of
1933, as amended (the "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, and (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;
(2) That, for the purpose of determining any liability under the 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, and
(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.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the 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.
(d) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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-4 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of Portland,
state of Oregon, on July 6, 1998.
ANTIVIRALS INC.
By: /s/ DENIS R. BURGER, PH.D.
--------------------------------------
Denis R. Burger, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Denis R. Burger and Alan P. Timmins and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents and full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
stated on July 6, 1998.
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
/s/ DENIS R. BURGER, PH.D.
------------------------------------------- Chief Executive Officer, President and (Principal
Denis R. Burger, Ph.D. Executive Officer)
/s/ ALAN P. TIMMINS
------------------------------------------- Chief Operating Officer, Chief Financial Officer and
Alan P. Timmins Director (Principal Financial and Accounting Officer)
/s/ DWIGHT D. WELLER, PH.D.
------------------------------------------- Senior Vice President of Chemistry and Manufacturing and
Dwight D. Weller, Ph.D. Director
/s/ PATRICK L. IVERSEN, PH.D.
------------------------------------------- Vice President of Research and Development and Director
Patrick L. Iversen, Ph.D.
/s/ NICK BUNICK
------------------------------------------- Director
Nick Bunick
/s/ JAMES B. HICKS, PH.D.
------------------------------------------- Director
James B. Hicks, Ph.D.
/s/ JOSEPH RUBINFELD, PH.D.
------------------------------------------- Director
Joseph Rubinfeld, Ph.D.
ANTIVIRALS INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBITS PAGE NO.
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