Nexell Therapeutics Inc – ‘PREM14A’ for 12/16/97

As of:  Wednesday, 10/15/97   ·   For:  12/16/97   ·   Accession #:  950130-97-4487   ·   File #:  0-28124

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Preliminary Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Special Proxy                                        179    960K 

Document Table of Contents

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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

Filed by the Registrant [X] 
  Filed by a Party other than the Registrant [_]

Check the appropriate box:
[X]  Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by   
Rule 14a-6(e)(2)  
[_]  Definitive Proxy Statement 
  [_]  Definitive Additional Materials
 [_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

VIMRx PHARMACEUTICALS INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[_]No fee required.                                             
     [X]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, $.001 par value, and Class A Preferred Stock (new)
     ---------------------------------------------------------------------------
(2)  Aggregate number of securities to which transaction applies: 
To be determined
     ---------------------------------------------------------------------------
   (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):        

To be determined
     ---------------------------------------------------------------------------
(4)  Proposed maximum aggregate value of transaction:             
$90,000,000 
     ---------------------------------------------------------------------------
(5)  Total fee paid:                                              
$18,000 
     ---------------------------------------------------------------------------
[_]  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.                                

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VIMRX PHARMACEUTICALS INC.
2751 Centerville Road 
Suite 210 
Little Falls II 
Wilmington, Delaware 19808

November __, 1997 

Dear Stockholder:                                                               

    You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of VIMRx Pharmaceuticals Inc. (the "Company") to be held on  
Tuesday, December 16, 1997 at 10:00 a.m., local time, at                        

[                                                              ] Wilmington,    
Delaware.                                                                       

At the Special Meeting, you will be asked to consider and vote upon a 
proposal to approve the acquisition by the Company of the intellectual property 
and intangible assets, other than trademarks, of the Immunotherapy Division (the
"Division") of the Biotech Business Group of Baxter Healthcare Corporation      
("Baxter"), a division engaged in developing instruments for ex vivo cell       
therapies, in exchange for (i) 11,000,000 shares of the Company's Common Stock  
and (ii) 40,000 shares of the Company's Class A Preferred Stock, each share     
having a liquidation value of $1,000 per share and convertible into Common Stock
(the "Class A Preferred Shares") plus such additional number of Class A         
Preferred Shares which, together with the 11,000,000 shares of Common Stock     
being delivered, shall have an aggregate value of $50,000,000 (the Class A      
Preferred Shares to be valued at $1,000 per share and the Common Stock to be    
valued at the average of the per share closing prices for the 15 trading days   
ending five days prior to the closing date as reported by The Nasdaq Stock      
Market) and the transfer of such intangible assets to a newly organized company 
(the "Subsidiary") in exchange for 80.5% of the Subsidiary's common stock.      
Concurrently, (i) the Subsidiary will acquire the tangible assets, business,    
trademarks and certain obligations of the Division in exchange for 19.5% of the 
Subsidiary's common stock and a warrant to purchase an additional 6% of the     
Subsidiary's common stock for $6,000,000 and (ii) Baxter and the Company will   
purchase $30,000,000 and $10,000,000, respectively, of the Subsidiary's 6 1/2%  
subordinated debentures.                                                        

You also will be asked to consider and approve an amendment to Article
FOURTH of the Company's Amended and Restated Certificate of Incorporation       
authorizing 1,000,000 shares of "blank check" preferred stock, of which         
[100,000] shares will be designated Class A Preferred Shares to effectuate the  
transactions contemplated by the Proposed Acquisition and the balance will be   
available for subsequent financings and other corporate purposes.               

 You are urged to read carefully the accompanying Proxy Statement, which
provides important information with respect to the proposals.  Whether or not   
you plan to attend the Special Meeting, please complete, date and sign your     
proxy card and promptly return it in the enclosed envelope.  If you attend the  
Special Meeting, you may vote in person even though you have previously returned
a proxy.                                                                        

  Sincerely,

          Richard L. Dunning
                               President and Chief Executive Officer

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VIMRX PHARMACEUTICALS INC.
2751 Centerville Road 
Suite 210 
Little Falls II 
Wilmington, Delaware 19808

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD ON DECEMBER 16, 1997 
______________________

To the Stockholders of                                                          
VIMRX PHARMACEUTICALS INC.                                                      

     NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of VIMRx Pharmaceuticals Inc. (the "Company") will be held on Tuesday,
December 16, 1997, at 10:00 a.m., local time, at [             ] Wilmington,    
Delaware for the following purposes:                                            

    1.  To approve the acquisition (the "Proposed Acquisition") by the Company
    of the intellectual property and intangible assets, other than trademarks,
of the Immunotherapy Division (the "Division") of the Biotech Business
  Group of Baxter Healthcare Corporation ("Baxter"), a division engaged in
developing instruments for ex vivo cell therapies, in exchange for (i)
   11,000,000 shares of the Company's Common Stock and (ii) 40,000 shares of
the Company's Class A Preferred Stock, each share having a liquidation
   value of $1,000 per share and convertible into Common Stock (the "Class A
    Preferred Shares") plus such additional number of Class A Preferred Shares
     which, together with the 11,000,000 shares of Common Stock being delivered,
    shall have an aggregate value of $50,000,000 (the Class A Preferred Shares
   to be valued at $1,000 per share and the Common Stock to be valued at the
     average of the per share closing prices for the 15 trading days ending five
    days prior to the closing date as reported by The Nasdaq Stock Market) and
  the transfer of such intangible assets to a newly organized company (the
"Subsidiary") in exchange for 80.5% of the Subsidiary's common stock. 
Concurrently, (i) the Subsidiary will acquire the tangible assets,    
  business, trademarks and certain obligations of the Division in exchange
 for 19.5% of the Subsidiary's common stock and a warrant to purchase an
additional 6% of the Subsidiary's common stock for $6,000,000 and (ii)
Baxter and the Company will purchase $30,000,000 and $10,000,000,     
respectively, of the Subsidiary's 6 1/2% subordinated debentures.     

    2.  To approve an amendment to Article FOURTH of the Company's Amended and
Restated Certificate of Incorporation authorizing 1,000,000 shares of 
   "blank check" preferred stock, $.001 par value, of which [100,000] shares
    will be designated Class A Preferred Shares to effectuate the transactions
    contemplated by the Proposed Acquisition and the balance will be available
for subsequent financings and other corporate purposes.               

     3.  To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.                   

    Only holders of record of Common Stock at the close of business on October
28, 1997, the Record Date for the Special Meeting, are entitled to notice of and
to vote at the Special Meeting.                                                 

     By Order of the Board of Directors,

Lowell S. Lifschultz    
Secretary             
Wilmington, Delaware                                                            
November_, 1997                                                                 

STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING
ARE REQUESTED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. 

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VIMRX PHARMACEUTICALS INC.
2751 Centerville Road 
Suite 210 
Little Falls II 
Wilmington, Delaware  19808 
_______________________ 

PROXY STATEMENT 
_______________________ 

SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD ON DECEMBER 16, 1997 
_______________________ 

INTRODUCTION

GENERAL                                                                         

 This Proxy Statement is being furnished to holders of Common Stock, par
value $.001 per share ("Common Stock"), of VIMRx Pharmaceuticals Inc., a        
Delaware corporation (the "Company"), in connection with the solicitation of    
proxies by the Board of Directors of the Company for use at the Special Meeting 
of Stockholders (the "Special Meeting") to be held on Tuesday, December 16,     
1997, at 10:00 a.m., local time, at [                                           
] Wilmington, Delaware.  The Company has retained D.F. King & Co., Inc., at an  
estimated cost of $4,000, plus reimbursement of expenses, to assist in its      
solicitation.  This Proxy Statement and enclosed proxy card are being mailed to 
the Company's stockholders on or about November __, 1997.                       

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING                                 

     At the Special Meeting, the stockholders will be asked to consider and vote
upon the following proposals (the "Proposals"):                                 

     1.   To approve the acquisition (the "Proposed Acquisition") by the Company
  of the intellectual property and intangible assets, other than
     trademarks, of the Immunotherapy Division (the "Division") of the
         Biotech Business Group of Baxter Healthcare Corporation ("Baxter"), a
          division engaged in developing instruments for ex vivo cell therapies,
       in exchange for (i) 11,000,000 shares of the Company's Common Stock
         and (ii) 40,000 shares of the Company's Class A Preferred Stock, each
        share having a liquidation value of $1,000 per share and convertible
into Common Stock (the "Class A Preferred Shares") plus such
          additional number of Class A Preferred Shares which, together with the
    11,000,000 shares of Common Stock being delivered, shall have an
      aggregate value of $50,000,000 (the Class A Preferred Shares to be
       valued at $1,000 per share and the Common Stock to be valued at the
          average of the per share closing prices for the 15 trading days ending
       five days prior to the closing date as reported by The Nasdaq Stock
 Market) and the transfer of such intangible assets to a newly
     organized company (the "Subsidiary") in exchange for 80.5% of the
     Subsidiary's common stock.  Concurrently, (i) the Subsidiary will
 acquire the tangible assets, business, trademarks and certain
         obligations of the Division in exchange for 19.5% of the Subsidiary's
  common stock and a warrant to purchase an additional 6% of the
    Subsidiary's common stock for $6,000,000 and (ii) Baxter and the
       Company will purchase $30,000,000 and $10,000,000, respectively, of
the Subsidiary's 6 1/2% subordinated debentures.            

     2.   To approve an amendment to Article FOURTH of the Company's Amended and
       Restated Certificate of Incorporation (the "Amendment") authorizing
      1,000,000 shares of "blank check" preferred stock, $.001 par value
          "Preferred Stock"), of which [100,000] shares will be designated Class
         A Preferred Shares to effectuate the transactions contemplated by the
         Proposed Acquisition and the balance will be available for subsequent
financings and other corporate purposes.                    

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     3.  To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.                             

 The foregoing matters are more fully described in this Proxy Statement.

VOTING AT THE SPECIAL MEETING                                                   

     Only holders of record of Common Stock at the close of business on Tuesday,
October 28, 1997 (the "Record Date"), are entitled to notice of and to vote at  
the Special Meeting, each such holder of record being entitled to one vote per  
share on each matter to be considered at the Special Meeting.  On the Record    
Date, there were [55,358,676] shares of Common Stock issued and outstanding.    

    The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the      
Special Meeting ([27,679,338] shares of the [55,358,676] shares outstanding) is 
necessary to constitute a quorum at the Special Meeting.  All abstentions and   
broker non-votes, if any, will be included as shares that are present and       
entitled to vote for purposes of determining the presence of a quorum at the    
Special Meeting.                                                                

Approval of the Proposed Acquisition by the Company's stockholders is 
required by the rules of the Nasdaq National Market as a result of the Company's
proposed issuance, to consummate the Proposed Acquisition, of Common Stock and  
Class A Preferred Shares convertible into Common Stock which, giving effect to  
the conversion, would constitute more than 20% of the shares of Common Stock    
outstanding.  The affirmative vote of a majority of the votes cast in person or 
represented by proxy at the Special Meeting is required for approval of the     
Proposed Acquisition and the affirmative vote of a majority of the outstanding  
shares of Common Stock ([27,679,338] shares of the [55,358,676] shares          
outstanding) is required to approve the Amendment.                              

    In determining whether the proposals have received the requisite number of
affirmative votes, (i) abstentions will be included as votes cast and will have 
the same effect as votes AGAINST the Proposed Acquisition and the Amendment, and
(ii) proxies for which a broker does not have discretionary authority and has   
not received voting instructions from the beneficial owners (so-called "broker  
non-votes"), if any, will not be counted and will have no effect on the vote for
the Proposed Acquisition, but will have the effect of a vote AGAINST the        
Amendment.                                                                      

     If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Special Meeting, the shares represented thereby will be  
voted in accordance with the instructions marked thereon.  In the absence of    
instructions, the shares will be voted FOR the Proposals and at the discretion  
of the holders of the proxies on any other matters that may properly come before
the Special Meeting.  At any time prior to its exercise, a proxy may be revoked 
by the holder of Common Stock granting it by delivering written notice of       
revocation or a duly executed proxy bearing a later date to the Secretary of the
Company at the address of the Company set forth on the first page of this Proxy 
Statement or by attending the Special Meeting and voting in person.             

    The executive offices of the Company are located at 2751 Centerville Road,
Suite 210, Little Falls II, Wilmington, Delaware 19808, telephone number (302)  
998-1734.                                                                       

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PROPOSAL I - APPROVAL OF PROPOSED ACQUISITION 

BACKGROUND                                                                      

    In October 1996, Mr. Richard L. Dunning, the Company's President and Chief
Executive Officer, learned that Baxter Healthcare Corporation ("Baxter") was    
seeking a strategic alliance partner for the Division and called The Craves     
Group whom, he had been advised, was one of Baxter's advisors with respect to   
the search.  In early November 1996, the Company received, signed and returned  
to Baxter a Confidentiality Agreement and thereafter, in December 1996, received
a Confidential Memorandum describing the Division, its business and its         
operations.  On January 20, 1997, the Company presented a written proposal to   
Baxter for a strategic alliance relating to the Division.  Thereafter, in       
February 1997, Mr. Dunning and David A. Jackson, Ph.D., the Company's Executive 
Vice President and Chief Scientific Officer, accompanied by two consultants and 
a representative of Lazard Freres & Co. LLC ("Lazard Freres"), which had been   
retained by the Company as its financial advisor with respect to the proposed   
alliance, went to Irvine, California to visit the Division, review its          
operations and discuss the Company's proposal.  During the ensuing meetings, Mr.
Dunning was advised that the Company's proposal was unacceptable as submitted   
and that a revised proposal more favorable to Baxter would have to be developed 
if the Company were interested in pursing a strategic alliance.                 

During March 1997, the Company, with the assistance of Lazard Freres, 
developed a revised proposal which was submitted to The Craves Group on or about
April 1, 1997.  On or about April 30, 1997, Mr. Dunning and Mr. Donald G.       
Drapkin, the Company's Chairman of the Board, met with Mr. Frederick Frank of   
Lehman Brothers, an investment banking firm which also was acting as an advisor 
to Baxter with respect to the search for an alliance partner, to discuss the    
revised proposal.  On or about May 1, 1997, Mr. Dunning was advised that Baxter 
was interested in completing a transaction with the Company; negotiations       
continued throughout May and a proposed form of letter of intent was provided by
the Company to Baxter on or about June 2, 1997.  After further negotiations, a  
letter of intent was executed by the Company and Baxter on June 11, 1997 and a  
joint press release announcing the signing was made on June 12, 1997.           

    On June 11, 1997, the day preceding the public announcement of the signing
of the letter of intent, the high and low sales prices of the Company's Common  
Stock, as reported by The Nasdaq Stock Market, were $3.656 and $3.375,          
respectively.                                                                   

Following the signing of the letter of intent, the Company and Baxter 
continued their respective due diligence and negotiations.  On September 24,    
1997, the Board of Directors of the Company, whose individual members had been  
kept apprised of the negotiations, held a special meeting by telephone          
conference call to discuss the Proposed Acquisition, the basic terms of which   
had been negotiated with Baxter. During the discussion, a managing director of  
Lazard Freres indicated he believed Lazard Freres would be in a position to give
its opinion that the Proposed Acquisition was fair, from a financial point of   
view, to the Company's stockholders upon completion of its due diligence and    
analysis. Following the discussion, Mr. Dunning was authorized by the Board to  
complete the negotiations and to execute the Asset Purchase Agreement on behalf 
of the Company. The agreement was finalized and executed on October 10, 1997 and
a joint press release announcing the signing was made on October 13, 1997.      

   On October 10, 1997, the trading day preceding the public announcement of
the signing of the agreement, the high and low sales prices of the Company's    
Common Stock, as reported by The Nasdaq Stock Market, were $2.8125 and $2.5625, 
respectively.                                                                   

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TERMS OF THE PROPOSED ACQUISITION                                               

General                                                               

   Pursuant to an asset purchase agreement dated October 10, 1997, a copy of
which is attached as Annex A to this Proxy Statement (the "Asset Purchase       
-------                               
Agreement"), the Company has agreed to acquire from Baxter the intellectual     
property and intangible assets, other than trademarks, of the Division in       
exchange for (i) 11,000,000 shares of Common Stock and (ii) 40,000 Class A      
Preferred Shares plus such additional number of Class A Preferred Shares which, 
together with the 11,000,000 shares of Common Stock being delivered, shall have 
an aggregate value of $50,000,000 (the Class A Preferred Shares to be valued at 
$1,000 per share and the Common Stock to be valued at the average of the per    
share closing prices for the 15 trading days ending five days prior to the      
closing date as reported by The Nasdaq Stock Market), which intangible assets   
the Company simultaneously will transfer to the Subsidiary in exchange for 80.5%
of the Subsidiary's common stock.  Concurrently, pursuant to the Asset Purchase 
Agreement, (i) Baxter will transfer to the Subsidiary the tangible assets,      
business, trademarks and certain obligations of the Division in exchange for    
19.5% of the Subsidiary's common stock and a warrant to purchase an additional  
6% of the Subsidiary's common stock for $6,000,000 exercisable at any time prior
to November 30, 2004 and (ii) Baxter and the Company will purchase $30,000,000  
and $10,000,000, respectively, of the Subsidiary's 6 1/2% subordinated          
debentures due November 30, 2004, interest to accrue and be payable initially on
November 30, 2002, and convertible, in the event of a public offering by, or the
merger or sale of, the Subsidiary, into the Subsidiary's common stock at a per  
share price equal to 95% of the public offering or the merger or sale price,    

 The closing of the Proposed Acquisition (the "Closing") will take place
following the satisfaction or waiver of all conditions specified in the Asset   
Purchase Agreement, including approval by the Company's stockholders of the     
Proposed Acquisition and the Amendment, and the termination or expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,  
as amended.  Prior to the Closing, the Asset Purchase Agreement may be          
terminated by mutual consent of Baxter, the Company and the Subsidiary, or by   
either Baxter or the Company following the occurrence of certain conditions or  
events, including inter alia, the conditions to Closing not being satisfied or  
waived by December 31, 1997.                                                    

  Following the Closing, Baxter is entitled to milestone payments from the
Subsidiary of up to $21,000,000 upon the Subsidiary obtaining certain regulatory
approvals and achieving other milestones.  In addition, Baxter (i) has the right
to designate a nominee to the Company's Board of Directors as long as Baxter    
owns at least 3% of the Company's outstanding capital stock and (ii) has agreed 
to vote all of its shares of the Company's capital stock for management's       
nominees for directors of the Company as long as Baxter has the right to        
designate a nominee and such designee is elected a director of the Company.     
Baxter has designated Mr. Victor W. Schmitt, the President of Venture Management
for the Biotech Business Group of Baxter, as its nominee to the Company's Board 
of Directors.                                                                   

    Baxter and the Company have agreed to indemnify each other with respect to
losses incurred as a result of breaches of the Asset Purchase Agreement and     
against other specific liabilities and claims up to a maximum of $18,000,000    
over a $400,000 deductible threshold; for such purposes, the Company and the    
Subsidiary are constituted one party.  Any indemnifiable amount payable by      
Baxter to the Company in excess of $5,000,000, or payable to the Subsidiary in  
excess of $5,000,000, at Baxter's option, may be paid by delivery of Class A    
Preferred Shares valued at $1,000 per share if payable to the Company, or by    
delivery of the Subsidiary's 6 1/2% subordinated debentures valued at the       
principal amount thereof if payable to the Subsidiary.  The breach of certain   
representations is not subject to the $400,000 deductible and the breach of     
certain covenants is not subject to the $18,000,000 limit.                      

Other Agreements                                                      

At the Closing, Baxter will enter into agreements with the Subsidiary 
pursuant to which Baxter will (i) perform manufacturing services, (ii) supply   
certain products and components, (iii) have the exclusive rights to distribute  
certain of the products and instruments which it transferred from the Division, 
(iv) provide engineering and product development services and certain           
transitional services for the Subsidiary and                                    

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(v) sublicense certain technology to the Subsidiary.  At the Closing, Baxter,   
the Company and the Subsidiary will also enter into a Non-Competition and       
Confidentiality Agreement.                                                      

The Hardware and Disposables Manufacturing Agreement  
----------------------------------------------------  

       The Hardware and Disposables Manufacturing Agreement (the "Hardware
Manufacturing Agreement") generally provides that, for a              
five-year period, Baxter will manufacture certain of the Subsidiary's 
   products, and will complete the manufacture and assembly of certain other
products and disposable sets using components to be manufactured or   
supplied by Baxter or third parties.  The Subsidiary will pay Baxter a
  price based upon agreed upon percentages of Baxter's "Fully Loaded Cost"
    for the products so manufactured, which generally will consist of Baxter's
  costs of manufacturing, performing services and acquiring components, in
accordance with generally accepted accounting principles consistently 
applied, including any related royalties payable by Baxter other than 
  royalty obligations paid or reimbursed by the Subsidiary pursuant to the
   sublicenses described below.  Under the Hardware Manufacturing Agreement,
     Baxter has a right of first offer to obtain an exclusive, worldwide license
to make, have made, use and sell any product manufactured by Baxter   
  thereunder in the event the Subsidiary elects to abandon the product and
sell its right to make, have made, use and sell the product to a third
   party.  Baxter or the Subsidiary may terminate the Hardware Manufacturing
     Agreement in the event the other party defaults or fails to comply with any
     material covenant contained therein or in the Non-Competition Agreement, or
   if the other party defaults in the performance of or fails to comply with
any covenant which results in termination of the Marketing Agreement. 

The Antibody Manufacturing and Storage Agreement            
------------------------------------------------            

   The Antibody Manufacturing and Storage Agreement (the "Antibody
  Agreement") generally provides that, for a five-year period, Baxter will
manufacture certain antibodies, reagents and reagent kits used as     
    components of or in conjunction with certain of the Subsidiary's products.
   The Subsidiary will pay Baxter a price based upon agreed upon percentages
    of Baxter's Fully Loaded Cost for the products so manufactured, determined
 as described above. Under the Antibody Agreement, Baxter has a right of
   first offer to obtain an exclusive, worldwide license to make, have made,
     use and sell any product manufactured by Baxter thereunder in the event the
   Subsidiary elects to abandon the product and sell its right to make, have
   made, use and sell the product to a third party. Baxter or the Subsidiary
    may terminate the Antibody Agreement in the event the other party defaults
   or fails to comply with any material covenant contained therein or in the
Non-Competition Agreement, or if the other party defaults in the      
performance of or fails to comply with any covenant which results in  
termination of the Marketing Agreement.                               

The Hardware and Disposables Supply Agreement 
--------------------------------------------- 

          The Hardware and Disposables Supply Agreement (the "Supply Agreement")
    generally provides that Baxter will supply certain products and components
used as part of and in conjunction with the Subsidiary's products,    
   including products made from certain proprietary Baxter plastics (such as
     collection, culture and storage bags) and the so-called "Spinning Membrane"
component of certain of the Subsidiary's products, for an eleven-year 
     period and other such products, including the Harvester System, for a five-
    year period. The Subsidiary will pay Baxter a price based upon agreed upon
 percentages of Baxter's Fully Loaded Cost for the products so supplied,
 determined as described above. Under the Supply Agreement, Baxter has a
 right of first offer to obtain an exclusive, worldwide license to make,
  have made, use and sell any product manufactured by Baxter thereunder in
  the event the Subsidiary has elected to abandon the product and sell its
     right to make, have made, use and sell the product to a third party. Baxter
     or the Subsidiary may terminate the Supply Agreement in the event the other
party defaults or fails to comply with any material covenant contained
     therein or in the Non-Competition Agreement, or if the other party defaults
     in the performance of or fails to comply with any covenant which results in
     termination of the Marketing Agreement. At the expiration of the respective
    supply term, Baxter generally will either continue to supply such products
on the current terms or transfer to the Subsidiary all intellectual   
    property owned or used by Baxter in connection with the manufacture of the
  products supplied, or a worldwide exclusive royalty-free license to such
    intellectual property, and certain rights relating to documentation of the
   products with the United States Food and Drug Administration (the "FDA").

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The Marketing, Sale and Distribution Agreement              
----------------------------------------------              

   The Marketing, Sale and Distribution  Agreement (the "Marketing
    Agreement") provides that, for an eleven-year period, Baxter will have the
     exclusive worldwide marketing, sales and distribution rights for certain of
   the Subsidiary's products and reagent kits used in the selection of cells
     with one or more of the CD34, B Cell, T Cell or breast cancer antibodies or
CD34+ cells for the treatment, mitigation, prophylaxis or selection of
 cancer, excluding, however, the genetic manipulation of such cells (the
     "Field of Distribution"). Under the Marketing Agreement, Baxter will have a
  right of first offer to acquire marketing, sales and distribution rights
for other Subsidiary products outside the Field of Distribution which 
   utilize the Subsidiary's immunomagnetic cell selection technology. Baxter
 also will have a right of first offer to obtain an exclusive, worldwide
     license to make, have made, use and sell certain products of the Subsidiary
within the Field of Distribution in the event the Subsidiary elects to
  abandon such product and sell its right to make, have made, use and sell
     such product within the Field of Distribution to a third party. Baxter will
 have the unilateral right to establish the sales price for all products
     sold by it under the Marketing Agreement and will pay the Subsidiary agreed
upon percentages of the suggested retail price therefor. After the    
Subsidiary obtains United States regulatory approval for the Isolex(R)
     300SA instrument, Baxter will be required to expend certain minimum amounts
  for marketing and sales expenses (including reimbursement of certain co-
  marketing expenses expected to be incurred by the Subsidiary) based upon
  projected target sales levels. Baxter will also have the right to market
   and sell service contracts for maintenance and repair of the Subsidiary's
     products for its own account, retaining all revenues and bearing all costs,
including the manufacture and supply of spare parts, in connection    
   therewith. Baxter or the Subsidiary may terminate the Marketing Agreement
    in the event the other party defaults or fails to comply with any material
covenant contained therein.                                           

The Services Agreement                                      
----------------------                                      

         The Services Agreement currently is being negotiated and will provide
    that, for a transitional period of at least 12 months, Baxter will perform
     certain transitional services for the Subsidiary and, for a period expected
to be at least five years, Baxter will perform engineering and product
development services for the Subsidiary, including clinical inventory 
management.                                                           

The Non-Competition and Confidentiality Agreement           
-------------------------------------------------           

The Non-Competition and Confidentiality Agreement (the      
     "Non-Competition Agreement") provides generally that neither Baxter nor any
   of its affiliates, directly or indirectly, will engage in the production,
    manufacture, marketing, sale or distribution of any product which directly
  competes with any Subsidiary product for use in certain types of ex viro
cell selection (as defined), except (i) as required under Baxter's    
    agreements with the Subsidiary and (ii) to satisfy certain existing Baxter
 contractual commitments. Baxter's obligations under the Non-Competition
    Agreement generally expire the later of (i) five years after the effective
     date, (ii) one year after the date on which Baxter neither owns 10% or more
  of the common stock of the Subsidiary on a fully diluted basis nor has a
     designee on the Subsidiary's board of directors, or (iii) the date on which
   the Marketing Agreement expires, but in no event later than fifteen years
   after the effective date, other than with respect to products supplied by
     Baxter under the Supply Agreement or marketed by Baxter under the Marketing
 Agreement, in which case Baxter's non-competition obligations generally
    expire on the date its supply or marketing obligations expire. Baxter also
     will refrain from exercising its retained license rights under the terms of
its sublicenses to the Subsidiary, except in certain specified events.

          The Non-Competition Agreement also provides generally that neither the
   Company nor any of its affiliates (other than the Subsidiary or an entity
     owned by Baxter and the Company in the same proportion as the Subsidiary is
     owned), directly or indirectly, will engage in the production, manufacture,
marketing, sale or distribution of any product which competes with any
 product of the Subsidiary's business or any product that is supplied by
     Baxter pursuant to the terms of the Supply Agreement for the later of (i) a
  period of five years after the effective date or (ii) one year after the
    date on which the Company neither has voting control of the Subsidiary nor
has a designee on the Subsidiary's board of directors, but in no event
    later than fifteen years after the effective date, other than with respect
  to products supplied by Baxter under the Supply Agreement, in which case
 the Company's obligations expire when such supply obligations of Baxter
expire.                                                               

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         The Non-Competition Agreement further provides generally that neither
the Subsidiary nor any of its affiliates, directly or indirectly, will
   engage in the production, manufacture, marketing, sale or distribution of
 any product which directly competes with any product supplied by Baxter
under the Supply Agreement, except if such production, manufacture,   
     marketing, sale or distribution is conducted by the Subsidiary or an entity
  owned by Baxter and the Company in substantially the same proportions as
    the Subsidiary is owned, for use in "ex vivo cell processing", as defined.
 The Subsidiary's obligations with respect to any such supplied products
 expire on the later of (i) eleven years after the effective date of the
    Non-Competition Agreement or (ii) the date on which Baxter's obligation to
    supply such product expires or is terminated under the terms of the Supply
   Agreement for a reason other than the Subsidiary's breach but in no event
    later than fifteen years after the effective date, other than with respect
  to products supplied by Baxter under the Supply Agreement, in which case
    the Subsidiary's obligations expire when such supply obligations of Baxter
expire. In addition, neither the Subsidiary nor any of its affiliates,
  directly or indirectly, will enable the Company, any of the Subsidiary's
 other affiliates or any third party to engage in the marketing, sale or
distribution of any of the Subsidiary's products distributed or to be 
 distributed by Baxter in the "Field of Distribution", as defined above,
     under the Marketing Agreement. The Subsidiary's obligations with respect to
the products distributed by Baxter expire on the date on which the    
  Marketing Agreement expires or is terminated for a reason other than the
Subsidiary's breach.                                                  

       The Non-Competition Agreements also provides generally that neither
  the Company nor the Subsidiary, nor any of their affiliates, directly or
indirectly, will engage in the marketing, sale or distribution of any 
product which directly competes with any product of Baxter for the    
separation of human blood into its constituents while a live donor or 
 patient is connected to the separation device for the later of (i) five
years after the effective date, (ii) one year after the date on which 
    Baxter neither owns 10% or more of the common stock of the Subsidiary on a
fully-diluted basis nor has a designee on the Subsidiary's board of   
directors, or (iii) the date on which the Marketing Agreement expires.

          The Non-Competition Agreement further provides for Baxter, the Company
and the Subsidiary to maintain the confidentiality of all confidential
   information received from each other for a period of fifteen years and to
  use such confidential information only in furtherance of the recipient's
 rights and obligations under the Asset Purchase Agreement and the other
agreements to be delivered at the Closing.                            

The Sublicenses                                             
---------------                                             

        The Sublicense Agreements provide for the grant to the Subsidiary of
    substantially all of Baxter's rights under four license agreements and for
the assumption by the Subsidiary of Baxter's obligations as licensee  
     thereunder, including payment of all royalties, annual maintenance fees and
other required payments.  Two of the sublicenses are under licenses to
Baxter from Becton Dickenson and relate, respectively, to (i) CD34+   
   technology for use in applications other than diagnostic applications and
   (ii) certain antibodies which attach to CD20+ and CD10+ B cells.  A third
     sublicense is under a non-exclusive license from Cetus Oncology Corporation
    d/b/a/ Chiron Therapeutics and relates to the manufacture, use and sale of
     specific antibodies and cell lines for the ex vivo therapeutic treatment of
    human cancer.  The fourth sublicense is under a non-exclusive license from
     Professor Bernd Dorken and relates to certain cell lines for the production
 of antibodies to be used in the extracorporeal therapeutic treatment or
diagnosis of Non-Hodgkins lymphoma and other specified malignancies.  

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Class A Preferred Shares                                              

    The following is a summary of the terms of the Class A Preferred Shares to
be issued to Baxter in connection with the Proposed Acquisition as set forth in 
the Certificate of Designations (Annex E). Under the Asset Purchase Agreement,  
Class A Preferred Shares may not be issued by the Company to any person or      
entity other than Baxter.                                                       

Voting Rights                                               
-------------                                               

         Except as otherwise required by law, the holders of Class A Preferred
     Shares will not have the right to vote on any matter submitted to a vote of
 the Company's stockholders.  With respect to all questions as to which,
 under law, stockholders are entitled to vote by classes, the holders of
  Class A Preferred Shares will vote together as a single class separately
from the holders of Common Stock.  Notwithstanding the foregoing, the 
    Company will not be permitted to amend its Certificate of Incorporation to
provide for the creation or issuance of any class or series of capital
    stock which will rank pari passu or senior to the Class A Preferred Shares
in priority to receive the "Liquidation Preference", as defined below,
without the affirmative vote or written consent of the holders of a   
majority of the then issued and outstanding Class A Preferred Shares. 

Conversion                                                  
----------                                                  

         Each Class A Preferred Share will be convertible, without the payment
    of any additional consideration by the holder thereof and at the option of
     the holder thereof, at any time after 18 months after the original issuance
date into that number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1,000 by the "Conversion Price" in
     effect at the time of conversion.  The "Conversion Price" initially will be
     the highest average of the closing bid prices per share of Common Stock for
   any sixty (60) consecutive trading day period commencing with the date on
which the Class A Preferred Shares are initially issued (the "Original
   Issuance Date") and ending on the date which is eighteen (18) months from
    such date, but in no event will the Conversion Price be less than $5.50 or
  greater than $7.50, subject, however, to adjustment for dilutive events,
    including a subdivision or combination of the outstanding shares of Common
   Stock, a stock split, stock dividend, cash dividend or other distribution
 with respect to the Company's outstanding securities, a reorganization,
     reclassification, merger, consolidation or sale of substantially all of the
 Company's assets, or the Company's sale of Common Stock at a price less
  than $3.00 per share or in excess of $10,000,000 in the aggregate during
the 18-month period following the Original Issuance Date.             

     Each Class A Preferred Share automatically will be converted into
 shares of Common Stock at the then effective Conversion Price (i) seven
years after the Original Issuance Date, (ii) immediately prior to the 
    effective time of any merger, sale of assets, reorganization or like event
(if such event occurs prior to eighteen (18) months from the Original 
     Issuance Date, then the Conversion Price will be equal to the fair value of
    the consideration to be received by the holder of a share of Common Stock,
    as determined in good faith by the Company's Board of Directors, but in no
event greater than $7.50), or (iii) upon the written election of the  
     holders of not less than a majority in voting power of the then outstanding
Class A Preferred Shares.                                             

Liquidation Preference                                      
----------------------                                      

     In the event of any liquidation, dissolution or winding up of the
  affairs of the Company, whether voluntary or involuntary, the holders of
Class A Preferred Shares will be entitled to be paid first out of the 
assets of the Company available for distribution to holders of the    
   Company's capital stock of all classes, before payment or distribution of
any of such assets to the holders of any other class of the Company's 
   capital stock, an amount equal to $1,000 per Class A Preferred Share (the
"Liquidation Preference"), which amount will be subject to equitable  
    adjustment whenever there is a stock dividend, stock split, combination of
    shares, reclassification or other similar event affecting such shares, and
  will include any accrued but unpaid dividends.  After payment is made in
full to the holders of Class A Preferred Shares or funds              

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    necessary for such payment have been set aside by the Company in trust for
    the account of the holders of Class A Preferred Shares to be available for
such payment, the remaining assets of the Company will be distributed 
ratably to the holders of Common Stock to the exclusion of the Class A
    Preferred Shares.  If the assets of the Company are insufficient to permit
the payment in full to the holders of Class A Preferred Shares of all 
amounts distributable to them, then the entire assets of the Company  
available for such distribution will be distributed ratably among the 
    holders of Class A Preferred Shares in proportion to the full preferential
amount each such holder is otherwise entitled to receive.             

 A consolidation or merger of the Company with or into another
unaffiliated corporation or a sale of all or substantially all of the 
     assets of the Company will not be regarded as a liquidation, dissolution or
winding up of the affairs of the Company.                             

Dividends                                                   
---------                                                   

   The holders of the Class A Preferred Shares will be entitled to
   receive dividends thereon at the rate of 6% of the Liquidation Preference
per share per annum (as adjusted for any combinations, consolidations,
    stock distributions or stock dividends with respect to such shares) as and
when declared by the Board of Directors, before any dividend or       
 distribution is declared, set apart for, or paid upon the Common Stock,
     which dividend will be payable in additional Class A Preferred Shares, each
    valued at their Liquidation Preference.  The dividends will be cumulative,
  so that if the Company fails in any fiscal year to pay such dividends on
     all of the issued and outstanding Class A Preferred Shares, such deficiency
   in the dividends will be fully paid before any dividends or distributions
will be paid on or set apart for the Common Stock.  All dividends and 
 distributions on the Class A Preferred Shares will be made pro rata per
    share to all holders of Class A Preferred Shares; provided, however, that,
    notwithstanding the foregoing, until all cumulative dividends on the Class
   A Preferred Shares are fully paid, all dividends and distributions on the
 Class A Preferred Shares will be made ratably to the holders thereof in
   proportion to the respective amounts that would be payable on such shares
if such dividend arrearages were paid in full.                        

Miscellaneous                                               
-------------                                               

 The Class A Preferred Shares are not subject to any mandatory
     redemption or sinking fund provisions, nor are the holders thereof entitled
to any preemptive rights to subscribe for or to purchase any shares or
     securities of any class that may at any time be issued, sold or offered for
sale by the Company.                                                  

DESCRIPTION OF THE COMPANY                                                      

    A complete description of the Company is set forth in its Annual Report on
Form 10-K for the year ended December 31, 1996 (the "10-K Report"), a copy of   
which is attached as Annex B to this Proxy Statement.  Since the filing of the  
-------                               
Form 10-K, the Company has acquired an exclusive worldwide license with respect 
to Blood Factor IXa protein from Columbia University, has employed Richard E.   
Kouri, Ph.D., as Senior Vice President, Research and Chief Executive Officer of 
VIMRx Genomics, Inc., the Company's subsidiary, and Mr. Allan R. Goldberg has   
resigned as Chairman of the Board and Chief Executive Officer of Innovir        
Laboratories, Inc., a subsidiary of the Company.  Additional information is set 
forth in the Company's Quarterly Report on Form 10-Q for the quarterly period   
ended June 30, 1997 (the "10-Q Report"), a copy of which is attached as Annex C 
                                                                       -------
to this Proxy Statement.  Statements in the 10-K Report and 10-Q Report are     
modified or superseded, for purposes hereof, to the extent that a statement     
contained in this Proxy Statement modifies or supersedes such statements.       

See also "Selected Financial Data" and "Management's Discussion and   
Analysis of Financial Condition and Results of Operations," Items 6 and 7,      
respectively, of the 10-K Report, and the other information appearing therein,  
and the information appearing in the 10-Q Report.                               

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DESCRIPTION OF THE DIVISION                                                     

    A description of the Division, followed by pro forma financial information
of the Company and the Division, is set forth commencing on page 16 of this     
Proxy Statement. The audited financial statements of the Division as of December
31, 1995 and 1996 and for each of the years in the three-year period ended      
December 31, 1996, together with unaudited financial statements of the Division 
as of June 30, 1997 and for the six months ended June 30, 1996 and 1997, are    
included herein commencing on page F-1.                                         

ACCOUNTING TREATMENT                                                            

 For accounting purposes the transaction is being treated as a purchase.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES                                         

The Company will not realize any gain or loss, for Federal income tax 
purpose, from the issuance of Common Stock and Class A Preferred Shares to      
Baxter pursuant to the Asset Purchase Agreement.                                

    The Proposed Acquisition will not have any federal income tax consequences
to the Company's current stockholders.                                          

REQUIRED VOTE                                                                   

   Approval of the Proposed Acquisition requires the affirmative vote by the
holders of a majority of the votes cast in person or represented by proxy at the
Special Meeting.                                                                

OPINION OF FINANCIAL ADVISOR                                                    

In December 1996, the Company retained Lazard Freres to act as its    
exclusive financial advisor with respect to the Proposed Acquisition, to assist 
in the negotiations with Baxter and in consummating the transaction, and to     
advise as to the fairness of the Proposed Acquisition to the Company's          
stockholders, from a financial point of view.  In consideration of its services,
the Company has agreed to pay Lazard Freres a fee of $400,000 in cash and       
404,120 shares of the Company's Common Stock in the event the Proposed          
Acquisition is consummated, and to reimburse Lazard Freres for its expenses.    
The Company has also agreed to indemnify Lazard Freres against any action,      
claim, proceeding or investigation arising out of its engagement by the Company,
other than if a court finds the liability resulted from the bad faith or gross  
negligence of Lazard Freres and/or its employees or agents. On September 24,    
1997, at a special meeting of directors held by telephone conference call to    
discuss the Proposed Acquisition, a managing director of Lazard Freres indicated
he believed Lazard Freres would be in a position to give its opinion that the   
Proposed Acquisition was fair, from a financial point of view, to the Company's 
stockholders. Thereafter, upon completion of its due diligence and analysis,    
Lazard Freres gave its written opinion to such effect, a copy of which is       
attached as Annex F.                                                            

RECOMMENDATION OF THE BOARD OF DIRECTORS                                        

  In determining whether to approve the Proposed Acquisition and recommend
its approval by the Company's stockholders, the Board of Directors considered a 
number of factors, including the following:                                     

.    The advanced technology and intellectual property rights being   
acquired.                                                   

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.    The potential dramatic increase in revenues upon approval of the 
    Isolex(R) 300SA by the Food and Drug Administration (the "FDA").

.    The strategic benefits from an alliance with Baxter.             

.    The view of Lazard Freres.                                       

   The Company's Board of Directors also considered a variety of potentially
negative factors in its deliberations concerning the Proposed Acquisition,      
including the following:                                                        

     .    The critical need for and the uncertainty of obtaining FDA approval on
a timely basis, if at all.                                  

.    The unprofitability of the Division, the substantial monthly cash
         funding required for its operations and the limited cash resources of
the Company.                                                

    IN VIEW OF THE FOREGOING AND SUCH OTHER MATTERS AS IT DEEMED RELEVANT, THE
BOARD APPROVED THE PROPOSED ACQUISITION AND THE ASSET PURCHASE AGREEMENT AS     
BEING IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS.                       

The foregoing discussion of the information and factors considered and
given weight by the Company's Board of Directors is not intended to be          
exhaustive, but is believed to include the material factors considered by the   
Board.  In addition, in reaching the determination to approve the Proposed      
Acquisition, in view of the wide variety of factors considered in connection    
with its evaluation, the Company's Board did not find it practical to, and did  
not, quantify or otherwise attempt to assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing weights
to different factors.                                                           

   ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED ACQUISITION.                                           

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PROPOSAL II - APPROVAL OF AMENDMENT TO AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION 

BACKGROUND                                                                      

 The Board of Directors has adopted, subject to stockholder approval, an
amendment to Article FOURTH of the Company's Amended and Restated Certificate of
Incorporation, authorizing 1,000,000 shares of "blank check" preferred stock, of
which [100,000] shares will be designated Class A Preferred Shares to effectuate
the transactions contemplated by the Proposed Acquisition and the balance will  
be available for subsequent financings and other corporate purposes.  A copy of 
the form of Amendment authorizing the "blank check" Preferred Stock is attached 
as Annex D to this Proxy Statement, and a copy of the Certificate of            
-------                                                                   
Designations setting forth the terms of the Class A Preferred Shares is attached
as Annex E to this Proxy Statement.                                             
-------                                                                   

EFFECTS OF AMENDMENT                                                            

The Amendment will provide the Board of Directors with the authority, 
without further action by the stockholders, to issue from time to time up to    
1,000,000 shares of Preferred Stock.  The Board of Directors will be authorized 
to establish and designate the classes, series, voting powers, designations,    
preferences and relative, participating, optional or other rights, and such     
qualifications, limitations and restrictions of the Preferred Stock as the Board
may determine in its sole discretion without further vote or action by the      
stockholders.                                                                   

    The rights, preferences, privileges, and restrictions or qualifications of
different series of Preferred Stock may differ with respect to dividend rates,  
amounts payable on liquidation, voting rights, conversion rights, redemption    
provisions, sinking fund provisions, and other matters.  The issuance of        
Preferred Stock could decrease the amount of earnings and assets available for  
distribution to holders of Common Stock or could adversely affect the rights and
powers, including voting rights, of holders of Common Stock.                    

The existence of the Preferred Stock, and the power of the Board of   
Directors of the Company to set its terms and issue a series of Preferred Stock 
at any time without stockholder approval, could have certain anti-takeover      
effects.  These effects include that of making the Company a less attractive    
target for a "hostile" takeover bid or rendering more difficult or discouraging 
the making of a merger proposal, assumption of control through the acquisition  
of a large block of Common Stock or removal of incumbent management, even if    
such actions could be beneficial to the stockholders of the Company.            

   In order to effectuate the Proposed Acquisition, the Board has designated
[100,000] shares of Preferred Stock as Class A Preferred Shares and has agreed  
not to issue any class or series of capital stock which will rank pari passu or 
senior to the Class A Preferred Shares without the affirmative vote or written  
consent of the holders of a majority of the then issued and outstanding Class A 
Preferred Shares.  See "Proposal I - Approval of Proposed Acquisition - Terms of
the Proposed Acquisition - Class A Preferred Shares" and Annex E to this Proxy  
                                         -------
Statement.                                                                      

REQUIRED VOTE                                                                   

  Approval of the Amendment requires the affirmative vote of a majority of
the outstanding shares of Common Stock.                                         

  THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT.                                                                  

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
AND MANAGEMENT

  The following table sets forth certain information as of the Record Date
with respect to the beneficial ownership of Common Stock by (i) each person     
known to the Company to be the beneficial owner of five percent or more thereof,
(ii) each director of the Company, (iii) each of the individuals named in the   
Summary Compensation Table under Part III, Item 11 - Executive Compensation of  
the 10-K Report (Messrs. Richard L. Dunning, the Company's Chief Executive      
Officer, Alfonso J. Tobia, Ph.D., Executive Vice President, and Francis M.      
O'Connell, Vice President, Finance of the Company), and (iv) all executive      
officers and directors as a group.  All persons identified below as holding     
options and/or Common Stock purchase warrants (the "Warrants") are deemed to be 
beneficial owners of shares of Common Stock subject to such options or          
purchasable upon exercise of such Warrants by reason of their right to acquire  
such shares within 60 days after the Record Date through the exercise of such   
options and/or the Warrants.                                                    

                                                        [Enlarge/Download Table]

                                                        SHARES             PERCENT   
                      NAME                        BENEFICIALLY OWNED    OUTSTANDING  
                      ----                        ------------------    -----------  
                                                                                     
Richard L. Dunning...............................          303,595(1)        *       
Francis M. O'Connell.............................           50,740(2)        *       
Alfonso J. Tobia, Ph.D...........................           75,000(3)        *       
Donald G. Drapkin................................        562,500(4)(5)           1.0%
Laurence D. Fink.................................        433,333(4)(6)       *       
Jerome Groopman, M.D.............................           50,000(4)        *       
Linda G. Robinson................................          183,333(4)        *       
Eric A. Rose, M.D................................          584,900(7)            1.1%
Lindsay A. Rosenwald, M.D........................      6,114,999(4)(8)          10.7%
  787 Seventh Avenue                                                                 
  New York, New York 10019                                                           
Michael Weiner, M.D..............................           62,410(4)        *       
Paramount Capital Asset Management Inc...........        4,049,999(9)            7.3%
  c/o Lindsay A. Rosenwald, M.D.                                                     
  787 Seventh Avenue                                                                 
  New York, New York 10019                                                           
Mellon Bank Corporation..........................        2,865,000(10)           5.2%
  One Mellon Bank Center                                                             
  Pittsburgh, Pennsylvania 15258                                                     
All directors and executive officers as a group          8,583,310(11)          14.7%
  (11 persons)...................................                                    

*  Less than one percent.                                                       

(1)  Consists of currently exercisable options to purchase 300,000 shares owned 
  by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning, and 500
 shares owned by each of Mr. Dunning's spouse, son and another daughter,
 respectively.  Mr. Dunning disclaims beneficial ownership of the shares
held by his spouse, son and daughters.                                

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(2)  Consists of currently exercisable options to purchase 50,000 shares owned  
by Mr. O'Connell and 740 shares owned by Mr. O'Connell's spouse as    
custodian for their son under the Uniform Gift to Minors Act.  Mr.    
   O'Connell disclaims beneficial ownership of the shares held by his spouse
as custodian for their son.                                           

(3)  Consists of currently exercisable options.                                 

(4)  Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of Mr.  
Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of     
 restricted stock which commenced vesting at the rate of 25% per year on
June 20, 1997, each such vesting subject to the respective individual 
 continuing to serve as a director of the Company, and subject to a non-
lapsing right of first refusal by the Company.                        

(5)  Includes currently exercisable options to purchase 362,500 shares.         

(6)  Includes 66,666 shares owned by a family trust for the benefit of Mr.      
 Fink's children.  Mr. Fink disclaims beneficial ownership of the shares
held by the family trust.                                             

(7)  Includes currently exercisable options to purchase 262,500 shares.         

(8)  Includes currently exercisable options to purchase 2,015,000 shares owned  
    by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by Paramount
Capital Asset Management, Inc. ("PCAM") (see note (9) below).  Dr.    
Rosenwald serves as President and is sole shareholder of PCAM.  Dr.   
   Rosenwald disclaims beneficial ownership of the shares beneficially owned
by PCAM.                                                              

(9)  Information is from a Schedule 13D dated December 23, 1996 filed by PCAM   
    which is the investment manager of The Aries Trust (the "Aries Trust") and
the general partner of Aries Domestic Fund, L.P. (the "Aries Limited  
     Partnership"), and reports shared voting and dispositive power of 1,324,999
     shares and 2,750,000 shares, respectively, by the Aries Trust and the Aries
Limited Partnership.                                                  

(10) Information is from a Schedule 13G dated January 24, 1997, filed by Mellon 
Bank Corporation, which reflects sole voting power with respect to    
2,865,000 shares and sole dispositive power with respect to 2,750,000 
shares.                                                               

(11) Includes currently exercisable options to purchase 125,000 shares owned by 
an executive officer not named on the table.  See also notes (1)-(8). 

     On the Record Date, the outstanding Common Stock was held by ___ registered
stockholders.                                                         

STOCKHOLDER PROPOSALS 

  Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 1998 Annual Meeting of Stockholders must be   
received by the Company at its principal office by December 31, 1997.           

OTHER MATTERS 

   Management does not know of any matter to be brought before the
Special Meeting other than as described above.  In the event any other matter   
properly comes before the Special Meeting, the persons named in the accompanying
form of proxy have discretionary authority to vote on such matters.             

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THE DIVISION

GENERAL                                                                         

    The Division, which commenced operations on January 1, 1993, is engaged in
the development, manufacture, marketing and distribution of specialized         
instruments used in ex vivo cell research and therapies.  The Division's cell   
processing instruments are used in combination with biological reagents and     
other instruments to provide integrated systems for manipulation of cells       
extracted from patients.  These cell processing instruments are used in the     
treatment of various diseases, including various forms of cancer.               

   The Division is global in nature with headquarters in Irvine, California,
a research facility in Round Lake, Illinois, and customer training, service and 
limited manufacturing and research capabilities in Munich, Germany.  The        
Subsidiary is not acquiring the Division's facilities in Round Lake, Illinois   
and Munich, Germany and, following the Closing of the Proposed Acquisition,     
operations will be consolidated at the Irvine, California facility.             

    The Division currently markets the Isolex(R) Cell Separator, an automated,
sterile path instrument for the positive clinical separation of specific cell   
populations from blood and bone marrow (positive cell selection).  In positive  
cell selection, a targeted cell population is captured and retained for         
reinfusion or for further biological manipulation.  The Division offers three   
versions of the Isolex(R) Cell Separator instrument:  the smaller scale         
Isolex(R) 50 Cell Separator for research use; the clinical scale semi-automated 
300SA Cell Separator; and the fully automated 300i Cell Separator.  All three   
versions are currently marketed for therapeutic and/or research purposes in     
Europe.  As the Division has not yet received local regulatory approval of the  
instruments for therapeutic purposes, sales in the United States and Japan are  
limited to research laboratories and institutions on a cost recovery basis.     

In addition to the positive selection Isolex(R) Cell Separator, the   
Division markets the MaxSep(R) System.  The semi-automated MaxSep(R) System is a
negative selection system in which undesired cells are removed from a diverse   
population of cells.  The MaxSep(R) System is currently marketed for therapeutic
purposes in Europe.                                                             

    The Division also markets various ancillary products which are utilized in
the cell manufacturing cycle. These products include the following: Cryocyte(TM)
containers used in the freezing of blood components; Lifecell(R) tissue culture 
flasks which provide a closed system environment for culturing cells; CFU stem  
cell kit used to measure stem cell colony formation in samples of bone marrow,  
peripheral blood, cord blood, or selected CD34 cells; and Harvester(TM), a cell 
collection device used primarily to reduce large cell volumes.                  

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SELECTED FINANCIAL DATA                                                         

                                                        [Enlarge/Download Table]

STATEMENT OF OPERATIONS:                       YEAR ENDED DECEMBER 31,                       SIX MONTHS ENDED  
                                                                                                 JUNE 30,      
                                        1993(1)    1994       1995       1996                1996(1)    1997(1)
                                      ---------  ---------  ---------  ---------           ---------  ---------

                                            (DOLLAR AMOUNTS IN THOUSANDS)                                      
                                                                                                               
Revenue.............................. $ 13,616   $ 19,702   $ 22,564   $ 23,947            $ 11,915   $  7,816 
Cost of goods sold...................    7,550      9,943     11,608     11,638               5,456      5,506 
  Gross profit.......................    6,066      9,759     10,956     12,309               6,459      2,310 
Operating expenses:                                                                                            
  Research and development...........   33,373     35,308     35,711     34,699              17,409     12,069 
  Sales, general and administrative..   12,187     12,324     13,356     13,254               6,597      5,429 
    Total operating expenses.........   45,560     47,632     49,067     47,953              24,006     17,498 
    Operating loss...................  (39,494)   (37,873)   (38,111)   (35,644)            (17,547)   (15,188)
Other income (expense):                                                                                        
  Loss on sale of investment.........       --         --     (1,388)        --                  --         -- 
  Gain on sale of Therasorb assets...       --         --         --        651                 651         -- 
  Other..............................       56          6        (39)     1,753                  19        287 
    Total other income (expense).....       56          6     (1,427)     2,404                 670        287 

  Net loss........................... $(39,438)  $(37,867)  $(39,538)  $(33,240)           $(16,877)  $(14,901)
                                      --------   --------   --------   --------            --------   -------- 

BALANCE SHEET DATA:                                            DECEMBER 31,                           JUNE 30, 
                                                 ----------------------------------------             -------- 
                                                   1993(1)    1994(1)    1995      1996                 1997(1)
                                                 --------   --------   --------   -------             -------- 
                                                      (DOLLAR AMOUNTS IN THOUSANDS)                            
Total current assets.................            $  5,820   $  9,566   $ 14,257   $17,025             $ 14,111 
Total assets.........................              16,739     22,713     27,705    32,438               33,757 
Total liabilities....................               3,573      6,059      5,789     7,109                4,586 
Business equity......................              13,166     16,654     21,916    25,329               29,171 

(1) Unaudited financial data.                                                   

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS                                                                      

The following discussion and analysis should be read together with the  
financial statements and notes thereto included elsewhere herein.               

OVERVIEW                                                                        

The Division is a division of Baxter, which is a subsidiary of Baxter   
International, Inc. Historically, the Division had no separate legal status.  As
a result, separate financial statements of the Division were not prepared.      
Management's Discussion and Analysis of Financial Condition and Results of      
Operations herein is based on financial statements which have been prepared from
the historical accounting records as if the Division had operated as a separate 
entity during all periods presented.                                            

RESULTS OF OPERATIONS                                                           

 Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

    Revenue for the six months ended June 30, 1997 decreased $4,099,000, or 34%,
to $7,816,000 from $11,915,000 when compared to the six months ended June 30,   
1996 primarily due to the transfer of the "Collections" product line to another 
Baxter division in January 1997.    Revenue from this product line approximated 
$6,397,000 for the six months ended June 30, 1996.  The decrease in revenue     
related to the "Collections" product line was partially offset by increased     
demand for other Division products internationally.                             

    Cost of goods sold of $5,506,000 increased for the six months ended June 30,
1997 by $50,000, or 1%, when compared to $5,456,000 for the six months ended    
June 30, 1996.  As a percentage of revenue, cost of goods sold increased to 70% 
in 1997 from 46% in 1996, primarily due to the transfer of the "Collections"    
product line, which had a higher profit margin than the other Division products.

   Research and development expenses were $12,069,000 for the six months ended
June 30, 1997 and decreased $5,340,000, or 31%, when compared to $17,409,000 for
the six months ended June 30, 1996.  The decrease resulted primarily from a     
reduction in research and development personnel in October 1996 and decreased   
expenditures resulting from the transfer of the "Collections" product line.     

Sales, general and administrative expenses were $5,429,000 for the six  
months ended June 30, 1997, a decrease of $1,168,000 or 18%, as compared to     
$6,597,000 for the six months ended June 30, 1996.  The decrease in these       
expenses was primarily due to the transfer of the "Collections" product line and
the accompanying decrease in support related costs.                             

 Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

    Revenue for the year ended December 31, 1996 increased $1,383,000, or 6%, to
$23,947,000 from $22,564,000 when compared to the year ended December 31, 1995. 
The increase in revenue is primarily attributable to increased sales of the     
Isolex(R) 300i Cell Separator subsequent to its regulatory approval in Europe.  

Cost of goods sold of $11,638,000 increased during 1996 by $30,000 when 
compared to $11,608,000 for the year ended December 31, 1995.  As a percentage  
of revenue, cost of goods sold decreased to 49% in 1996 from 51% in 1995        
primarily due to the increased sales of the Isolex(R) 300i Cell Separator, which
has a slightly higher profit margin than the semi-automated instrument it       
replaced.                                                                       

  Research and development expenses were $34,699,000 for 1996, a decrease of
$1,012,000 or 3%, as compared to $35,711,000 for the year ended December 31,    
1995.  The decrease in research and development expenses is primarily           
attributable to a reduction in research and development personnel in October    
1996.                                                                           

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Sales, general and administrative expenses were $13,254,000 for 1996, a 
decrease of $102,000 or 1%, as compared to $13,356,000 for the year ended       
December 31, 1995.  The decrease in these expenses was primarily due to reduced 
business development spending.                                                  

 Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994

  Revenue for the year ended December 31, 1995 increased $2,862,000, or 15%,
to $22,564,000 from $19,702,000 when compared to the year ended December 31,    
1994.  The increase in revenue is primarily attributable to sales of the        
Isolex(R) 300SA which received regulatory approval in Europe in 1995.           

  Cost of goods sold of $11,608,000 increased during 1995 by $1,665,000 when
compared to $9,943,000 for the year ended December 31, 1994.  As a percentage of
revenue, cost of goods sold remained relatively unchanged at 51% in 1995 when   
compared to 50% in 1994.  The increase in absolute dollars is attributable to   
the increased level of sales.                                                   

   Research and development expenses were $35,711,000 for 1995, an increase of
$403,000 or 1%, as compared to $35,308,000 for the year ended December 31, 1994.
The increase in research and development expenses is primarily attributable to a
reduction in research and development expenses during 1994 as the Division      
focused more resources on the commercialization of certain products.            

Sales, general and administrative expenses were $13,356,000 for 1995, an
increase of $1,032,000 or 8%, as compared to $12,324,000 for the year ended     
December 31, 1994.  The increase in these expenses was primarily due to         
increased personnel and marketing costs related to the introduction of the      
Isolex(R) 300i Cell Separator in late 1994.                                     

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Division's liquidity has been derived principally from financing    
provided by Baxter.  During the six months ended June 30, 1997, net cash used in
operating activities was $12,805,000 as compared to net cash used in operating  
activities of $15,128,000 during the six months ended June 30, 1996.  At June   
30, 1997, total cash on hand amounted to $17,000 as compared to $35,000 at      
December 31, 1996.                                                              

During the year ended December 31, 1996, net cash used in operating     
activities was $32,488,000 as compared to net cash used in operating activities 
of $39,410,000 during the year ended December 31, 1995.  The reduction in net   
cash used in operating activities in 1996 as compared to 1995 was primarily due 
to the reduction in the Division's 1996 net loss as compared to 1995.  At       
December 31, 1996, total cash on hand amounted to $35,000 as compared to $13,000
at December 31, 1995.                                                           

   Capital expenditures for the six months ended June 30, 1997 were $1,521,000
as compared to $882,000 for the six months ended June 30, 1996.  The increase   
was primarily due to increased production of equipment utilized by laboratories 
performing research and clinical trials.                                        

  Capital expenditures for the year ended December 31, 1996 were $6,468,000,
an increase of $1,801,000 when compared to $4,667,000 for the year ended        
December 31, 1995.  The increase was primarily due to the placement of the      
Isolex(R) 300SA and 300i instruments in various North American sites for        
clinical trials and research.                                                   

International sales accounted for approximately 67%, 74% and 78% of the 
Division's revenues in 1994, 1995 and 1996, respectively.  Increases in the     
exchange rate of the U.S. dollar against specific currencies could cause the    
Division's products to become relatively more expensive to customers in an      
affected country, leading to a reduction in sales or profitability in that      
country.                                                                        

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Management believes its continuing efforts to moderate research and     
development expenditures relative to contributions from product sales and       
Baxter's commitment to fund the ongoing operating shortfall will provide        
sufficient liquidity to enable the Division to meet its current operating and   
capital needs for at least the next 12 months.                                  

In the event the Proposed Acquisition is consummated, the Company's     
management believes the funding provided to the Subsidiary (the successor to the
Division) will be adequate to meet the Subsidiary's operating and capital needs 
for in excess of 12 months.                                                     

THE ISOLEX(R) CELL SEPARATOR                                                    

 The Division has developed a technological expertise in the separation of
cells by immunoselection which has the potential of being used in many cellular 
therapies.  The foundation of this expertise is the Division's proprietary      
immunomagnetic instrument and companion disposables for cell separation called  
the Isolex(R) Cell Separator.  The Isolex(R) Cell Separator employs highly      
specific murine anti-human antibodies which target CD34+ hematopoietic stem     
cells.  These antibody-marked cells are captured by rosetting them with magnetic
beads coated with sheep anti-murine antibodies which recognize the antibodies   
targeting the desired cells.  The rosetted cells are then separated away from   
non-targeted cells when passed through a magnetic field.  After the non-target  
cells are removed, the specific release of captured cells is accomplished by a  
peptide which competes for the antibody targeting the captured cell.  This      
proprietary instrument and selection process allows for very pure preparations  
of cells whose surfaces are free of biological reagents used in the capture     
process.  This process also enables the simultaneous or subsequent use of       
additional antibodies to subdivide or further enrich the targeted cell          
population.  This is particularly important in treatments where any             
contaminating cells may have adverse effects or where unique subsets of cells   
are desirable, such as in gene therapy applications.                            

The Division has developed and launched the Isolex(R) Cell Separator, an
automated, sterile path instrument for the clinical separation of specific cell 
populations from blood or bone marrow.  Three versions of this instrument have  
been developed:  the smaller scale Isolex(R) 50 Cell separator for research use;
the clinical scale semi-automated 300 SA Cell Separator; and the fully automated
300i Cell Separator.  To date, the Division's management team has obtained      
approval of these products in Europe and is currently pursuing approval in the  
United States from the FDA; its application for pre-market approval             
for the 300SA is currently under review by the FDA.                             

Compared to other cell separation instruments, management believe the   
automated Isolex(R) Cell Separator provides the following advantages:           

.     MINIMIZES REQUIRED OPERATOR ATTENTION - Automated, sterile path   
          processing allows multiple procedures to be run simultaneously in busy
   laboratories.  The Isolex(R) 300i Cell Separator is intended to
        provide reproducible purities and yields in approximately 2.5 hours.

.     FACILITATES REGULATORY COMPLIANCE FOR THE OPERATOR - Since an     
    automated, sterile path instrument generally provides consistent
        reproducible quality processing, it may facilitate regulatory review
         and compliance in a current good manufacturing practices environment.

  .     REDUCES THE NEED FOR ADDITIONAL EQUIPMENT - Since the Isolex(R) 300i
   Cell Separator incorporates proprietary cell washing technology
       directly into the device, no external centrifugation is required in
the selection process.                                      

PRODUCTS                                                                        

 The Division's products are sold outside the United States through Baxter
Biotech's sales force along with other cell handling instruments to provide     
turn-key operations to cell processors.  The Division has been recording        
substantive sales over the last several years outside of the United States.     
This includes the sales of the Division's                                       

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Isolex(R) 50 and Isolex(R) 300 Cell Separator instruments as well as its other  
cell processing products used in cell culture, cell enumeration, blood component
cryopreservation and infusion.  The sales of the Division related to            
Isolex(R) products were $6.2 million for the year ended December 31, 1995 and   
$9.8 million for the year ended December 31, 1996.                              

COMPETITION                                                                     

In general, the Division may face competition from cellular device      
companies.  Like the Division, there are several product focused companies      
attempting to develop turn-key devices for cell processing.  CellPro, Inc. and  
Amcel Corp. are the most direct competitors; however, management believes that  
the greater automation of the Division's instruments provide it with a          
competitive advantage. In addition, the Division's proprietary peptide release  
system may provide additional purity by selectively releasing only targeted     
cells to leave behind non-specifically bound contaminating cells.               

INTELLECTUAL PROPERTY                                                           

 The Division's intellectual property estate is arranged into four general
patent families:                                                                

1.   Selection systems;                                     
2.   Bioreactor and culture systems;                        
3.   Reagents for use in selection; and                     
4.   Culturing cell compositions.                           

 The selection system encompasses the Isolex(R) Cell Separator and similar
instruments.  This patent family includes patents and patent applications       
directed to the basic selection device having two magnets for capturing the     
paramagnetic beads and patents and applications directed to the specific device 
configuration.  The disposable set for the Isolex(R) 300i Cell Separator        
incorporates a patented spinning membrane technology used for cell washing.     

EMPLOYEES                                                                       

The Division believes relations with employees to be good. Following the
Closing of the Proposed Acquisition, the Subsidiary will have 86 employees, all 
of whom will be located at the Subsidiary's headquarters in Irvine, California. 

PROPERTIES                                                                      

Following the Closing of the Proposed Acquisition, the Subsidiary will  
assume the Irvine, California lease.  The lease is for a building consisting of 
approximately 59,600 square feet, provides for a current monthly rental of      
$40,500 plus real estate taxes and operating costs, expires November 30, 2004   
and contains two five-year renewal options.                                     

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VIMRX PHARMACEUTICALS INC.
UNAUDITED PRO FORMA CONDENSED 
FINANCIAL INFORMATION 

    The unaudited pro forma condensed statement of operations for the year ended
December 31, 1996 and the six month period ended June 30, 1997 set forth in this
Proxy Statement gives effect to the Proposed Acquisition as if it had occurred  
on January 1, 1996.  The unaudited pro forma condensed balance sheet at June 30,
1997 gives effect to the Proposed Acquisition as if it had occurred on June 30, 
1997.  The pro forma condensed statement of operations excludes material non-   
recurring charges related to purchased in-process research and development which
totaled approximately $40.1 million.                                            

    For accounting purposes, the Proposed Acquisition was treated as a purchase.
Accordingly, for purpose of these unaudited pro forma condensed combined        
statements of operations, the excess of the purchase price over the fair market 
value of the acquired assets is amortized over 12 years.                        

    The unaudited pro forma condensed financial statements have been prepared by
the Company's management based upon the financial statements of the Division and
the Company included elsewhere herein.  Unaudited pro forma financial data do   
not purport to be indicative of either the future results of operations or the  
results of operations that would have occurred if the Proposed Acquisition had  
been consummated on the indicated dates.  The pro forma adjustments are based on
available information and certain assumptions that the Company believes to be   
reasonable.  The unaudited pro forma condensed financial statements should be   
read in conjunction with the audited financial statements contained elsewhere   
herein.                                                                         

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Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1997 

                                                        [Enlarge/Download Table]

                                                               Historical                                         
                                                                 Baxter                                           
                                                             Immunotherapy        Pro Forma           Pro Forma   
                                          Historical VIMRx      Division         Adjustments           Combined   
                                          -----------------     --------        -------------       --------------
                 Assets                                                                                           
                 ------                                                                                           
                                                                                                                  
Cash and cash equivalents...............      $  2,445,000         $    17,000  $    (17,000)  (1)   $ 32,445,000 
                                                                                  30,000,000   (5)                
Securities held for sale................        34,372,000                  --            --           34,372,000 
Receivables.............................                --           5,876,000    (5,876,000)  (1)             -- 
Inventory...............................                --           7,717,000    (3,224,000)  (1)      7,093,000 
                                                                                   2,600,000   (4)                
Prepaid expenses and other..............           246,000             501,000       (95,000)  (1)        652,000 
                                              ------------         -----------  ------------         ------------ 
    Total current assets................        37,063,000          14,111,000    23,388,000           74,562,000 
Equipment, net..........................         3,096,000          15,272,000    (6,310,000)  (1)     16,919,000 
                                                                                   4,861,000   (4)                
Marketable equity securities............           286,000                  --            --              286,000 
Intangible assets.......................                --           4,273,000    (3,415,000)  (1)      2,985,000 
                                                                                   2,127,000   (4)                
Goodwill................................         1,030,000                  --    25,597,000   (4)     26,627,000 
Patents.................................                --                  --     2,737,000   (4)      2,737,000 
Workforce...............................                --                  --     3,140,000   (4)      3,140,000 
Other assets............................           292,000             101,000      (101,000)  (1)        292,000 
                                              ------------         -----------  ------------         ------------ 
          Total assets..................        41,767,000          33,757,000    52,024,000          127,548,000 
                                              ============         ===========  ============         ============ 
             Liabilities                                                                                          
             -----------                                                                                          
Accounts payable and accrued expenses...      $  1,845,000           4,218,000   $(4,218,000)  (1)   $  3,545,000 
                                                                                   1,700,000   (3)                
Related party payables..................                --             368,000      (368,000)  (1)             -- 
Term note payable-warrantholder.........            36,000                  --            --               36,000 
Capital leases-current portion..........           472,000                  --            --              472,000 
                                              ------------         -----------  ------------         ------------ 
    Total current liabilities...........         2,353,000           4,586,000    (2,886,000)           4,053,000 

Term note payable-warrantholders........           227,000                  --            --              227,000 
Capital leases..........................           292,000                  --            --              292,000 
Convertible debt........................                --                  --    30,000,000   (5)     30,000,000 
                                              ------------         -----------  ------------         ------------ 
          Total liabilities.............         2,872,000           4,586,000    27,114,000           34,572,000 
                                              ------------         -----------  ------------         ------------ 

Minority interest.......................         1,035,000                  --     2,870,000   (4)      3,905,000 
                                              ------------         -----------  ------------         ------------ 

       Shareholders equity                                                                                        
       -------------------                                                                                        
Class A Convertible Preferred Stock.....                --                  --    54,580,000   (3)     54,580,000 
Common Stock............................            55,000                  --        11,000   (3)         66,000 
Additional paid-in capital..............        90,649,000                  --    36,709,000   (3)    127,358,000 
Business equity.........................                --          29,171,000   (14,452,000)  (1)             -- 
                                                                                 (14,719,000)  (4)                
Unearned compensation...................          (534,000)                 --            --             (534,000)
Unrealized gain on investment...........          (167,000)                 --            --             (167,000)
Cumulative translation adjustment.......           (65,000)                 --            --              (65,000)
Deficit accumulated during development                                                                            
 stage..................................       (52,078,000)                 --   (40,089,000)  (4)    (92,167,000)
                                              ------------         -----------  ------------         ------------ 
    Total shareholder's equity..........        37,860,000          29,171,000    22,040,000           89,071,000 
                                              ------------         -----------  ------------         ------------ 

                                              $ 41,767,000         $33,757,000  $ 52,024,000         $127,548,000 
                                              ============         ===========  ============         ============ 

See notes to unaudited pro forma condensed financial statements.                                                  

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    Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1996

                                                        [Enlarge/Download Table]

                                                      Historical Baxter                                       
                                        Historical      Immunotherapy       Pro Forma          Pro Forma      
                                           VIMRx          Division         Adjustments         Combined       
                                     ---------------  ------------------  ------------         ---------      
Revenues:                                                                                                     
---------                                                                                                     
                                                                                                              
Revenue..............................  $         --        $ 23,947,000   $(17,527,000)  (1)(2)  $  6,420,000 
Total cost of sales..................            --          11,638,000     (5,290,000)  (1)(2)     8,948,000 
                                                                             2,600,000   (4)                  
                                     ---------------  ------------------  ------------           ------------ 
           Gross profit (loss).......            --          12,309,000    (14,837,000)            (2,528,000)
                                     ---------------  ------------------  ------------           ------------ 

Operating Expenses                                                                                            
------------------                                                                                            
Research and development.............     2,950,000          34,699,000     (3,332,000)  (1)(2)    34,803,000 
                                                                               486,000   (4)                  
Purchased research and                   14,484,000                  --             --             14,484,000 
 development.........................                                                                         
Royalty expense......................       100,000                  --             --                100,000 
Goodwill amortization................            --                  --      2,622,000   (4)        2,622,000 
General and administrative...........     4,300,000          13,254,000    (10,643,000)  (1)(2)     6,911,000 
                                     ---------------  ------------------  ------------           ------------ 
           Total operating expenses..    21,834,000          47,953,000    (10,867,000)            58,920,000 
                                     ---------------  ------------------  ------------           ------------ 

Operating (loss).....................   (21,834,000)        (35,644,000)    (3,970,000)           (61,448,000)
                                     ---------------  ------------------  ------------           ------------ 
Other (income) expenses:                                                                                      
Minority interest in net loss of                                                                              
  consolidated subsidiary............      (116,000)                 --     (6,999,000)  (4)       (7,115,000)
Interest income......................    (1,792,000)                 --             --             (1,792,000)
Interest expense.....................       329,000                  --      1,950,000   (5)        2,279,000 
Gain on sale of Therasorb                                                                                     
  assets.............................            --            (651,000)       651,000   (1)               -- 
Other, net...........................      (395,000)         (1,753,000)     1,788,000   (1)         (360,000)
                                     ---------------  ------------------  ------------           ------------ 
Total other (income) expenses........    (1,974,000)         (2,404,000)    (2,610,000)            (6,988,000)
                                     ---------------  ------------------  ------------           ------------ 

Net (loss)...........................   (19,860,000)        (33,240,000)    (1,360,000)           (54,460,000)

Preferred Stock dividends............            --                  --     (4,657,000)  (6)       (4,657,000)
                                     ---------------  ------------------  ------------           ------------ 

Net loss applicable to Common          $(19,860,000)       $(33,240,000)  $ (6,017,000)          $(59,117,000)
 Stock                                                                                                        
                                     ===============  ==================  ============           ============ 

Pro forma weighted average number of                                                                          
 shares outstanding..................    39,398,644                         11,400,000   (3)       50,798,644 
                                     ==============                       ============           ============ 

Net loss per share...................        $(0.50)                                                   $(1.16)
                                     ==============                                              ============ 

See notes to unaudited pro forma condensed financial statements.                                              

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    Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 1997

                                                        [Enlarge/Download Table]

                                                   Historical Baxter                                      
                                     Historical      Immunotherapy      Pro Forma              Pro Forma  
                                        VIMRx          Division        Adjustments             Combined   
                                  --------------  ------------------  ------------           ------------ 
Revenues:                                                                                                 
---------                                                                                                 
                                                                                                          
Revenue...........................  $         --        $  7,816,000   $(2,759,000)  (1)(2)  $  5,057,000 
Total cost of sales...............            --           5,506,000       349,000   (1)(2)     5,855,000 
                                  --------------  ------------------  ------------           ------------ 
    Gross profit (loss)...........            --           2,310,000    (3,108,000)              (798,000)
                                  --------------  ------------------  ------------           ------------ 

Operating Expenses                                                                                        
------------------                                                                                        
Research and development..........     6,714,000          12,069,000      (225,000)  (1)(2)    18,801,000 
                                                                           243,000   (4)                  
Purchased research and                 1,800,000                  --            --              1,800,000 
 development......................                                                                        
Royalty expense...................       100,000                  --            --                100,000 
Goodwill amortization.............            --                  --     1,312,000   (4)        1,312,000 
General and administrative........     4,128,000           5,429,000    (4,324,000)  (1)(2)     5,233,000 
                                  --------------  ------------------  ------------           ------------ 
    Total operating expenses......    12,742,000          17,498,000    (2,994,000)            27,246,000 
                                  --------------  ------------------  ------------           ------------ 

Operating (loss)..................   (12,742,000)        (15,188,000)     (114,000)           (28,044,000)
                                  --------------  ------------------  ------------           ------------ 
Other (income) expenses:                                                                                  
Minority interest in net loss of                                                                          
  consolidated subsidiary.........    (1,876,000)                 --    (2,815,000)  (4)       (4,691,000)
Interest income...................    (1,282,000)                 --            --             (1,282,000)
Interest expense..................        83,000                  --       975,000   (5)        1,058,000 
Other, net........................        40,000            (287,000)           --               (247,000)
                                  --------------  ------------------  ------------           ------------ 
Total other (income) expenses.....    (3,035,000)           (287,000)   (1,840,000)            (5,162,000)
                                  --------------  ------------------  ------------           ------------ 

Net (loss)........................    (9,707,000)        (14,901,000)    1,726,000            (22,882,000)

Preferred Stock dividends.........            --                  --    (2,329,000)  (6)       (2,329,000)
                                  --------------  ------------------  ------------           ------------ 

Net loss applicable to Common       $ (9,707,000)       $(14,901,000)  $  (603,000)          $(25,211,000)
 Stock............................                                                                        
                                  ==============  ==================  ============           ============ 

Pro forma weighted average                                                                                
number of shares outstanding......    54,626,741                       $11,400,000   (3)       66,026,741 

                                  ==============                       ===========           ============ 

Net loss per share................        $(0.18)                                                  $(0.38)
                                  ==============                                             ============ 

See notes to unaudited pro forma condensed financial statements.                                          

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NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS                     

1.  Certain assets, the existing liabilities and the operations of the          
   "Collections" and Therasorb product lines of the Division were not acquired
by the Subsidiary and have been eliminated.                             

2.  Concurrent to the Proposed Acquisition, the Subsidiary will enter into      
various agreements with Baxter under which Baxter will provide certain  
 manufacturing, supply, marketing and administrative services. The charges
  from Baxter related to these agreements have been reflected as a reduction
in revenues, an increase in cost of sales and a reduction in general and
administrative expenses.                                                

3.  Per the asset purchase agreement, the Company will issue 11,000,000 shares  
of Common Stock, 40,000 shares of Class A Preferred Stock and additional
shares of Class A Preferred Stock valued at $1,000 per share to total,  
together with the Common Stock, $50,000,000. Based on the June 30, 1997 
 closing sale price of $3.22 as reported on the Nasdaq National Market, an
additional 14,580 shares of Class A Preferred Stock would be issued. The
Company will also issue approximately 400,000 shares of Common Stock to 
Lazard Freres as part of the consideration for their services.          

4.  The purchase price is being allocated to inventory, the net tangible assets,
 goodwill and purchased in-process research and development which has been
    charged to operations. The purchased in-process research and development has
    been deemed to be non-recurring and directly attributable to the acquisition
   and accordingly has been excluded from the pro forma results of operations.
  The purchased in-process research and development of $40.1 million will be
expensed in the period the transaction is consummated. The Subsidiary's 
    Common Stock is eliminated and minority interest is established. Goodwill is
  being amortized on a straight line basis over a period of expected benefit
of approximately 12 years.                                              

5.  Baxter will purchase $30,0000,000 of convertible debentures of the          
Subsidiary's 6-1/2% subordinated debentures. The $10,000,000 convertible
debenture purchased by the Company will eliminate in consolidation and, 
therefore, is not recorded.                                             

6.  To reflect preferred stock dividends which accumulate at a rate of 6%.      

7.  The Subsidiary also will issue a warrant to Baxter to purchase an           
additional 6% of the Subsidiary's common stock for $6,000,000.          

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
A DIVISION OF BAXTER HEALTHCARE CORPORATION 

INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                                          PAGE
                                                                          ----
                                                                              
FINANCIAL STATEMENTS:                                                         
Independent Auditor's Report.............................................  F-2
Balance Sheets as of December 31, 1995 and 1996..........................  F-3
Statements of Operations for the years ended December 31, 1994, 1995 and      
 1996....................................................................  F-4
Statements of Cash Flows for the years ended December 31, 1994, 1995 and      
 1996....................................................................  F-5
Notes to Financial Statements............................................  F-6
CONDENSED FINANCIAL STATEMENTS:                                               
Balance Sheets as of December 31, 1996 (Audited) and June 30, 1997            
 (Unaudited)............................................................. F-13
Statements of Operations for the six months ended June 30, 1996 and 1997      
 (Unaudited)............................................................. F-14
Statements of Cash Flows for the six months ended June 30, 1996 and 1997      
 (Unaudited)............................................................. F-15
Notes to Condensed Financial Statements (Unaudited)...................... F-16

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INDEPENDENT AUDITORS' REPORT  

The Board of Directors and Stockholders Baxter Healthcare Corporation:          

We have audited the accompanying balance sheets of the Immunotherapy        
Division of Baxter Biotech, a division of Baxter Healthcare Corporation, as of  
December 31, 1995 and 1996 and the related statements of operations and cash    
flows for each of the years in the three-year period ended December 31, 1996.   
These financial statements are the responsibility of the Business' 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 the Immunotherapy Division  
of Baxter Biotech as of December 31, 1995 and 1996 and the results of its       
operations and its cash flows for each of the years in the three-year period    
ended December 31, 1996 in conformity with generally accepted accounting        
principles.                                                                     

                         KPMG Peat Marwick LLP

Los Angeles, California                                                         
July 28, 1997                                                                   

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

BALANCE SHEETS

DECEMBER 31, 1995 AND 1996

                                                                [Download Table]

                                                           1995        1996    
                                                        ----------- -----------
                                                                               
                        ASSETS                                                 
Current assets:                                                                
  Cash................................................. $    13,000 $    35,000
  Accounts receivable, less allowance for doubtful                             
   accounts of $48,000 in 1995 and $71,000 in 1996.....   6,268,000   6,019,000
  Due from related parties.............................     353,000     529,000
  Other receivables....................................     647,000   1,788,000
  Inventories..........................................   6,767,000   8,523,000
  Prepaid expenses and other current assets............     209,000     131,000
                                                        ----------- -----------
    Total current assets...............................  14,257,000  17,025,000
Property and equipment, net............................  10,338,000  11,808,000
Other assets...........................................   3,110,000   3,605,000
                                                        ----------- -----------
    Total assets....................................... $27,705,000 $32,438,000
                                                        =========== ===========
            LIABILITIES AND BUSINESS EQUITY                                    
Current liabilities:                                                           
  Accounts payable..................................... $ 2,190,000 $ 2,428,000
  Due to related parties...............................      28,000     658,000
  Accrued expenses and other current liabilities.......   3,571,000   4,023,000
                                                        ----------- -----------
    Total current liabilities..........................   5,789,000   7,109,000
Commitments and contingencies (note 10)                                        
Business equity (note 11)..............................  21,916,000  25,329,000
                                                        ----------- -----------
    Total liabilities and business equity.............. $27,705,000 $32,438,000
                                                        =========== ===========

See accompanying notes to financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                                                [Download Table]

                                           1994          1995          1996     
                                       ------------  ------------  ------------ 
                                                                                
Revenue............................... $ 19,702,000  $ 22,564,000  $ 23,947,000 
Cost of goods sold....................    9,943,000    11,608,000    11,638,000 
                                       ------------  ------------  ------------ 
  Gross profit........................    9,759,000    10,956,000    12,309,000 
                                       ------------  ------------  ------------ 
Operating expenses:                                                             
  Research and development............   35,308,000    35,711,000    34,699,000 
  Sales, general and administrative...   12,324,000    13,356,000    13,254,000 
                                       ------------  ------------  ------------ 
  Total operating expenses............   47,632,000    49,067,000    47,953,000 
                                       ------------  ------------  ------------ 
  Operating loss......................  (37,873,000)  (38,111,000)  (35,644,000)
                                       ------------  ------------  ------------ 
Other income (expense):                                                         
  Loss on sale of investment..........          --     (1,388,000)          --  
  Gain on sale of Therasorb assets....          --            --        651,000 
  Other...............................        6,000       (39,000)    1,753,000 
                                       ------------  ------------  ------------ 
  Total other income (expense)........        6,000    (1,427,000)    2,404,000 
                                       ------------  ------------  ------------ 
  Net loss............................ $(37,867,000) $(39,538,000) $(33,240,000)
                                       ============  ============  ============ 

See accompanying notes to financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

                                                                [Download Table]

                                           1994          1995          1996     
                                       ------------  ------------  ------------ 
                                                                                
Cash flows from operating activities:                                           
  Net loss...........................  $(37,867,000) $(39,538,000) $(33,240,000)
   Adjustments to reconcile net loss                                            
    to net cash used in operating                                               
    activities:                                                                 
   Depreciation and amortization.....     2,296,000     3,693,000     4,383,000 
   Gain on sale of Therasorb assets..           --            --       (651,000)
   Loss on sale of investment........           --      1,388,000           --  
   Changes in assets and liabilities:                                           
    Accounts receivable..............    (1,480,000)   (1,982,000)     (689,000)
    Due from related parties.........       (88,000)     (265,000)     (176,000)
    Other receivables................      (601,000)      (46,000)   (1,141,000)
    Inventories......................    (3,307,000)   (2,257,000)   (3,435,000)
    Prepaid expenses and other                                                  
     assets..........................     2,072,000      (133,000)       60,000 
    Accounts payable.................      (200,000)     (160,000)      925,000 
    Due to related parties...........        (4,000)       28,000       630,000 
    Accrued expenses and other                                                  
     current liabilities.............     2,353,000      (138,000)      846,000 
                                       ------------  ------------  ------------ 
    Net cash used in operating                                                  
     activities......................   (36,826,000)  (39,410,000)  (32,488,000)
                                       ------------  ------------  ------------ 
Cash flows from investing activities:                                           
  Purchases of property and                                                     
   equipment.........................    (4,226,000)   (4,667,000)   (6,468,000)
  Purchases of other assets..........      (298,000)   (2,100,000)     (961,000)
  Proceeds from sale of Therasorb                                               
   assets............................           --            --      3,286,000 
  Proceeds from sale of investments..           --      1,385,000           --  
                                       ------------  ------------  ------------ 
    Net cash used in investing                                                  
     activities......................    (4,524,000)   (5,382,000)   (4,143,000)
                                       ------------  ------------  ------------ 
Cash flows from financing                                                       
 activities--                                                                   
 financing from parent...............  $ 41,355,000  $ 44,800,000  $ 36,653,000 
                                       ------------  ------------  ------------ 
    Net cash provided by financing                                              
     activities......................    41,355,000    44,800,000    36,653,000 
                                       ------------  ------------  ------------ 
    Net increase in cash.............         5,000         8,000        22,000 
Cash at beginning of year............           --          5,000        13,000 
                                       ------------  ------------  ------------ 
Cash at end of year..................  $      5,000  $     13,000  $     35,000 
                                       ============  ============  ============ 
Supplemental cash flow disclosures:                                             
  Cash paid during the year for:                                                
    Interest.........................           --            --            --  
    Income taxes.....................  $        --   $        --   $        --  
                                       ============  ============  ============ 

See accompanying notes to financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS 

DECEMBER 31, 1994, 1995 AND 1996  

(1) BASIS OF PRESENTATION                                                       

General                                                                       

The Immunotherapy Division of Baxter Biotech (the Business) is a division of
Baxter Healthcare Corporation (Baxter), which is a subsidiary of Baxter         
International, Inc. The Business is engaged in the development, manufacture,    
marketing and distribution of specialized instruments used in ex-vivo cell      
research and therapies.                                                         

Historically, the Business had no separate legal status. The accompanying   
financial statements have been prepared from the historical accounting records  
as if the Business had operated as a separate entity during all periods         
presented.                                                                      

The financial statements include all of the direct operating expenses of the
Business and allocations of certain shared administrative services costs from   
Baxter. Expenses are allocated on the basis of actual usage or other methods,   
which approximate actual usage. Management believes that the allocation         
methods are reasonable. However, these allocations are not necessarily          
indicative of the costs and expenses that would have resulted if the Business   
had been operated as a separate entity.                                         

Operations outside the United States are included in the accompanying       
financial statements on the basis of fiscal years ending November 30.           

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Inventories                                                                   

Inventories are stated at the lower of cost (first-in, first-out) or market 
(net realizable value).                                                         

Property and Equipment                                                        

Property and equipment are stated at cost. Depreciation is provided using   
the straight-line method over the estimated useful lives which range from 3 to  
11 years. Leasehold improvements are amortized using the straight-line method   
over the estimated useful life or the lease term, whichever is shorter.         

License Agreements                                                            

License agreements are recorded at cost and are amortized using the         
straight-line method over the shorter of the estimated useful lives of the      
license or the license term. These costs are included with other assets in the  
accompanying balance sheets. Accumulated amortization at December 31, 1995 and  
1996 was $1,174,000 and $1,640,000, respectively.                               

Financial Instruments                                                         

The carrying value of financial instruments such as cash, accounts          
receivable, other current assets, accounts payable and other current            
liabilities approximates their fair value due to the short-term nature of       
these instruments.                                                              

Revenue Recognition                                                           

Revenue and related cost of goods sold are recognized upon shipment of      
products.                                                                       

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

Research and Development Costs                                                

Research and development costs are charged to expense as incurred.          

Income Taxes                                                                  

Income taxes are accounted for under the asset and liability method.        
Deferred tax assets and liabilities are recognized for the future tax           
consequences attributable to differences between the financial statement        
carrying amounts of existing assets and liabilities and their respective tax    
bases and operating loss carryforwards. Deferred tax assets and liabilities     
are measured using enacted tax rates expected to apply to taxable income in     
the years in which those temporary differences are expected to be recovered or  
settled. The effect on deferred tax assets and liabilities of a change in tax   
rates is recognized in income in the period that includes the enactment date.   

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of       

The Business adopted the provisions of Statement of Financial Accounting    
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets   
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121  
requires that long-lived assets and certain identifiable intangibles be         
reviewed for impairment whenever events or changes in circumstances indicate    
that the carrying amount of an asset may not be recoverable. Recoverability of  
assets to be held and used is measured by a comparison of the carrying amount   
of an asset to future net cash flows expected to be generated by the asset. If  
such assets are considered to be impaired, the impairment to be recognized is   
measured by the amount by which the carrying amounts of the assets exceed       
their fair values. Assets to be disposed of are reported at the lower of the    
carrying amount or fair value less costs to sell. Adoption of this statement    
did not have a material impact on the Business' financial position or results   
of operations.                                                                  

Stock-Based Compensation                                                      

In October 1995, the Financial Accounting Standards Board issued SFAS No.   
123, "Accounting for Stock-Based Compensation," which defines a fair-value      
method of accounting for stock-based awards. As permitted by SFAS No. 123, the  
Business elected to continue to follow existing accounting requirements for     
stock options and other stock-based awards contained in Accounting Principles   
Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees."         
Management of the Business has determined that the required pro forma           
disclosures pursuant to SFAS No. 123 are not material to the accompanying       
financial statements (see note 7).                                              

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 periods. Actual results could differ from those estimates.            

(3) SALE OF INVESTMENT AND DISCONTINUED OPERATIONS                              

At December 31, 1994, the Business owned 117,748 shares of Applied Immune   
Science, Inc. (AIS) common stock. Through its investment, the Business          
obtained certain distribution and marketing rights to products developed        
either exclusively by AIS or jointly by AIS and the Business. In November       
1995, the Business sold its entire holding of AIS common stock for cash         
proceeds of $1,385,000 which resulted in a loss of $1,388,000.                  

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

In February 1996, the Business sold the assets of its "Therasorb" product   
line for $3,286,000 which resulted in a gain of $651,000. In addition, the      
Business recorded income of approximately $1,764,000 during 1996 related to     
the "earn-out" provisions related to the sale of the Therasorb assets. This     
amount is included in "Other" income in the accompanying financial statements.  

On January 1, 1997, the Business transferred the assets of its "Collections"
product line to another Baxter division. The operating results of the           
"Therasorb" and "Collections" product lines included in the statements of       
operations were revenues of $12,900,000, $16,400,000 and $13,700,000 in 1994,   
1995 and 1996, respectively, and operating losses of $2,500,000 and $100,000    
in 1994 and 1995 and operating profit of $1,200,000 in 1996.                    

(4) INVENTORIES                                                                 

Inventories at December 31, 1995 and 1996 are summarized as follows:        

                                                                [Download Table]

                                                           1995       1996   
                                                        ---------- ----------
                                                                             
Raw materials.......................................... $  558,000 $1,424,000
Work in process........................................  1,003,000    668,000
Finished goods.........................................  5,206,000  6,431,000
                                                        ---------- ----------
                                                        $6,767,000 $8,523,000
                                                        ========== ==========

(5) PROPERTY AND EQUIPMENT                                                      

Property and equipment at December 31, 1995 and 1996 are summarized as      
follows:                                                                        

                                                                [Download Table]

                                                        1995        1996    
                                                     ----------- -----------
                                                                            
Land................................................ $       --  $    25,000
Buildings and improvements..........................      60,000     275,000
Equipment...........................................  18,258,000  23,470,000
Construction in progress............................     475,000     410,000
                                                     ----------- -----------
                                                      18,793,000  24,180,000
Less accumulated depreciation and amortization......   8,455,000  12,372,000
                                                     ----------- -----------
                                                     $10,338,000 $11,808,000
                                                     =========== ===========

(6) INCOME TAXES                                                                

The Business has not recorded income tax expense or benefit for 1994, 1995  
or 1996. On a separate return basis, the losses incurred during those years     
would give rise to net operating loss carryforwards and related deferred tax    
assets. The deferred tax assets before related valuation allowances at          
December 31, 1995 and 1996 would amount to $27,013,000 and $37,168,000,         
respectively. Due to the uncertainty of ultimate utilization of those           
carryforwards on a separate-return basis, the Business has recorded valuation   
allowances for the full amounts of those deferred tax assets. The tax effect    
of other temporary differences that give rise to deferred tax liabilities at    
December 31, 1995 and 1996 was not material.                                    

The Business, on a stand-alone basis, would have a net operating loss       
carryforward for Federal income tax purposes of approximately $104,405,000 at   
December 31, 1996. However, since the Business has been included in the         
consolidated tax filings of Baxter, its prior losses have been utilized in the  
Baxter consolidated tax returns.                                                

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

As such, should the Business actually file separate tax returns in the future,  
no net operating losses would be available.                                     

(7) STOCK-BASED COMPENSATION PLANS                                              

Employees of the Business participate in certain Baxter stock-based         
compensation plans, which are described below. The Business applies APB No. 25  
and related interpretations in accounting for its employees' participation in   
these plans. Accordingly, no compensation expense has been recognized by the    
Business under the plans in which employees participate other than for          
performance-based stock granted to employees.                                   

Fixed Stock Option Plans                                                      

The two Baxter International, Inc. fixed stock option plans provide for the 
grant of incentive stock options. Options are primarily granted at the fair     
market value of the Baxter International, Inc. common stock at the date of      
grant with an initial term of ten years. Vesting terms vary, with some options  
vesting ratably over three years and others vesting 100% after five years,      
with accelerated vesting upon the achievement of specific stock market value    
levels.                                                                         

The following summarizes the stock option transactions under the plans      
during the periods presented:                                                   

                                                                [Download Table]

                                                                 WEIGHTED    
                                                             AVERAGE EXERCISE
                                                    SHARES        PRICE      
                                                    -------  ----------------
                                                                             
Options outstanding at December 31, 1993...........  81,852       $24.39     
Options granted....................................  20,289        24.79     
Options exercised..................................  (4,563)       13.29     
Options canceled...................................     --           --      
                                                    -------       ------     
Options outstanding at December 31, 1994...........  97,578        24.99     
Options granted....................................  56,130        34.68     
Options exercised..................................  (6,870)       16.39     
Options canceled...................................  (3,933)       30.39     
                                                    -------       ------     
Options outstanding at December 31, 1995........... 142,905        29.06     
Options granted....................................  37,700        51.00     
Options exercised.................................. (12,341)       19.55     
Options canceled...................................  (4,034)       34.56     
                                                    -------       ------     
Options outstanding at December 31, 1996........... 164,230       $34.68     
                                                    =======       ======     

At December 31, 1996, the range of exercise prices and the weighted average 
remaining contractual life of outstanding options was $20.51-$51.00 and 7       
years, respectively.                                                            

At December 31, 1994, 1995 and 1996, the number of options exercisable was  
58,842, 60,967 and 64,609, respectively, and the weighted average exercise      
price of those options was $24.51, $25.86 and $26.68, respectively.             

Employee Stock Purchase Plans                                                 

Business employees may participate in the Baxter International, Inc. stock  
purchase plans through payroll deductions. The common stock purchase price is   
the lower of 85% of the closing market price on the date of                     

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

subscription or 85% of the closing market price as defined by the plans. The    
total subscription amount for each participant cannot exceed 25% of current     
annual pay. Purchases by Business employees under the Baxter International,     
Inc. stock purchase plans aggregated 13,175, 12,230, and 9,220 shares in 1994,  
1995 and 1996, respectively.                                                    

Management of the Business has determined that the pro forma compensation   
cost determined under the fair-value method prescribed under SFAS No. 123       
would not be material to the accompanying financial statements.                 

Restricted Stock                                                              

Certain key employees of the Business have received grants of restricted    
stock under the Baxter International, Inc. restricted stock plan. Under the     
plan, annual grants are earned based on the achievement of net income and       
average "operational cash flow" targets, adjusted up or down by Baxter          
International, Inc.'s stock performance against the change in the Standard &    
Poor's Medical Products and Supplies Index. These restricted shares vest one    
year after they are earned.                                                     

At December 31, 1996, 9,218 shares were subject to restrictions which lapse 
in 1997 and 17,182 shares were subject to restrictions that lapse upon          
achievement of future performance objectives and related vesting periods.       
During 1994, 1995 and 1996, 6,050, 6,776 and 9,218 shares, respectively, of     
restricted stock were earned. The Business has recorded compensation expense    
for the restricted stock of $85,000, $227,000 and $331,000 during 1994, 1995    
and 1996, respectively.                                                         

(8) RETIREMENT AND OTHER POSTEMPLOYMENT BENEFIT PLANS                           

Retirement Plans                                                              

Substantially all U.S. employees of the Business are eligible to participate
in Baxter International, Inc.'s qualified 401(k) plan and Baxter                
International, Inc.'s qualified and nonqualified non-contributory, defined      
benefit pension plans. Under the defined benefit pension plans, benefits are    
based on years of service and the employee's compensation during five of the    
last ten years of employment as defined by the plans. Baxter International,     
Inc.'s funding policy is to make contributions to the trusts of the qualified   
plans which meet or exceed the minimum funding requirements. Assets held by     
the trusts of the plans consist primarily of equity and fixed income            
securities.                                                                     

Baxter International, Inc. recorded pension costs of $43,000,000,           
$35,000,000 and $47,000,000 during the years ended December 31, 1994, 1995 and  
1996, respectively, and a net pension asset of $13,000,000 as of December 31,   
1995 and 1996. The value of the projected benefit obligation at December 31,    
1995 and 1996 assumed a 7.25% and an 8.0% discount rate, respectively, and a    
4.5% rate of increase in future compensation levels. The expected long-term     
rate of return on assets was 9.5% for 1995 and 1996. The Business' allocated    
portion of pension costs was $371,000, $343,000 and $412,000 in 1994, 1995 and  
1996, respectively. The Business has not recorded a pension related asset or    
liability in the accompanying financial statements.                             

Under the 401(k) plan, participating Business employees may contribute up to
12% of their annual compensation to the plan and the Business matches           
participants' contributions up to 3% of compensation. The Business' matching    
contributions were $180,000, $182,000 and $196,000 in 1994, 1995 and 1996,      
respectively.                                                                   

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

Other Postemployment Benefit Plans                                            

Baxter International, Inc. sponsors certain unfunded contributory health    
care and life insurance benefits for substantially all domestic-retired         
employees. Baxter International, Inc. recorded net postretirement benefits      
costs of $16,000,000, $16,000,000 and $18,000,000 during the years ended        
December 31, 1994, 1995 and 1996, respectively, and an accrued postretirement   
benefit liability of $273,000,000 and $268,000,000 as of December 31, 1995 and  
1996, respectively. The value of the accumulated postretirement benefit         
obligation at December 31, 1995 and 1996 assumed a 7.25% and an 8.0% discount   
rate, respectively. The assumed health care cost trend rate used in measuring   
the accumulated postretirement benefit obligation was 10.0% in 1997, gradually  
declining to 5.0% after five years. The effect of increasing the health care    
cost trend rate by one percentage point in each year would increase the         
accumulated postretirement benefit obligation by $28,000,000 at December 31,    
1996 and the net periodic cost by $3,000,000 for the year. The Business'        
allocated portion of net postretirement benefit costs was $149,000, $148,000    
and $217,000 in 1994, 1995 and 1996, respectively. The Business has not         
recorded a postretirement benefit liability in the accompanying financial       
statements.                                                                     

(9) DOMESTIC AND FOREIGN OPERATIONS                                             

The Business is engaged in a single industry, the development, manufacture, 
marketing and distribution of specialized instruments used in ex-vivo cell      
research and therapies. The Business' customers are concentrated in the United  
States and Europe and no single customer accounts for a significant amount of   
the Business' sales.                                                            

Information related to domestic and foreign operations is as follows:       

                                                                [Download Table]

                                      1994          1995          1996     
                                  ------------  ------------  ------------ 
                                                                           
Sales:                                                                     
  United States.................. $  6,513,000  $  5,800,000  $  5,254,000 
  Europe.........................    9,541,000    12,762,000    13,114,000 
  Other..........................    3,648,000     4,002,000     5,579,000 
                                  ------------  ------------  ------------ 
  Total.......................... $ 19,702,000  $ 22,564,000  $ 23,947,000 
                                  ============  ============  ============ 
Operating income (loss):                                                   
  United States.................. $(30,265,000) $(31,661,000) $(31,249,000)
  Europe.........................   (8,023,000)   (6,654,000)   (4,822,000)
  Other..........................      415,000       204,000       427,000 
                                  ------------  ------------  ------------ 
  Total.......................... $(37,873,000) $(38,111,000) $(35,644,000)
                                  ============  ============  ============ 
Identifiable assets at end of                                              
 year:                                                                     
  United States.................. $ 11,636,000  $ 12,335,000  $ 16,729,000 
  Europe.........................   10,353,000    14,004,000    11,380,000 
  Other..........................      724,000     1,366,000     4,329,000 
                                  ------------  ------------  ------------ 
  Total.......................... $ 22,713,000  $ 27,705,000  $ 32,438,000 
                                  ============  ============  ============ 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

DECEMBER 31, 1994, 1995 AND 1996  

(10) COMMITMENTS AND CONTINGENCIES                                              

Litigation                                                                    

The Company is involved in certain litigation arising in the ordinary course
of business. The potential outcome of the litigation cannot be predicted with   
certainty. However, management believes that the loss, if any, resulting from   
the litigation, would not be material to the financial statements of the        
Business.                                                                       

Operating Leases                                                              

The Business leases certain of its facilities and equipment under various   
noncancelable operating leases expiring through November 2004.                  

Total rental expense for all operating leases, excluding allocations from   
Baxter, was approximately $1,200,000, $1,008,000 and $1,021,000 for the years   
ended December 31, 1994, 1995 and 1996, respectively.                           

At December 31, 1996, the future minimum payments under noncancelable leases
are as follows:                                                                 

                                                                [Download Table]

YEAR ENDING DECEMBER 31:                                                  
------------------------                                                  
                                                                          
  1997......................................................... $  859,000
  1998.........................................................    828,000
  1999.........................................................    736,000
  2000.........................................................    674,000
  2001.........................................................    670,000
  Thereafter...................................................  1,955,000
                                                                ----------
                                                                $5,722,000
                                                                ==========

(11) BUSINESS EQUITY                                                            

Business equity represents Baxter's ownership interest in the recorded net  
assets of the Business. All cash transactions and intercompany transactions     
with Baxter are reflected in this amount. A summary of the activity is as       
follows:                                                                        

                                                                [Download Table]
                                                                          
Balance at December 31, 1993................................ $ 13,166,000 
Net loss....................................................  (37,867,000)
Net intercompany activity...................................   41,355,000 
                                                             ------------ 
Balance at December 31, 1994................................   16,654,000 
Net loss....................................................  (39,538,000)
Net intercompany activity...................................   44,800,000 
                                                             ------------ 
Balance at December 31, 1995................................   21,916,000 
Net loss....................................................  (33,240,000)
Net intercompany activity...................................   36,653,000 
                                                             ------------ 
Balance at December 31, 1996................................ $ 25,329,000 
                                                             ============ 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

CONDENSED BALANCE SHEETS

DECEMBER 31, 1996 AND JUNE 30, 1997 

                                                                [Download Table]

                                                                     JUNE 30,  
                                                  DECEMBER 31, 1996    1997    
                                                  ----------------- -----------
                                                                    (UNAUDITED)
                                                                               
                     ASSETS                                                    
Current assets:                                                                
  Cash...........................................    $    35,000    $    17,000
  Accounts receivable, less allowance for                                      
   doubtful accounts of $71,000 at December 31,                                
   1996 and $59,000 at June 30, 1997.............      6,019,000      4,354,000
  Due from related parties.......................        529,000        400,000
  Other receivables..............................      1,788,000      1,122,000
  Inventories....................................      8,523,000      7,717,000
  Prepaid expenses and other current assets......        131,000        501,000
                                                     -----------    -----------
    Total current assets.........................     17,025,000     14,111,000
Property and equipment, net......................     11,808,000     15,272,000
Other assets.....................................      3,605,000      4,374,000
                                                     -----------    -----------
    Total assets.................................    $32,438,000    $33,757,000
                                                     ===========    ===========
         LIABILITIES AND BUSINESS EQUITY                                       
Current liabilities:                                                           
  Accounts payable...............................    $ 2,428,000    $ 1,810,000
  Due to related parties.........................        658,000        368,000
  Accrued expenses and other current                                           
   liabilities...................................      4,023,000      2,408,000
                                                     -----------    -----------
    Total current liabilities....................      7,109,000      4,586,000
Commitments and contingencies                                                  
Business equity..................................     25,329,000     29,171,000
                                                     -----------    -----------
    Total liabilities and business equity........    $32,438,000    $33,757,000
                                                     ===========    ===========

See accompanying notes to unaudited financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED) 

SIX MONTHS ENDED JUNE 30, 1996, AND 1997

                                                                [Download Table]

                                                        1996          1997     
                                                    ------------  ------------ 
                                                                               
Revenue............................................ $ 11,915,000  $  7,816,000 
Cost of goods sold.................................    5,456,000     5,506,000 
                                                    ------------  ------------ 
  Gross profit.....................................    6,459,000     2,310,000 
                                                    ------------  ------------ 
Operating expenses:                                                            
  Research and development.........................   17,409,000    12,069,000 
  Sales, general and administrative................    6,597,000     5,429,000 
                                                    ------------  ------------ 
  Total operating expenses.........................   24,006,000    17,498,000 
                                                    ------------  ------------ 
  Operating loss...................................  (17,547,000)  (15,188,000)
                                                    ------------  ------------ 
Other Income:                                                                  
  Gain on sale of Therasorb assets.................      651,000           --  
  Other, net.......................................       19,000       287,000 
                                                    ------------  ------------ 
  Total other income...............................      670,000       287,000 
                                                    ------------  ------------ 
  Net loss......................................... $(16,877,000) $(14,901,000)
                                                    ============  ============ 

See accompanying notes to unaudited financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

CONDENSED STATEMENTS OF CASH FLOWS  
(UNAUDITED) 

SIX MONTHS ENDED JUNE 30, 1996 AND 1997 

                                                                [Download Table]

                                                        1996          1997     
                                                    ------------  ------------ 
                                                                               
Cash flows from operating activities:                                          
 Net loss.......................................... $(16,877,000) $(14,901,000)
 Adjustments to reconcile net loss to net cash used                            
  in operating activities:                                                     
  Depreciation and amortization....................    1,608,000     1,723,000 
  Gain on sale of Therasorb assets.................     (651,000)          --  
  Changes in assets and liabilities:                                           
  Accounts receivable..............................    2,697,000     1,665,000 
  Due from related parties.........................     (176,000)     (129,000)
  Other receivables................................   (3,171,000)      666,000 
  Inventories......................................    1,949,000       806,000 
  Prepaid expenses and other assets................     (179,000)     (370,000)
  Accounts payable.................................     (998,000)     (618,000)
  Due to related parties...........................      630,000      (290,000)
  Accrued expenses and other current liabilities...       40,000    (1,615,000)
                                                    ------------  ------------ 
  Net cash used in operating activities............  (15,128,000)  (12,805,000)
                                                    ------------  ------------ 
Cash flows from investing activities:                                          
 Purchases of property and equipment...............     (882,000)   (1,521,000)
 Purchases of other assets.........................     (368,000)     (861,000)
                                                    ------------  ------------ 
  Net cash used in investing activities............   (1,250,000)   (5,956,000)
                                                    ------------  ------------ 
Cash flows from financing activities--financing                                
 from parent.......................................   16,399,000    15,169,000 
                                                    ------------  ------------ 
  Net cash provided by financing activities........   16,399,000    15,169,000 
                                                    ------------  ------------ 
  Net increase in cash.............................       21,000       (18,000)
Cash at beginning of period........................       13,000        35,000 
                                                    ------------  ------------ 
Cash at end of period.............................. $     34,000  $     17,000 
                                                    ============  ============ 
Supplemental cash flow disclosures:                                            
 Cash paid during the period for:                                              
  Interest.........................................          --            --  
  Income taxes..................................... $        --   $        --  
                                                    ============  ============ 

Supplemental disclosure of noncash financing and investing activities:      

In the second quarter of 1997, Baxter transferred leasehold improvements
and equipment with a net book value of $3,574,000 to the Business.          

See accompanying notes to unaudited financial statements. 

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO CONDENSED FINANCIAL STATEMENTS 
(UNAUDITED) 

JUNE 30, 1996 AND 1997  

The unaudited financial statements as of June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 included herein have been prepared by the  
Business, and in the opinion of management, reflect all adjustments that are    
necessary to fairly state the financial position of the Business and its cash   
flows and the results of its operations. Certain information and footnote       
disclosures normally included in financial statements prepared in accordance    
with generally accepted accounting principles have been condensed or omitted.   
However, the Business believes that the disclosures are adequate to prevent     
the information presented from being misleading. These financial statements     
should be read in conjunction with the financial statements and the notes       
thereto included in the Business' annual report for the year ended December     
31, 1996.                                                                       

(1) BASIS OF PRESENTATION                                                       

General                                                                       

The Immunotherapy Division of Baxter Biotech (the Business) is a division of
Baxter Healthcare Corporation (Baxter), which is a subsidiary of Baxter         
International, Inc. The Business is engaged in the development, manufacture,    
marketing and distribution of specialized instruments used in ex-vivo cell      
research and therapies.                                                         

Historically, the Business had no separate legal status. The accompanying   
financial statements have been prepared from the historical accounting records  
as if the Business had operated as a separate entity during all periods         
presented.                                                                      

The financial statements include all of the direct operating expenses of the
Business and allocations of certain shared administrative services costs from   
Baxter. Expenses are allocated on the basis of actual usage or other methods,   
which approximate actual usage. Management believes that the allocation         
methods are reasonable. However, these allocations are not necessarily          
indicative of the costs and expenses that would have resulted if the Business   
had been operated as a separate entity.                                         

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Inventories                                                                   

Inventories are stated at the lower of cost (first-in, first-out) or market 
(net realizable value).                                                         

Property and Equipment                                                        

Property and equipment are stated at cost. Depreciation is provided using   
the straight-line method over the estimated useful lives which range from 3 to  
11 years. Leasehold improvements are amortized using the straight-line method   
over the estimated useful life or the lease term, whichever is shorter.         

License Agreements                                                            

License agreements are recorded at cost and are amortized using the         
straight-line method over the shorter of the estimated useful lives of the      
license or the license term. These costs are included with other assets in the  
accompanying balance sheets.                                                    

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)  
(UNAUDITED) 
JUNE 30, 1996 AND 1997  

Financial Instruments                                                         

The carrying value of financial instruments such as cash, accounts          
receivable, other current assets, accounts payable and other current            
liabilities approximates their fair value due to the short-term nature of       
these instruments.                                                              

Revenue Recognition                                                           

Revenue and related cost of goods sold are recognized upon shipment of      
products.                                                                       

Research and Development Costs                                                

Research and development costs are charged to expense as incurred.          

Income Taxes                                                                  

Income taxes are accounted for under the asset and liability method.        
Deferred tax assets and liabilities are recognized for the future tax           
consequences attributable to differences between the financial statement        
carrying amounts of existing assets and liabilities and their respective tax    
bases and operating loss carryforwards. Deferred tax assets and liabilities     
are measured using enacted tax rates expected to apply to taxable income in     
the years in which those temporary differences are expected to be recovered or  
settled. The effect on deferred tax assets and liabilities of a change in tax   
rates is recognized in income in the period that includes the enactment date.   

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of       

The Business adopted the provisions of Statement of Financial Accounting    
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets   
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121  
requires that long-lived assets and certain identifiable intangibles be         
reviewed for impairment whenever events or changes in circumstances indicate    
that the carrying amount of an asset may not be recoverable. Recoverability of  
assets to be held and used is measured by a comparison of the carrying amount   
of an asset to future net cash flows expected to be generated by the asset. If  
such assets are considered to be impaired, the impairment to be recognized is   
measured by the amount by which the carrying amounts of the assets exceed       
their fair values. Assets to be disposed of are reported at the lower of the    
carrying amount or fair value less costs to sell. Adoption of this statement    
did not have a material impact on the Business' financial position or results   
of operations.                                                                  

Stock-Based Compensation                                                      

In October 1995, the Financial Accounting Standards Board issued SFAS No.   
123, "Accounting for Stock-Based Compensation," which defines a fair-value      
method of accounting for stock-based awards. As permitted by SFAS No. 123, the  
Business elected to continue to follow existing accounting requirements for     
stock options and other stock-based awards contained in Accounting Principles   
Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees."         

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      

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IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH  
(A DIVISION OF BAXTER HEALTHCARE CORPORATION) 

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)  
(UNAUDITED) 
JUNE 30, 1996 AND 1997  

disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting periods. Actual results could differ from those estimates.            

(3) DISCONTINUED OPERATIONS                                                     

In February 1996, the Business sold the assets of its "Therasorb" product   
line and on January 1, 1997, the Business transferred the assets of its         
"Collections" product line to another Baxter division.                          

(4) INCOME TAXES                                                                

The Business has not recorded income tax expense or benefit for the six     
months ended June 30, 1996 and 1997. On a separate return basis, the losses     
incurred during those periods would give rise to net operating loss             
carryforwards and related deferred tax assets. Due to the uncertainty of        
ultimate utilization of those carryforwards on a separate-return basis, the     
Business has recorded valuation allowances for the full amounts of those        
deferred tax assets. The tax effect of other temporary differences that give    
rise to deferred tax liabilities are not material.                              

The Business, on a stand-alone basis, would have a net operating loss       
carryforward for Federal income tax purposes. However, since the Business has   
been included in the consolidated tax filings of Baxter, its prior losses have  
been utilized in the Baxter consolidated tax returns. As such, should the       
Business actually file separate tax returns in the future, no net operating     
losses would be available.                                                      

(5) CONTINGENCIES                                                               

The Business is involved in certain litigation arising in the ordinary      
course of business. The potential outcome of the litigation cannot be           
predicted with certainty. However, management believes that the loss, if any,   
resulting from the litigation, would not be material to the financial           
statements of the Business.                                                     

(6) BUSINESS EQUITY                                                             

Business equity represents Baxter's ownership interest in the recorded net  
assets of the Business. All cash transactions and intercompany transactions     
with Baxter are reflected in this amount.                                       

(7) LETTER OF INTENT                                                            

On June 12, 1997, the Business signed a letter of intent with VIMRx         
Pharmaceuticals Inc. (VIMRx) to form a new company.                             

Pursuant to the letter of intent, the Business and VIMRx will form a new    
company, yet to be named, into which certain of the assets of the Business      
will be transferred. VIMRx will hold a majority ownership (80%) position in     
the new company and Baxter will hold a minority ownership (20%) position.       
VIMRx will issue to Baxter 11 million shares of common stock and convertible    
preferred shares with a nominal value of $40 million. To the extent the 11      
million shares of common stock are worth less than $50 million at the time of   
closing, Baxter will receive additional convertible preferred shares. The       
conversion price for the preferred shares will be determined according to the   
closing prices of VIMRx's common stock within an 18 month period following the  
closing of the transaction, subject to a floor of $5.50 per share and a         
ceiling of $7.50 per share. Baxter will provide $30 million and VIMRx will      
provide $10 million to the new company as initial operating funds. The new      
company will pay Baxter milestone payments, related to regulatory approvals,    
of up to $21 million over several years. Baxter will retain its exclusive       
license to the CD34 antibody used in selection technology and sublicense it to  
the new company. Baxter will have one representative on the new company's       
board of directors and one representative on VIMRx's board of directors. The    
terms included in the letter of intent are subject to the approval by the       
stockholders of VIMRx, which is anticipated to occur in the fourth quarter of   
1997.                                                                           

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ANNEXES 
------- 

ANNEX A -  ASSET PURCHASE AGREEMENT                                             

ANNEX B -  ANNUAL REPORT ON FORM 10-K OF VIMRx PHARMACEUTICALS INC. FOR THE YEAR
ENDED DECEMBER 31, 1996                                   

ANNEX C -  QUARTERLY REPORT ON FORM 10-Q OF VIMRx PHARMACEUTICALS INC. FOR THE  
QUARTERLY PERIOD ENDED JUNE 30, 1997                      

ANNEX D -  FORM OF CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF  
          VIMRx PHARMACEUTICALS INC. AUTHORIZING "BLANK CHECK" PREFERRED STOCK

ANNEX E -  FORM OF CERTIFICATE OF DESIGNATIONS OF VIMRx PHARMACEUTICALS INC.    
SETTING FORTH THE TERMS OF THE CLASS A PREFERRED STOCK    

ANNEX F -  FAIRNESS OPINION BY LAZARD FRERES & CO. LLC                          

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ASSET PURCHASE AGREEMENT

BY AND BETWEEN

VIMRX PHARMACEUTICALS INC.

BAXTER HEALTHCARE CORPORATION 

AND 

BIT ACQUISITION CORP. 

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TABLE OF CONTENTS 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
1.  Definitions and Interpretation........................................   1 
    1.1  Definitions.....................................................    1 
    1.2  Interpretation..................................................   10 
2.  Purchase and Sale of the Assets; Closing..............................  11 
    2.1  Purchase and Sale...............................................   11 
    2.2  Purchase Consideration..........................................   11 
    2.3  Payment.........................................................   11 
    2.4  Issuance to VIMRx...............................................   12 
    2.5  Liabilities.....................................................   12 
         (A) Liabilities Not Assumed.....................................   12 
         (B) Assumed Liabilities.........................................   12 
         (C) Buyer Liabilities...........................................   12 
         (D) No Assumption by VIMRx......................................   12 
    2.6  Closing.........................................................   12 
3.  Representations and Warranties of the Seller..........................  12 
    3.1  Good Standing...................................................   12 
    3.2  Authority.......................................................   12 
    3.3  Consents and Approvals..........................................   13 
    3.4  Financial Statements............................................   13 
    3.5  FDA and Related Regulatory Matters..............................   13 
    3.6  Taxes...........................................................   15 
    3.7  Title; Tangible Personal Property and Real Property.............   15 
    3.8  Intellectual Property...........................................   16 
    3.9  Environmental Matters...........................................   18 
    3.10 Contracts and Commitments.......................................   18 
    3.11 Labor Relations.................................................   20 
    3.12 Legal Proceedings...............................................   20 
    3.13 Compliance with Law.............................................   20 
    3.14 Absence of Certain Changes since Balance Sheet Date.............   21 
    3.15 Suppliers.......................................................   22 
    3.16 Compensation....................................................   22 
    3.17 Affiliated Transactions.........................................   22 
    3.18 Books and Records...............................................   22 
    3.19 Brokers.........................................................   22 
    3.20 Benefits Received...............................................   22 
    3.21 Inventory.......................................................   23 
    3.22 Experience......................................................   23 
    3.23 Investment......................................................   23 
    3.24 Rule 144........................................................   23 
    3.25 No Public Market................................................   24 
    3.26 Access to Data..................................................   24 
    3.27 Full Disclosure.................................................   24 
    3.28 Proxy-Related Information.......................................   24 
4.  Representations and Warranties of the Buyer...........................  24 
    4.1  Good Standing...................................................   24 
    4.2  Authority.......................................................   25 
    4.3  Consents and Approvals..........................................   25 

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    4.4  Capitalization..................................................   25 
    4.5  Valid Issuance of Common Stock..................................   26 
    4.6  Brokers.........................................................   26 
    4.7  No Prior Activities.............................................   26 
    4.8  Full Disclosure.................................................   26 
5.  Representations and Warranties of VIMRx...............................  26 
    5.1  Good Standing...................................................   26 
    5.2  Authority.......................................................   27 
    5.3  Consents and Approvals..........................................   28 
    5.4  Capitalization..................................................   28 
    5.5  Valid Issuance of Preferred and Common Stock....................   29 
    5.6  Brokers.........................................................   30 
    5.7  Financial Statements............................................   30 
    5.8  Absence of Certain Changes......................................   30 
    5.9  Legal Proceedings...............................................   30 
    5.10 Compliance with Law.............................................   31 
    5.11 Contracts and Commitments.......................................   31 
    5.12 Intellectual Property...........................................   31 
    5.13 Environmental Matters...........................................   32 
    5.14 Labor Relations.................................................   33 
    5.15 Employee Benefit Plans..........................................   33 
    5.16 Proxy Statement.................................................   34 
    5.17 Books and Records...............................................   34 
    5.18 Financial Ability...............................................   34 
    5.19 Experience......................................................   34 
    5.20 Controlled Subsidiaries.........................................   34 
    5.21 Full Disclosure.................................................   35 
6.  Certain Covenants and Agreements......................................  35 
    6.1  Pre-Closing Covenants...........................................   35 
         (A)Covenants of the Seller......................................   35 
         (B)Covenants of VIMRx...........................................   36 
         (C)Filings......................................................   37 
         (D)Negotiations with Others.....................................   37 
    6.2  Post-Closing Covenants..........................................   38 
         (A)Milestone Payments...........................................   38 
         (B)Assignability................................................   38 
         (C)Facilitation of Possession...................................   38 
         (D)Management Slate.............................................   38 
         (E)Board Seat...................................................   38 
         (F)Internal Control Procedures..................................   38 
         (G)Round Lake and Munich Employees..............................   39 
         (H)Intellectual Property........................................   39 
         (I)Chiron Obligations...........................................   39 
         (J)Potential Post-Closing Adjustment............................   40 
         (K)Preferred Stock..............................................   41 
7.  Conditions to Obligations of the Buyer, VIMRx and the Seller..........  41 
    7.1  The Buyer's and VIMRx's Conditions..............................   41 
    7.2  The Seller's Conditions.........................................   42 
    7.3  Mutual Conditions...............................................   42 

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8.  Deliveries of the Parties.............................................  43 
    8.1   The Seller's Deliveries........................................   43 
          (A)To the Buyer................................................   43 
          (B)To VIMRx....................................................   44 
    8.2   Deliveries of VIMRx............................................   44 
          (A)To the Seller...............................................   44 
          (B)To the Buyer................................................   44 
    8.3   Deliveries of the Buyer........................................   44 
          (A)To VIMRx....................................................   44 
          (B)To the Seller...............................................   44 
9.  Survival of Representations: Indemnities..............................  45 
    9.1   Survival.......................................................   45 
    9.2   Indemnity......................................................   45 
10. Transactional and Other Taxes.........................................  48 
          (A)Transactional Taxes.........................................   48 
          (B)Personal Property Taxes.....................................   48 
          (C)Utilities...................................................   48 
11. Further Assurances and Cooperation....................................  48 
12. Notices...............................................................  48 
13. Expenses..............................................................  49 
14. Termination...........................................................  50 
    14.1  Conditions.....................................................   50 
    14.2  Special Termination Right......................................   50 
    14.3  Effective Date.................................................   51 
    14.4  No Liability...................................................   51 
15. Employment............................................................  51 
16. Certain Additional Covenants..........................................  52 
    16.1  CellPro Litigation.............................................   52 
    16.2  Employee Covenants.............................................   53 
    16.3  Disclaimer.....................................................   53 
    16.4  Delayed FDA Approval...........................................   54 
    16.5  Allocation of Consideration....................................   54 
17. Miscellaneous.........................................................  54 
    17.1  Entire Agreement: No Modification..............................   54 
    17.2  Waiver of Breach...............................................   55 
    17.3  Benefit of Parties; Assignment.................................   55 
    17.4  Headings.......................................................   55 
    17.5  Governing Law; Jurisdiction....................................   55 
    17.6  Multiple Counterparts; Execution by Fax........................   55 
    17.7  Exhibits, Schedules............................................   56 
    17.8  Construction...................................................   56 
    17.9  Publicity......................................................   56 
    17.10 Number and Gender..............................................   56 

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ASSET PURCHASE AGREEMENT  

ASSET PURCHASE AGREEMENT, made this 10th day of October, 1997, by and among 
BAXTER HEALTHCARE CORPORATION, a Delaware corporation with offices at 1627      
Lake Cook Road, Deerfield, Illinois 60015 (the "Seller"), VIMRx                 
PHARMACEUTICALS INC., a Delaware corporation with offices at 2751 Centerville   
Road, Suite 210, Wilmington, Delaware 19808 ("VIMRx") and BIT ACQUISITION       
CORP., a Delaware corporation with offices at 2751 Centerville Road, Suite      
210, Wilmington, Delaware 19808 (the "Buyer").                                  

WHEREAS, the Seller currently operates a business segment known as the      
Immunotherapy Division of its Biotech Business Group (the "Division");          

WHEREAS, the business in which the Division is engaged is the ex vivo cell  
therapy business described in Exhibit A attached hereto (such business being    
hereinafter referred to as the "Business");                                     

WHEREAS, the Seller and VIMRx desire to enter into a strategic alliance by  
engaging in the Business through the Buyer, which is currently a wholly-owned   
subsidiary of VIMRx;                                                            

WHEREAS, the strategic alliance will be created pursuant to the sale and    
transfer or license of certain technology relating to the use of cells for the  
treatment, mitigation or prophylaxis of diseases, including research into such  
activities, together with certain other property related to the manufacture,    
use and sale of the products of the Business;                                   

WHEREAS, as a condition to the obligations of the parties under this        
Agreement, the parties will enter into, among other things, manufacturing and   
supply agreements for the manufacture and supply of the Isolex(R) and           
Maxsep(R) Products (as hereinafter defined), certain antibodies and other       
components of the Isolex(R) and Maxsep(R) Products and certain other products   
of the Business; certain license agreements to grant the right to use certain   
technology relating to the Business; the Distribution Agreement (as             
hereinafter defined) providing for the marketing, sales and distribution of     
the Isolex(R) and Maxsep(R) Products and certain other products of the          
Business; and the Services Agreement (as hereinafter defined) relating to the   
provision, by the Seller to the Buyer, of certain Business-related services     
previously supplied by other divisions of the Seller to the Division;           

WHEREAS, to that end, the Seller desires, among other things, to have the   
Buyer acquire, and the Buyer desires to acquire, the Assets (as hereinafter     
defined); and                                                                   

WHEREAS, the parties wish to set forth their agreement with respect to the  
purchase and the sale of such Assets and a mutual investment in the Buyer;      

NOW THEREFORE, in consideration of the mutual covenants and promises herein 
contained, the parties agree as follows:                                        

1.Definitions and Interpretation.                                               

1.1 Definitions. Capitalized terms used herein shall have the following     
meanings:                                                                       

"Acquired Securities" shall mean the VIMRx Common Stock, VIMRx Preferred    
Stock, Buyer Common Stock and the Warrant acquired by the Seller pursuant to    
Section 2.2, together with the Buyer Convertible Debentures acquired by the     
Seller pursuant to Section 8.3(B).                                              

"Actions" shall mean claims, actions, suits, audits, proceedings or         
investigations, whether at law, in equity or admiralty, and whether or not      
before any Tribunal or any Authority.                                           

"Affiliate" shall mean, with respect to any party, any entity (i) which     
directly, or indirectly through one or more intermediaries, Controls, is        
Controlled by, or is under common Control with, the party or (ii) fifty         
percent                                                                         

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(50%) or more of the voting capital stock (or in the case of an entity which    
is not a corporation, fifty percent (50%) or more of the equity interest) of    
which is beneficially owned or held by a party or any of such party's           
Subsidiaries.                                                                   

"Affiliated Transaction" shall mean, in respect of any Person, any          
transaction, or series of similar transactions, or any currently proposed       
transaction, to which such Person is a party, in which the amount involved      
exceeds $60,000 and in which any Affiliate of such Person had, or will have, a  
direct or indirect material interest (but excluding, in any event,              
transactions, between divisions of the same Person and transactions between a   
Person and any consolidated subsidiary of such Person).                         

"Aggregate Agreed Value" shall have the meaning assigned thereto in Section 
2.2(C).                                                                         

"Agreed Value" shall mean the average of the closing sale prices of VIMRx   
Common Stock on the 15 trading days preceding, but not including, the date      
falling five days prior to the Closing Date, as reported by Nasdaq.             

"Antibody Manufacturing and Storage Agreement" shall mean the Antibody      
Manufacturing and Storage Agreement substantially in the form annexed hereto    
as Exhibit B.                                                                   

"Assets" shall mean the assets set forth or described in Schedule 2.1.      

"Assigned Contracts" shall have the meaning assigned thereto in Exhibit C.  

"Assignment of Parker Lease" shall mean an assignment document assigning to 
the Buyer the lease relating to the Parker Facility, the form and content of    
which shall be reasonably satisfactory to the Buyer.                            

"Assumed Liabilities" shall have the meaning assigned thereto in Exhibit C. 

"Authority" shall mean any Federal, state, municipal, foreign or other      
government or governmental department, commission, board, bureau, agency or     
instrumentality.                                                                

"BDG" shall mean Baxter Deutschland GmbH, an indirect subsidiary of an      
Affiliate of the Seller.                                                        

"Business" shall have the meaning assigned thereto in the Preamble to this  
Agreement.                                                                      

"Business Day" shall mean any day other than (a) a Saturday or Sunday or (b)
a day on which commercial banks in Illinois, New York or Delaware are           
authorized or required by law to close.                                         

"Buyer" shall have the meaning assigned thereto in the Preamble to this     
Agreement.                                                                      

"Buyer Common Stock" shall mean the common stock of the Buyer, $.001 par    
value per share.                                                                

"Buyer Convertible Debentures" shall mean each or all, as the context may   
require, of (i) the convertible debenture issued by the Buyer to the Seller,    
in the forms annexed hereto as Exhibits D and E, and/or (ii) the convertible    
debenture issued by the Buyer to VIMRx, in the form annexed hereto as Exhibit   
F.                                                                              

"Buyer Liabilities" shall have the meaning assigned thereto in Section      
2.5(C).                                                                         

"Cambes" shall mean Cambes, Ltd., a Delaware corporation.                   

"Cash Position" shall mean, in respect of the Buyer and as of the date of   
determination, (1) the total amount of cash, cash equivalents and short-term    
investments owned by the Buyer minus (2) the then total outstanding principal   
amount of the Buyer's indebtedness to the Seller for borrowed sums.             

"CellPro" shall mean CellPro, Inc., a Delaware corporation.                 

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"CellPro Litigation" shall have the meaning assigned thereto in Section     
16.1.                                                                           

"Chiron Collaboration Agreement" shall mean that certain Collaboration      
Agreement, dated as of December 27, 1996, between Chiron Corporation and the    
Seller.                                                                         

"Chiron Sublicense" shall mean that certain sublicense from the Seller to   
the Buyer relating to breast cancer antibodies licensed from Cetus Oncology     
Corporation, d/b/a/ Chiron Therapeutics, to the Seller, in substantially the    
form annexed hereto as Exhibit G.                                               

"Class A Assets" shall have the meaning assigned thereto in Schedule 2.1.   

"Class B Assets" shall have the meaning assigned thereto in Schedule 2.1.   

"Closing Date" shall have the meaning assigned thereto in Section 2.6.      

"Closing" shall have the meaning assigned thereto in Section 2.6.           

"Code" shall mean the Internal Revenue Code of 1986, as amended.            

"Non-Competition and Confidentiality Agreement" shall mean the Non-         
Competition and Confidentiality Agreement between the Seller and the Buyer      
substantially in the form annexed hereto as Exhibit H.                          

"Contaminants" shall mean any material, pollutant, substance or waste which 
is defined in, regulated by, or subject to any Environmental Law, including     
asbestos and asbestos containing materials.                                     

"Control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of an entity       
(other than a natural person), whether through the ownership of voting capital  
stock, by contract or otherwise.                                                

"Controlled Subsidiary" shall mean, with respect to any Person, any other   
Person in which such first Person owns, directly or indirectly, 50% or more of  
the outstanding equity interest.                                                

"Conversion Securities" shall mean any VIMRx Common Stock or Buyer Common   
Stock issuable upon conversion or exercise of certain Acquired Securities.      

"Copyrights" shall mean United States and foreign copyrights, whether       
registered or unregistered.                                                     

"Customized Software" shall mean all Software owned by, licensed to or used 
by the Seller in connection with the Division, other than Shrinkwrap Software.  

"Data Room" shall mean Room 313 at the Parker Facility.                     

"Disclosure Period" shall mean the period commencing on the date hereof and 
ending at 5:00 p.m. (Eastern time) on the date falling 14 days after (but not   
including) the date hereof; provided, however, that in the event that such      
14th day shall not be a Business Day, the Disclosure Period shall instead end   
at 5:00 p.m. (Eastern time) on the next succeeding Business Day.                

"Distribution Agreement" shall mean the Marketing, Sales and Distribution   
Agreement substantially in the form annexed hereto as Exhibit I.                

"Division" shall have the meaning assigned thereto in the Preamble to this  
Agreement.                                                                      

"Dorken Sublicense" shall mean that certain sublicense from BDG to the Buyer
relating to "B" cells licensed from Prof. Bernd Dorken to BDG in substantially  
the form annexed hereto as Exhibit J.                                           

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"Encumbrance" shall mean any lien, charge, security interest, encumbrance or
claim, whether legal or equitable.                                              

"Environmental Laws" shall mean any and all laws, statutes, codes, rules,   
regulations, ordinances, orders, writs, decrees and injunctions of any          
Authority relating to the protection or pollution of the environment, or        
community health and safety, including the Comprehensive Environmental          
Response Compensation and Liability Act, as amended, the Federal Solid Waste    
Disposal Act, as amended by the Resource Conservation and Recovery Act and the  
Hazardous and Solid Waste Amendments, the Clean Air Act, the Clean Water Act,   
the Toxic Substances Control Act, the Safe Drinking Water Act and any similar   
or analogous statutes, regulations and decisional law of any Authority.         

"Epstein Opinion" shall mean the opinion of Epstein Becker & Green, P.C.    
with respect to this Agreement and the transactions contemplated hereby, the    
form and content of which shall be negotiated after the execution and delivery  
hereof.                                                                         

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as  
amended, and the rules and regulations promulgated thereunder.                  

"ERISA Benefit Plans" shall mean any (i) "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), (ii) "multiemployer plan" (as   
such term is defined in Section 3(37) of ERISA), or (iii) "welfare benefit      
plan" (as such term is defined in Section 3(1) of ERISA).                       

"Excepted Obligations" shall mean the obligations set forth or described in 
subsection 2 of Exhibit C.                                                      

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,  
and the rules and regulations promulgated thereunder.                           

"Execution Schedule" shall mean that certain disclosure schedule (composed  
of various sections) which is being delivered by the Seller to the Buyer in     
connection herewith, but which is not an attachment to the Agreement. In all    
other respects, references in this Agreement to "Schedules" shall be deemed     
also to refer to the Execution Schedule.                                        

"FDA" shall mean the U.S. Food and Drug Administration.                     

"First BD License" shall have the meaning assigned thereto in Section 16.1. 

"First BD Sublicense" shall mean that certain sublicense, from the Seller to
the Buyer relating to CD34+ cell population and related antibody and method     
patents licensed from Becton, Dickinson and Company to the Seller, in           
substantially the form annexed hereto as Exhibit K.                             

"GAAP" shall mean generally accepted accounting principles set forth in the 
opinions and pronouncements of the Accounting Principles Board of the American  
Institute of Certified Public Accountants and statements and pronouncements of  
the Financial Accounting Standards Board, applied on a consistent basis.        

"Hardware and Disposables Manufacturing Agreement" shall mean that certain  
Hardware and Disposables Manufacturing Agreement between the Buyer and the      
Seller substantially in the form annexed hereto as Exhibit L.                   

"Hardware and Disposables Supply Agreement" shall mean that certain Hardware
and Disposables Supply Agreement between the Buyer and the Seller               
substantially in the form annexed hereto as Exhibit M.                          

"Hart-Scott" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 
1976, as amended, and the rules and regulations promulgated thereunder.         

"HHS" shall mean the United States Department of Health and Human Services. 

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"Improvements" shall mean all buildings, structures and improvements located
on the Real Estate.                                                             

"Included Agreements" shall have the meaning assigned thereto in Schedule   
2.1.                                                                            

"Indemnified Party" shall have the meaning assigned thereto in Section 9.2. 

"Indemnifying Party" shall have the meaning assigned thereto in Section 9.2.

"Information" shall mean confidential ideas, trade secrets, technology,     
know-how, inventions (whether or not patentable) and improvements thereto,      
concepts, methods, processes, formulae, reports, data, customer lists, mailing  
lists, business plans, or other proprietary information.                        

"Innovir" shall mean Innovir Laboratories, Inc., a Delaware corporation.    

"Innovir Common Stock" shall mean the common stock of Innovir, $.013 par    
value per share.                                                                

"VIMRx Holdings" shall mean Innovir Holdings, Ltd., a Delaware corporation. 

"VIMRx Holdings Common Stock" shall mean the common stock of Innovir        
Holdings, $.01 par value per share.                                             

"Innovir UK" shall mean Innovir Limited, an English private limited company.

"Innovir UK Ordinary Shares" shall mean the common shares of Innovir UK, one
pound par value per share.                                                      

"Innovir Germany" shall mean Innovir Gesellschaft fur die Entwicklung und   
Synthese von Oligomeren mbH, a Gesellschaft mit beschrankter Halftung           
organized under the laws of the Federal Republic of Germany.                    

"Innovir Preferred Stock" shall mean the Preferred Stock of Innovir, par    
value $.06 per share, including Class B Preferred Stock and Preferred Stock     
undesignated as to class or series.                                             

"Intellectual Property" shall mean Copyrights, Patents, Trademarks,         
Information and Software.                                                       

"Intellectual Property Right" shall mean any right possessed by any person  
or entity which arises as a result of his or its ownership, license or use of,  
or of any application for, or application for registration of, any              
Intellectual Property.                                                          

"Inventory Entity" shall have the meaning set forth in Section 3.21 hereto. 

"Isolex(R) and Maxsep(R) Technology" shall have the meaning assigned thereto
in the Hardware and Disposables Manufacturing Agreement.                        

"Isolex(R) and Maxsep(R) Products" shall have the meaning assigned thereto  
in the Hardware and Disposables Manufacturing Agreement.                        

"KPMG" shall mean KPMG Peat Marwick LLP.                                    

"Licenses" shall mean licenses, authorizations, authorities, approvals,     
permits and certificates.                                                       

"Losses" shall mean liabilities, claims, losses, costs, damages, and        
expenses (including without limitation, reasonable attorneys' fees and          
expenses), whether incurred in connection with a claim, controversy or dispute  
between the parties hereto or between a party hereto and one or more third      
parties.                                                                        

"Manufactured Products" shall mean (i) all Isolex(R) and Maxsep(R) Products 
listed on Schedule I attached to the Hardware and Disposables Manufacturing     
Agreement and all components thereof, in each case as currently                 

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produced by the Seller utilizing the Isolex(R) and Maxsep(R) Technology;        
provided, however, that Manufactured Products shall not include those products  
or components to be manufactured or supplied by the Seller under the Hardware   
and Disposables Supply Agreement; (ii) all "Antibodies" (as that term is        
defined in the Antibody Manufacturing and Storage Agreement) specified in       
Schedule I attached to the Antibody Manufacturing and Storage Agreement, in     
each case as currently produced by the Seller; and (iii) the products           
currently used in the research and development program of the Business.         

"Material Adverse Effect", with respect to the Seller, the Buyer or VIMRx,  
means a material adverse effect, or the occurrence or existence of facts or     
circumstances that would reasonably be expected to result in a material         
adverse effect, on the business, assets, liabilities, results of operations,    
properties, financial or operating condition of (i) the Division, in the case   
of the Seller, (ii) VIMRx and its subsidiaries (other than the Buyer) taken as  
a whole, in the case of VIMRx, and (iii) the Buyer and its subsidiaries, if     
any, taken as a whole, in the case of the Buyer, or on the ability of any such  
Person (and to the extent applicable, its subsidiaries) to consummate the       
transactions contemplated hereunder.                                            

"Milestone" shall mean each of the regulatory approval milestones set forth 
on Exhibit N to this Agreement.                                                 

"Milestone Payment" shall mean each and any of the payments to be made to   
the Seller pursuant to Section 6.2(A) to this Agreement.                        

"Munich Facility" shall mean the facility, located at Edisonstrasse 3-4 D-  
85716 Unterschlessein, Germany, in which BDG currently conducts certain         
operations on behalf of the Division.                                           

"Nasdaq" shall mean the Nasdaq Stock Market.                                

"Net Projected Expenses" shall mean, in respect of the Buyer as of any given
Occurrence Date, the excess, if any, of (i) the total cash operating expenses   
(excluding depreciation, amortization and similar non-cash items) projected by  
the Buyer to be incurred by the Buyer during the 12-month period immediately    
succeeding such Occurrence Date minus (ii) the total amount of revenue and      
income, from whatsoever source, projected by the Buyer to be earned by the      
Buyer during such 12-month period.                                              

"NIH" shall mean the National Institutes of Health.                         

"Non-Assumed Liabilities" shall have the meaning assigned thereto in Section
2.5(A).                                                                         

"Non-ERISA Plans" shall mean, in respect of any Person, each and every (i)  
employee collective bargaining agreement, employment agreement (other than      
employment agreements terminable by such Person without premium or penalty on   
notice of 30 days or less under which the only monetary obligation of such      
person is to make current wage or salary payments and provide current fringe    
benefits), consulting, advisory or service agreement (as to the latter three,   
where such person is the recipient of the services); deferred compensation      
agreement, confidentiality agreement or covenant not to compete (other than     
confidentiality agreements and covenants not to compete contained in            
agreements which are required to be disclosed by such Person hereunder), (ii)   
contract or agreement with any officer, director or employee (other than        
employment agreements disclosed in response to clause (i) or excluded from the  
scope of clause (i)), agent, or attorney-in-fact of such Person; or (iii)       
stock option, stock purchase, bonus or other incentive plan or agreement.       

"Occurrence Date" shall mean, with respect to any given Milestone, the date 
on which such Milestone shall occur, if at all.                                 

"Orders" shall mean any order, writ, injunction or decree of any Tribunal or
Authority.                                                                      

"Owned Software" shall mean all Software owned by the Seller and used in the
Business of the Division.                                                       

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"Parker Facility" shall mean the facility, located at 9 Parker, Irvine,     
California, in which the Division currently conducts certain of its             
operations.                                                                     

"Patents" shall mean United States and foreign patents, continuations,      
continuations-in-part, divisions, reissues, reexaminations, extensions and      
disclosures.                                                                    

"Patent Rights" shall have the meaning assigned thereto in Section 16.1.    

"Plan A Projections" shall mean the financial projections, relating to the  
Buyer, which are included as Section 1 of the Execution Schedule.               

"PBGC" shall mean the Pension Benefit Guaranty Corporation.                 

"Permitted Encumbrances" shall mean (a) liens for taxes and other           
governmental charges and assessments which are not yet due and payable, (b)     
liens of landlords and liens of carriers, warehousemen, mechanics and           
materialmen and other like liens arising in the ordinary course of business     
for sums not yet due and payable, (c) liens on deposits or pledges to secure    
obligations under workmen's compensation, social security or similar laws and   
(d) other liens, encumbrance(s) or imperfections on property which are not      
material in amount or do not materially detract from the value of or            
materially impair the existing use of the property affected by such lien,       
encumbrance(s) or imperfection.                                                 

"Person" shall mean any individual, corporation, partnership, limited       
partnership, limited liability partnership, joint venture, limited liability    
company, association, joint-stock company, trust, unincorporated organization,  
Authority or other entity.                                                      

"Primary Licenses" shall mean the following agreements: (i) the License     
Agreement between the Seller and Becton, Dickenson and Company, dated August    
24, 1990 as amended on November 10, 1993 and March 30, 1995 (relating to CD34+  
cell population and related antibody and method patents); (ii) the License      
Agreement between the Seller and Becton, Dickenson and Company, dated June 1,   
1993 (relating to "B" cell antibodies); (iii) the Non-Exclusive License         
Agreement between the Seller and Cetus Oncology Corporation d/b/a Chiron        
Therapeutics, dated March 28, 1996 (relating to breast cancer antibodies); and  
(iv) the Agreement between BDG and Professor Bernd Dorken, dated October 20,    
1994 (relating to "B" cells).                                                   

"Proxy Statement" shall have the meaning assigned thereto in Section 5.16.  

"PTO" shall mean the United States Patent and Trademark Office.             

"Purchase Consideration" shall have the meaning assigned thereto in Section 
2.2.                                                                            

"Real Property" shall have the meaning assigned thereto in Section 3.7(B).  

"Registration Rights Agreement" shall mean the registration rights agreement
substantially in the form annexed hereto as Exhibit O.                          

"Representatives" shall mean, with respect to any Person, such Person's     
officer's, directors, employees, independent contractors, agents and            
representatives.                                                                

"Ribonetics" shall mean Ribonetics Gesellschaft fur molekulare therapie     
GmbH, a Gesellschaft mit beschrankter Halftung organized under the laws of the  
Federal Republic of Germany.                                                    

"Round Lake Facility" shall mean the facility, located at WG 2-3S Route 120 
& Wilson Road, Round Lake, Illinois, in which the Division currently conducts   
certain of its operations.                                                      

"Royalty Assignment and Agreement" shall mean the royalty assignment and    
agreement substantially in the form annexed hereto as Exhibit P.                

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"Saxholm Litigation" shall mean the certain litigation identified as Saxholm
AS v. Baxter Healthcare Corp., Civil Action No. 94 C 5408, which is pending in  
the Northern District of Illinois, Eastern Division.                            

"SEC" shall mean the United States Securities and Exchange Commission.      

"Second BD Sublicense" shall mean that certain sublicense, from the Seller  
to the Buyer relating to "B" cell antibodies licensed from Becton, Dickenson    
and Company to the Seller, in substantially the form annexed hereto as Exhibit  
Q.                                                                              

"SEC Reports" shall mean all forms, reports and documents required to be    
filed with the SEC pursuant to the Securities Act or the Exchange Act.          

"Section 14.2 Date" shall mean that date falling 21 days after (but not     
including) the date hereof; provided, however, that in the event that such      
21st day shall not be a Business Day, the Section 14.2 Date shall instead be    
the next succeeding Business Day.                                               

"Securities Act" shall mean the Securities Act of 1933, as amended, and the 
rules and regulations promulgated thereunder.                                   

"Seller" shall have the meaning assigned thereto in the Preamble to this    
Agreement.                                                                      

"Services Agreement" shall mean an agreement between the Buyer and the      
Seller, to be negotiated after the execution and delivery hereof, relating to   
manufacturing, regulatory and other support services (other than those covered  
by (i) the Hardware and Disposables Manufacturing Agreement, (ii) the           
Distribution Agreement and (iii) the other Transaction Documents) which shall   
provide, among other terms to be mutually agreed by the parties, for the        
Seller to provide to the Buyer, at its fully-loaded cost, certain services (of  
the type which are now rendered by the Seller in respect of the Division).      

"Seyfarth Opinion" shall mean the opinion of Seyfarth, Shaw, Fairweather &  
Geraldson with respect to this Agreement and the transactions contemplated      
hereby, the form and content of which shall be negotiated after the execution   
and delivery hereof.                                                            

"Shrinkwrap Software" shall mean all Software that is available in consumer 
retail stores and subject to form shrinkwrap license agreements.                

"Software" shall mean computer software programs and software systems,      
including, without limitation, all database applications, compilations, tool    
sets, compilers, higher level or "proprietary" languages, related               
documentation and materials, whether in source code, object code or human       
readable form as well as all Copyrights, if any, appurtenant thereto.           

"Stockholders' Agreement" shall mean the stockholders' agreement between    
VIMRx and the Seller substantially in the form annexed hereto as Exhibit R.     

"Sublicenses" shall mean, collectively, the Chiron Sublicense, the Dorken   
Sublicense and the First and Second BD Sublicenses.                             

"Subsidiary" shall mean, as to any party, any corporation of which more than
50% of the outstanding capital stock having ordinary voting power to elect a    
majority of the board of directors of such corporation (irrespective of         
whether or not at the time stock of any other class or classes of such          
corporation shall have or might have voting power by reason of the happening    
of any contingency) is at the time directly or indirectly owned by the party,   
by one or more of its subsidiaries, or by the party and one or more of its      
subsidiaries.                                                                   

"Tax Return" shall mean, in respect of any Person, any report, statement,   
return, declaration of estimated Tax or other information required to be        
supplied by or on behalf of such Person to a Tax Authority in connection        

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with Taxes, or with respect to grants of Tax exemption, including any           
consolidated, combined, unitary, joint or other return filed by any person      
that properly includes the income, deductions or other Tax information          
concerning such Person.                                                         

"Taxes" shall mean all taxes, including all Federal, state, local, foreign  
and other income, franchise, sales, use, property, payroll, stamp,              
withholding, environmental, alternative or add-on minimum and other taxes,      
assessments, charges, duties, fees, levies or other governmental charges of     
any kind whatsoever, and all estimated taxes, deficiency assessments,           
additions to tax, penalties and interest, and any contractual or other          
obligation to indemnity or reimburse any person with respect to any such        
assessment.                                                                     

"Third Party Claim" shall mean, in respect of any party hereto, any claim,  
or the commencement, or possible commencement, of any Action with respect to    
which indemnification is or is reasonably likely to be claimed by such party    
pursuant to Section 9.                                                          

"Trademarks" shall mean United States, state and foreign trademarks, service
marks, logos, trade dress and trade names, whether registered or unregistered.  

"Transaction Documents" shall mean the following:                           

(i)  the Distribution Agreement,                                            

(ii) the Non-Competition and Confidentiality Agreement,                     

(iii) the Assignment of Parker Lease,                                       

(iv) the Registration Rights Agreement,                                     

(v)  the First BD Sublicense,                                               

(vi) the Second BD Sublicense,                                              

(vii) the Dorken Sublicense,                                                

(viii) the Chiron Sublicense,                                               

(ix) the Stockholders' Agreement,                                           

(x)  the Services Agreement,                                                

(xi) the Antibody Manufacturing and Storage Agreement,                      

(xii) the Royalty Assignment and Agreement,                                 

(xiii) the Hardware and Disposables Manufacturing Agreement,                

(xiv) the Hardware and Disposables Supply Agreement,                        

(xv) the Voting Agreement,                                                  

(xvi) and each of the other agreements, documents and instruments being, or 
to be, executed in connection with the transactions contemplated
hereunder.                                                      

"Transactional Taxes" shall mean all sales, use, transfer, conveyance, bulk 
transfer, business and occupation, value added or other such Taxes, duties,     
excises or governmental charges imposed by any taxing jurisdiction.             

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"Tribunal" shall mean any domestic or foreign court, arbitration board or   
other tribunal.                                                                 

"VGI" shall mean VIMRx Genomics, Inc., a Delaware corporation.              

"VGI Common Stock" shall mean the common stock of VGI, $.01 par value per   
share.                                                                          

"VIMRx Common Stock" shall mean the common stock of VIMRx, $.001 par value  
per share.                                                                      

"VIMRx Preferred Stock" shall mean Series A Convertible Preferred Stock of  
VIMRx, par value $.001, having rights, preferences and designations (including  
a per share liquidation value of $1,000) as set forth on Exhibit S to this      
Agreement.                                                                      

"VIMRx" shall have the meaning assigned thereto in the Preamble to this     
Agreement.                                                                      

"Voting Agreement" shall mean that certain Voting Agreement, between the    
Seller, VIMRx, Richard L. Dunning, Donald G. Drapkin, Laurence D. Fink,         
Lindsay A. Rosenwald, M.D., Eric A. Rose, M.D. and Paramount Capital Asset      
Management Inc. substantially in the form annexed hereto as Exhibit T.          

"Warrant" shall mean a stock purchase warrant, substantially in the form    
annexed hereto as Exhibit U, for the purchase of 6.383 additional shares of     
the Buyer Common Stock (which number of shares, if issued at Closing, would     
represent, immediately after issuance thereof, 6% of all issued and             
outstanding Buyer Common Stock) at an aggregate exercise price of $6,000,000.   

1.2 Interpretation.                                                         

 (A)In respect of any of the Seller, the Buyer or VIMRx, the terms "to the
knowledge of" such Person and "awareness of" such party, and variations     
thereof, shall be deemed to refer to the actual knowledge and/or awareness  
(without any requirement of inquiry) of the Relevant Persons of such Party. 
In respect of the Seller, the term "Relevant Persons" shall be deemed to    
refer to (i) Victor W. Schmitt, John A. Osth, Michael J. Griffith, Dennis   
E. Van Epps, Reiner Spaethe, Kristin Houser, Charles Nawrot, Kathy Carroll, 
Donna Waldo, Michael Schiffer, Tim Anderson, Bruce Davis, Janice Guthrie,   
Bradford Price, William C. Lake, Alan R. Hardwick, Debra Condino, Sarah     
Bates, and (ii) any other person who, prior to the Closing Date, shall      
succeed to the position or office now held by any of the foregoing persons  
in (i). In respect of the Buyer, the term "Relevant Persons" shall be       
deemed to refer to (i) Richard L. Dunning, L. William McIntosh, Francis M.  
O'Connell, Lowell S. Lifschultz, Don M. Kerr and David A. Jackson, Ph.D.,   
and (ii) any other person who, prior to the Closing Date, shall succeed to  
the position or office now held by any of the foregoing persons in (i). In  
respect of VIMRx, the term "Relevant Persons" shall be deemed to refer to   
(i) Richard L. Dunning, L. William McIntosh, Francis M. O'Connell, Lowell   
S. Lifschultz, Don M. Kerr, Richard E. Kouri, Ph.D., Thomas Sharpe, Ph.D.,  
David Stern, M.D. and David A. Jackson, Ph.D., and (ii) any other person    
who, prior to the Closing Date, shall succeed to the position or office now 
held by any of the foregoing persons in (i).                                

(B)Whenever in this Agreement the phrase "in the ordinary course of     
business" is used, it shall be construed as meaning "in the ordinary course 
of business and substantially consistent with prior practice."              

(C)Whenever in this Agreement the term "including" is used, it shall be 
construed as meaning "including but not limited to."                        

(D)All accounting terms not specifically defined herein shall be        
construed in accordance with GAAP in effect at the Closing.                 

(E)Whenever in this Agreement the term "agreement" is used, it shall be 
deemed to refer to commitments, leases, licenses, contracts and agreements. 

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 (F)Whenever in this Agreement the term "party to" is used in regard to an
agreement, it shall be construed as meaning "party to or bound by".         

(G)Notwithstanding anything to the contrary in this Agreement, in       
connection with any representations or warranties relating to (i)           
Manufactured Products to be acquired by the Buyer from third parties, and   
(ii) products currently used in the research and development program of the 
Business, and which form a part of the Manufactured Products, neither the   
Seller nor any of its officers, directors, employees or representatives,    
including without limitation those individuals set forth in Section 1.2(A)  
hereof, shall have any obligation or requirement of any kind whatsoever to  
conduct any inquiry to support such representations and warranties.         

2.Purchase and Sale of the Assets; Closing.                                     

2.1 Purchase and Sale.                                                      

 (A)In reliance on the representations and warranties contained herein and
subject to all of the terms and conditions hereof, the Seller hereby agrees 
to sell, assign, transfer and deliver (or cause to be sold, assigned,       
transferred and delivered) to the Buyer and the Buyer agrees to purchase    
from the Seller, on the Closing Date, all of the Seller's right, title and  
interest in and to the Class A Assets, as set forth or described on         
Schedule 2.1 hereto.                                                        

 (B)In reliance on the representations and warranties contained herein and
subject to all of the terms and conditions hereof, the Seller hereby agrees 
to sell, assign, transfer and deliver (or cause to be sold, assigned,       
transferred and delivered) to VIMRx and VIMRx agrees to purchase from the   
Seller, on the Closing Date, all of the Seller's right, title and interest  
in and to the Class B Assets, as set forth or described on Schedule 2.1     
hereto; provided, however, that notwithstanding the foregoing, VIMRx        
hereby, effective as of the Closing Date (and for the consideration         
described in Section 2.4 below), assigns to the Buyer all of VIMRx's rights 
to receive all of the Seller's right, title and interest in and to the      
Class B Assets, with the result that the Class B Assets shall be conveyed   
directly to the Buyer.                                                      

2.2 Purchase Consideration. In consideration of the sale, assignment and    
transfer of the Class A Assets and Class B Assets pursuant to Section 2.1       
hereof, VIMRx or the Buyer, as the case may be, agrees to pay or issue to the   
Seller the following consideration (the "Purchase Consideration"):              

(A)eleven million (11,000,000) shares of VIMRx Common Stock;            

(B)forty thousand (40,000) shares of VIMRx Preferred Stock;             

(C)in the event that the aggregate Agreed Value of the eleven million   
shares of VIMRx Common Stock issued pursuant to Section 2.2(A) hereof       
(hereinafter, the "Aggregate Agreed Value") shall be less than $50,000,000, 
such additional number of shares of VIMRx Preferred Stock as shall equal    
the result obtained by dividing, by 1,000, the difference of $50,000,000    
minus the Aggregate Agreed Value; provided, however, that in lieu of any    
fractional share which might otherwise be due pursuant to such formula,     
VIMRx shall pay to the Seller an equivalent amount in cash (based on a      
liquidation value of $1,000);                                               

(D)Nineteen and one-half (19.5) shares of Buyer Common Stock, which will
represent, immediately after the issuance thereof, 19.5% of all issued and  
outstanding Buyer Common Stock; and                                         

(E)the Warrant.                                                         

2.3 Payment. At the Closing provided for in Section 2.6 hereof, the Buyer   
and VIMRx, as the case may be, shall deliver to the Seller certificates         
representing the VIMRx Common Stock, VIMRx Preferred Stock and Buyer Common     
Stock provided for in Section 2.2, together with the Warrant, against delivery  
of the items designated to be delivered by the Seller at Closing pursuant to    
Section 8.1.                                                                    

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2.4 Issuance to VIMRx. In consideration for the agreement of VIMRx to assign
to the Buyer its rights to acquire the Class B Assets, as provided in Section   
2.1(B), the Buyer shall, on the Closing Date, issue to VIMRx 80.5 shares of     
Buyer Common Stock, which will represent, immediately after the issuance        
thereof, 80.5% of all issued and outstanding Buyer Common Stock.                

2.5 Liabilities.                                                            

(A)Liabilities Not Assumed. Except as specifically provided in Section  
2.5(B), the Buyer and VIMRx neither assume nor shall be obligated to pay,   
perform or discharge, and the Seller hereby agrees to pay, perform,         
discharge or otherwise satisfy in due course and to hold the Buyer and      
VIMRx harmless from, any and all debts, liabilities and obligations of the  
Seller, whether known or unknown, fixed, contingent or otherwise, including 
all Taxes arising from any Seller operations up to and including the        
Closing Date (all such non-assumed liabilities being hereinafter            
collectively referred to as the "Non-Assumed Liabilities").                 

 (B)Assumed Liabilities. In addition to the consideration payable pursuant
to Section 2.2 hereof, and subject to the terms and conditions set forth in 
this Agreement, effective as of the Closing Date, the Buyer hereby assumes  
only those liabilities of the Seller specifically set forth on Exhibit C    
(the "Assumed Liabilities").                                                

(C)Buyer Liabilities. The Seller shall have no liability for any        
obligations of the Buyer that are incurred or arise after the Closing Date  
("Buyer Liabilities") except to the extent (i) otherwise provided in this   
Agreement or any Transaction Document or (ii) that any such liability       
arises from a wrongful act or omission on the part of the Seller, any       
Affiliate of Seller or any Representative of any of the foregoing.          

 (D)No Assumption by VIMRx. In connection with the assignment, by VIMRx to
the Buyer, of the rights described in Section 2.1(B), VIMRx neither         
assumes, nor shall be obligated to pay, perform or discharge, any debts,    
obligations or liabilities of the Seller, whether known or unknown, fixed,  
contingent or otherwise.                                                    

2.6 Closing. The closing of the purchase and sale of the Assets hereunder   
(the "Closing") shall be held at the offices of the Seller located at the       
Parker Facility, as promptly as reasonably practicable following the date on    
which the last of the conditions set forth in Section 7 has been satisfied or   
waived in accordance with the terms of this Agreement, or on such other date,   
and at such other time and place, as the Seller and the Buyer shall mutually    
agree in writing (the day of occurrence of the Closing being referred to        
hereinafter as the "Closing Date").                                             

3.Representations and Warranties of the Seller                                  

The Seller represents and warrants to the Buyer and VIMRx as of the end of  
the Disclosure Period, and as of the Closing Date, as follows:                  

3.1 Good Standing.                                                          

The Seller is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware, and with respect to the Business of    
the Division, has all necessary corporate power and authority to own, lease     
and operate its properties and to carry on the Business as the same is now      
being conducted. True, accurate and complete copies of the Certificate of       
Incorporation and By-Laws of the Seller have been provided to the Buyer.        

3.2 Authority.                                                              

The Seller possesses full right, corporate power and legal authority to     
execute and deliver this Agreement and the Transaction Documents to which the   
Seller is a party and to perform each of the agreements and make                

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each of the representations and warranties on its part to be performed and      
made hereunder and thereunder. The execution and delivery of this Agreement     
and the Transaction Documents to which the Seller is a party and the            
consummation by it of the transactions contemplated hereby and thereby have     
been duly and validly authorized by all necessary corporate action on the part  
of the Seller. This Agreement has been duly and validly executed by the Seller  
and constitutes, and the Transaction Documents (upon and subject to their       
execution and delivery by all parties thereto) shall constitute, the legal,     
valid and binding obligation of the Seller enforceable against it in            
accordance with their terms subject to the qualification that the               
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent     
conveyance, reorganization, moratorium and similar laws, now or hereafter in    
effect, affecting creditors' rights and except that the availability of         
equitable remedies, including specific performance, is subject to the           
discretion of the court before which any proceeding for the enforcement         
thereof may be brought. Except as set forth on Schedule 3.2, the execution and  
delivery of this Agreement and the Transaction Documents to which the Seller    
is a party and the performance by it of all of the transactions contemplated    
herein and therein do not and shall not (with or without the giving of notice   
or the passage of time or both) (A) violate or conflict with the Certificate    
of Incorporation or By-laws of the Seller, or (B) (1) violate or conflict with  
any law, rule, ruling, determination, ordinance or regulation of any Authority  
or any condition or provision of, (2) result in the creation or imposition of   
any Encumbrance upon any of the Assets of the Seller pursuant to, (3)           
accelerate or create, or permit the acceleration or creation of, any liability  
or obligation of the Seller under, or (4) cause a termination under or give     
rise to a right of termination under, the terms of, any contract, mortgage,     
lien, lease, agreement, indenture, trust, instrument, order, judgment or        
decree to which the Seller is a party or which is binding upon the Seller (it   
being agreed that this subsection (B) shall be deemed to refer only to the      
Assets, liabilities, obligations, contracts, mortgages, liens, leases,          
agreements, indentures, trusts, instruments, orders, judgments and decrees      
which relate to or affect the Division and which are being transferred to,      
assumed by or sublicensed to the Buyer, as the case may be); provided,          
however, that the existence of any such violations, conflicts, encumbrances,    
accelerations, creations, terminations or rights of termination shall not be    
deemed to be a breach of this Section 3.2 unless, individually or in the        
aggregate, they would have a Material Adverse Effect on the Division or         
(subsequent to the Closing) on the Buyer.                                       

3.3 Consents and Approvals.                                                 

Except at set forth on Schedule 3.3, no other action or consent, whether    
corporate or otherwise, including action or consent by any Authority, is        
necessary in connection with the execution, delivery, validity or               
enforceability of this Agreement or the Transaction Documents with respect to   
the Seller or the consummation by it of the transactions contemplated hereby    
and thereby.                                                                    

3.4 Financial Statements.                                                   

To the knowledge of the Seller, the representations contained in paragraph  
numbers 1 through 14 of that certain Management Representation Letter, dated    
July 28, 1997, to KPMG from the Seller (executed by Messrs. Osth and Schmitt    
and Mrs. Waldo) are true and correct.                                           

3.5 FDA and Related Regulatory Matters.                                     

 (A)Except as otherwise disclosed in Schedule 3.5(A), all current products
of the Business which shall constitute Manufactured Products, Supplied      
Products, Antibodies, Reagents and Reagent Kits under the Hardware and      
Disposables Manufacturing Agreement, the Hardware and Disposables Supply    
Agreement, and/or the Antibody Manufacturing and Storage Agreement, and all 
components thereof (all such products and components being collectively     
referred to as the "Current Baxter Products") and which are manufactured by 
the Seller or any Affiliate of the Seller, are in compliance, in all        
material respects, with all applicable requirements of the FDA and any      
analogous Authority in any country or other jurisdiction in which such      
Current Baxter Products are manufactured, processed, packaged, labeled,     
held or sold.                                                               

(B)Except as otherwise disclosed in Schedule 3.5(B), to the Seller's    
knowledge, all Current Baxter Products which are manufactured, processed,   
packaged, labeled or held by Persons other than the Seller or               

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any Affiliate of the Seller are in compliance, in all material respects,    
with all applicable requirements of the FDA and any analogous Authority in  
any country or other jurisdiction in which such Current Baxter Products are 
manufactured, processed, packaged, labeled, held or sold.                   

(C)Except as otherwise disclosed in Schedule 3.5(C), all facilities,    
owned or operated by Seller or any Affiliate of Seller, at which any        
Current Baxter Products are manufactured, processed, packaged, labeled or   
held are in compliance, in all material respects, with all applicable       
requirements of the FDA and any analogous Authority in any country or other 
jurisdiction in which such Current Baxter Products are manufactured,        
processed, packaged, labeled, held or sold.                                 

(D)Except as otherwise disclosed in Schedule 3.5(D), to the Seller's    
knowledge, all facilities, owned or operated by Persons other than Seller   
or any Affiliate of Seller, in which any Current Baxter Products are        
manufactured, processed, packaged, labeled, held or sold are in compliance, 
in all material respects, with all applicable requirements of the FDA and   
any analogous Authority in any country or other jurisdiction in which such  
Current Baxter Products are manufactured, processed, packaged, labeled,     
held or sold.                                                               

(E)The Seller and each relevant Affiliate of Seller has obtained all    
required marketing and clinical authorizations, clearances or approvals in  
each foreign country in which it distributes any Current Baxter Products    
(including all approvals necessary for the Seller or such Affiliate to be   
paid or reimbursed therefor). Schedule 3.5(E) sets forth a true and correct 
list of such foreign marketing and clinical authorizations, clearances and  
approvals.                                                                  

(F)Schedule 3.5(F) sets forth a true and correct list of all PMA's,     
510(k)'s, IDE's, IND's, MAF's, DMF's, ELA's, PLA's and other FDA related    
submissions ("FDA Submissions") which (i) relate to Current Baxter Products 
and (ii) are either (a) submitted and pending, or (b) cleared and/or        
approved.                                                                   

(G)Except as set forth in Schedule 3.5(G), non-clinical data supporting 
the quality and integrity of the safety data in all FDA Submissions listed  
on Schedule 3.5(F) were generated in compliance, in all material respects,  
with all applicable requirements under Federal, state, local or foreign     
law.                                                                        

(H)Except as set forth in Schedule 3.5(H), the Seller and each Affiliate
of the Seller is in compliance, in all material respects, with all MDR      
requirements as set forth in 21 C.F.R. Parts 803 and 804, as well as with   
all analogous state, local and foreign laws, in connection with each        
facility referred to in Section 3.5(C); provided, however, that this        
representation shall apply only to the extent that such MDR (or analogous)  
requirements relate to Current Baxter Products.                             

 (I)Except as set forth in Schedule 3.5(I), to the Seller's knowledge, the
relevant responsible party is in compliance, in all material respects, with 
all MDR requirements as set forth in 21 C.F.R. Parts 803 and 804, as well   
as with all analogous state, local and foreign laws, in connection with     
each facility referred to in Section 3.5(D); provided, however, that this   
representation shall apply only to the extent that such MDR (or analogous)  
requirements relate to Current Baxter Products.                             

(J)Except as set forth in Schedule 3.5(J), in regard to the Current     
Baxter Products, the Seller and each Affiliate has complied in all material 
respects with the applicable import and export provisions of federal, state 
and local law as well as the applicable import and export laws of relevant  
foreign countries. When exporting Current Baxter Products pursuant to 21    
U.S.C. (S)382(b), the Seller and each relevant Affiliate has provided the   
FDA with written notice as required by 21 U.S.C. (S)382(g). When required   
for purposes of import of Current Baxter Products into foreign countries,   
the Seller and/or any relevant Affiliate has obtained all required FDA      
certifications for provision to the relevant foreign Authorities.           

(K)All FDA Submissions listed on Schedule 3.5(F) were prepared in       
compliance, in all material respects, with applicable FDA laws and relevant 
agency guidance documents and contain all necessary data and information    
required to be contained therein under applicable law and policy.           

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(L)In connection with the Current Baxter Products and the facilities    
referred to in Section 3.5(C) (including the operations conducted therein)  
neither Seller, nor any Affiliate of Seller nor any Representative of any   
of the foregoing, has made an untrue statement of a material fact or a      
fraudulent statement to the FDA or any other Authority, failed to disclose  
a material fact required to be disclosed to the FDA or any such other       
Authority, or committed any act that would reasonably be expected to        
provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue  
Statements of Material Facts, Bribery, and Illegal Gratuities," as set      
forth in 56 Fed. Reg. 46191 (September 10, 1991) or for any such other      
Authority to invoke any analogous policy.                                   

 (M)None of the clinical data which was used in connection with any of the
FDA Submissions listed on Schedule 3.5(F), or any required marketing or     
clinical authorizations, clearances and approvals described in Section      
3.5(E) above, was collected or obtained from a clinical investigator who    
was at the time disqualified by the FDA or any other Authority.             

3.6 Taxes.                                                                  

Except as set forth in Schedule 3.6:                                    

(A)As a division of the Seller, the Division does not file Tax Returns; 

(B)The Seller has, in respect of the Division and the Assets, withheld  
proper and accurate amounts (including from persons now or previously       
employed by the Division for income Taxes and Social Security and other     
payroll Taxes) for all periods in compliance with all relevant Tax laws and 
other withholding provisions of all applicable laws; and either paid such   
amounts to the relevant Tax Authorities or set them aside in accounts for   
such purpose; provided, however, that no failure to so withhold, pay or set 
aside such Taxes shall constitute a breach of this Section 3.6(B) unless    
such failure would have a Material Adverse Effect on the Division;          

(C)the Seller has, since its incorporation, been a "C" corporation, as  
defined in Section 1361(a) of the Code; and                                 

(D)no transaction contemplated by this Agreement is subject to          
withholding under Section 1445 of the Code.                                 

3.7 Title; Tangible Personal Property and Real Property.                    

(A)The net book value of the furniture, fixtures and equipment included 
in the Assets shall, as of the Closing Date, be not less than $7.2 million. 
Except as set forth in Schedule 3.7(A), each material item of tangible      
personal property included in the Assets, as well as each material item of  
personal property covered by a lease included in the Included Agreements,   
is in reasonable working order. Each such item of owned or leased property  
is located in the Parker Facility.                                          

 (B)The Seller leases the Parker Facility pursuant to a lease disclosed on
Schedule 3.0(A) (such facility, together with the land upon which it is     
situated, shall collectively be referred to herein as the "Real             
Property.").                                                                

 (C)With respect only to the Real Property, to the knowledge of the Seller
(except for the representation relating to receipt of written notice in the 
second clause of subsection (iii), which is not qualified by knowledge):    

(i)the use being made thereof by the Seller is in conformity with   
valid and subsisting certificates of occupancy issued therefor;         

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(ii)neither the whole nor any portion of the Real Property is in the
process of being condemned, requisitioned or otherwise taken by any     
Authority, and no such condemnation, requisition or taking is           
threatened;                                                             

(iii)the Real Property complies in all material respects with all   
building, fire, zoning and other ordinances and regulations of all      
Authorities applicable thereto; and the Seller has not received any     
written notice (and is unaware of having received any verbal notice) of 
any alleged violation of any of the foregoing;                          

(iv)the use, occupancy and operation of the Real Property as        
currently used, occupied and operated by the Seller in connection with  
the Business of the Division does not constitute a materially           
nonconforming use under any applicable law, regulation or ordinance;    

(v)the Seller has a valid leasehold interest in the Parker Facility 
lease free and clear of Encumbrances, other than Permitted              
Encumbrances; and                                                       

(vi)the Parker Facility, including the roof and structural elements 
thereof and the systems and facilities included therein, are in         
reasonable operating condition and repair.                              

(D)The Seller is the sole and exclusive owner of and has good and valid 
title to all of the Assets free and clear of all Encumbrances, except for   
Permitted Encumbrances and except as set forth in Schedule 3.7(D) hereto.   

(E)The Assets, together with the performance by the Seller of its       
obligations under the Transaction Documents, are sufficient to enable the   
Buyer (i) to conduct the Business, in all material respects, as it was      
conducted by the Division prior to the Closing (the parties recognizing     
that changes in the conduct of the Business may result from differences in  
personnel arising from, for example, the fact that certain employees of the 
Seller may not become employees of the Buyer), subject to the Seller's      
rights and obligations under the Chiron Collaboration Agreement, and (ii)   
to achieve the levels of financial performance contemplated by the Plan A   
Projections; provided, however, that nothing herein shall be construed to   
constitute a guarantee of performance by the Seller of the financial        
performance by the Buyer of the Plan A Projections. There are no rights or  
assets retained by the Seller and/or its Affiliates that would prevent the  
Buyer from conducting the Business, in all material respects, as it was     
conducted prior to the Closing, subject to (i) any rights retained with     
respect to the Seller's performance of its obligations under the Chiron     
Collaboration Agreement, (ii) rights relating to the products or components 
to be manufactured or supplied by the Seller under the Hardware and         
Disposables Supply Agreement and (iii) the rights under the Primary         
Licenses.                                                                   

3.8 Intellectual Property.                                                  

(A)Schedule 3.8(A) contains a list and description of all Patents and   
Trademarks currently owned by or licensed to the Seller in connection with  
the Division (separately identifying those which are owned and those which  
are licensed and, if not owned by the Seller, identifying the owner         
thereof, if any).                                                           

(B)Schedule 3.8(B) contains a list and description of all material      
Copyrights (registered or unregistered) licensed to the Seller in           
connection with the Division (identifying the owner thereof and the related 
work).                                                                      

(C)Schedule 3.8(C) contains a list of (i) all applications for          
registration of any Intellectual Property (other than Patents) owned by or  
licensed to the Seller in connection with the Division (other than          
applications relating to Supplied Products or products acquired by the      
Buyer from third parties) as well as a list of all existing registrations   
of any such Intellectual Property (in either case, identifying the          
Intellectual Property, the application or registration number and the       
jurisdiction thereof) and (ii) pending applications for any Patents         
relating to Intellectual Property used in connection with the Division      
(other than applications                                                    

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relating to Supplied Products or products acquired by the Buyer from third  
parties) where the Seller is listed as the owner or is the licensee of any  
of the underlying technology (identifying the subject matter of the         
application, the relevant application number, the jurisdiction thereof and  
the owner thereof). True and correct copies of all such applications and    
registrations have been provided to the Buyer.                              

(D)Except as set forth on Schedule 3.8(D), such Schedule contains a list
of all material documents relating to product clearances for Patent         
infringement performed by or on behalf of the Seller with respect to (i)    
all Isolex(R) and Maxsep(R) Products and (ii) all other Manufactured        
Products. The Seller has delivered to the Buyer true and correct copies of  
all such documents.                                                         

(E)Schedule 3.8(E) contains a list and description (showing in each case
the parties thereto and, in the event the same has not been reduced to      
writing, the material terms thereof) of all material agreements and         
licenses to which the Seller is a party or by which it is bound which       
entitle the Seller or a third party to use, or restrict the Seller's or a   
third-party's use of, (i) any Copyrights, Patents, Trademarks or            
Information owned by, licensed to, or used by, the Seller in connection     
with the Division or (ii) any Customized Software.                          

(F)Schedule 3.8(F) contains a list and description, showing in each case
the owner or licensor, of all Customized Software.                          

(G)Except as disclosed in Schedule 3.8(G): (i) to the knowledge of the  
Seller, all Patents, and all Copyright and Trademark registrations, owned   
by the Seller in connection with Manufactured Products are valid and in     
full force and effect, and (ii) the Seller has not received written notice  
(and is unaware of having received any verbal notice) of any outstanding    
challenges, by any third party, either to any such Patents or registrations 
or to any of the applications described in Section 3.8(C).                  

(H)Except as disclosed in Schedule 3.8(H), the Seller is not aware that 
there now exists any use, by a third party, of any Intellectual Property    
which violates any material Intellectual Property Right of the Seller (in   
connection with Manufactured Products).                                     

 (I)Except as set forth in Schedule 3.8(I), (i) to the Seller's knowledge,
no infringement of any material Intellectual Property Right of any other    
person or entity has occurred or results in any way from the current        
operations of the Division or the Business, and (ii) no claim of any        
infringement by the Seller (in connection with the Division or the          
Business) of any material Intellectual Property Right of any other person   
or entity has been made, asserted or threatened in writing (and the Seller  
is unaware of any verbal such claims) against and to the Seller.            

(J)Except as set forth on Schedule 3.8(J), there is no existing material
breach, by the Seller, of any material agreement by which the Seller has    
granted or received a license or sublicense of an Intellectual Property     
Right, including, but not limited to, the Primary Licenses ("Material       
Intellectual Property Agreements") by the Seller. To the Seller's           
knowledge, and subject to the foregoing, each of the Material Intellectual  
Property Agreements is valid, enforceable and in full force and effect,     
except to the extent the enforceability thereof may be affected by          
applicable bankruptcy, reorganization, insolvency, moratorium or other      
similar laws or general principles of equity. To the Sellers' knowledge,    
except as set forth in Schedule 3.8(J), no material default, by any party   
other than the Seller, exists under any of the Material Intellectual        
Property Agreements and no event has occurred which, with the lapse of time 
or the giving of notice or both is reasonably likely to constitute a        
material breach of any such agreement by the Seller or give rise to a right 
on the part of any of the other parties thereto to terminate such agreement 
or to deprive the Seller of any material right, or accelerate any of its    
material obligations, thereunder.                                           

(K)Except as disclosed in Schedule 3.8(K): (i) the Owned Software is not
subject to any transfer, assignment, site, equipment, or other operational  
limitations; (ii) the Owned Software is eligible for protection and         
registration under applicable copyright law and, to the knowledge of the    
Seller, has not been                                                        

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forfeited to the public domain; (iii) the Seller has copies of all releases 
or separate versions of the Owned Software so that the same may be subject  
to registration in the United States Copyright Office; (iv) the Seller has  
all right, title and interest in and to the Owned Software; (v) the Seller  
has developed the Owned Software through its own efforts and for its own    
account without the aid or use of any consultants, agents, independent      
contractors or persons or entities other than persons who are (or were at   
the time) employees of the Seller; and (vi) any Owned Software includes the 
source code, object code and system documentation, used for the             
development, maintenance, implementation and use thereof.                   

(L)Except as disclosed in Schedule 3.8(L), all employees, agents,       
consultants or contractors who have contributed to or participated in the   
creation or development of any copyrightable, patentable or trade secret    
material on behalf of the Seller or any predecessor in interest thereto     
either: (x) is a party to a valid written agreement under which the Seller  
is deemed to be the original owner/author of all property rights therein;   
or (y) has executed, or is obligated pursuant to an existing agreement to   
execute, a valid agreement assigning to the Seller (or such predecessor in  
interest, as applicable) all right, title and interest in such material;    
provided, however, that this Section 3.8(L) shall not apply to any          
copyrightable, patentable or trade secret material which, whether           
considered individually or in the aggregate, is not material to the         
operation of the Business.                                                  

(M)Subject to Section 1.2(G) hereof, with respect to all representations
in this Section 3.8 which are made to the Seller's "knowledge" or which     
involve the Seller's "awareness" of any facts or circumstances, the Seller  
represents and warrants that it has performed a reasonable due diligence    
review with respect to the subject matter thereof.                          

3.9 Environmental Matters.                                                  

(A)Schedule 3.9 lists all written notices (and all verbal notices of    
which the Seller is aware) received by the Seller of violations of          
Environmental Laws or environmental claims from environmental Authorities   
since January 1, 1992 (in each case, only to the extent that they relate(d) 
to the Parker Facility). The Seller has delivered to the Buyer true and     
correct copies of all such notices, claims and reports, as well as all      
reports of the Seller filed with such Authorities since such date which     
relate to the Division.                                                     

(B)Except as set forth in Schedule 3.9, with respect only to the Parker 
Facility, to the knowledge of the Seller, (i) there has been no release or  
discharge by the Seller (or any other Person) of any Contaminant in or on   
the Parker Facility (or the land upon which it is situated) and (ii) there  
otherwise exist no Contaminants on or in any such real property, in any     
material quantity, which, in either case, would (a) constitute or have      
constituted a material violation of any Environmental Law, or (b) give rise 
to an obligation on the part of the Seller, its assigns or successors in    
interest to effect any environmental cleanup or remediation.                

3.10 Contracts and Commitments.                                             

(A)Except as set forth on Schedule 3.10(A), the Seller is not, solely in
connection with the Division, a party to any written or oral:               

(i)cooperative research and development agreement, supply agreement,
research agreement, research funding agreement, clinical trial          
agreement, cell processing laboratory agreement, investigator           
agreement, development agreement, consulting agreement, incoming        
material transfer agreement, or outgoing material transfer agreement;   

(ii)lease of real property, or commitment, contract or agreement for
the purchase or sale of real property;                                  

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(iii)royalty, distribution, agency or license agreement (license    
agreements shall include, but not be limited to, any agreement pursuant 
to which the Seller or any third party is licensed, or otherwise        
afforded the right, to use, sell, reproduce or exploit any Intellectual 
Property);                                                              

(iv)agreement of employment with any officer, employee, director,   
professional person, or independent contractor (including consultants)  
which is not terminable, at the discretion of the Seller, without       
payment or other penalty, on 30 (or fewer) days' notice from the        
Seller;                                                                 

(v)agreement (including a collective bargaining agreement) with any 
labor union or other representative of employees;                       

(vi)agreement guaranteeing the payment or performance of the        
obligations of others;                                                  

(vii)lease of any personal property under which aggregate payments  
exceed $15,000 per year;                                                

(viii) agreement not made in the ordinary course of business        
involving a sum in excess of $15,000;                                   

(ix)agreement (except leases of personal property) for the purchase 
or sale of products or other personal property, or the provision or     
purchase of services, involving a sum in excess of $15,000;             

(x)partnership or joint venture agreement;                          

(xi)security, pledge or escrow agreement or any other agreement     
creating or providing for the creation of any Encumbrance;              

(xii) agreement restricting in any way the ability of the Seller to 
engage in any enterprise;                                               

(xiii) agreement (other than agreements of employment with an       
officer, employee, director, professional person or independent         
contractor) restricting in any way the ability of a third party to      
engage in any enterprise;                                               

 (xiv) agreement obligating the Seller to pay any commission, finder's
fee or other such contingent remuneration;                              

(xv)agreement under which the Seller is obligated to provide or     
expend services, property or cash with a fair market value in excess of 
$15,000; or                                                             

(xvi) agreement, not otherwise required to be disclosed on Schedule 
3.10(A) pursuant to the above provisions of this Section 3.10(A), which 
constitutes an Included Agreement.                                      

(B)True and correct copies of those agreements which are required to be 
disclosed on Schedule 3.10(A) and which have been reduced to writing have   
been delivered to the Buyer, and Schedule 3.10(B) contains a true and       
correct description of all material terms of those of such agreements which 
have not been reduced to writing.                                           

 (C)Except as set forth on Schedule 3.10(C), there is no existing material
breach of any Included Agreement, or any Primary License, by the Seller. To 
the Seller's knowledge, and subject to the foregoing, each of the Included  
Agreements, and each Primary License, is valid, enforceable and in full     
force and effect, except to the extent the enforceability thereof may be    
affected by applicable bankruptcy, reorganization, insolvency, moratorium   
or other similar laws or general principles of equity, and no event has     
occurred which, with the lapse of time or the giving of notice or both is   
reasonably likely to constitute a material breach of any such agreement by  
the Seller or give rise to a right on the part of any of the other parties  
thereto to terminate such agreement or to deprive the Seller of any         
material right, or accelerate any of its material obligations, thereunder.  

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(D)Except as set forth on Schedule 3.10(D), to the knowledge of the     
Seller, there is no existing material breach of any Included Agreement, or  
any Primary License, by any party (other than the Seller) thereto, and no   
event has occurred which, with the lapse of time or the giving of notice or 
both, is reasonably likely to constitute a material breach thereof by such  
other party or give rise to a right on the part of the Seller to terminate  
such agreement or to deprive the other party of any right, or accelerate    
any obligation of such party, thereunder.                                   

(E)Except as set forth on Schedule 3.10(E), to the knowledge of the     
Seller, there are no circumstances which, if true, create a reasonable      
probability that the Seller will not, or will be unable to, fulfill any of  
its material obligations, under any material Included Agreement or any      
Primary License.                                                            

(F)The Seller (or the relevant Affiliate, in the case of insurance held 
by an Affiliate) has not, during the current term of any insurance policy   
which provides coverage with respect to persons, properties or operations   
of the Division, received any notice canceling or threatening to cancel or  
refusing to renew, based (to the knowledge of the Seller) on reasons        
relating directly to the Business or the Division, any such policy, and no  
policy insuring any such persons, properties or operations has, based (to   
the knowledge of the Seller) on reasons relating directly to the Business   
or the Division, been canceled by the insurer within the last twelve        
months.                                                                     

3.11 Labor Relations.                                                       

The Seller employs 88 employees in the Division in the United States,   
none of whom is subject to union or collective bargaining agreements by     
which the Seller is bound or subject. The name of each such employee is     
listed on Schedule 3.11. The Seller has not at any time during the last     
five years, had, nor is there now to the knowledge of the Seller            
threatened, a strike, picket, work stoppage, work slowdown, union           
organizing activity or other labor trouble that has had or would be         
reasonably likely to have a Material Adverse Effect on the Division. The    
Seller is not aware of any pending or threatened union activity, strike,    
picketing, work stoppage, work slowdown or other labor trouble with respect 
to the employees of any of the providers of goods and services listed on    
Schedule 3.15 which would be reasonably likely to have a Material Adverse   
Effect on the Division.                                                     

3.12 Legal Proceedings.                                                     

(A)Except as set forth on Schedule 3.12(A) attached hereto, there are no
Actions pending, or to the knowledge of the Seller, threatened against or   
affecting the Seller, which relate to the Division or to any Assets used in 
connection with the Division; and the Seller is not in default with respect 
to any Order which has been issued against the Seller in connection with    
the operations of the Division. Except as set forth on Schedule 3.12(A),    
there are no Orders issued against the Seller which relate to the           
operations of the Division. True and correct copies of the pleadings (or,   
if there are no pleadings, then all material documents (including           
correspondence) setting forth the nature of the Action) relating to all     
Actions required to be disclosed on Schedule 3.12(A) (other than workers    
compensation claims and the CellPro and Saxholm Litigations) have been      
delivered to the Buyer.                                                     

 (B)Except as set forth on Schedule 3.12(B), there are no Actions in which
the Seller, in connection with the operations of the Division, is either a  
plaintiff or, if not a formal proceeding, an aggrieved party or claimant.   
True and correct copies of the pleadings (or, if there are no pleadings,    
then all material documents (including correspondence) setting forth the    
nature of the Action) relating to all such Actions have been delivered to   
the Buyer.                                                                  

3.13 Compliance with Law.                                                   

(A)Except as set forth in Schedule 3.13(A), in connection with the      
operations of the Division, (i) the Seller has complied in all material     
respects with, and (ii) the Seller, and all of its properties, are in       

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compliance in all material respects with, all material laws, orders, rules, 
and regulations of each Authority having jurisdiction over the Division or  
its operations or properties.                                               

(B)Schedule 3.13(B) attached hereto sets forth a true and complete list 
and description of every License required of the Seller for the operations  
of the Division conducted at the Parker Facility.                           

 (C)Schedule 3.13(C) sets forth a true and correct list, with respect only
to the Parker Facility, for the period since January 1, 1992, of (i) all    
investigations and inspections, performed by the Seller or by any third     
party (including any Authority and any third party commissioned by or on    
behalf of the Seller), designed to evaluate the conformity of any physical  
plant occupied by the Seller in connection with the operations of the       
Parker Facility or any personal property contained, or any process or       
activities taking place, therein with any Federal, state or local law,      
regulation or ordinance relating to the environment or human health or      
safety (including OSHA), (ii) any written reports created, commissioned or  
received by or on behalf of the Seller arising out of any such              
investigation or inspection ("Health and Safety Reports"), and (iii) any    
notices received by the Seller (but only in relation to property, plant or  
equipment occupied or used by, or activities engaged in, by the Seller at   
the Parker Facility) relating to alleged violations of any such laws,       
regulations or ordinances (other than Environmental Laws) ("Violation       
Notices"). The Seller has delivered to the Buyer true and correct copies of 
all such Health and Safety Reports and Violation Notices.                   

3.14 Absence of Certain Changes since Balance Sheet Date.                   

Except as set forth on Schedule 3.14 hereto, since June 30, 1997, the   
Seller has not suffered, done or agreed to do (orally or in writing) any of 
the following in respect of or relating to the Division or the Business:    

(A)mortgage, pledge or subject any of the Assets to any Encumbrance,    
other than Permitted Encumbrances;                                          

 (B)sell, transfer or otherwise dispose of any assets or property included
in the Assets, except in connection with (i) the sale of inventory in the   
ordinary course of business or (ii) the sale or other disposal of assets no 
longer needed for the operation of the Division in the ordinary course of   
business;                                                                   

(C)waive, release or compromise any material claims or rights of the    
Seller relating to the operation of the Division (other than claims or      
rights relating to the CellPro and Saxholm Litigations);                    

(D)except in the ordinary course of business, increase the compensation 
(including severance and termination pay) payable to any employees of the   
Division; or enter into any agreement with any employee of the Division     
providing for a salary in excess of $50,000 per year;                       

(E)enter into any material transaction or agreement other than in the   
ordinary course of business;                                                

 (F)enter into or amend any contract or other agreement, which constitutes
or shall constitute part of the Included Agreements, pursuant to which it   
agrees to indemnify any party or to refrain from competing with any party;  

(G)suffer or incur any damage, construction delay or halt, breach of    
contract, destruction or loss materially adversely affecting the assets,    
properties, business, operations or financial condition of the Division;    

(H)(i) materially change any of its business policies or practices      
relating solely to the Division, including, without limitation, those       
relating to advertising, marketing, pricing, purchasing, personnel, budget, 
job acquisition or bidding, the collection of accounts receivable or the    
payment of accounts payable, or (ii) make any material change in the types, 
nature, composition or quality of the products of the Division.             

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(I)(i) terminate or fail to renew or (ii) receive any statement         
indicating that the other party was considering, was desirous of or         
threatened to, terminate or fail to renew, any Included Agreement that is   
or was material to the assets, properties, business operations or financial 
condition of the Division; or                                               

(J)suffer or have any adverse change in the business, results of        
operations, assets or financial condition of the Division, other than those 
changes that are in the ordinary course of business, none of which          
(individually or in the aggregate) would have, or constitute, a Material    
Adverse Effect on the Division.                                             

3.15 Suppliers.                                                             

Schedule 3.15 attached hereto sets forth, as to the Division, the ten   
largest suppliers (including other divisions of the Seller) of goods and/or 
services to it, in each case with respect to each of the fiscal year ended  
December 31, 1996 and the six months ended June 30, 1997. Except as set     
forth on Schedule 3.15, no such supplier (excluding for these purposes      
other divisions of the Seller) listed on Schedule 3.15 (i) has canceled or  
otherwise terminated or provided written (or, to the knowledge of the       
Seller, verbal) notice to the Seller indicating that it was considering,    
was desirous of or was threatening to cancel or otherwise terminate, or to  
decrease or limit, its relationship with, the Division, (ii) has, during    
the last 12 months, decreased materially the sale of its services, supplies 
or materials to the Division or, (iii) has provided written (or, to the     
knowledge of the Seller, verbal) notice to the Seller that (a) he or it     
will not, or is likely to not, do business with the Buyer, subsequent to    
the Closing Date, on substantially the same terms as he or it has           
traditionally done business with the Division or (b) he or it is            
considering altering, in any material respect, or has decided to alter, in  
any material respect, the terms under which he or it has traditionally done 
business with the Division.                                                 

3.16 Compensation.                                                          

 Section 2 of the Execution Schedule sets forth a true and correct list of
the (a) names, (b) positions and (c) compensation arrangements (including   
annualized salary, bonus and commission arrangements), monetary or          
otherwise, of all current employees of the Division who, during the year    
ended December 31, 1996 or during the period from January 1, 1997 through   
June 30, 1997, earned annual (or, in the case of the June 30 period,        
annualized) compensation of at least $50,000. Except as set forth on        
Schedule 3.16, no such employee has provided written (or, to the Seller's   
knowledge, verbal) notice to the Seller with regard to either cancellation  
or other termination of his or her relationship with the Seller.            

3.17 Affiliated Transactions.                                               

 Schedule 3.17 sets forth a list of all Affiliated Transactions between or
among the Seller and any one or more of its Affiliates since January 1,     
1996.                                                                       

3.18 Books and Records.                                                     

The books and records of the Seller included in the Assets accurately   
reflect all material Assets, and all material liabilities and transactions  
of the Seller relating to the Division.                                     

3.19 Brokers.                                                               

Other than The Craves Group and Lehman Brothers, no broker, finder or   
other such Person or entity is entitled to receive a finder's or broker's   
fee or commission with respect to the transactions contemplated hereby      
based on arrangements made by or on behalf of the Seller.                   

3.20 Benefits Received.                                                     

The Seller has not:                                                     

(A)received any payment or other consideration for any products or      
services that the Buyer will be obligated hereunder to deliver; or          

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 (B)received any payment or other benefit for or with respect to any other
obligation that the Buyer will be obligated hereunder to perform.           

3.21 Inventory.                                                             

(A)All finished goods inventory relating to the Division is owned either
by the Seller or by one of the following entities: Allegiance Healthcare,   
Inc., a Delaware corporation, Baxter Export corporation, a Nevada           
corporation, Baxter, S.A., a Belgian corporation, BDG, Baxter Medical AB, a 
Swedish corporation, Baxter Healthcare, S.A., a Panamanian corporation,     
Baxter A/S, a Danish corporation, Baxter A.G., a Swiss corporation, Baxter  
Oy, a Finnish corporation, Baxter GES, m.b.H., a German corporation, Baxter 
S.p.A., an Italian corporation, Baxter Travenol N.V., a Belgian             
corporation, Baxter Healthcare Ltd., a United Kingdom corporation, Baxter   
B.V., a Netherlands corporation, Baxter S.A., a French corporation, Baxter  
Limited, a Japanese corporation, Baxter Healthcare Pty, Ltd., an Australian 
corporation and Baxter Healthcare Ltd., a Taiwanese corporation (each of    
the foregoing entities being referred to as an "Inventory Entity").         

(B)The finished goods inventory included in the Assets ("Included       
Inventory") was acquired in the ordinary course of business, in customary   
quantities.                                                                 

(C)All items of Included Inventory have been manufactured in accordance 
with the specifications, procedures, product drawings/blueprints and        
regulatory requirements applicable thereto and are free from defects in     
workmanship.                                                                

(D)Attached hereto as Schedule 3.21(D) is a true and correct list       
showing, for each physical location where Included Inventory was held by    
the Seller or any Inventory Entity as of August 31, 1997, (i) the street    
address of such location and (ii) the aggregate book value of all Included  
Inventory held at such location as of such date.                            

3.22 Experience.                                                            

The Seller is experienced in evaluating companies such as the Buyer and 
VIMRx, is able to fend for itself in transactions such as the one           
contemplated by this Agreement, has such knowledge and experience in        
financial and business matters that it is capable of evaluating the merits  
and risks of its prospective investment in the Buyer and VIMRx, and has the 
ability to bear the economic risks of the investment.                       

3.23 Investment.                                                            

The Seller is acquiring the Acquired Securities and will acquire any    
Conversion Securities for investment for the Seller's own account and not   
with the view to, or for resale in connection with, and distribution        
thereof. The Seller understands that the Acquired Securities (and any       
Conversion Securities) have not been and will not be registered under the   
Securities Act by reason of a specific exemption from the registration      
provisions of the Securities Act which depends upon, among other things,    
the bona fide nature of the investment intent as expressed herein. The      
Seller further represents that it does not have any contract, undertaking,  
agreement or arrangement with any person to sell, transfer or grant         
participation to any third person with respect to any of the Acquired       
Securities (or any Conversion Securities). The Seller understands and       
acknowledges that the offering and issuance of the Acquired Securities      
pursuant to this Agreement, and any issuance of Conversion Securities will  
not be registered under the Securities Act on the ground that the sale      
provided for in this Agreement and the issuance of securities hereunder is  
exempt from the registration requirements of the Securities Act based on,   
among other things, the bona fide nature of the investment intent as        
expressed herein.                                                           

3.24 Rule 144.                                                              

The Seller acknowledges that the Acquired Securities (and any Conversion
Securities) must be held indefinitely unless subsequently registered under  
the Securities Act or an exemption from such registration                   

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is available. The Seller is aware of the provisions of Rule 144 promulgated 
under the Securities Act which permit limited resale of certain securities  
purchased in a private placement subject to the satisfaction of certain     
conditions. In connection therewith, the Seller acknowledges that the Buyer 
and VIMRx will make a notation on their stock books regarding the           
restrictions on transfers set forth in this Section 3.24 and will transfer  
securities on their books only to the extent not inconsistent therewith and 
with the Stockholders' Agreement. The Seller acknowledges that all shares   
representing Acquired Securities (and any Conversion Securities) will bear  
appropriate restrictive legends reflecting the transfer restrictions        
reflected in this Section 3.24 as well as in the Stockholders' Agreement.   

3.25 No Public Market.                                                      

The Seller understands that no public market now exists for the         
securities of the Buyer or for the VIMRx Preferred Stock; that it is not    
expected that a public market will ever exist for the VIMRx Preferred       
Stock, and that it is uncertain whether a public market will ever exist for 
the Buyer Common Stock.                                                     

3.26 Access to Data.                                                        

 For purposes of satisfying the applicable requirements for the exemptions
from registration relating to the issuance of the Acquired Securities, the  
Seller acknowledges that it has received and reviewed information about     
VIMRx and the Buyer and has had an opportunity to discuss VIMRx's and the   
Buyer's business, management and financial affairs with its management and  
to review their facilities.                                                 

3.27 Full Disclosure.                                                       

Without limiting any of the foregoing, no representation or warranty by 
the Seller herein and no other statement or certificate furnished by or on  
behalf of the Seller to the Buyer or its Representatives pursuant to this   
Agreement or in connection with the transactions contemplated hereby        
contains any untrue statement of a material fact or omits to state a        
material fact necessary in order to make the statements contained herein or 
therein not misleading. There is no fact known to the Seller that has not   
been disclosed in this Agreement which (i) has had, or would reasonably be  
expected to have, a Material Adverse Effect on the Division or the Business 
or (ii) which would reasonably be expected to materially and adversely      
affect the ability of the Seller to perform its obligations under this      
Agreement.                                                                  

3.28 Proxy-Related Information.                                             

None of the information provided in writing by the Seller or its        
Representatives to VIMRx for inclusion in the Proxy Statement, pursuant to  
Section 6.1(A)(x), shall contain any untrue statement of a material fact or 
omit to state a material fact necessary to make the statements contained in 
the Proxy Statement, in light of the circumstances under which they are     
made, not misleading.                                                       

4.Representations and Warranties of the Buyer.                                  

The Buyer represents and warrants to the Seller, as of the end of the       
Disclosure Period and as of the Closing Date, as follows:                       

4.1 Good Standing.                                                          

The Buyer is a corporation organized, validly existing and in good      
standing under the laws of the State of Delaware, with all necessary        
corporate power and authority to own, lease and operate its properties and  
to carry on its business as the same is now being conducted. True, accurate 
and complete copies of the Certificate of Incorporation and By-Laws of the  
Buyer have been provided to the Seller.                                     

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4.2 Authority.                                                              

The Buyer possesses full right, corporate power and legal authority to  
execute and deliver this Agreement and the Transaction Documents to which   
the Buyer is a party and to perform each of the agreements and make each of 
the representations and warranties on its part to be performed and made     
hereunder and thereunder. The execution and delivery of this Agreement and  
the Transaction Documents to which the Buyer is a party and the             
consummation by it of the transactions contemplated hereby and thereby have 
been duly and validly authorized by all necessary corporate action on the   
part of the Buyer. This Agreement has been duly and validly executed by the 
Buyer and constitutes, and the Transaction Documents (upon and subject to   
their execution and delivery by all parties thereto) shall constitute, the  
legal, valid and binding obligation of the Buyer enforceable against it in  
accordance with their terms subject to the qualification that the           
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent 
conveyance, reorganization, moratorium and similar laws, now or hereafter   
in effect, affecting creditors' rights and except that the availability of  
equitable remedies, including specific performance, is subject to the       
discretion of the court before which any proceeding for the enforcement     
thereof may be brought. Except as set forth on Schedule 4.2, the execution  
and delivery of this Agreement and the Transaction Documents to which the   
Buyer is a party and the performance by it of all of the transactions       
contemplated herein and therein do not and shall not (with or without the   
giving of notice or the passage of time or both) (A) violate or conflict    
with the Certificate of Incorporation or By-laws of the Buyer, or (B) (1)   
violate or conflict with any law, rule, ruling, determination, ordinance or 
regulation of any Authority or any condition or provision of, (2) result in 
the creation or imposition of any Encumbrance upon any of the property or   
assets of the Buyer pursuant to, (3) accelerate or create, or permit the    
acceleration or creation of, any liability or obligation of the Buyer       
under, or (4) cause a termination under or give rise to a right of          
termination under, the terms of any contract, mortgage, lien, lease,        
agreement, indenture, trust, instrument, order, judgment or decree to which 
the Buyer is a party or which is binding upon the Buyer; provided, however, 
that the existence of any such violations, conflicts, encumbrances,         
accelerations, creations, terminations or rights of termination shall not   
be deemed to be a breach of this Section 4.2 unless, individually or in the 
aggregate, they would have a Material Adverse Effect on the Buyer.          

4.3 Consents and Approvals.                                                 

Except at set forth on Schedule 4.3, no other action or consent, whether
corporate or otherwise, including action or consent by any Authority, is    
necessary in connection with the execution, delivery, validity or           
enforceability of this Agreement or the Transaction Documents with respect  
to the Buyer or the consummation by it of the transactions contemplated     
hereby and thereby.                                                         

4.4 Capitalization.                                                         

 The authorized capital stock of the Buyer consists, or will consist prior
to the Closing, of ten thousand (10,000) shares of Buyer Common Stock, of   
which no shares are issued and outstanding on the date of this Agreement.   
Upon issuance, all shares of Buyer Common Stock issued pursuant to this     
Agreement will be duly authorized, validly issued, fully paid and           
nonassessable. As of the Closing Date, (i) the Warrant shall be             
outstanding, which shall permit the Seller to purchase an aggregate of      
6.383 shares of Buyer Common Stock and (ii) the Buyer Convertible           
Debentures shall be outstanding, under the terms of which the Seller and    
VIMRx shall be permitted to convert such debt into shares of Buyer Common   
Stock. Except as set forth in this Agreement or as a result of the exercise 
of options to purchase shares reserved for issuance under the Buyer's       
employee stock option plan described in Section 7.2(D) hereof, there are no 
outstanding securities of the Buyer. As of the Closing Date, and excluding  
any shares of Buyer Common Stock reserved for issuance under the Buyer's    
employee stock option plan, or pursuant to the terms of the Warrant and the 
Buyer Convertible Debentures, VIMRx will own 80.5% and the Seller will own  
19.5% of the issued and outstanding shares of Buyer Common Stock. There are 
no outstanding obligations of the Buyer to repurchase, redeem or otherwise  
acquire any securities of the Buyer, other than the Buyer's obligation to   
convert the Buyer Convertible Debentures into shares of Buyer Common Stock. 

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4.5 Valid Issuance of Common Stock.                                         

The Shares of Buyer Common Stock that are being acquired by the Seller  
hereunder, when authorized, issued and delivered in accordance with the     
terms of this Agreement for the consideration expressed herein, will be     
duly and validly authorized and issued, fully paid, and nonassessable, and  
will be free of restrictions on transfer other than restrictions on         
transfer under this Agreement, the Stockholders' Agreement and the other    
Transaction Documents and under applicable state and Federal securities     
laws. The Buyer Common Stock issuable upon exercise of the Warrant has been 
duly authorized and validly reserved for issuance and, upon issuance upon   
such exercise in accordance with the terms of the Warrant, will be duly and 
validly authorized and issued, fully paid, and nonassessable and will be    
free of restrictions on transfer other than restrictions on transfer under  
this Agreement, the Stockholders' Agreement and the other Transaction       
Documents and under applicable state and Federal securities laws.           

4.6 Brokers.                                                                

Other than Lazard Freres & Co., L.L.C., no broker, finder or other such 
Person or entity is entitled to receive a finder's or broker's fee or       
commission with respect to, the transactions contemplated hereby based on   
arrangements made by or on behalf of the Buyer.                             

4.7 No Prior Activities.                                                    

Since the date of its incorporation, the Buyer has not engaged in any   
activities other than in connection with or as contemplated by this         
Agreement.                                                                  

4.8 Full Disclosure.                                                        

Without limiting any of the foregoing, no representation or warranty by 
the Buyer herein and no other statement or certificate furnished by or on   
behalf of the Buyer to the Seller or its Representatives pursuant to this   
Agreement or in connection with the transactions contemplated hereby        
contains any untrue statement of a material fact or omits to state a        
material fact necessary in order to make the statements contained herein or 
therein not misleading. There is no fact known to the Buyer that has not    
been disclosed in this Agreement which (i) has had, or would reasonably be  
expected to have, a Material Adverse Effect on the Buyer or (ii) which      
would reasonably be expected to materially and adversely affect the ability 
of the Buyer to perform its obligations under this Agreement.               

5.Representations and Warranties of VIMRx.                                      

VIMRx represents and warrants to the Seller, as of the end of the Disclosure
Period and as of the Closing Date, as follows:                                  

5.1 Good Standing.                                                          

(A)VIMRx is a corporation organized, validly existing and in good       
standing under the laws of the State of Delaware, with all necessary        
corporate power and authority to own, lease and operate its properties and  
to carry on its business as the same is now being conducted. True, accurate 
and complete copies of the Certificate of Incorporation and By-Laws of      
VIMRx have been provided to the Seller.                                     

(B)Innovir is a corporation organized, validly existing and in good     
standing under the laws of the State of Delaware, with all necessary        
corporate power and authority to own, lease and operate its properties and  
to carry on its business as the same is now being conducted. True, accurate 
and complete copies of the Certificate of Incorporation and By-Laws of      
Innovir have been provided to the Seller.                                   

(C)VIMRx Holdings is a corporation organized, validly existing and in   
good standing under the laws of the State of Delaware, with all necessary   
corporate power and authority to own, lease and operate its                 

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properties and to carry on its business as the same is now being conducted. 
True, accurate and complete copies of the Certificate of Incorporation and  
By-Laws of VIMRx Holdings have been provided to the Seller.                 

(D)Innovir UK is a private limited company organized, validly existing  
and in good standing under the laws of England, with all necessary          
corporate power and authority to own, lease and operate its properties and  
to carry on its business as the same is now being conducted. True, accurate 
and complete copies of the Memorandum and Articles of Association of        
Innovir UK have been provided to the Seller.                                

(E)VPI Germany is a Gesellschaft mit beschrankter Halftung organized,   
validly existing and in good standing under the laws of the Federal         
Republic of Germany, with all necessary corporate power and authority to    
own, lease and operate its properties and to carry on its business as the   
same is now being conducted. True, accurate and complete copies of the      
initial Gesellschaftsvertrag, of VPI Germany have been provided to the      
Seller.                                                                     

(F)VGI is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware, with all necessary corporate power 
and authority to own, lease and operate its properties and to carry on its  
business as the same is now being conducted. True, accurate and complete    
copies of the Certificate of Incorporation and By-Laws of VGI have been     
provided to the Seller.                                                     

(G)Ribonetics is a Gesellschaft mit beschrankter Halftung organized,    
validly existing and in good standing under the laws of the Federal         
Republic of Germany, with all necessary corporate power and authority to    
own, lease and operate its properties and to carry on its business as the   
same is now being conducted. True, accurate and complete copies of the      
initial Gesellschaftsvertrag of Ribonetics have been provided to the        
Seller.                                                                     

5.2 Authority.                                                              

VIMRx possesses full right, corporate power and legal authority to      
execute and deliver this Agreement and the Transaction Documents to which   
VIMRx is a party and to perform each of the agreements and make each of the 
representations and warranties on its part to be performed and made         
hereunder and thereunder. The execution and delivery of this Agreement and  
the Transaction Documents to which VIMRx is a party and the consummation by 
it of the transactions contemplated hereby and thereby have been duly and   
validly authorized by the Board of Directors of VIMRx. Upon and subject to  
the approval and adoption of this Agreement and the transactions            
contemplated hereby by the requisite vote of VIMRx's stockholders in        
accordance with applicable Delaware General Corporation Laws, the execution 
and delivery of this Agreement and the Transaction Documents and the        
consummation by VIMRx of the transactions contemplated by this Agreement    
and the Transaction Documents (including the issuance of VIMRx Common Stock 
to the Seller as part of the consideration paid to the Seller pursuant to   
this Agreement) shall have been approved by all necessary corporate action  
on the part of VIMRx. This Agreement has been duly and validly executed by  
VIMRx and constitutes, and the Transaction Documents (upon and subject to   
their execution and delivery by all parties thereto) shall constitute, the  
legal, valid and binding obligation of VIMRx enforceable against it in      
accordance with their terms subject to the qualification that the           
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent 
conveyance, reorganization, moratorium and similar laws, now or hereafter   
in effect, affecting creditors' rights and except that the availability of  
equitable remedies, including specific performance, is subject to the       
discretion of the court before which any proceeding for the enforcement     
thereof may be brought. Except as set forth on Schedule 5.2, the execution  
and delivery of this Agreement and the Transaction Documents to which VIMRx 
is a party and the performance by it of all of the transactions             
contemplated herein and therein do not and shall not (with or without the   
giving of notice or the passage of time or both) (A) violate or conflict    
with the Certificate of Incorporation or By-laws of VIMRx or any Controlled 
Subsidiary, or (B) (1) violate or conflict with any law, rule, ruling,      
determination, ordinance or regulation of any Authority or any condition or 
provision of, (2) result in the creation or imposition of any Encumbrance   
upon any of the property or assets                                          

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of VIMRx or any Controlled Subsidiary pursuant to, (3) accelerate or        
create, or permit the acceleration or creation of, any liability or         
obligation of VIMRx or any Controlled Subsidiary under, or (4) cause a      
termination under or give rise to a right of termination under, the terms   
of any contract, mortgage, lien, lease, agreement, indenture, trust,        
instrument, order, judgment or decree to which VIMRx or any Controlled      
Subsidiary is a party or which is binding upon VIMRx or any Controlled      
Subsidiary; provided, however, that the existence of any such violations,   
conflicts, encumbrances, accelerations, creations, terminations or rights   
of termination shall not be deemed to be a breach of this Section 5.2       
unless, individually or in the aggregate, they would have a Material        
Adverse Effect on VIMRx.                                                    

5.3 Consents and Approvals.                                                 

Except at set forth on Schedule 5.3, no other action, consent, filing or
approval, whether corporate or otherwise, including action or consent by    
any Authority, is necessary in connection with the execution, delivery,     
validity or enforceability of this Agreement or the other Transaction       
Documents with respect to VIMRx or the consummation by it of the            
transactions contemplated hereby and thereby.                               

5.4 Capitalization.                                                         

(A)The authorized capital stock of VIMRx consists, or will consist on or
prior to the Closing, of:                                                   

(i)Common Stock. 120,000,000 shares of VIMRx Common Stock, of which 
55,358,676 shares are issued and outstanding on the date of this        
Agreement.                                                              

(ii)Preferred Stock. One Million (1,000,000) shares of blank check  
preferred stock, $.001 par value (none of which are issued or           
outstanding on the date hereof) of which 100,000 shares shall be VIMRx  
Preferred Stock.                                                        

All issued and outstanding shares of VIMRx Common Stock have been duly      
authorized and validly issued and are fully paid and nonassessable. As of   
the date hereof, options, calls and other rights to purchase an aggregate   
10,396,506 shares of VIMRx Common Stock are outstanding and the weighted    
average exercise price of such options, calls and commitments is $1.48 per  
share of VIMRx Common Stock. Except as set forth in this Agreement or in    
Schedule 5.4(A), and except as a result of the exercise of the options,     
calls and commitments outstanding on this date, there are no outstanding    
securities of VIMRx. There are no outstanding obligations of VIMRx or any   
of its subsidiaries to repurchase, redeem or otherwise acquire any          
securities of VIMRx, other than VIMRx's obligation to repurchase options    
under, and in accordance with the express terms of, the employment          
agreements set forth on Schedule 5.4(A) (accurate and complete copies of    
which have previously been delivered to the Seller).                        

(B)The authorized capital stock of Innovir consists of:                 

(i)Common Stock. 70,000,000 shares of Innovir Common Stock, of which
29,750,529 shares are issued and outstanding on the date of this        
Agreement.                                                              

 (ii)Preferred Stock. 15,000,000 shares of Innovir Preferred Stock, of
which 280,000 shares of Class B Preferred Shares are issued and         
outstanding on the date of this Agreement.                              

All issued and outstanding shares of Innovir Common Stock have been duly    
authorized and validly issued and are fully paid and nonassessable. As of   
the date hereof, options, calls and other rights to purchase an aggregate   
10,008,487 shares of Innovir Common Stock are outstanding and the weighted  
average exercise price of such options, calls and commitments is $3.87 per  
share of Innovir Common Stock. Except as set forth in this Agreement or in  
Schedule 5.4(B), and except as a result of the exercise of the options,     
calls and commitments outstanding on this date, there are no outstanding    
securities of Innovir. Except as set forth on Schedule 5.4(B), there are no 
outstanding obligations of Innovir to repurchase, redeem or otherwise       
acquire any securities of Innovir.                                          

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(C)The authorized capital stock of VIMRx Holdings consists of:          

(i)Common Stock. 120,000 shares of VIMRx Holdings Common Stock, of  
which 12,000 shares are issued and outstanding on the date of this      
Agreement.                                                              

All issued and outstanding shares of VIMRx Holdings Common Stock have   
been duly authorized and validly issued and are fully paid and              
nonassessable. As of the date hereof, there are no options, calls or other  
rights to purchase any shares of VIMRx Holdings Common Stock. Except as set 
forth in this Agreement or in Schedule 5.4(C), there are no outstanding     
securities of VIMRx Holdings. Except as set forth on Schedule 5.4(C), there 
are no outstanding obligations of VIMRx Holdings to repurchase, redeem or   
otherwise acquire any securities of VIMRx Holdings.                         

(D)The authorized capital stock of Innovir UK consists of:              

(i)Common Stock. 1,000 Ordinary Shares of which 1,000 shares are    
issued and outstanding on the date of this Agreement.                   

All issued and outstanding Innovir UK Ordinary Shares have been duly    
authorized and validly issued and are fully paid and nonassessable. Except  
as set forth in this Agreement or in Schedule 5.4(D), there are no          
outstanding securities of Innovir UK. Except as set forth on Schedule       
5.4(D), there are no outstanding obligations of Innovir UK to repurchase,   
redeem or otherwise acquire any securities of Innovir UK.                   

(E)Innovir Germany is authorized to issue an unlimited amount of share  
capital. The issued share capital of Innovir Germany is DM 50,000 all of    
which is issued to VIMRx Holdings. There are no other equity interests      
authorized, issued or outstanding in Innovir Germany.                       

(F)The authorized capital stock of VGI consists of:                     

(i)Common Stock. 5,000 shares of VGI Common Stock, of which 1,000   
shares are issued and outstanding on the date of this Agreement.        

All issued and outstanding shares of VGI Common Stock have been duly        
authorized and validly issued and are fully paid and nonassessable. Except  
as set forth in this Agreement or in Schedule 5.4(F), there are no          
outstanding securities of VGI. Except as set forth on Schedule 5.4(F),      
there are no outstanding obligations of VGI to repurchase, redeem or        
otherwise acquire any securities of VGI.                                    

(G)Ribonetics is authorized to issue an unlimited amount of share       
capital. The issued share capital of Ribonetics is DM 50,000 all of which   
is issued to VIMRx Holdings. There are no other equity interests            
authorized, issued or outstanding in Ribonetics.                            

5.5 Valid Issuance of Preferred and Common Stock.                           

 The shares of VIMRx Preferred Stock and VIMRx Common Stock that are being
acquired by the Seller hereunder, when authorized, issued and delivered in  
accordance with the terms of this Agreement for the consideration expressed 
herein, will be duly and validly authorized and issued, fully paid and      
nonassessable, and will be free of restrictions on transfer other than      
restrictions on transfer under this Agreement and the other Transaction     
Documents and under applicable state and federal securities laws. The VIMRx 
Common Stock issuable upon conversion of the VIMRx Preferred Stock acquired 
under this Agreement has been duly authorized and validly reserved for      
issuance and, upon issuance upon such conversion in accordance with the     
terms of the Certificate of Incorporation of VIMRx, will be duly and        
validly authorized and issued, fully paid, and nonassessable and will be    
free of restrictions on transfer other than restrictions on transfer under  
this Agreement and the other Transaction Documents and under applicable     
state and Federal securities laws.                                          

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5.6 Brokers.                                                                

Other than Lazard Freres & Co., L.L.C., no broker, finder or other such 
Person or entity is entitled to receive a finder's or broker's fee or       
commission with respect to, the transactions contemplated hereby based on   
arrangements made by or on behalf of VIMRx.                                 

5.7 Financial Statements.                                                   

(A)Except as set forth on Schedule 5.7(A), VIMRx and Innovir have filed 
all SEC Reports, if any, required to be filed by them with the SEC since    
January 1, 1995 and December 23, 1996, respectively, each of which has      
complied as to form in all material respects with applicable requirements   
of the Securities Act and the Exchange Act. As of their respective dates,   
none of such SEC Reports contained any untrue statement of a material fact  
or omitted to state a material fact required to be stated therein or        
necessary in order the make the statements therein, in light of the         
circumstances under which they were made, not misleading. The audited       
consolidated financial statements and unaudited consolidated interim        
financial statements of VIMRx included in its SEC Reports have been         
prepared in conformity with GAAP applied on a consistent basis (except as   
may be indicated in the notes thereto), and present fairly, in all material 
respects, the consolidated financial position of VIMRx as of the dates      
thereof and their consolidated results of operations and cash flows for the 
periods then ended (subject to normal year-end adjustments in the case of   
any unaudited interim financial statements).                                

(B)Except (i) as disclosed or recorded in the unaudited consolidated    
balance sheet of VIMRx at June 30, 1997 (including any notes or schedules   
thereto), (ii) as set forth on the Schedules to this Agreement and (iii)    
for liabilities incurred in the ordinary course of business, since June 30, 
1997, which would not have a Material Adverse Effect on VIMRx or any        
Controlled Subsidiary, VIMRx and the Controlled Subsidiaries have no        
material liabilities of any nature (whether arising out of contract, tort,  
statute or otherwise and whether direct or indirect, accrued, matured,      
asserted or unasserted, absolute contingent or otherwise).                  

5.8 Absence of Certain Changes.                                             

Since June 30, 1997, except as specifically disclosed in the SEC Reports
filed by VIMRx on or prior to the date of this Agreement or as set forth on 
Schedule 5.8, and except for this Agreement and the Transaction Documents,  
neither VIMRx nor Innovir has entered into any material transaction, or, in 
any material respect, conducted its business or operations other than in    
the ordinary course of business consistent with past practice. Since June   
30, 1997, neither VIMRx nor Innovir has suffered or had any adverse change  
in its business, results of operations, assets or financial condition,      
other than those changes that are in the ordinary course of business, none  
of which (individually or in the aggregate) would have, or constitute, a    
Material Adverse Effect on VIMRx or Innovir.                                

5.9 Legal Proceedings.                                                      

(A)Except as set forth on Schedule 5.9 attached hereto, there are no    
Actions pending, or to the knowledge of VIMRx, threatened against or        
affecting VIMRx or any Controlled Subsidiary; and neither VIMRx nor any     
Controlled Subsidiary is in default with respect to any Order which has     
been issued against it. Except as set forth on Schedule 5.9, there are no   
Orders issued against VIMRx or any Controlled Subsidiary. True and correct  
copies of the pleadings (or, if there are no pleadings, then all material   
documents (including correspondence) setting forth the nature of the        
Action) relating to all Actions required to be disclosed on Schedule 5.9    
(other than worker compensation claims) have been delivered to the Seller.  

(B)Except as set forth on Schedule 5.9, there are no Actions in which   
VIMRx or a Controlled Subsidiary is either a plaintiff or, if not a formal  
proceeding, an aggrieved party or claimant. True and correct copies of the  
pleadings (or, if there are no pleadings, then all material documents       
(including correspondence) setting forth the nature of the Action) relating 
to all such Actions have been delivered to the Seller.                      

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5.10 Compliance with Law.                                                   

Except as set forth on Schedule 5.10, VIMRx and each Controlled         
Subsidiary has complied in all material respects with, and each such entity 
and all of its properties are in compliance in all material respects with,  
all material laws, orders, rules, and regulations of each Authority having  
jurisdiction over such entity or its operations or properties.              

5.11 Contracts and Commitments.                                             

 (A)Except as set forth on Schedule 5.11(A), there is no existing material
breach of any contract or agreement to which VIMRx or any Controlled        
Subsidiary is a party by VIMRx or the relevant Controlled Subsidiary; to    
the knowledge of VIMRx, and subject to the foregoing, no event has occurred 
which, with the lapse of time or the giving of notice or both, is           
reasonably likely to constitute a material breach of any such agreement by  
VIMRx or the relevant Controlled Subsidiary or give rise to a right on the  
part of any of the other parties thereto to terminate such agreement or to  
deprive VIMRx or the relevant Controlled Subsidiary of any material right,  
or accelerate any of its material obligations, thereunder.                  

(B)Except as set forth on Schedule 5.11(B), to the knowledge of VIMRx,  
there is no existing material breach of any contract or agreement to which  
VIMRx or any Controlled Subsidiary is a party by any party (other than      
VIMRx and the relevant Controlled Subsidiary) thereto and no event has      
occurred which, with the lapse of time or the giving of notice or both, is  
reasonably likely to constitute a material breach thereof by such other     
party or give rise to a right on the part of VIMRx or the relevant          
Controlled Subsidiary to terminate such agreement or to deprive the other   
party of any right, or accelerate any obligation of such party, thereunder. 

(C)Except as set forth on Schedule 5.11(C), to the knowledge of VIMRx,  
there are no circumstances which, if true, create a reasonable probability  
that VIMRx or any Controlled Subsidiary will not, or will be unable to,     
fulfill any of its material obligations, under any material agreement to    
which it is a party.                                                        

 (D)VIMRx (or the relevant Controlled Subsidiary, in the case of insurance
held by a Controlled Subsidiary) has not, during the current term of any    
insurance policy which provides coverage with respect to persons,           
properties or operations of VIMRx or any Controlled Subsidiary, received    
any notice canceling or threatening to cancel or refusing to renew, based   
(to the knowledge of VIMRx) on reasons relating directly to the business if 
VIMRx or any Controlled Subsidiary, any such policy, and no policy insuring 
any such persons, properties or operations has, based (to the knowledge of  
VIMRx) on reasons relating directly to the business if VIMRx or any         
Controlled Subsidiary, been canceled by the insurer within the last twelve  
months.                                                                     

5.12 Intellectual Property.                                                 

(A)Schedule 5.12(A) contains a list and description of all Patents and  
Trademarks currently owned by or licensed to VIMRx or any Controlled        
Subsidiary (separately identifying those which are owned and those which    
are licensed and, if not owned by such entity, identifying the owner        
thereof, if any).                                                           

(B)Schedule 5.12(B) contains a list and description of all material     
Copyrights (registered or unregistered) licensed to VIMRx or any Controlled 
Subsidiary (identifying the owner thereof and the related work).            

(C)Schedule 5.12(C) contains a list of (i) all applications for         
registration of any Intellectual Property owned by or licensed to VIMRx or  
any Controlled Subsidiary as well as a list of all existing registrations   
of any such Intellectual Property (in either case, identifying the          
Intellectual Property, the application or registration number and the       
jurisdiction thereof) and (ii) pending applications for any Patents where   
VIMRx or any Controlled Subsidiary is listed as the owner or is the         
licensee of any of the underlying technology                                

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(identifying the subject matter of the application, the relevant            
application number, the jurisdiction thereof and the owner thereof). True   
and correct copies of all such applications and registrations have been     
provided to the Seller.                                                     

 (D)Schedule 5.12(D) contains a list of all material documents relating to
product clearances relating to Patent infringement performed by or on       
behalf of VIMRx or any Controlled Subsidiary. VIMRx has delivered to the    
Seller true and correct copies of all such documents, if any.               

 (E)Schedule 5.12(E) contains a list and description (showing in each case
the parties thereto and, in the event the same has not been reduced to      
writing, the material terms thereof) of all material agreements and         
licenses to which VIMRx or any Controlled Subsidiary is a party or by which 
it is bound which entitle VIMRx or any Controlled Subsidiary or a third     
party to use, or restrict VIMRx's or any Controlled Subsidiary's or a       
third-party's use of, (i) any Copyrights, Patents, Trademarks or            
Information owned by, licensed to, or used by, VIMRx or any Controlled      
Subsidiary.                                                                 

(F)Except as disclosed in Schedule 5.12(F): (i) to the knowledge of     
VIMRx, all Patents, and all Copyright and Trademark registrations, owned by 
VIMRx or any Controlled Subsidiary are valid and in full force and effect,  
and (ii) VIMRx has not received written notice (and is unaware of having    
received any verbal notice) of any outstanding challenges, by any third     
party, either to any such Patents or registrations or to any of the         
applications described in Section 5.12(C).                                  

 (G)Except as disclosed in Schedule 5.12(G), VIMRx is not aware that there
now exists any use, by a third party, of any Intellectual Property which    
violates any material Intellectual Property Right of VIMRx or any           
Controlled Subsidiary.                                                      

(H)Except as set forth in Schedule 5.12(H), (i) to VIMRx's knowledge, no
infringement of any material Intellectual Property Right of any other       
person or entity has occurred or results in any way from the current        
operations of VIMRx or any Controlled Subsidiary, and (ii) no claim of any  
infringement by VIMRx or any Controlled Subsidiary of any material          
Intellectual Property Right of any other person or entity has been made,    
asserted or threatened in writing (and VIMRx is unaware of any verbal such  
claims) against and to VIMRx.                                               

(I)With respect to all representations in this Section 5.12 which are   
made to VIMRx's "knowledge" or which involve VIMRx's "awareness" of any     
facts or circumstances, VIMRx represents and warrants that it has performed 
a reasonable due diligence review with respect to the subject matter        
thereof.                                                                    

5.13 Environmental Matters.                                                 

(A)Schedule 5.13(A) lists all written notices (and all verbal notices of
which VIMRx is aware) received by VIMRx or any Controlled Subsidiary of     
violations of Environmental Laws or environmental claims from environmental 
Authorities since January 1, 1992 (in each case, only to the extent that    
they relate(d) to a facility currently being occupied by VIMRx or such      
Controlled Subsidiary). VIMRx has delivered to the Seller true and correct  
copies of all such notices, claims and reports, as well as all reports of   
VIMRx or any Controlled Subsidiary filed with such Authorities since such   
date.                                                                       

(B)Except as set forth in Schedule 5.13(B), with respect only to any    
facility currently occupied by VIMRx or any Controlled Subsidiary, to the   
knowledge of VIMRx, (i) there has been no release or discharge by VIMRx (or 
any other Person) of any Contaminant in or on any such facility (or the     
land upon which it is situated) and (ii) there otherwise exist no           
Contaminants on or in any such real property, in any material quantity,     
which, in either case, would (a) constitute or have constituted a material  
violation of any Environmental Law, or (b) give rise to an obligation on    
the part of VIMRx or any Controlled Subsidiary, its assigns or successors   
in interest to effect an environmental cleanup or remediation.              

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5.14 Labor Relations.                                                       

VIMRx, Innovir, Innovir Holdings, Innovir UK, Innovir Germany, VGI and  
Ribonetics employ 12, 31, 0, 10, 12, 2 and 0 employees, respectively, none  
of whom is subject to union or collective bargaining agreements by which    
such entity is bound or subject. None of such entities has, at any time     
during the last five years, had, nor is there now to the knowledge of VIMRx 
threatened, a strike, picket, work stoppage, work slowdown, union           
organizing activity or other labor trouble that has had or would be         
reasonably likely to have a Material Adverse Effect on VIMRx.               

5.15 Employee Benefit Plans.                                                

(A)Except as set forth in Schedule 5.15(A), neither VIMRx nor any       
Controlled Subsidiary is a party to or bound by any oral or written Non-    
ERISA Plans.                                                                

(B)Except as set forth in Schedule 5.15(B), VIMRx and each Controlled   
Subsidiary does not maintain, has never maintained, is not required to      
contribute to, and has never been required to contribute to or pay any      
amount with respect to, and has no liability with respect to any ERISA      
Benefit Plans. Except as set forth in Schedule 5.15(B), and, to the best of 
VIMRx's knowledge, each of the plans described in Schedule 5.15(B) that is  
an ERISA Benefit Plan ("VIMRx Group ERISA Benefit Plan") complies in form   
and is operated in all material respects in accordance with the             
requirements of ERISA and, where applicable, the Code. VIMRx and, to the    
knowledge of VIMRx, each Controlled Subsidiary, as applicable, has complied 
with the health care continuation requirements of Section 601, et. seq., of 
ERISA with respect to its employees and their spouses, former spouses and   
dependents.                                                                 

(C)Except as set forth on Schedule 5.15(C), VIMRx has delivered to the  
Seller, with respect to each VIMRx Group ERISA Benefit Plan, correct and    
complete copies of (i) all plan documents and amendments, trust agreements  
and insurance contracts and policies, (ii) the current and, to the extent   
available, the prior summary plan description, (iii) the most recent        
financial statements, if any, and (iv) where applicable, a determination    
letter of the Internal Revenue Service evidencing the plan's qualification  
under the Code.                                                             

(D)Neither VIMRx nor any Controlled Subsidiary has any obligations under
any VIMRx Group ERISA Benefit Plan or otherwise to provide health benefits  
to former employees of VIMRx or any Controlled Subsidiary, except as        
specifically required by law. Neither VIMRx nor any Controlled Subsidiary   
has any liability, potential or otherwise, under Section 4069 or Section    
4212(c) of ERISA. Neither VIMRx nor any Controlled Subsidiary has ever made 
a contribution to a voluntary employees' beneficiary association described  
in Section 501(c)(9) of the Code.                                           

(E)Neither VIMRx nor, to the knowledge of VIMRx, any Controlled         
Subsidiary or any other "disqualified person" (within the meaning of        
Section 4975 of the Code) or "party in interest" (within the meaning of     
Section 3(14) of ERISA) has engaged in any "prohibited transaction" (within 
the meaning of Section 4975 of the Code or Section 406 of ERISA) with       
respect to any VIMRx Group ERISA Benefit Plan which could subject any such  
Plan (or its related trust) or VIMRx or any Controlled Subsidiary or any    
officer, director or employee of VIMRx or any Controlled Subsidiary to the  
penalty or tax under Section 402(i) or Section 402(1) of ERISA or Section   
4975 of the Code.                                                           

(F)There is no pending or, to the knowledge of VIMRx, threatened claim  
which alleges any violation of ERISA or any other law (i) by or on behalf   
of any VIMRx Group ERISA Benefit Plan or (ii) by any employee of VIMRx or   
any Controlled Subsidiary or any plan participant or beneficiary against    
any such plan.                                                              

(G)There does not now exist (and has not in the past existed) an        
"employee pension benefit plan," as defined in Section 3(2) of ERISA,       
maintained by VIMRx or any Controlled Subsidiary or to which VIMRx or any   
Controlled Subsidiary contributes or is required to contribute (or          
contributed or was required                                                 

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to contribute in the past), including any multiemployer employee pension    
benefit plan, other than an individual account plan within the meaning of   
Section 3(34) or ERISA.                                                     

 (H)Except as set forth on Schedule 5.15(H), there has been no complete or
partial termination of any VIMRx Group ERISA Benefit Plan and no action     
taken by VIMRx or its Affiliates at any time during the three years         
preceding the Closing date which has or will result in termination of any   
employee benefit plan in effect during such period; nor has there been any  
"reportable event," as such term is defined in Section 4043(c) of ERISA and 
the regulations promulgated thereunder, with respect to any VIMRx Group     
ERISA Benefit Plan; and except by reason of discontinuance of any VIMRx     
Group ERISA Benefit Plan as a result of or following the transactions       
contemplated by this Agreement, no VIMRx Group ERISA Benefit Plan or other  
employee plan, arrangement or agreement of VIMRx or any Controlled          
Subsidiary provides for additional or accelerated payments or other         
consideration to be made on account of the transactions contemplated by     
this Agreement.                                                             

5.16 Proxy Statement.                                                       

 The Proxy Statement on Schedule 14A to be prepared by VIMRx and delivered
to its stockholders in connection with the stockholders' meeting referenced 
to in Section 6.1(B)(v) (the "Proxy Statement") shall not, at the time it   
is delivered to stockholders, contain any untrue statement of material fact 
or omit to state any material fact required to be stated therein or         
necessary in order to make the statements therein, in light of the          
circumstances under which they are made, not misleading; provided, that     
this representation shall be deemed not to apply to any written information 
provided by the Seller or its Representatives to VIMRx for inclusion in the 
Proxy Statement. The Proxy Statement will comply as to form in all material 
respects with the applicable provisions of the Exchange Act and the rules   
and regulations thereunder.                                                 

5.17 Books and Records.                                                     

Except as set forth in Schedule 5.17, all of the books and records of   
VIMRx and each Controlled Subsidiary (including all minute books and stock  
records) are accurate and complete in all material respects, are kept in    
the ordinary course of business and are maintained at the principal offices 
of VIMRx or the relevant Controlled Subsidiary.                             

5.18 Financial Ability.                                                     

VIMRx has the financial ability and resources to purchase $10,000,000 in
principal amount of the Buyer Convertible Debentures to be issued to it by  
the Buyer on the Closing Date.                                              

5.19 Experience.                                                            

VIMRx is experienced in evaluating companies and businesses such as the 
Business of the Division and is able to fend for itself in transactions     
such as the one contemplated by this Agreement, has such knowledge,         
sophistication, and experience in financial and business matters that it is 
capable of evaluating the merits and risks of (i) the acquisition of the    
Assets of the Division pursuant to the terms and conditions of this         
Agreement and (ii) its prospective investment in the Buyer and the Seller,  
and has the ability to bear the economic risks of the investment.           

5.20 Controlled Subsidiaries.                                               

Innovir, VIMRx Holdings, Innovir UK, Innovir Germany, Cambes, VGI and   
Ribonetics are the only Controlled Subsidiaries of VIMRx; provided,         
however, that references elsewhere in this Agreement to "Controlled         
Subsidiary" shall be deemed not to refer to Cambes.                         

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5.21 Full Disclosure.                                                       

Without limiting any of the foregoing, no representation or warranty by 
VIMRx herein and no other statement or certificate furnished by or on       
behalf of VIMRx to the Seller or its Representatives pursuant to this       
Agreement or in connection with the transactions contemplated hereby        
contains any untrue statement of a material fact or omits to state a        
material fact necessary in order to make the statements contained herein or 
therein not misleading. There is no fact known to VIMRx that has not been   
disclosed in this Agreement which (i) has had, or would reasonably be       
expected to have, a Material Adverse Effect on VIMRx or (ii) which would    
reasonably be expected to materially and adversely affect the ability of    
VIMRx to perform its obligations under this Agreement.                      

6.Certain Covenants and Agreements.                                             

6.1 Pre-Closing Covenants.                                                  

(A)Covenants of the Seller. From the date hereof (except as set forth in
Section 6.1(A) (viii) below) until the Closing Date, the Seller covenants   
that it shall do the following (it being agreed by Buyer that it shall not  
unreasonably withhold its consent, which shall not be valid unless in       
writing, to any proposed departures, by the Seller, from the provisions of  
Sections 6.1(A)(xi)-(xviii) below):                                         

(i) preserve and maintain its corporate existence and good standing 
in the jurisdiction of its incorporation;                               

(ii) continue to operate the Division, in all material respects, in 
the ordinary course of business;                                        

(iii) maintain, keep and preserve, in all material respects, all of 
the material properties and assets used in the operation of the         
Division;                                                               

(iv) keep reasonably adequate books and records with respect to the 
Division;                                                               

(v) maintain the insurance policies in effect as of the date of this
Agreement which relate to the Assets, or operations, of the Division;   

(vi) comply (with respect to the persons, assets and operations of  
the Division), in all material respects, with all applicable laws,      
rules, regulations and orders;                                          

(vii) at any reasonable time and from time to time, (a) permit the  
Buyer and VIMRx, or any agent or representative of either, to examine   
and make copies and abstracts from any and all of the Seller's records  
and books relating to the Division and visit and inspect any and all of 
its assets and properties relating to the Division and (b) make         
available its officers, employees and independent accountants to        
discuss with the Buyer, VIMRx and their representatives the Division's  
affairs, finances and accounts;                                         

(viii) in the event and to the extent, that events or circumstances 
occur or arise, or the Seller becomes aware of events or circumstances, 
which render any of the representations and warranties set forth in     
Section 3 hereof inaccurate, and without limiting in any way the        
Buyer's rights under Section 7.1, promptly notify the Buyer and VIMRx   
thereof by delivering to Buyer and VIMRx new, updated or amended (and   
red-lined) Schedules relating to such events or circumstances (it being 
agreed by the parties that, notwithstanding any other provision hereof, 
this Section 6.1(A)(viii) shall apply (a) only during the period        
beginning on the day following the end of the Disclosure Period and     
ending on the Closing Date and (b) only in the event that this          
Agreement shall not have been terminated in accordance with Section     
14.2);                                                                  

 (ix)exercise commercially reasonable efforts to: (a) preserve intact,
in all material respects, the Division's business organization, (b)     
keep available the services of its employees and (c) maintain           

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satisfactory relationships with suppliers, contractors, customers,      
creditors and others having business relationships with the Seller or   
the Division;                                                           

(x) promptly provide to VIMRx, at its request and in writing, all   
information, with respect to the Seller and its business, properties,   
personnel and operations, required for inclusion in the Proxy Statement 
and, to the extent that any information previously provided to VIMRx is 
discovered to be false or misleading, provide to VIMRx, in writing,     
such additional or different information as may be required to correct  
such deficiency;                                                        

(xi) not mortgage, pledge or subject any of the Assets to any       
Encumbrance, other than Permitted Encumbrances;                         

(xii) not sell, transfer or otherwise dispose of any assets or      
property included in the Assets, except in connection with (i) the sale 
of inventory in the ordinary course of business or (ii) the sale or     
other disposal of assets no longer needed for the operation of the      
Division in the ordinary course of business;                            

 (xiii) not waive, release or compromise any material claims or rights
of the Seller relating to the operation of the Division (other than in  
connection with the CellPro and Saxholm Litigations);                   

(xiv) not, except in the ordinary course of business, increase the  
compensation (including severance and termination pay) payable to any   
employees of the Division; or enter into any agreement with any         
employee of the Division providing for a salary in excess of $50,000    
per year;                                                               

(xv) not (a) enter into any material transaction or agreement with  
respect to the Division or (b) amend or terminate any Included          
Agreement or Primary License, other than in the ordinary course of      
business;                                                               

(xvi) not enter into or amend any contract or other agreement, which
constitutes or shall constitute part of the Assumed Liabilities, in     
connection with the Division pursuant to which it agrees to indemnify   
any party or to refrain from competing with any party;                  

(xvii) not (i) materially change any of its business policies or    
practices relating solely to the Division, including, without           
limitation, those relating to advertising, marketing, pricing,          
purchasing, personnel, budget, job acquisition or bidding, (ii) make    
any material change in the types, nature, composition or quality of the 
products of the Division; and                                           

(xviii) not abandon or forfeit any Intellectual Property, or any    
application for protection or registration (including patenting) of any 
Intellectual Property included in the Assets.                           

(B)Covenants of VIMRx. From the date hereof (except as set forth in     
Section 6.1(B)(vii) below) until the Closing Date, VIMRx covenants that it  
shall, and shall (except with respect to items (iv), (v) and (vii) below)   
cause the Buyer and each Controlled Subsidiary to:                          

(i)continue to operate, in all material respects, in the ordinary   
course of business;                                                     

(ii) provide to the Seller copies of all management letters, audit  
letters and reports, including, without limitation, all drafts or       
preliminary versions of such letters and reports, in each case,         
prepared by its outside auditors in connection with any audit of its    
internal controls and procedures;                                       

(iii)not issue, deliver or sell, or authorize or propose to issue,  
deliver or sell (whether through the granting of options, warrants,     
commitments, subscriptions, rights to purchase or otherwise), any       
shares of its capital stock of any class or series, or any other        
securities other than options, warrants, commitments, subscriptions or  
rights to purchase under arrangements existing as of the Closing Date   
in amounts previously disclosed in writing to the Seller;               

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(iv)promptly (but in any event on or prior to October 15, 1997)     
prepare and file the Proxy Statement, and prior to filing the Proxy     
Statement with the SEC, submit such material to the Seller and its      
counsel and provide the Seller and its counsel a reasonable opportunity 
to review and comment upon such materials;                              

(v)duly and promptly call, give notice of, convene and hold a       
stockholders' meeting for the purpose of considering and taking action  
upon this Agreement and the Transaction Documents and the transactions  
contemplated hereunder, and, subject to the fiduciary duties of the     
Board of Directors of VIMRx under applicable law, include in the Proxy  
Statement the recommendation of the Board of Directors of VIMRx that    
stockholders of VIMRx vote in favor of the approval and adoption of     
this Agreement and the transactions contemplated hereby;                

(vi)at any reasonable time and from time to time, (a) permit the    
Seller, or any representative or agent of the Seller, to examine and    
make copies and abstracts from any and all of its records and books and 
visit and inspect any and all of its assets and properties and (b) make 
available its officers, employees and independent accountants to        
discuss with the Seller and its representatives its affairs, finances   
and accounts; and                                                       

(vii)in the event and to the extent, that events or circumstances   
occur or arise, or VIMRx becomes aware of events or circumstances,      
which render any of the representations and warranties set forth in     
Section 5 hereof inaccurate, and without limiting in any way the        
Seller's rights under Section 7.2, promptly notify the Seller thereof   
by delivering to the Seller new, updated or amended (and red-lined)     
Schedules relating to such events or circumstances (it being agreed by  
the parties that, notwithstanding any other provision hereof, this      
Section 6.1(B)(vii) shall apply (a) only during the period beginning on 
the day following the end of the Disclosure Period and ending on the    
Closing Date and (b) only in the event that this Agreement shall not    
have been terminated in accordance with Section 14.2);                  

 (C)Filings. The Buyer and/or VIMRx, as appropriate, shall, and the Seller
shall (and shall cause its Affiliated entities, as appropriate, to) (i)     
promptly file, and use their best efforts to respond as promptly as         
practicable to all inquiries received from the Federal Trade Commission or  
the Antitrust Division of the Department of Justice for additional          
information or documentation with respect to, the Notification and Report   
Forms required to be filed under Hart-Scott in connection with the          
transactions contemplated hereby, (ii) promptly take all such action as may 
be necessary under any laws applicable to or necessary for, and will file   
and, if appropriate, use their reasonable best efforts to have declared     
effective or approved all documents and notifications with all Authorities  
which they deem necessary or appropriate for, the consummation of the       
transactions contemplated hereby and, (iii) promptly give any other party   
hereto information requested by such other party pertaining to it and its   
subsidiaries and Affiliates which is reasonably necessary to enable such    
other party to take such actions and file in a timely manner all reports    
and documents required to be so filed by or under applicable laws.          

 (D)Negotiations with Others. From the date hereof until the Closing Date,
neither the Seller nor any of its Affiliates or Representatives, directly   
or indirectly, will (i) solicit or initiate discussions or engage in        
negotiations or discussions with any other person or entity (other than the 
Buyer or any of its Affiliates or Representatives) involving (x) the        
possible acquisition of a substantial portion of the Assets, or (y) any     
form of extraordinary transaction that involves the Division or the         
Business (a "Competing Transaction"); (ii) provide information to any       
person or entity (other than the Buyer or its Affiliates or                 
Representatives) with respect to a possible Competing Transaction (except   
that the Buyer acknowledges that the Seller provided such information to    
third parties, subject to confidentiality agreements, prior to June 11,     
1997) or (iii) enter into any Competing Transaction with any person or      
entity other than the Buyer or any of its Affiliates. If the Seller         
receives any offer or proposal to enter into any Competing Transaction or   
to enter into any negotiation relating thereto, the Seller immediately will 
notify the Buyer of the existence of such offer or proposal, which notice   
shall include information as to the identity of the offeror or the party    
making any such proposal and the specific terms of such offer or proposal.  

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6.2 Post-Closing Covenants.                                                 

(A)Milestone Payments. The parties agree that subsequent to the Closing,
the Seller shall have the additional rights set forth below:                

(i)Upon the occurrence of each Milestone, the Seller shall have the 
right to receive from the Buyer, within 45 days after the applicable    
Occurrence Date, the amount set forth opposite such Milestone on        
Exhibit N.                                                              

(ii)The Buyer agrees that, in the event that, as of the Occurrence  
Date relating to any Milestone, the Cash Position of the Buyer shall be 
less than Net Projected Expenses, VIMRx shall, within 45 days of such   
Occurrence Date, lend to the Buyer (for the purpose of enabling the     
Buyer to pay the applicable Milestone Payment) a sum equal to such      
Milestone Payment. In consideration of any such loan, the Buyer shall   
execute and deliver to VIMRx a subordinated promissory note,            
substantially in the form annexed hereto as Exhibit V.                  

(B)Assignability. To the extent that any lease, contract, license,      
agreement, sales or purchase order, commitment, property interest or other  
asset included in the Assets, or any claim, right or benefit arising        
thereunder or resulting therefrom (each an "Interest") is not capable of    
being sold, assigned, transferred or conveyed without the approval,         
consent, novation or waiver of the issuer thereof or the other party or     
parties thereto, or any other third person (including an Authority) (or     
would be breached in the event of a sale, assignment, transfer, or          
conveyance without such approval, consent or waiver), this Agreement shall  
not, in the event any such issuer or third party shall object to such       
assignment, constitute a sale, assignment, transfer or conveyance thereof,  
or an attempted sale, assignment, transfer or conveyance thereof absent     
such approval, consent or waiver. At the request of the Buyer, the Seller   
shall use its commercially reasonable best efforts, both prior and          
subsequent to the Closing Date, to obtain all necessary approvals, consents 
or waivers necessary to convey to the Buyer each such Interest as soon as   
reasonably practicable; provided, however, that the Seller shall not be     
required to pay any additional consideration in order to obtain such        
approvals, consents or waivers. To the extent any of the approvals,         
consents or waivers referred to in this Section 6.2(B) have not been        
obtained as of the Closing, the Seller shall, during the remaining term of  
such Interest (and without limiting the Buyer's right to have the Seller    
persist, post-Closing, in attempting to obtain any such approval, consent   
or waiver), exercise commercially reasonable best efforts to cooperate with 
the Buyer in any reasonable and lawful arrangements designed to provide the 
benefits of such Interest to the Buyer.                                     

(C)Facilitation of Possession. Subsequent to the Closing, the Seller, at
the request of the Buyer, shall write letters to, and otherwise communicate 
with third parties, and do such other reasonable acts and things as may be  
necessary or appropriate, to facilitate the gaining of possession, by the   
Buyer of the Assets.                                                        

 (D)Management Slate. The Seller agrees (so long as (i) it shall own 3% or
more of the issued and outstanding capital stock of VIMRx and (ii) its      
representative (if it shall have chosen to designate one) shall retain a    
seat on the VIMRx Board of Directors, per Section 6.2(E) below) to vote all 
of its shares of stock in VIMRx (whether at meetings, pursuant to written   
consents or otherwise) for the election to the Board of Directors of VIMRx  
of all candidates who are recommended to be elected thereto by the then-    
current Board of Directors.                                                 

 (E)Board Seat. VIMRx agrees that until the date on which the Seller shall
cease to own at least 3% of the issued and outstanding capital stock of     
VIMRx, VIMRx shall nominate and recommend to its stockholders, and to vote  
all shares for which management receives a proxy (other than proxies to the 
contrary) for the election of one Person selected by the Seller as its      
representative to the Board of Directors of VIMRx.                          

(F)Internal Control Procedures. VIMRx agrees that it shall (i) cause its
outside auditors to perform an audit of the internal controls and           
procedures of VIMRx, and (ii) adopt all recommendations regarding such      
internal controls and procedures as its Board of Directors shall deem to be 
appropriate for adoption.                                                   

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(G)Round Lake and Munich Employees. The Seller shall bear the expenses  
and costs incurred in connection with the closing of the Round Lake         
Facility and the expenses and costs of relocating employees of the Seller   
employed at the Round Lake Facility to the Parker Facility; provided,       
however, that such relocation shall be in accordance with standard          
relocation policies of the Seller in effect as of the date of this          
Agreement and the expenses and costs of relocating such employees (which    
shall be borne by the Seller hereunder) shall not exceed those which would  
be borne by the Seller under such standard relocation policies of the       
Seller. The Seller shall bear the expenses and costs incurred in connection 
with the closing of the Munich Facility; provided, however, that the Seller 
shall not bear any expenses or costs incurred in connection with the        
relocation of any employees of the Munich Facility to the Parker Facility   
or any other facility operated by or on behalf of the Buyer.                

 (H)Intellectual Property. The Seller shall cooperate, and shall cause its
Representatives to cooperate, with the Buyer in (i) obtaining, maintaining, 
enforcing, defending and confirming the Buyer's ownership of the            
Intellectual Property included in the Assets (and the Buyer shall reimburse 
the Seller's reasonable out of pocket costs, including, without limitation, 
reasonable attorneys fees, incurred in connection therewith) and (ii)       
enforcing and defending the Intellectual Property Rights arising from the   
Primary Licenses.                                                           

(I)Chiron Obligations. (i) The Buyer hereby acknowledges that the Seller
has performance obligations under the Chiron Collaboration Agreement and    
agrees, at the Seller's request, to allow the Seller to satisfy the         
Seller's performance obligations under the Chiron Collaboration Agreement   
including, without limitation (a) allowing the Seller to achieve a          
Qualifying Acceptance by the Seller (as that term is defined in the Chiron  
Collaboration Agreement), (b) after a Qualifying Acceptance has been        
achieved, to permit the Seller to develop and/or manufacture to the         
Seller's specifications, a Semi-Automated Baxter System (as that term is    
defined in the Chiron Collaboration Agreement), and (c) allowing the Seller 
to perform all other obligations of the Seller; provided, that the Semi-    
Automated Baxter System will not involve Ex Vivo Cell Processing (as that   
term is defined in the Hardware and Disposables Manufacturing Agreement).   

Without limitation of the foregoing, and notwithstanding any terms of   
this Agreement or the other Transaction Documents to the contrary, the      
Buyer agrees, (i) at the request of Seller, to provide to Seller such       
assistance and information (at Seller's cost) as may be reasonably required 
for Seller to comply with its obligations under Sections 3.8 and 3.9 of the 
Chiron Collaboration Agreement and (ii) to abide by the exclusivity         
provisions of Section 3.1 of the Chiron Collaboration Agreement pursuant to 
clause b(ii) of the third sentence of Section 3.5(a) of the Chiron          
Collaboration Agreement in the same manner as such provisions apply to      
Baxter. The Buyer further agrees that the Buyer will not, directly or       
indirectly (in the event Buyer otherwise has the right to do so), and/or    
shall not require Seller to, violate the terms of Section 8.4 of the Chiron 
Collaboration Agreement.                                                    

(ii)The Semi-Automated Baxter System shall be distributed by the    
Seller in compliance with the Non-Competition and Confidentiality       
Agreement.                                                              

 (iii)In return for the Buyer's agreeing to the above, the Seller will
use commercially reasonable efforts to obtain from Chiron Corporation,  
a Delaware corporation, the right to grant a sublicense to the Buyer    
and its Affiliates under (and on the same terms as) the license granted 
to the Seller in Section 2.1(b) of the Chiron Collaboration Agreement.  
In the event that the Seller shall obtain such right, the Seller will   
grant such sublicense to the Buyer and its Affiliates.                  

(iv)The Seller shall indemnify and hold harmless the Buyer from and 
against any claims of patent or other Intellectual Property             
infringement, and any product liability claims, incurred by the Buyer   
in connection with the Seller's performance of its obligations under    
the Chiron Collaboration Agreement; provided, however, that this        
indemnity shall not apply to any claims arising out of actions or       
omissions of the Buyer or the performance of Buyer's obligations under  
any sublicense, referred to in Section 6.2(I)(iii) above, which it may  
enter into with Seller, with the consent of Chiron.                     

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(J)Potential Post-Closing Adjustment.                                   

(i)Within 120 days after the Closing Date, the Buyer shall prepare  
and deliver to the Seller, or cause to be prepared and delivered to the 
Seller, a statement (the "FFE Statement") showing the Buyer's good      
faith determination, based on a physical inventory, as to the aggregate 
net book value of all furniture, fixtures and equipment included in the 
Assets (hereinafter, the "Net Book Value"). The Seller shall reimburse  
the Buyer for the out-of-pocket costs incurred by the Buyer in so       
preparing, or causing to be prepared, the FFE Statement, but in no      
event shall the Seller be obligated to reimburse the Buyer for an       
aggregate amount of more than $20,000.                                  

(ii)Within 45 days after the date on which the Buyer shall have     
delivered the FFE Statement to the Seller (such 45th day being the      
"Lapse Date"), the Seller shall notify the Buyer as to whether the      
Seller disputes the FFE Statement (such notice being the "FFE Notice"). 
In the event that the Seller shall, prior to the Lapse Date, notify the 
Buyer that it agrees with the FFE Statement, the FFE Statement shall be 
deemed, on the date of giving of such notice, to have been finally      
determined for purposes of Section 6.2(J)(iv). In the event that the    
Seller fails to deliver an FFE Notice to the Buyer on or before such    
45th day, the Seller shall be deemed to have agreed to the FFE          
Statement and the FFE Statement shall be deemed likewise to have been   
finally determined for purposes of Section 6.2(J)(iv).                  

 (iii)In the event that the Seller timely delivers an FFE Notice which
indicates that it disputes the FFE Statement, the Seller and the Buyer  
shall, during the 30-day period after the date on which the FFE Notice  
shall have been given to the Buyer, negotiate in good faith to resolve  
any disagreements with respect to the FFE Statement. If at the end of   
such 30-day period, no such resolution is reached, such disagreements   
shall, under the principles set forth in this Section 6.2(J), be        
resolved by a "Big Six" firm of independent accountants (other than     
KPMG and Price Waterhouse) upon which the Seller and the Buyer shall    
agree (the "Jointly Selected Firm"), and such firm shall review the FFE 
Statement and determine whether any revisions thereto are appropriate.  
If the parties are unable, within five days after the expiration of     
such 30 day period, to agree upon the Jointly Selected Firm, the Seller 
and the Buyer shall cause an independent mutually acceptable third      
party to write the names of each of such other four "Big Six" firms on  
four pieces of paper and then draw one of such names blindly, and       
randomly, from a container (the firm so chosen being referred to as the 
"Appointed Firm"). The parties shall retain the Appointed Firm to       
review and, if appropriate, revise the FFE Statement. The Jointly       
Selected Firm or the Appointed Firm, as the case may be, shall be       
instructed promptly to discharge its task and to deliver written notice 
of its decision (and, if appropriate, a revised FFE Statement)          
simultaneously to the Buyer and the Seller. The date as of which the    
Buyer and the Seller shall have received such notice shall be the date  
on which the FFE Statement shall be deemed to have been finally         
determined for purposes of Section 6.2(J)(iv). The determination made   
by the Jointly Selected Firm or the Appointed Firm shall be conclusive  
and binding on the parties hereto, absent manifest error. The fees and  
disbursements of the Jointly Selected Firm or the Appointed Firm, as    
the case may be, shall be divided equally between the Seller, on the    
one hand, and the Buyer, on the other hand.                             

(iv)Within 10 days after the date on which the FFE Statement shall  
have been finally determined pursuant to the above provisions, the      
parties shall comply with either subsection (a) or (b) below, as        
applicable:                                                             

(a)if the Net Book Value shown on the final FFE Statement shall 
equal or exceed $7,200,000, no adjustment shall be in order and no  
additional sum shall be payable by Seller to Buyer;                 

  (b)if the Net Book Value shall be less than $7,200,000, the Seller
shall pay to the Buyer the excess of (1) $7,200,000 over (2) the Net
Book Value.                                                         

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(K)Preferred Stock. VIMRx shall not issue or sell any shares of VIMRx   
Preferred Stock to any person other than the Seller or an Affiliate of the  
Seller, so long as the Seller or any Affiliate of the Seller remains the    
beneficial owner of any shares of VIMRx Preferred Stock.                    

7.Conditions to Obligations of the Buyer, VIMRx and the Seller                  

7.1 The Buyer's and VIMRx's Conditions.                                     

The obligations of the Buyer and VIMRx to consummate the transactions   
contemplated hereunder are conditioned upon the following, any or all of    
which may be waived by the Buyer and VIMRx in their sole and absolute       
discretion:                                                                 

(A)All representations and warranties of the Seller contained in this   
Agreement that are qualified as to materiality shall be true and correct on 
and as of the Closing Date with the same force and effect as though such    
representations and warranties had been made on and as of the Closing Date, 
and all representations and warranties of the Seller contained in this      
Agreement which are not so qualified shall, in all material respects, be    
true and correct on and as of the Closing Date with the same force and      
effect as though such representations and warranties had been made on and   
as of the Closing Date.                                                     

(B)The Seller shall, in all material respects, have performed and       
complied with all of the covenants and agreements (including the agreement  
to make the deliveries set forth in Section 8.1) required by or pursuant to 
this Agreement, or any Exhibit or instrument delivered pursuant to this     
Agreement, to be performed or complied with by it on or prior to the        
Closing Date.                                                               

(C)The Buyer shall have received an executed consent from The Irvine    
Company, in form reasonably satisfactory to the Buyer, consenting to the    
assignment and delegation to the Seller of the lease relating to the Parker 
Facility.                                                                   

(D)The Buyer shall have received an executed estoppel certificate, in   
form and substance reasonably satisfactory to the Buyer, from The Irvine    
Company relating to the aforesaid lease.                                    

 (E)The Seller shall have obtained and delivered to the Buyer consents, in
form reasonably satisfactory to the Buyer, executed by (i) every party      
(other than the Seller) to each agreement set forth on Exhibit W,           
consenting to the assignment and delegation to the Buyer of such agreement  
and (ii) every party (other than the Seller) to every material Included     
Agreement to which the Seller becomes a party after the date hereof whose   
consent to the assignment and delegation of such agreement to the Buyer is  
required in order to avoid a violation of such agreement.                   

(F)The Seller and the Buyer shall, simultaneously with the Closing, have
executed and delivered the Services Agreement.                              

(G)At least 75% of all of the Division's United States employees to whom
the Buyer shall have sent an offer letter (to be drafted by the Buyer and   
containing a statement requesting the recipient to countersign it if such   
recipient is interested in becoming an employee of the Buyer) shall have    
countersigned such letter and delivered it to the Buyer; provided, however, 
that this condition shall be waived and shall be deemed to have been        
satisfied unless (i) the Buyer shall have mailed such offer letter to said  
employees on or prior to November 12, 1997 and (ii) such offer letter shall 
contain a statement from the Buyer requesting a response from each employee 
recipient on or prior to November 26, 1997.                                 

 (H)The Seller shall have obtained and delivered to the Buyer consents, in
form reasonably satisfactory to the Buyer, from Becton, Dickenson and       
Company, Cetus Oncology Corporation and Bernd Dorken relating to the        
permission of such parties to execute and deliver the First BD Sublicense,  
the Second BD Sublicense, the Dorken Sublicense and the Chiron Sublicense,  
as the case may be.                                                         

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 (I)The Seyfarth Opinion shall, simultaneously with the Closing, have been
delivered to the Buyer and VIMRx.                                           

7.2 The Seller's Conditions.                                                

 The obligations of the Seller to consummate the transactions contemplated
hereunder are conditioned upon the following, any or all of which may be    
waived by the Seller in its sole and absolute discretion:                   

 (A)All warranties and representations of the Buyer and VIMRx contained in
this Agreement that are qualified as to materiality shall be true and       
correct on and as of the Closing Date with the same force and effect as     
though such representations and warranties had been made on and as of the   
Closing Date, and all representations and warranties of the Buyer and VIMRx 
which are not so qualified shall, in all material respects, be true and     
correct on and as of the Closing Date with the same force and effect as     
though such representations and warranties had been made on and as of the   
Closing Date.                                                               

(B)The Buyer and VIMRx shall, in all material respects, have performed  
and complied with all of the covenants and agreements (including the        
agreements to make the deliveries set forth in Sections 8.2 and 8.3)        
required by or pursuant to this Agreement, or any Exhibit, Section or       
instrument delivered pursuant to this Agreement, to be performed or         
complied with by them on or prior to the Closing Date.                      

(C)The Epstein Opinion shall, simultaneously with the Closing, have been
delivered to the Seller.                                                    

(D)The Buyer shall have adopted an employee stock option plan.          

7.3 Mutual Conditions.                                                      

The respective obligations of each party hereto to consummate the       
transactions contemplated hereunder are conditioned upon the following:     

(A)This Agreement and the transactions contemplated hereby shall have   
been approved and adopted by the requisite vote of VIMRx's stockholders in  
accordance with applicable Delaware General Corporation Laws and the rules  
and regulations of Nasdaq.                                                  

(B)No order of any court or Authority shall be in effect which restrains
or prohibits the transactions contemplated hereby or which would materially 
limit or materially and adversely affect the ability of the Buyer to        
conduct the Business of the Division as now conducted by it, and no suit,   
action or proceeding by any Authority or other person shall be pending or   
threatened which seeks to restrain the consummation, or challenges the      
validity or legality, of the transactions contemplated by this Agreement or 
which would, if successful, materially limit or materially and adversely    
affect the ability of the Buyer to conduct the business of the Division.    

(C)Any waiting period applicable under Hart-Scott and relating to the   
transactions contemplated hereby shall have terminated or expired.          

 (D)All other consents, approvals or orders of any Authority, the granting
of which is required for the lawful consummation of the transactions        
contemplated hereby, shall have been obtained; and all other waiting and    
notification periods specified under applicable law the termination or      
expiration of which is necessary for such consummation shall have been      
terminated or shall have expired.                                           

(E)VIMRx shall have mailed the Proxy Statement to the VIMRx stockholders
and such Proxy Statement shall have included the recommendation of the      
VIMRx Board of Directors that the stockholders of VIMRx vote in favor of    
the approval and adoption of the actions to authorize and issue the VIMRx   
Preferred Stock and issue the VIMRx Common Stock to the Seller pursuant to  
this Agreement.                                                             

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8.Deliveries of the Parties.                                                    

8.1 The Seller's Deliveries.                                                

 (A)To the Buyer. At the Closing, the Seller shall deliver, or cause to be
delivered, to the Buyer the following:                                      

(i)a Bill of Sale from the Seller, and a Bill of Sale from each     
Inventory Entity (and from each other entity, if any, which shall then  
own any Included Inventory or other assets constituting Assets), each   
to be in a form reasonably satisfactory to the Buyer;                   

(ii)a good standing certificate, dated as of a date not more than   
five days prior to the Closing Date, as to the corporate existence and  
good standing of the Seller, certified by the Secretary of State of     
Delaware;                                                               

(iii)[intentionally omitted];                                       

(iv)such individual or general contract assignments as Buyer shall  
reasonably request;                                                     

(v)all governmental or other approvals, consents, grants, and       
licenses, if any, required to be procured by the Seller in connection   
with the transactions contemplated hereby;                              

(vi)[INTENTIONALLY OMITTED];                                        

(vii)a certificate of the Secretary of the Seller certifying and    
including the resolutions of the Board of Directors authorizing the     
execution, delivery and performance of this Agreement and the           
transactions contemplated hereby and attesting to the incumbency and    
signatures of all officers executing any documents in connection with   
the transactions contemplated by this Agreement;                        

 (viii) an executed copy of each of the Transaction Documents to which
the Seller is a party;                                                  

(ix)the sum of $10 million, representing the purchase price for the 
Buyer Convertible Debenture described in Section 8.3(B)(i), such sum to 
be paid by wire transfer of immediately available Federal funds to an   
account of the Buyer designated by the Buyer;                           

(x)the additional sum of $20 million, representing the price for the
purchase of the additional Buyer Convertible Debenture described in     
Section 8.3(B)(ii), such sum to be paid in the same manner provided for 
in clause (ix) above;                                                   

(xi)such other executed assignments, bills of sale, endorsements,   
notices, consents, novations, assurances and such other instruments of  
conveyance and transfer as counsel for the Buyer shall reasonably       
request and as shall be effective to vest in the Buyer the Seller's     
rights, title and interest in the Assets;                               

(xii)a separate letter to the FDA (on the Seller's letterhead),     
executed by an authorized officer of the Seller and complying with      
relevant FDA laws and policy, in respect of each of the categories of   
FDA Submissions listed in Schedule 3.5(F) assigning to the Buyer all of 
the Seller's right, title and interest in and to each FDA Submission    
listed on Schedule 3.5.                                                 

(xiii) an executed and notarized assignment of the United States    
registration for each trademark included in the Assets which is         
registered with the PTO, the form of which assignment shall be          
reasonably satisfactory to the Buyer;                                   

(xiv) an executed and notarized assignment of the United States     
trademark application for each trademark included in the Assets which   
is the subject of an application for registration filed with the PTO,   
the form of which assignment shall be reasonably satisfactory to the    
Buyer;                                                                  

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(xv)an executed and notarized assignment of United States           
patents/patent applications for each United States patent or patent     
application included in the Assets, the form of which assignment shall  
be reasonably satisfactory to the Buyer.                                

 (xvi) a true and correct certificate (the precise form of which shall
be reasonably satisfactory to KPMG) showing, for each physical location 
where Included Inventory was held by the Seller or any Inventory Entity 
as of last day of the month immediately preceding the month in which    
the Closing shall occur, (i) the street address of each location, (ii)  
the number of units of each kind of Included Inventory at such location 
as of such date and (iii) for each such kind of Included Inventory      
thereat, the aggregate book value of all units of such kind of Included 
Inventory at such location.                                             

(B)To VIMRx. At the Closing, the Seller shall deliver to VIMRx the      
following:                                                                  

 (i)an executed copy of each of the Transaction Documents to which the
Seller is a party; and                                                  

(ii)[intentionally omitted].                                        

8.2 Deliveries of VIMRx.                                                    

(A)To the Seller. At the Closing, VIMRx shall deliver to the Seller the 
following:                                                                  

(i)the Purchase Consideration due at Closing to the Seller pursuant 
to Sections 2.2 (A), (B) and (C) hereof;                                

(ii)an executed copy of each of the Transaction Documents to which  
each of VIMRx and the Seller is a party; and                            

(iii)[intentionally omitted].                                       

(B)To the Buyer. At the Closing, VIMRx shall deliver to the Buyer the   
following:                                                                  

(i)the sum of $10 million, representing the purchase price for the  
Buyer Convertible Debenture described in Section 8.3(A)(i), such sum to 
be paid by wire transfer of immediately available federal funds to an   
account of the Buyer designated by the Buyer; and                       

(ii)an executed copy of each of the Transaction Documents to which  
each of the Buyer and VIMRx is a party.                                 

8.3 Deliveries of the Buyer.                                                

(A)To VIMRx. At the Closing, the Buyer shall deliver to VIMRx the       
following:                                                                  

 (i)an executed Buyer Convertible Debenture, substantially in the form
annexed hereto as Exhibit F in respect, and in the principal amount, of 
the $10 million paid by VIMRx pursuant to Section 8.2(B)(i); and        

(ii)an executed copy of each of the Transaction Documents to which  
each of VIMRx and the Buyer is a party; and                             

(iii)80.5 shares of Buyer Common Stock.                             

(B)To the Seller. At the Closing, the Buyer shall deliver to the Seller 
the following:                                                              

 (i)an executed Buyer Convertible Debenture, substantially in the form
annexed hereto as Exhibit D in respect, and in the principal amount, of 
the $10 million paid by the Seller pursuant to Section 8.1(A)(ix);      

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(ii)an executed Buyer Convertible Debenture, substantially in the   
form annexed hereto as Exhibit E in respect, and in the principal       
amount, of the $20 million paid by the Seller pursuant to Section       
8.1(A)(x);                                                              

(iii)an executed Warrant; and                                       

(iv)an executed copy of each of the Transaction Documents to which  
the Buyer is a party.                                                   

9.Survival of Representations: Indemnities.                                     

9.1 Survival.                                                               

All representations and warranties contained in, or in any certificate  
delivered pursuant to or in connection with, this Agreement (the Agreement, 
together with such other certificates, being collectively referred to as    
"Documents") shall survive the Closing of the transactions contemplated     
under this Agreement until March 31, 1999; provided, however, that the      
representations and warranties set forth in Sections 3.7(D), 3.8, 3.12,     
4.4, 5.4, 5.9 and 5.12 shall survive the Closing for a period of five       
years. All covenants and agreements contained in any Document shall survive 
in accordance with their terms; provided, however, that for the removal of  
doubt, none of the covenants set forth in Section 6.1 or 6.2 shall survive  
the termination of this Agreement in accordance with Section 14.            

9.2 Indemnity.                                                              

(A)The Seller agrees to indemnify, and hold the Buyer and VIMRx harmless
from and against (i) any and all Losses which the Buyer or VIMRx shall      
sustain by reason of or in connection with the breach or inaccuracy of, or  
failure to comply with, any of the representations, warranties, covenants   
or undertakings, contained in any Document, made by the Seller, (ii) the    
Non-Assumed Liabilities, (iii) any broker's or finder's fee or commission   
due to Lehman Brothers or The Craves Group with respect to the transactions 
contemplated hereby, (iv) any and all Losses which the Buyer or VIMRx shall 
sustain in connection with (a) claims by third parties arising in           
connection with the Non-Assumed Liabilities, or (b) claims by third parties 
(including but not limited to Lehman Brothers and The Craves Group) that    
they are due a broker's or finder's fee or similar compensation with        
respect to the transactions contemplated hereby, which claims arise out of  
actions of the Seller or any Representative of the Seller and (v) any and   
all Losses which the Buyer or VIMRx shall sustain by reason of or in        
connection with (a) any violation of Environmental Law, committed by the    
Seller or any of its Representatives, in respect of the Parker Facility or  
the land upon which it is situated, during the Seller's occupancy thereof,  
(b) subject to Section 10 hereof, any Taxes arising out of the operations   
of the Seller up to and including the Closing Date, (c) any violation of    
ERISA committed by the Seller or any of its Representatives, (d) the        
Saxholm Litigation and any litigation which may be brought against Buyer    
and/or VIMRx alleging infringement of one or more of Saxholm U.S. patents   
4,324,859, 4,657,868 and 4,992,377 and foreign equivalents due to           
manufacture, use, importation or sale of Isolex(R) and/or Maxsep(R)         
Products (except to the extent that any such Losses arise out of            
infringement resulting from changes made by the Buyer in design or          
operation of the accused device) and (e) the antitrust-related counterclaim 
against the Seller in the CellPro Litigation. Notwithstanding the           
foregoing, the Buyer and VIMRx shall not be entitled to any indemnification 
under this Section 9.2 (A) with respect to any Losses incurred by the Buyer 
or VIMRx as a result of the breach of any representation or warranty        
contained in Section 3 hereof, other than Losses pursuant to breaches of    
Sections 3.7(D), 3.12 or 3.19, unless and until the aggregate amount of all 
Losses arising from breaches of representations and warranties contained in 
Section 3 shall exceed $400,000 and then only to the extent that such       
aggregate amount shall exceed $400,000; provided, further, that the         
immediately preceding proviso shall not apply in the case of any fraudulent 
breach.                                                                     

(B)VIMRx agrees to indemnify and hold the Seller harmless from and      
against (i) any and all Losses which the Seller shall sustain by reason of  
or in connection with the breach or inaccuracy of any of the                

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representations or warranties, contained in any Document, made by the Buyer 
and/or VIMRx, (ii) any broker's or finder's fee or commission due to        
Lazard, Freres with respect to the transactions contemplated hereby, and    
(iii) any and all Losses which the Seller shall sustain in connection with  
claims by third parties that they are due a finder's or broker's fee or     
similar compensation with respect to the transactions contemplated hereby,  
which claims arise out of actions of the Buyer or VIMRx or any              
Representatives of either; provided, however, that the Seller shall not be  
entitled to any indemnification under this Section 9.2(B) with respect to   
any Losses incurred by the Seller as a result of the breach of any          
representation or warranty contained in Section 4 or 5 hereof, other than   
Losses pursuant to breaches of Sections 4.5, 4.6, 5.5, 5.6 or 5.9, unless   
and until the aggregate amount of all Losses arising from breaches of       
representations and warranties contained in Section 4 or 5 shall exceed, in 
the aggregate, $400,000 and then only to the extent that such aggregate     
amount shall exceed $400,000; provided, further, however, that the          
immediately preceding proviso shall not apply in the case of any fraudulent 
breach.                                                                     

(C)The Buyer agrees to indemnify and hold the Seller harmless from and  
against (i) any and all Losses which the Seller shall sustain by reason of  
or in connection with the breach of, or failure to comply with, any of the  
covenants or undertakings, contained in any Document, made by the Buyer,    
(ii) the Buyer's Liabilities (except to the extent that such liabilities    
are to be borne by the Seller pursuant to this Agreement or any Transaction 
Document and except to the extent that the same arise from a wrongful act   
or omission on the part of the Seller, any Affiliate of Seller or any       
Representative of any of the foregoing), and (iii) any and all Losses which 
the Seller shall sustain in connection with claims by third parties arising 
in connection with the Buyer's Liabilities (except as stated in the above   
parenthetical); provided, however, that subsection (i) of this Section      
9.2(C) shall be deemed to refer to breaches and failures of the Buyer only  
to the extent that the same exist and/or persist subsequent to the Closing  
Date.                                                                       

(D) VIMRx agrees to indemnify and hold the Seller harmless from and     
against (i) any and all Losses which the Seller shall sustain by reason of  
or in connection with the breach of, or failure to comply with, any of the  
covenants or undertakings, contained in any Document, made by VIMRx and     
(ii) any and all Losses which the Seller shall sustain by reason of or in   
connection with the breach of, or failure to comply with, any of the        
covenants or undertakings, contained in any Document, made by the Buyer;    
provided, however, that subsection (ii) of this Section 9.2(D) shall be     
deemed to refer to breaches and failures of the Buyer only to the extent    
that the same exist and/or persist during the period beginning on the date  
hereof and ending on the Closing Date.                                      

(E)(i) Notwithstanding anything to the contrary contained herein, but   
subject in any event to the rest of this Section 9.2(E), the maximum        
indemnity which the Seller could become obligated to provide to the Buyer   
and/or VIMRx, in the aggregate, under Section 9.2(A) for breaches of        
representations, warranties, covenants and/or undertakings is $18,000,000   
(in cash or securities, as more specifically provided below); provided,     
however, that notwithstanding the foregoing, any indemnity or payment to    
which the Buyer or VIMRx may be or become entitled under Sections 2.5(A),   
6.2(G), 6.2(I)(iv), 6.2(J)(i) (last sentence only), 6.2(J)(iii) (last       
sentence only), 6.2(J)(iv), 9.2(A)(ii)-(v) (other than Section 9.2(A)(v)(a) 
thereof), 10, 13, 16.1(C), 16.1(G) (proviso only), 16.1(H) (second sentence 
only) and 16.4(A) shall be paid by the Seller notwithstanding such          
$18,000,000 cap.                                                            

(ii)In the event that the Seller becomes liable to indemnify VIMRx  
for Losses under Section 9.2(A) for breaches of representations,        
warranties, covenants and/or undertakings, the first $5,000,000 of such 
indemnified Losses shall be payable only in cash. Any indemnified       
Losses in excess of $5,000,000 shall be payable, at the option of the   
Seller, either in cash or by way of the Seller's surrender (i.e.,       
transfer of ownership) to VIMRx of shares of VIMRx Preferred Stock. For 
the purposes of this Section 9.2, each share of VIMRx Preferred Stock   
shall be valued at its $1,000 liquidation value. Therefore, for         
example, in the event that the Seller became obligated to VIMRx for     
$1,000,000 (over and above the first $5,000,000, which would be payable 
in cash), the Seller would have the right to satisfy such liability by  
the surrender of 1,000 shares of VIMRx Preferred Stock. Notwithstanding 

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anything herein to the contrary, VIMRx acknowledges and agrees that,    
although it may become entitled to indemnification from Seller under    
Section 9.2 based upon Losses directly incurred by Buyer (and not       
directly by VIMRx), to the extent that Buyer has been made whole for    
any such Loss which has been directly incurred by it, VIMRx shall (to   
avoid "double recovery" for the same Loss) lose its right to be         
indemnified with respect to such Loss.                                  

(iii)In the event that the Seller becomes liable to indemnify the   
Buyer for Losses under Section 9.2(A) for breaches of representations,  
warranties, covenants and/or undertakings, the first $5,000,000 of such 
indemnified Losses shall be payable to the Buyer only in cash. Any      
indemnified Losses in excess of $5,000,000 shall be payable, at the     
option of the Seller, either in cash or by the surrender (i.e.,         
cancellation) of indebtedness otherwise owed to the Seller under the    
Buyer Convertible Debentures, such surrender/cancellation to be made on 
a dollar-for-dollar basis in accordance with the amount of Losses to be 
indemnified.                                                            

 (F)Notwithstanding anything to the contrary contained herein, the maximum
aggregate indemnity which the Buyer and/or VIMRx could, in the aggregate,   
become obligated to provide to the Seller under Section 9.2(B) for breaches 
of representations, warranties, covenants and/or undertakings is            
$18,000,000; provided, however, that notwithstanding the foregoing, any     
indemnity or payment to which the Seller may be or become entitled under    
Sections 2.5(B), 6.2(A)(i), 6.2(H) (parenthetical contained in subsection   
(i) only), 6.2(J)(iii) (last sentence only), 9.2(B)(ii) and (iii),          
9.2(C)(ii) and (iii), 10, 13 and 16.4(C) shall be paid by the Buyer or      
VIMRx, as the case may be, notwithstanding such $18,000,000 cap.            

(G)Within a reasonable period of time after receipt by any party hereto 
of notification of the assertion by a third party, of any Third Party Claim 
(such recipient being referred to hereinafter as an "Indemnified Party"),   
such Indemnified Party shall give written notice of such Third Party Claim  
to each party which has, or would reasonably be expected to have, an        
obligation to indemnify such Indemnified Party under this Section 9 (an     
"Indemnifying Party"); provided, however, that the failure to so notify the 
Indemnifying Party shall not relieve him or it of any indemnity obligations 
hereunder unless, and to the extent, the Indemnifying Party's rights have   
been adversely affected by any such failure or delay. The Indemnifying      
Party shall (upon its delivery to the Indemnified Party of a written        
acknowledgment and agreement that, if such Third Party Claim shall be       
adversely determined, the Indemnifying Party shall be fully responsible     
hereunder to indemnify the Indemnified Party with respect to such Third     
Party Claim) have the option, upon notice to the Indemnified Party, to      
assume control of the defense of the Third Party Claim and the Indemnified  
Party may participate at its own expense in (but not control) the Third     
Party Claim (with counsel selected by it in its discretion) if it notifies  
the Indemnified Party in writing of its intention so to participate;        
provided, however, that the Indemnifying Party shall not consent to the     
entry of any judgment or enter into any settlement, except with the written 
consent of the Indemnified Party, which does not include as an              
unconditional term thereof the giving by the claimant or plaintiff to the   
Indemnified Party and its Affiliates and Representatives of a release from  
all liability in respect of such Action or which imposes any injunctive     
relief upon the Indemnified Party or any of its Affiliates or               
Representatives. In the event of such assumption, the Indemnified Party     
shall cooperate fully in the defense of the Third Party Claim as and to the 
extent reasonably requested by the Indemnifying Party (such cooperation     
shall include the retention and, upon the request of the Indemnifying       
Party, the provision to such party of records and information which are     
reasonably relevant to such claim or demand and making employees available  
on a mutually convenient basis to provide additional information and        
explanation of any material provided hereunder). In the absence of any such 
assumption of the defense, the Indemnifying Party shall be obligated to     
cooperate in accordance with the preceding sentence.                        

 (H)The provisions of this Section 9 are the exclusive remedy of any party
to this Agreement against any other party to this Agreement for any claim   
for breach of any covenant, agreement, representation, warranty or other    
provision of this Agreement (other than a claim for specific performance or 
injunctive relief or a claim based upon fraud) with the intent that all     
such claims shall be subject to the limitations and other provisions        
contained in this Section 9.                                                

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 (I)In no event shall any party hereto be entitled to or recover exemplary
or punitive damages in any action under this Agreement or relating to the   
subject matter hereof.                                                      

10.Transactional and Other Taxes.                                               

 (A)Transactional Taxes. The Buyer and the Seller shall each bear one-half
of any applicable Transactional Taxes with respect to the sale, transfer,   
or assignment of the Assets or otherwise on account of this Agreement or    
the transactions contemplated herein.                                       

(B)Personal Property Taxes. All personal property taxes relating to any 
and all personal property conveyed pursuant to this Agreement shall be pro- 
rated between the Buyer and the Seller in accordance with the relationship  
of the Closing Date to the entire relevant tax year. Any payment owed in    
respect of such pro-ration shall be made at Closing.                        

(C)Utilities. All utility accounts relating to the Parker Facility will 
be read as of the commencement of business on the Closing Date. The Seller  
shall be responsible for all utility charges accruing up to said time and   
the Buyer shall be responsible for all utility charges accruing thereafter. 

11.Further Assurances and Cooperation.                                          

Following the date hereof, and subject to the terms and conditions hereof,  
each of the Seller, VIMRx and the Buyer severally agrees to execute and         
deliver such documents and take such other action as shall be reasonably        
requested by the other party to carry out and effectuate the transactions       
contemplated by this Agreement. On and subsequent to the Closing Date, each     
party severally covenants and warrants that it shall, whenever and as often as  
it shall be reasonably requested to do so by another party to this Agreement,   
execute, acknowledge and deliver or cause to be executed, acknowledged and      
delivered, any and all such further documents and instruments as may be         
reasonably necessary, expedient or proper in order to complete any and all of   
the conveyances, transfers, sales and assignments herein provided for. Without  
limiting the foregoing, this Section 11 shall apply in particular to any items  
of the type described in Section 8.1(A)(xi) which are not delivered on the      
Closing Date (e.g., foreign registrations of the trademark ISOLEX(R)).          

12.Notices.                                                                     

All notices, requests, demands, and other communications permitted or       
required under this Agreement shall be in writing and shall be either           
personally delivered (including couriers such as FedEx) or sent by pre-paid     
certified mail, return receipt requested or facsimile transmission, with a      
confirmation copy personally delivered or sent by pre-paid certified mail,      
addressed or transmitted to the address or number stated below of the party to  
which notice is given, or to such other address or number as such party may     
have fixed by notice given in accordance with the terms hereof:                 

To the Buyer:                                                       

BIT Acquisition Corp.                                               
c/o VIMRx Pharmaceuticals Inc.                                      
2751 Centerville Road                                               
Suite 210                                                           
Wilmington, Delaware 19808                                          
Attention:Chief Executive Officer                                   
Facsimile:(302) 998-3794                                            

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With a copy to:                                                     

Epstein Becker & Green, P.C.                                        
250 Park Avenue                                                     
New York, New York 10177                                            
Attention:Lowell S. Lifschultz, Esq.                                
or David C. Denowitz, Esq.                
Facsimile:(212) 661-0989                                            

To VIMRx:                                                           

VIMRx Pharmaceuticals Inc.                                          
2751 Centerville Road                                               
Suite 210                                                           
Wilmington, Delaware 19808                                          
Attention:Chief Executive Officer                                   
Facsimile:(302) 998-3794                                            

With a copy to:                                                     

Epstein Becker Green, P.C.                                          
250 Park Avenue                                                     
New York, New York 10177                                            
Attention:Lowell S. Lifschultz, Esq.                                
or David C. Denowitz, Esq.                
Facsimile:(212) 661-0989                                            

To the Seller:                                                      

Baxter Healthcare Corporation                                       
1627 Lake Cook Road                                                 
Deerfield, Illinois 60015                                           
Attention:President--Biotech Business Group                         
President--Venture Management             
General Counsel--Biotech Business Group   
Facsimile:                                                          

With a copy to:                                                     

Seyfarth, Shaw, Fairweather & Geraldson                             
55 East Monroe Street                                               
Chicago, Illinois 60603-5803                                        
Attention:Christopher A. Lause, Esq.                                
Facsimile:(312) 269-8869                                            

Any notice, sent as provided above, shall be deemed given, if sent by           
certified mail, upon delivery at the address provided for above (or, in the     
event delivery is refused, the first date on which delivery was tendered) or,   
if sent by facsimile transmission, upon receipt by the sender of confirmation   
of delivery.                                                                    

13.Expenses.                                                                    

Subject to the terms of Section 9 hereof, each party hereto shall bear its  
own expenses (including all attorneys' and accountants' fees) incurred in       
connection with the negotiation, preparation, consummation and                  

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performance of this Agreement and the other Documents and the transactions      
contemplated hereby and thereby. The Buyer and the Seller shall each bear one-  
half of any filing fees or similar payments to any Authority incurred in        
connection with any filings or other actions required to be taken hereunder in  
respect of Hart-Scott. Notwithstanding anything to the contrary contained in    
this Section 13, the parties agree that the Seller shall bear the first         
$100,000 of expenses and costs relating to the audit services referred to in    
that certain KPMG Engagement Letter, dated July 24, 1997, relating to the       
Division, with all expenses and costs relating thereto which are in excess of   
$100,000 to be borne solely by the Buyer.                                       

14.Termination.                                                                 

14.1 Conditions.                                                            

This Agreement may be terminated at any time on or prior to the Closing 
Date:                                                                       

(A)by mutual consent of the Seller, the Buyer and VIMRx;                

(B)by the Buyer and VIMRx, if (i) there has been a material             
misrepresentation or breach on the part of the Seller with respect to any   
representation or warranty of the Seller set forth herein, or (ii) there    
has been any material failure on the part of the Seller to comply with any  
of its obligations or to perform any of its covenants hereunder, which      
failure, if capable of remedy, has not been remedied within 15 days of      
receipt by the Seller of notice thereof, or (iii) any of the conditions set 
forth in Section 7.1 or 7.3 shall not have been fulfilled by December 31,   
1997 (other than by virtue of a breach of this Agreement by the Buyer or    
VIMRx) and the fulfillment thereof shall not have been waived by the Buyer  
and VIMRx; or                                                               

(C)by the Seller, if (i) there has been a material misrepresentation or 
breach on the part of the Buyer or VIMRx in any of its representations or   
warranties set forth herein, or (ii) there has been any material failure on 
the part of the Buyer or VIMRx to comply with any of its obligations or to  
perform any of its covenants hereunder, which failure, if capable of        
remedy, has not been remedied within 15 days of receipt by the Buyer or     
VIMRx, as appropriate, of notice thereof, or (iii) any of the conditions    
set forth in Section 7.2 or 7.3 shall not have been fulfilled by December   
31, 1997 (other than by virtue of a breach of the Agreement by the Seller)  
and the fulfillment thereof shall not have been waived by the Seller.       

14.2 Special Termination Right.                                             

 (A)In addition to the rights of termination provided for in Section 14.1,
and in recognition of the fact that (i) notwithstanding the execution and   
delivery hereof, each of the Buyer, the Seller and VIMRx is continuing to   
perform its own ongoing due diligence in connection with the transactions   
contemplated hereby, (ii) each of the parties hereto may not have fully     
completed either the Schedules relating to its representations and          
warranties or its own analysis of the Schedules heretofore submitted by the 
other parties hereto and (iii) the parties have not fully completed or      
agreed upon Schedule 2.1, the Seller, on the one hand, and the Buyer and    
VIMRx jointly, on the other hand, shall have the right, which may be        
exercised in their sole and absolute discretion, to terminate this          
Agreement at any time on, or prior to, the Section 14.2 Date.               

(B)During the Disclosure Period, the Seller, the Buyer and VIMRx shall  
have the right (but not the obligation) both to supply Schedules (relating  
to Sections 3, 4 and 5, respectively) to the party or parties to whom the   
related representation and warranty is being made (the "Receiving Party")   
and to modify, in any respect, any such Schedule which shall theretofore    
have been provided by it to the Receiving Party. In the event that neither  
the Buyer and VIMRx, on the one hand, nor the Seller, on the other hand,    
shall have validly terminated this Agreement pursuant to Section 14.2(A) on 
or prior to the Section 14.2 Date, references in this Agreement to any      
Schedule delivered or attached pursuant to Section 3, 4 or 5, as the case   
may be, shall be deemed to refer to the last version of such Schedule which 
was provided to the Receiving Party prior to the end of the Disclosure      
Period, regardless whether such version purported to be                     

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"final"or "draft" (it being the intent of the parties to give to each such  
"last version" the same status as a Schedule attached to a purchase         
agreement at the time of execution and delivery). In that connection, in    
the event that Section 3, 4 or 5 provides for a Schedule but no Schedule    
(whether "draft", "final" or other) shall have been provided, prior to the  
end of the Disclosure Period, by the party making the related               
representation and warranty, such party shall be deemed, for all purposes   
of this Agreement, to have provided such Schedule immediately prior to the  
end of the Disclosure Period in completely blank form (i.e., with no        
information or writing on it). Any information which is first provided on a 
version of a Schedule which version is not received by the Receiving Party  
until after the Disclosure Period shall not be deemed to have been received 
by the Receiving Party until after the Section 14.2 Date. No information    
shall be deemed to have been included on a Schedule unless such information 
shall have been delivered to the Receiving Party in a writing at the top of 
each page of which writing appears the words "Baxter/VIMRx" and the number  
of the related Schedule (e.g., "Schedule 3.5").                             

 (C)During the Disclosure Period, the Seller shall have the right (but not
the obligation) to supply Schedule 2.1 to the Buyer and VIMRx and to        
modify, in any respect, any version of such Schedule which shall            
theretofore have been provided by it to the Buyer and VIMRx. In the event   
that neither the Buyer and VIMRx, on the one hand, nor the Seller, on the   
other hand, shall have validly terminated this Agreement pursuant to        
Section 14.2(A) on or prior to the Section 14.2 Date, references in this    
Agreement to Schedule 2.1 shall be deemed to refer to the last version of   
such Schedule which was provided to the Buyer and VIMRx prior to the end of 
the Disclosure Period, regardless whether such version purported to be      
"final"or "draft" (it being the intent of the parties to give to such "last 
version" the same status as a Schedule attached to a purchase agreement at  
the time of execution and delivery). No modification to Schedule 2.1 shall  
be deemed to have been made by the Seller prior to the end of the           
Disclosure Period unless such modification shall have been delivered to the 
Buyer and VIMRx in a writing at the top of each page of which writing       
appears the words "Baxter/VIMRx" and "Schedule 2.1." After the end of the   
Disclosure Period, no modification to Schedule 2.1 shall be effective       
unless agreed to in writing by each party hereto.                           

(D)Each party hereto acknowledges that, for purposes of determining     
whether the conditions stated in Sections 7.1(A) and 7.2(A) have been       
satisfied, the representations and warranties in Sections 3, 4 and 5, as    
provided in such Sections, are being deemed to have been made immediately   
prior to the end of the Disclosure Period rather than on the date of        
execution and delivery hereof.                                              

 (E)Notwithstanding anything to the contrary herein, the valid termination
of this Agreement in accordance with Section 14.2 shall not give rise to    
any liability of any party hereto.                                          

14.3 Effective Date.                                                        

 A termination pursuant to Section 14.1(B) or (C) or Section 14.2(A) shall
be effective immediately upon delivery of a notice of termination by the    
party or parties having the right to terminate to the other party or        
parties.                                                                    

14.4 No Liability.                                                          

In the event of a termination of this Agreement, as provided above, this
Agreement shall forthwith terminate and there shall be no liability on the  
part of VIMRx, the Buyer or the Seller, except for liability arising from a 
breach of this Agreement.                                                   

15.Employment.                                                                  

The Buyer shall make offers of employment to at least 75% of the persons who
are employed by the Division, in the United States, immediately prior to the    
Closing.                                                                        

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16.Certain Additional Covenants and Acknowledgments.                            

16.1 CellPro Litigation.                                                    

 The parties understand and agree that matters pertaining to the potential
infringement by CellPro of the patents and technology licensed to the       
Seller pursuant to that certain License Agreement between Becton, Dickenson 
and Company and the Seller, dated August 24, 1990, as amended on November   
10, 1993 and further amended on March 30, 1995 (the "First BD License"),    
including the conduct of the CellPro Litigation, will remain the            
responsibility of the Seller, as set forth below:                           

 (A)The Seller will vigorously pursue in good faith and for the benefit of
the Buyer in the pending litigation entitled Johns Hopkins University v.    
CellPro, No. 94-105-RRM (D. Del.) (the "CellPro Litigation") its legal      
remedies against CellPro for infringement of certain of the patent rights   
embodied in the First BD License, which patent rights are to be sublicensed 
to the Buyer (the "Patent Rights");                                         

(B)The Seller will vigorously defend the Patent Rights in any actions or
proceedings with respect to CellPro that have been or may in the future be  
brought in any court of law or before the HHS or NIH, including proceedings 
seeking a compulsory license to CellPro of technology included in the       
Patent Rights;                                                              

(C)The Seller will bear the full cost and expense of the CellPro        
Litigation and any other such litigation or other protective defense action 
or proceeding, including without limitation, attorneys' fees and expenses,  
and fees and expenses of public relations advisors, accountants, experts,   
and other advisors or consultants, that are incurred in connection          
therewith;                                                                  

(D)The Seller will retain any award of damages or other recovery        
attributable to the infringing use of such Patent Rights by CellPro;        

(E)The Seller will consult with the Buyer concerning the conduct of any 
litigation or action described above;                                       

(F)The Seller will obtain the Buyer's consent to all material decisions,
including settlement and other strategic decisions, relating to the CellPro 
Litigation and any other litigation or action described above or related    
thereto, which consent shall not be unreasonably withheld or delayed;       
provided, however, that in the event that the Seller shall seek to grant a  
license to CellPro, then the Buyer shall have the right to withhold its     
approval thereto in its sole and absolute discretion without being subject  
to the aforementioned "unreasonably withheld" standard.                     

(G)The Buyer will abide by and comply with any settlement or commitment 
with or to HHS or NIH, made by the Seller with regard to CellPro, after     
approval thereof by the Buyer (which approval shall not be unreasonably     
withheld or delayed unless, in the Buyer's good faith opinion, such         
decision will materially adversely affect the Buyer's ability to achieve    
the Plan A Projections) including but not limited to the commitments made   
by the Seller to HHS, as set forth below, provided that the Seller will     
bear the full cost and expense of such compliance to the extent such cost   
and expense exceeds the projected cost and expense thereof included in the  
Plan A Projections. Notwithstanding anything to the contrary contained      
herein, the commitments made by the Seller to HHS, with which the Buyer     
will consent, and agree to cooperate with the Seller in assuring complete   
satisfaction of, include the following:                                     

(i)The Seller will use its best efforts to ensure in the CellPro    
Litigation that any injunctive relief against CellPro entered by the    
federal court will permit CellPro's continued sale of its Ceprate(R) SC 
products and its continued provision of those products to clinicians    
involved in clinical trials, pending FDA approval of a medically        
equivalent or superior alternative;                                     

(ii)If CellPro reduces support of any clinical site that does not   
already have the Seller's Isolex(R) 300 System available as an          
alternative, the Seller will install its device at the CellPro site     
free of charge                                                          

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and will make its best efforts to provide that site with support        
comparable to that which CellPro was providing on comparable contract   
terms. The Seller will also provide all necessary clinical, regulatory  
and technical support to put the Isolex(R) 300 system into operation as 
quickly as possible;                                                    

(iii)If CellPro reduces support for any clinical site, the Seller   
will take steps to assure that there will be no gap in patient access   
to the technology; and                                                  

(iv)The Seller will retain the responsibility and the ability to    
support the clinical and research needs for stem cells for transplant   
through retaining a non-exclusive license to the Patent Rights,         
continuing to manufacture the Isolex(R) devices under the               
Manufacturing, Supply and Distribution Agreements, and continuing as    
the exclusive worldwide distributor for the Isolex(R) 300 System in     
support of stem cell selection for the treatment of cancer.             

 (H)The Buyer shall take all actions the Seller reasonably deems necessary
or appropriate to assist the Seller in pursuing the CellPro Litigation,     
and/or other matters related to CellPro. The Seller will reimburse the      
Buyer for all reasonable out-of-pocket expenses associated with providing   
such cooperation or otherwise incurred by the Buyer in connection with the  
CellPro Litigation, including but not limited to attorneys' and other       
professionals' fees and expenses, that may be incurred in the event the     
Buyer is made a party to the CellPro Litigation.                            

16.2 Employee Covenants.                                                    

The parties agree that the following shall apply in respect of the      
employees of the Division:                                                  

(A)The Buyer shall have the right to designate to the Seller those      
employees of the Division (other than Safa Karandish, Heather Kinder,       
Virginia Mansour, Marta Schilling and Trish Swinney) whose services (as     
newly-hired employees) the Buyer is interested in retaining subsequent to   
the Closing (such people as may be so designated by the Buyer from time to  
time prior to Closing being referred to as the "Designated Employees"). The 
Seller shall encourage each Designated Employee to accept employment with   
the Buyer.                                                                  

(B)The Buyer shall also have the right to designate one or more, at its 
discretion, of the Designated Employees as "key" employees (such people as  
may be so designated by the Buyer from time to time prior to Closing being  
referred to as "Key Employees"). In the event that any Key Employee         
declines to accept employment with the Buyer, the Seller shall exercise     
commercially reasonable best efforts to continue to employ each and every   
such person, for a period of at least one year following the Closing, in    
such capacity as will enable such person to devote substantially all his or 
her business time to working on those aspects of the post-Closing           
Buyer/Seller relationship with which such person has familiarity; provided, 
however, that (i) except to the extent provided in the Services Agreement,  
in no event shall the Seller be required to increase the direct or indirect 
compensation payable to such Key Employee in order to retain such           
employee's services and (ii) to the extent and under the circumstances      
provided in the Services Agreement, the Buyer shall reimburse the Seller    
for the fully-loaded costs of such Key Employee. If the Buyer should        
request from time to time that any particular such Key Employee be focused  
on any particular project or area of competence, the Seller shall not       
unreasonably withhold its consent to such request.                          

16.3 Disclaimer.                                                            

The Seller shall not be deemed to have made to the Buyer any            
representation or warranty other than as expressly made by the Seller in    
Article 3 hereof. Without limiting the generality of the foregoing, and     
notwithstanding any otherwise express representations and warranties made   
by the Seller in Article 3 hereof, the Seller makes no representation or    
warranty to the Buyer with respect to:                                      

(A)any projections, estimates or budgets heretofore delivered to or made
available to the Buyer of future revenues, expenses or expenditures or      
future results of operations; or                                            

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(B)except as covered by a representation and warranty contained in      
Article 3 hereof, any other information or documents (financial or          
otherwise) made available to the Buyer or its counsel, accountants or       
advisers with respect to the Seller.                                        

16.4 Delayed FDA Approval.                                                  

(A)In the event (i) the Buyer has not received notification before      
January 1, 1998, that an application for premarket approval for commercial  
marketing of an Isolex 300SA or 300i System in the United States is         
approved by the FDA ("FDA Approval"), or (ii) such FDA Approval is received 
but the Seller is unable to manufacture Isolex 300SA or 300i Systems, as    
the case may be, in compliance with the Federal Food, Drug and Cosmetic     
Act, the Public Health Service Act and FDA implementing regulations, the    
Seller shall remit to the Buyer all CellPro Profit Margin Payments (as      
hereinafter defined) received by the Seller in respect of the period        
commencing January 1, 1998 and ending on the first date the Seller has      
received FDA Approval and is able to deliver to the Buyer Isolex 300SA or   
300i Systems, as the case may be, which comply with said Acts and           
regulations conforming to such FDA Approval.                                

(B)"CellPro Profit Margin Payments" shall mean any and all payments (i) 
made pursuant to any court order affecting CellPro, or any agreement        
between CellPro and the Seller, regarding CellPro's infringement of         
Intellectual Property Rights of the Seller embodied in the Isolex Products, 
and (ii) which are received by the Seller as compensation for, or damages   
in respect of, sales by or on behalf of CellPro on or after the Closing     
Date, of any product infringing any Intellectual Property Rights of the     
Seller embodied in the Isolex Products. The term "CellPro Profit Margin     
Payments" specifically excludes (a) damages or compensation payable to      
Johns Hopkins University and/or Becton, Dickenson and Company in respect of 
such infringement, (b) royalty payments made to Johns Hopkins University    
and/or Becton, Dickenson and Company in respect of any such damages or      
other compensation paid to the Seller, and (c) any reimbursement for        
attorney's fees received by Seller from Johns Hopkins University.           

(C)In the event the Seller becomes obligated to repay or refund any     
CellPro Profit Margin Payment received by the Buyer, to CellPro, its        
bankruptcy estate, its trustee in bankruptcy or its creditors, by reason of 
such payment being held to constitute a preference under any bankruptcy or  
insolvency law, the Buyer shall pay to the Seller the amount of such        
payment promptly after receipt of notice from the Seller of such            
obligation.                                                                 

16.5 Allocation of Consideration.                                           

 The parties shall exercise their good faith efforts to agree upon how the
consideration paid or given for the Class A Assets and Class B Assets       
(including but not limited to the Purchase Consideration and the Milestone  
Payments) shall be allocated. In the event that any such agreement is       
executed and delivered by the parties, such consideration shall be deemed,  
for all purposes (including those relating to Taxes of any kind             
whatsoever), to be allocated to the Class A Assets and Class B Assets in    
accordance therewith and, without limiting the foregoing, any IRS Forms     
8594 shall be prepared consistent therewith.                                

17.Miscellaneous.                                                               

17.1 Entire Agreement: No Modification.                                     

This Agreement, including the Exhibits, Schedules and instruments       
delivered pursuant hereto, sets forth the entire agreement and              
understanding between the parties hereto as to the specific subject matter  
hereof and thereof, and merges and supersedes all prior discussions,        
agreements and understandings of every kind and nature between them with    
respect to the specific subject matter hereof and thereof, and no party     
hereto shall be bound by any condition, definition, warranty or             
representation other than as expressly provided for in this Agreement,      
provided, however, that the parties hereto acknowledge and agree that the   
Primary Licenses are not being made a part of this Agreement and shall not  
be integrated into this Agreement. This                                     

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Agreement shall not be changed or amended except by a writing signed by the 
Buyer, VIMRx and the Seller.                                                

17.2 Waiver of Breach.                                                      

The waiver by a party of a breach or violation by any other party of any
provision of this Agreement shall not operate or be construed as a waiver   
of any subsequent breach or violation by any party of the same or any other 
provision of this Agreement. No such waiver shall be effective unless in    
writing signed by the party claimed to have made the waiver.                

17.3 Benefit of Parties; Assignment.                                        

This Agreement shall be binding upon and shall inure to the benefit of  
the parties hereto and their respective heirs, executors, legal             
representatives, successors and permitted assigns. No party shall have the  
right to assign or delegate any of its rights or obligations arising        
hereunder, except with the prior written consent of each other party        
hereto; provided, however, that any party may assign any or all of its      
rights, and delegate any or all of its obligations, hereunder to any person 
or entity who shall, by merger, consolidation, transfer of assets or        
otherwise, have acquired all or substantially all of the assets (not        
counting cash and cash equivalents) of such party; provided, further, that  
no such delegation shall relieve the delegating party of the obligation to  
satisfy and discharge the obligation(s) so delegated. Notwithstanding the   
foregoing, the Seller shall have the right to assign this Agreement, and    
any rights and obligations arising hereunder, to an Affiliate of the Seller 
without the prior written consent of any other party hereto; provided, that 
no such assignment shall relieve the Seller of any of its obligations       
hereunder. Any purported assignment or delegation in violation of this      
Section 17.3 shall be null and void ab initio.                              

17.4 Headings.                                                              

The headings of the sections and paragraphs of this Agreement are       
inserted for convenience of reference only and shall not constitute a part  
hereof.                                                                     

17.5 Governing Law; Jurisdiction                                            

This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to principles of        
conflict of laws. Each party to this Agreement expressly and irrevocably    
(A) consents that any legal action or proceeding against it under, arising  
out of or in any manner relating to, this Agreement, or any other Document  
delivered in connection herewith, may be brought in any court of the State  
of Delaware located within the District of Delaware or in the United States 
District Court for the District of Delaware, (B) consents and submits to    
the personal jurisdiction of any of such courts in any such action or       
proceeding, (C) consents to the service of any complaint, summons, notice   
or other process relating to any such action or proceeding by delivery      
thereof to him, her or it by hand or by any other manner provided for in    
Section 12, (D) waives any claim or defense in any such action or           
proceeding based on any alleged lack of personal jurisdiction, improper     
venue or forum non conveniens or any similar basis, and (E) waives all      
rights, if any, to trial by jury with respect to any such action or         
proceeding. Nothing in this Section shall affect or impair in any manner or 
to any extent the right of any party to commence legal proceedings or       
otherwise proceed against any other party in any jurisdiction or to serve   
process in any manner permitted by law.                                     

17.6 Multiple Counterparts; Execution by Fax.                               

This Agreement may be signed in any number of counterparts which taken  
together shall constitute one and the same instrument. This Agreement may   
be executed and delivered by exchange of facsimile copies showing the       
signatures of the parties hereto, and those signatures need not be affixed  
to the same copy. The facsimile copies showing the signatures of the        
parties will constitute originally signed copies of the same agreement      
requiring no further execution.                                             

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17.7 Exhibits, Schedules.                                                   

All Exhibits and Schedules referred to in this Agreement are attached   
hereto and are incorporated herein by reference as if fully set forth       
herein.                                                                     

17.8 Construction.                                                          

The language in all parts of this Agreement shall in all cases be       
construed as a whole according to its fair meaning, strictly neither for    
nor against any party hereto, and without implying a presumption that the   
terms thereof shall be more strictly construed against one party by reason  
of the rule of construction that a document is to be construed more         
strictly against the person who himself or through his agent prepared the   
same, it being agreed that representatives of both parties have             
participated in the preparation hereof.                                     

17.9 Publicity.                                                             

No party to this Agreement shall issue or cause the publication of any  
press release or other public announcement with respect to this Agreement   
or the transactions contemplated hereby without first providing a draft of  
such press release or announcement to the other parties and obtaining the   
consent of the other parties hereto; provided, however, that nothing herein 
shall prevent any party from making any disclosure required by law.         

17.10 Number and Gender.                                                    

Whenever in this Agreement the singular is used, it shall include the   
plural if the context so requires, and whenever the masculine gender is     
used in this Agreement, it shall be construed as if the masculine, feminine 
or neuter gender, respectively, has been used where the context so          
dictates, with the rest of the sentence being construed as if the           
grammatical and terminological changes thereby rendered necessary have been 
made.                                                                       

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of  
the date first above written.                                                   

          VIMRx:

                              VIMRx PHARMACEUTICALS INC.

                              By: /s/ Richard L. Dunning
                                          ----------------------------------

                                  Title: Chief Executive Officer
                                             ---------------------------------

           SELLER:

                                  BAXTER HEALTH CARE CORPORATION

                             By: /s/ Victor W. Schmitt
                                          ----------------------------------

                                        Title: President--Venture Management
             (Biotech)
                                             ---------------------------------

          BUYER:

                         BIT ACQUISITION CORP.

                              By: /s/ Richard L. Dunning
                                          ----------------------------------

                    Title: President
                                             ---------------------------------

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                                                                       ANNEX B

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549  

----------------  

FORM 10-K 

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)                  
OF THE SECURITIES EXCHANGE ACT OF 1934  

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 

OR  

[_]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)                
OF THE SECURITIES EXCHANGE ACT OF 1934  

FOR THE TRANSITION PERIOD FROM       TO       

COMMISSION FILE NO. 0-19153 

----------------  
VIMRX PHARMACEUTICALS INC.  
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)  

DELAWARE                              06-1192468  
(STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)                                          

2751 CENTERVILLE ROAD,                          19808           
WILMINGTON,DELAWARE                        (ZIP CODE)       
(ADDRESS OF PRINCIPAL EXECUTIVE                                         
OFFICES)                                          

Registrant's telephone number, including area code: 
(302) 998-1734  

Securities registered pursuant to Section 12(b) of the Act: 
NONE  

Securities registered pursuant to Section 12(g) of the Act: 
COMMON STOCK, $.001 PAR VALUE 

Indicate by check mark whether the Registrant (1) has filed all reports     
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
Registrant was required to file such reports), and (2) has been subject to      
such filing requirements for the past 90 days.                                  
Yes [X]  No [_] 

Indicate by check mark if disclosure of delinquent filers pursuant to Item  
405 of Regulation S-K is not contained herein, and will not be contained, to    
the best of Registrant's knowledge, in definitive proxy or information          
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. [_]                                                

The aggregate market value of the voting stock (Common Stock, $.001 par     
value) held by non-affiliates of the Registrant was approximately $143,019,702  
on March 17, 1997 based on the closing sale price of the Common Stock on such   
date.                                                                           

The aggregate number of outstanding shares of Common Stock, $.001 par value,
of Registrant was 54,429,937 on March 17, 1997.                                 

Documents incorporated by reference:  
NONE  

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PART I  

ITEM 1. BUSINESS.                                                               

GENERAL                                                                         

VIMRx Pharmaceuticals Inc. ("VIMRx" or the "Company") is a development stage
company focused on identifying, evaluating, acquiring and commercializing       
scientific technologies to be developed by the Company in partnership with      
others. The Company is engaged in developing therapeutic and related products   
from synthetic hypericin principally for the treatment of viral and retroviral  
diseases. The Company also owns approximately 68% of the capital stock of       
Innovir Laboratories, Inc. (Nasdaq: INVR) ("Innovir") which, together with its  
subsidiaries, is engaged in the research and development of Oligozymes, a new   
class of biopharmaceutical agents for the treatment of a wide array of human    
diseases. In order to diversify its potential product line and complement the   
Company's recent acquisition of a controlling interest in Innovir, the Company  
has entered into a research agreement with Columbia University, and continues   
to seek emerging innovative technologies to diversify its portfolio of          
potential products.                                                             

HYPERICIN                                                                       

General                                                                       

The Company's principal product, VIMRxyn(R), is comprised of chemically     
synthesized hypericin and, in laboratory tests, has inhibited the infection of  
normal cells by targeted viruses. Hypericin is an aromatic polycyclic dione     
found in the stem and petals of the common Saint John's wort, a plant which     
has been used as a folk remedy since the Middle Ages. Hypericin plant extracts  
continue to be used as lay treatments for various disorders. The Company is     
investigating utilizing VIMRxyn as a treatment for viral and retroviral         
diseases, including the human immune deficiency virus ("HIV"), which is the     
retrovirus responsible for Acquired Immune Deficiency Syndrome ("AIDS"), and    
also is investigating utilizing VIMRxyn as a treatment for hepatitis C, as a    
therapeutic for brain cancer (glioma), and as a means of inactivating HIV and   
other lipid-enveloped viruses in blood collected for transfusions. The Company  
has a worldwide exclusive license to commercialize and exploit synthetic        
hypericin compounds for enumerated purposes acquired from New York University   
and Yeda Research and Development Co., Ltd., an Israeli corporation engaged in  
the commercial exploitation of scientific developments by scientists at a       
Weizmann Institute of Science in Israel (New York University and YEDA,          
collectively, the "Hypericin Licensors").                                       

HIV/AIDS Research                                                             

The Company has not established the efficacy of VIMRxyn in human clinical   
trials for the treatment of AIDS. In 1994, the Company completed data analysis  
of Phase I/Phase II human clinical trials sponsored by the National Institutes  
of Health to determine the maximum tolerated dose and any side effects of       
VIMRxyn as a treatment for AIDS. From the data collected, the results showed a  
favorable pharmacological profile with no major organ or hematological          
toxicity, and with skin photosensitivity as the primary dose-limiting side      
effect. All of the patients enrolled in the trials experienced varying levels   
of skin photosensitivity and several experienced non-life threatening acute     
skin photosensitivity which required medical treatment.                         

Between January and September 1996, human clinical trials were conducted in 
Thailand by a Dutch company retained by the Company under a protocol submitted  
to the U.S. Food and Drug Administration (the "FDA") under the Company's        
existing investigational new drug application to identify a potentially         
efficacious lower dose of VIMRxyn, having minimal skin photosensitivity, as a   
treatment for AIDS. The dosage administered was well-tolerated by the patients  
and did not result in untoward toxicity or skin photosensitivity and, based on  
the measurement criteria used, produced evidence of anti-HIV activity. The      
Company is currently conducting in vitro interaction studies to determine how   
VIMRxyn may be used in combination with other anti-retroviral agents.           

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HIV Inactivation Blood Studies                                                

In 1996, VIMRx continued to explore the anti-viral properties of VIMRxyn    
with respect to whole red blood cells in blood collected for transfusions. The  
Company's studies are being conducted under the direction of Alfred M. Prince,  
M.D., of the New York Blood Center. Studies conducted by Dr. Prince in 1996     
have indicated that VIMRxyn combined with fluorescent light can inactivate the  
HIV virus in packed red blood cells. The Company is developing protocols for    
additional studies to determine the safety, cellular integrity and efficacy of  
HIV virus in activation in treated whole red blood cells.                       

Hepatitis C Virus                                                             

The hepatitis C virus ("HCV") is a blood-borne pathogen infecting           
approximately 200,000 people in the United States each year, with               
approximately seventy to ninety percent of such infected persons (140,000 to    
180,000 persons) becoming chronic carriers of the virus. Chronic carriers of    
HCV are at high risk of developing cirrhosis and liver cancer later in life.    
The Center for Disease Control estimates that two and one-half to five million  
Americans are chronic carriers, and there are an estimated 400 million persons  
worldwide who are chronic carriers, most of whom are located in the Far East.   
Despite recent advances in blood screening techniques, it is estimated that     
one in 3,000 transfusions in the United States transmits HCV.                   

Studies funded by the Company in the laboratories of Dr. Alfred M. Prince at
the New York Blood Center and Dr. Edward Dubovi at the Diagnostic Laboratory    
of the New York State College of Veterinary Medicine at Cornell University in   
Ithaca, New York have indicated that VIMRxyn may be effective in inactivating   
HCV. The studies were conducted on bovine viral diarrhea virus ("BVDV") as a    
surrogate for HCV, as BVDV can be quantified in cell cultures while HCV can     
only be assayed in animal studies using chimpanzees. In their studies, Dr.      
Prince and Dr. Dubovi subjected BVDV, in the presence of packed human red       
blood cells, to varying concentrations of VIMRxyn and different periods of      
exposure to light, and found that VIMRxyn inactivated BVDV in doses of only     
1g/ml during ten minutes of exposure to light. Such results indicate that       
VIMRxyn may be effective in inactivating HCV.                                   

In January 1997, the Company commenced a Phase I/Phase II clinical trial to 
determine the antiviral effectiveness of VIMRxyn in reducing the amount of HCV  
in the blood of patients suffering from infectious chronic hepatitis C. The     
trial is being conducted at the Bronx VA Hospital in New York under the         
direction of Dr. Jeffrey Jacobson, Associate Professor of Infectious Diseases   
at Mt. Sinai School of Medicine.                                                

Cancer/Malignant Brain Gliomas                                                

Research groups worldwide are studying hypericin for a variety of medical   
uses. One such effort, that of William T. Couldwell, M.D., Ph.D. in the         
Division of Neurological Surgery at the University of North Dakota, School of   
Medicine, demonstrated that hypericin effectively inhibits the growth of human  
brain cancer cells (malignant gliomas). The data suggest that in the presence   
of hypericin, glioma cell death is due to apoptosis, a process by which normal  
cells die, but which is missing in cancer cells. Hypericin appears to limit     
the uninhibited growth of cancer cells by restoring the natural mechanism of    
cell death.                                                                     

In October 1996, the Company commenced a Phase I/Phase II clinical trial at 
the North Dakota School of Medicine, under the direction of Dr. Couldwell, to   
determine whether VIMRxyn has antiglioma properties in patients with malignant  
brain gliomas.                                                                  

The Company also has initiated pre-clinical laboratories studies to evaluate
the effectiveness of VIMRxyn against a variety of human cancer cell lines,      
including non-Hodgkins B-cell lymphoma, endometrial carcinoma and cutaneous T-  
cell lymphoma. In some of these studies, the Company is examining the           
potential use of VIMRxyn as a light-activated topically applied treatment for   
dermatological diseases caused by viruses and cancers.                          

Relationship with Hypericin Licensors                                         

Pursuant to an agreement dated June 1, 1988, as amended (the "License       
Agreement"), between the Company and the Hypericin Licensors, the Hypericin     
Licensors granted the Company a worldwide exclusive                             

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license to commercialize and exploit natural hypericin and synthetic hypericin  
compounds to inactivate viruses and retroviruses, as a therapeutic or           
preventative for viral or retroviral diseases, and for anti-glioma (brain       
tumor) indications.                                                             

Pursuant to the License Agreement, the Company is required to make royalty  
and related payments to the Hypericin Licensors as follows: (i) 7% of net       
sales of licensed products by VIMRx and/or its affiliates, (ii) 4.4% of net     
sales of licensed products by sublicensees of VIMRx, (iii) 40% of down          
payments and research and development payments received by VIMRx from           
sublicensees with respect to the licensed products, and (iv) 12% of all         
consideration received by VIMRx as an investment, loan or capital contribution  
from an entity selling licensed products (to be offset against 50% of any       
royalties payable under (i) and (ii) above); 50% of the cumulative patent       
expenses incurred by VIMRx will offset up to 50% of the foregoing royalty       
payments. Minimum annual royalty payments of $100,000 are required to be made   
by the Company to the Hypericin Licensors under the License Agreement.          

The Hypericin Licensors have made no representation or warranty, express or 
implied, with respect to the research results or the efficacy or possible       
commercial success of synthetic hypericin compounds.                            

The Company is required to indemnify the Hypericin Licensors for all        
liability resulting from commercialization of the licensed products to be       
secured, prior to the marketing of any licensed product, by $5,000,000 of       
product liability insurance coverage with the Hypericin Licensors named as      
additional insureds, or by an indemnity from an entity satisfactory to the      
Hypericin Licensors. Under the Agreement, any improvements, new inventions,     
developments or discoveries by VIMRx, its employees, affiliates or consultants  
with respect to the technology covered by the license is the property of the    
Hypericin Licensors. The exclusive license is subject to cancellation in the    
event VIMRx fails to comply with its terms and conditions, including payment    
of the royalties and other amounts due thereunder.                              

OLIGOZYMES; AFFILIATION WITH INNOVIR                                            

General                                                                       

In December 1996, the Company acquired an approximate 68% ownership interest
in Innovir, a biotechnology company engaged in the research and development of  
a new class of biopharmaceutical therapeutic agents, collectively termed        
"Oligozymes" by Innovir, for the treatment of a wide array of human diseases.   
An Oligozyme is a chemically modified oligomer, not composed of RNA, that       
participates in an essential manner in the sequence-specific, catalytic         
cleavage of a targeted RNA molecule. The management of the Company and Innovir  
believe that therapeutic agents based upon Innovir's proprietary core           
technologies have the potential to be cost-effective and highly specific        
therapeutics for designated disease targets and that these technologies can     
also be used to fill a growing need in the pharmaceutical industry for better   
methods to identify and validate targets for drug discovery. VIMRx's            
management also believes that its collaboration with Columbia University may    
provide synergistic opportunities for the Oligozyme technology owned by         
Innovir. See "Research Agreement with Columbia University."                     

EGS Oligozymes                                                                

One of Innovir's two core technologies, its External Guide Sequence ("EGS") 
Oligozyme technology, directs a naturally occurring cellular ribozyme (RNase    
P) to disease-causing RNA so that the RNase P will cleave the disease-causing   
RNA and render it inactive. An EGS Oligozyme is a small, chemically-modified    
oligonucleotide segment that binds to a disease-causing RNA to create a         
structure resembling a type of RNA which is cleaved by RNase P, which thereby   
destroys the disease-causing RNA molecules before they create disease-causing   
proteins. Innovir's EGS Oligozyme technology is based upon Nobel Prize-winning  
research by Sidney Altman, Ph.D., Sterling Professor of Biology at Yale         
University, a consultant to and member of the Science Advisory Board of         
Innovir, and Innovir has an exclusive worldwide license from Yale University    
for the commercial application of such technology. Innovir is investigating     
the use of EGS Oligozymes as a therapeutic to combat target viral and other     
diseases, and currently is focussing on hepatitis B, hepatitis C, cancer,       
psoriasis and bacterial infections caused by drug-resistant microorganisms.     

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RILON Oligozymes                                                              

Innovir's second core technology is its RILON(TM) Oligozyme technology,     
which was acquired by Innovir as a result of its acquisition of VIMRx           
Holdings, Ltd. ("Holdings") from the Company in December 1996. See "Item 13--   
Certain Relationships and Related Transactions." RILON Oligozymes are composed  
of certain types of chemically modified oligoribonucleotides, and are           
proprietary to Innovir through Holdings" worldwide exclusive license from the   
European Molecular Biology Laboratory and certain patents held by Innovir.      
RILON Oligozymes consist of two classes: Type 1 RILON Oligozymes cut specific   
targeted RNA molecules in a manner intrinsic to the RILON Oligozyme. Type 2     
RILON Oligozymes, which are shorter in length than Type 1 RILON Oligozymes and  
are patented by Innovir's subsidiary, VIMRx Holdings, Ltd., participate with    
the substrate of the targeted RNA molecule to form a structure that results in  
the sequence-specific catalytic cleavage of the target RNA molecule. Innovir    
is evaluating the potential use of RILON Oligozymes to combat viral and other   
diseases, including cancer, central nervous system diseases and psoriasis.      

Drug Target Identification and Validation                                     

Innovir also is investigating the use of its Oligozyme technologies to      
identify and validate disease targets for new drugs. Oligozymes can be used in  
drug target identification and validation as substitutes for the difficult-to-  
find selective inhibitors which otherwise are required in the drug target       
identification and validation process. Such substitution is possible because    
Oligozymes mimic the effect of select inhibitors at an earlier stage of the     
disease-causing process than inhibitors. While inhibitors inhibit the           
production of disease-causing proteins, Oligozymes inhibit the production of    
the disease-causing messenger RNA molecules that produce such disease-causing   
proteins and, in both cases, the pharmacological effect is the same.            

Management of the Company and Innovir do not anticipate that any of         
Innovir's proposed products will be available for commercial sale for several   
years, if at all. Innovir's current capital is insufficient to enable Innovir   
to complete the development of any of its products.                             

RESEARCH AGREEMENT WITH COLUMBIA UNIVERSITY                                     

In March 1997, VIMRx entered into a research agreement relating to the      
discovery, mapping, sequencing and validation of disease-related genes with     
Columbia University ("Columbia"), whereby VIMRx, through a newly established    
subsidiary, VIMRx Genomics, Inc., ("Genomics"), 90%-owned by the Company and    
10%-owned by Columbia, will provide $30 million in funding to the Columbia      
Genome Center established by Columbia, with $4.7 million to be paid during the  
first year in quarterly installments. In exchange, Genomics will receive an     
exclusive license to develop, manufacture, use, sell or market products         
resulting from any invention research information and biological materials      
developed by the Columbia Genome Center and funded under the agreement.         
Following an initial five-year term, the agreement automatically will renew     
for successive two-year terms and, in the absence of an agreement to the        
contrary, the amount of funding will be increased at a rate of 9% for every     
additional year. The agreement is terminable by either Columbia or Genomics     
during the initial five-year term upon six months notice, but in no event       
earlier than September 7, 1999. Under the agreement, VIMRx agreed to issue      
200,000 shares of Common Stock to Columbia, and granted Columbia "piggyback"    
registration rights with respect thereto during the period April 1, 1997 to     
April 1, 1999.                                                                  

The Columbia Genome Center (the "Center") is devoted to mapping, sequencing,
gene discovery and technology development on the genomes of human and selected  
model organisms. The Center evolved from the work of a group at Columbia under  
the joint direction of Drs. I.S. Edelman and A. Efstratiadis over the last      
five years. This group has advanced the technology used in fine mapping of      
human chromosomes, generated a detailed cosmid-based map of human chromosome    
13, fabricated highly representative normalized human cDNA libraries and        
contributed significantly to gene discovery, e.g., the Cu-transport protein of  
Wilson's Disease. The Center is building on this base to develop a              
comprehensive genome center operating at the forefront of this field.           
Integrated genomic mapping and sequencing is used to facilitate gene discovery  
and gene therapy strategies in collaboration with laboratories throughout the   
University.                                                                     

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Investigators at the Center have been involved in localizing and identifying
novel human genes associated with genetically based diseases, including         
cancer, late-onset Alzheimer's Disease, epilepsy, manic-depressive disorder     
and glaucoma. VIMRx's management believes the collaboration with Columbia may   
also provide synergistic opportunities for the Oligozyme technology owned by    
Innovir. As the Center provides access to proprietary gene sequences            
implicated in disease processes, the Oligozyme technology may aid in            
understanding the function of such genes and potentially lead to the            
development of new diagnostic and therapeutic compounds. See "--Oligozymes--    
General."                                                                       

To enhance the commercial potential of the collaboration, VIMRx intends to  
seek technology partnerships with pharmaceutical and/or diagnostic companies    
and to solicit equity investments in Genomics from potential technology         
partners and other investors.                                                   

Eric A. Rose, M.D. and Michael Weiner, M.D., directors of the Company, have 
affiliations with Columbia. See "Item 13--Certain Relationships and Related     
Transactions."                                                                  

PATENTS AND LICENSES                                                            

The Company has been granted an exclusive license for the worldwide rights  
to synthetic hypericin compounds for viral, retroviral and other applications   
by the Hypericin Licensors which have been issued five U.S. patents for anti-   
viral and anti-retroviral applications and manufacturing processes and have     
filed patent applications for U.S. and foreign patents relating to the          
synthesis and therapeutic uses of synthetic hypericin compounds. In addition,   
the Company has acquired a worldwide exclusive license for rights to            
commercialize and exploit synthetic catalytic oligonucleotide compounds for     
pharmaceutical and diagnostic products. There can be no assurance that such     
patents, or pending patents if issued, will provide adequate protection to the  
Company. Infringement claims may be asserted against the Company and/or the     
respective licensors (with respect to which the Company has agreed to           
indemnify the Hypericin Licensors) which, if affirmed, might require the        
Company to acquire licenses from others.                                        

The Company also has an exclusive license to develop, manufacture, use, sell
or market products resulting from any invention or research product developed   
by the Columbia Genome Center under its research agreement. See "Item 1--       
Business--Research Agreement with Columbia University."                         

Innovir has an exclusive license from Yale University for the worldwide     
rights to 22 U.S. patents and patent applications for therapeutic uses of       
Oligozymes, oligonucleotide delivery, and diagnostic applications of            
ribozymes. Corresponding foreign applications are pending or issued.            

The Company is aware of patents in the United States and Europe held by an  
unaffiliated third party relating to catalytic ribonucleic compounds which may  
be infringed by certain synthetic catalytic oligonucleotide compounds licensed  
to VIMRx Holdings, Ltd., in which event a license from such third party would   
be required. There can be no assurance that VIMRx Holdings, Ltd. would be able  
to attain such license on reasonable terms, or at all.                          

MANUFACTURING                                                                   

VIMRx has no manufacturing capability and has contracted with outside       
suppliers to develop, produce, and package therapeutic formulations of a        
synthesized form of hypericin for the human clinical trials. The synthesis      
process has been developed at The Weizmann Institute of Science in Israel,      
using a natural product available from a limited number of specialty chemical   
suppliers as the precursor. Only limited quantities of synthetic hypericin      
have been manufactured and the production process must be further developed     
and refined for commercial quantities to be produced, as to the success of      
which there can be no assurance.                                                

Innovir manufactures EGS Oligozymes and RILON Oligozymes for use in its test
tube, cell culture, animal testing and target validation programs, and is       
exploring other sources of supply.                                              

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GOVERNMENT REGULATION                                                           

The manufacture and marketing of therapeutic products is subject to         
extensive regulation by the FDA, as well as by state and foreign authorities.   
Prior to the release of VIMRxyn for marketing as a therapeutic product or       
agent, its tolerance, safety and efficacy as a treatment must be established    
in human clinical trials and approval of a new drug application ("NDA")         
obtained. Although the Company-sponsored Thailand trials did not result in      
untoward toxicity or skin photosensitivity and, based on the measurement        
criteria used, produced evidence of anti-HIV activity in 10 out of 12           
patients, there can be no assurance that the FDA will accept the clinical       
results therefrom. Among other additional regulatory requirements, it is        
possible that additional toxicology studies will need to be performed in the    
United States, and Phase III clinical trials, which are both costly and time-   
consuming, will need to be undertaken to obtain an NDA. Prior to its            
commercialization as a means of inactivating HIV and other lipid-enveloped      
viruses in blood collected for transfusions, a product license application      
("PLA") or an NDA must be obtained. These are long-term and costly processes    
as to the successful completion of which there can be no assurance.             

In addition to regulations enforced by the FDA, the Company's proposed      
products also may 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           
potential future, state or local regulations. Outside the United States, the    
Company also is subject to foreign regulatory requirements governing human      
clinical trials and marketing approval for drugs. The requirements governing    
the conduct of clinical trials, product licensing, pricing and reimbursement    
vary widely from country to country.                                            

Innovir's development, manufacture and sale of therapeutics similarly is    
subject to regulation by a variety of governmental authorities.                 

COMPETITION                                                                     

The biomedical industry is highly competitive. Competition in the field in  
which the Company is engaged is intense and expected to increase as knowledge   
and interest in the technology and products being developed by the Company      
increase. The Company faces competition from biotechnology companies, large     
pharmaceutical companies, academic institutions, government agencies and        
public and private research organizations, many of which have extensive         
resources and experience in research and development, clinical testing,         
manufacturing, regulatory affairs, distribution and marketing. Some of these    
entities have significant research and development activities in areas upon     
which the Company's programs focus. Many of the Company's competitors possess   
substantially greater research and development, financial, technical,           
marketing and human resources than the Company and may be in a better position  
to develop, manufacture and market products. Current and future treatments for  
AIDS, and the use of combination therapy in connection therewith, may render    
the Company's synthetic hypericia program for treating AIDS obsolete or non-    
competitive. In addition, forms of hypericin extracted from plants are being    
used as lay treatments for a variety of disorders, including AIDS. The Company  
is similarly subject to substantial competition from pharmaceutical, chemical   
and biotechnology firms in the attempt to develop a means of inactivating       
blood and other lipid-enveloped viruses in blood collected for transfusions,    
and in seeking to develop treatments for hepatitis C and therapeutics for       
brain cancer (glioma).                                                          

Innovir is likewise subject to substantial competition in the development   
and marketing of its Oligozyme technologies.                                    

EMPLOYEES                                                                       

At March 1, 1997, the Company had nine full-time employees in the United    
States consisting of its five executive officers, one financial analyst and     
three administrative assistants. At December 31, 1996, the Company believes     
that its relations with its employees is satisfactory.                          

Innovir has 27 full-time U.S. employees and 23 full-time non-U.S. employees.

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CONSULTANTS                                                                     

The Company is dependent on third parties for significant aspects of its    
research and development operations. Research with respect to potential         
therapeutic applications for hypericin and certain analogues thereof is being   
performed by New York University Medical Center and the Weizmann Institute of   
Science in Israel (the "Research Institutions") under the supervision of four   
principal researchers who, together with other scientists at the Research       
Institutions, are also consultants to the Company. Consultants have also been   
retained to assist in supervising the IND regulatory process, monitoring the    
human clinical trials and establishing the toxicology tests for hypericin. The  
Company also retains financial consultants. The Company's Medical Director,     
responsible for developing clinical protocols and monitoring the performance    
of these protocols, was also a consultant to the Company through February 28,   
1995.                                                                           

The Company's consultants are employed by and/or have consulting agreements 
with entities other than the Company, some of which may conflict or compete     
with the Company, and are expected to devote only a minor portion of their      
time to the affairs of the Company. Regulations or policies now in effect or    
adopted in the future by their respective employers may limit the ability of    
such persons to consult with the Company. The loss of the services of certain   
of such persons may adversely affect the Company.                               

In August 1995, the Company entered into a financial consulting arrangement 
with Lindsay A. Rosenwald, M.D. (who was elected a director of the Company in   
June 1996) in consideration for the grant of an option to purchase 2,000,000    
shares of Common Stock at approximately $.53 per share commencing August 7,     
1996 (one year from the date of grant) and expiring August 7, 1998, and in      
November 1995, entered into consulting arrangements with Donald G. Drapkin and  
Eric A. Rose, M.D., directors of the Company, pursuant to which each was        
granted options to purchase 650,000 shares of Common Stock at approximately     
$.94 per share, exercisable cumulatively at the rate of 25% of the number of    
underlying shares per year commencing one year from the date of grant. See      
"Item 13--Certain Relationships and Related Transactions."                      

ITEM 2. PROPERTIES.                                                             

The Company occupies 5,266 square feet of office space at 2751 Centerville  
Road, Suite 210, Wilmington, Delaware under a lease at a monthly rent of        
$9,009. The lease expires on August 31, 1999, with an option to renew for five  
years.                                                                          

Innovir sublets approximately 8,500 square feet of space in New York City   
for its laboratory and executive offices, approximately 5,000 square feet of    
space in Cambridge, England, approximately 2,500 square feet of space in        
Gottingen, Germany and approximately 4,000 square feet of space in Rosdorf,     
Germany.                                                                        

ITEM 3. LEGAL PROCEEDINGS.                                                      

None.                                                                       

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                    

None.                                                                       

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PART II 

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS.     

The Company's Common Stock is traded in the over-the-counter market on The  
Nasdaq Stock Market's National Market System under the symbol VMRX. The         
following table sets forth for the Company's Common Stock the high and low      
closing sales prices for each calendar quarter from January 1, 1995 through     
March 17, 1997. Prior to December 31, 1996, the Company's Common Stock traded   
on The Nasdaq Stock Market's Small-Cap Market.                                  

                                                                [Download Table]

                                                         HIGH     LOW    
                                                         ----     ---    
                                                                         
1995                                                                     
First Quarter...........................................    25/32   3/8  
Second Quarter..........................................    5/8     13/32
Third Quarter...........................................  1 15/16   7/16 
Fourth Quarter..........................................  1 3/16    25/32
1996                                                                     
First Quarter...........................................  3 1/32  1 1/8  
Second Quarter..........................................  6 1/4   2 25/32
Third Quarter...........................................  4 15/16  3     
Fourth Quarter..........................................  3 13/16 2 9/32 
1997                                                                     
First Quarter (through March 17, 1997)..................  3 1/2   2 15/32

On March 17, 1997, there were approximately 14,000 holders of the Company's 
Common Stock, including beneficial owners of shares registered in nominee or    
street name.                                                                    

The Company is in the development stage, has not paid a cash dividend and   
does not anticipate the payment of cash dividends in the foreseeable future.    

Recent Sales of Unregistered Securities                                       

On May 23, 1996, the Company issued to Dr. Herbert Stadler warrants to      
purchase 365,000 shares of the Company's Common Stock at an exercise price of   
$.01 per share, as part of the consideration paid by VPI Holdings, Ltd. (then   
a subsidiary of the Company but subsequently sold to Innovir Laboratories,      
Inc.) to Dr. Stadler for acquiring all of the issued and outstanding capital    
stock of Ribonetics GmbH. Dr. Stadler was also paid $1,500,000 in cash in such  
transaction.                                                                    

On June 21, 1996, the Company completed a private placement pursuant to a   
subscription agreement dated March 21, 1996, to a group of investors, of        
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription        
Warrants, for an aggregate purchase price of $4,199,987. Each Common Stock      
Subscription Warrant is exercisable through June 20, 2006 to purchase one       
share of Common Stock at an exercise price of $1.50 per share. Pursuant to the  
subscription agreement, the private placement investors agreed not to transfer  
their shares of Common Stock or warrants prior to June 21, 1997, and the        
Company agreed to register the shares of Common Stock and warrants for public   
sale under the Securities Act of 1933 subsequest thereto. Concurrently with     
the closing of the private placement, 1,000,000 warrants issued in conjunction  
with the Company's December 1995 bridge loan financing automatically were       
converted into 1,000,000 Common Stock Subscription Warrants.                    

On December 23, 1996, the Company issued an aggregate of 3,000,000 shares of
Common Stock to The Aries Fund, a Cayman Island trust (the "Aries Trust"), and  
The Aries Domestic Fund, L.P., a Delaware limited partnership ("The Aries       
Limited Partnership" and, together with the Aries Trust, the "Aries Funds"),    
as part of the consideration for 9.5 million shares of the Common Stock of      
Innovir Laboratories, Inc. See "Item 13--Certain Relationships and Related      
Transactions."                                                                  

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The foregoing transactions of the Company were exempt from registration     
under the Securities Act of 1933, as amended, under Sections 4(2), 2(3) and     
3(a)(9) thereunder, and all stock and warrant certificates issued in            
connection therewith were legended to reflect their restricted status.          

ITEM 6. SELECTED FINANCIAL DATA.                                                

The following selected financial data have been derived from the Company's  
audited financial statements. The Statements of Operations Data relating to     
the fiscal years 1994, 1995 and 1996 and for the period from inception through  
December 31, 1996 and the Balance Sheets Data at December 31, 1995 and 1996     
should be read in conjunction with the Company's audited financial statements   
and "Management's Discussion and Analysis of Financial Condition and Results    
of Operations," included elsewhere in this Annual Report on Form 10-K.          

STATEMENTS OF OPERATIONS DATA:                                                  

                                                                [Download Table]

                              YEAR ENDED DECEMBER 31,         DECEMBER 30, 1986
                         -----------------------------------   (INCEPTION) TO  
                            1996         1995        1994     DECEMBER 31, 1996
                         -----------  ----------  ----------  -----------------
                                                                               
Operating expenses:                                                            
  Research and                                                                 
   development.......... $ 2,950,000  $2,840,000  $1,463,000     $15,939,000   
  Purchased research and                                                       
   development..........  14,484,000         --          --       14,484,000   
  General and                                                                  
   administrative.......   4,300,000   2,272,000   1,646,000      13,782,000   
                         -----------  ----------  ----------     -----------   
                          21,734,000   5,112,000   3,109,000      44,205,000   
                         -----------  ----------  ----------     -----------   
Other (income) expense:                                                        
  Royalty payments......     100,000     100,000     100,000         300,000   
  Interest (income).....  (1,792,000)   (160,000)   (189,000)     (2,951,000)  
  Interest expense......     329,000       2,000                     413,000   
  Provision for losses                                                         
   (recovery) on notes                                                         
   receivable...........         --          --          --          135,000   
  Minority interest in                                                         
   consolidated                                                                
   subsidiary...........    (116,000)        --          --         (116,000)  
  Investment in and                                                            
   advances to research                                                        
   and development                                                             
   entities charged to                                                         
   expense..............         --      185,000     515,000         700,000   
  Other--net............    (395,000)      1,000      74,000        (315,000)  
                         -----------  ----------  ----------     -----------   
                          (1,874,000)    128,000     500,000      (1,834,000)  
                         -----------  ----------  ----------     -----------   
Net loss................ $19,860,000  $5,240,000  $3,609,000     $42,371,000   
                         ===========  ==========  ==========     ===========   
Net loss per share...... $       .50  $      .27  $      .19                   
                         ===========  ==========  ==========                   
  Weighted average                                                             
   number of shares of                                                         
   Common Stock                                                                
   outstanding..........  39,398,644  19,747,595  19,066,754                   
                         ===========  ==========  ==========                   

BALANCE SHEETS DATA:                                                            

                                                                [Download Table]

                                                  DECEMBER 31,                
                                     ---------------------------------------- 
                                         1996          1995          1994     
                                     ------------  ------------  ------------ 
                                                                              
Working capital..................... $ 44,848,000  $    391,000  $  4,742,000 
Total assets........................   51,692,000     2,958,000     5,249,000 
Total liabilities...................    3,101,000     2,698,000       116,000 
Minority interest in subsidiary.....    2,381,000                             
Deficit accumulated during                                                    
 development stage..................  (42,371,000)  (22,511,000)  (17,271,000)
Stockholders' equity................   46,210,000       260,000     5,134,000 

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND         
RESULTS OF OPERATIONS.                                                          

Years Ended December 31, 1996 and 1995                                        

Total operating expenses increased by 325% ($16,622,000) due principally to 
a $14,484,000 purchased research and development charge, an 89% ($2,028,000)    
increase in general and administrative expenses and an 4% ($110,000) increase   
in research and development expenses.                                           

The $14,484,000 purchased research and development charge consists of $3.5  
million from the acquisition of Ribonetics GmbH in May 1996 and $10.9 million   
net of a gain of $2,889,000 on the sale of VIMRx Holdings, Ltd. ("VHL") from    
the acquisition of an approximate 68% interest in Innovir in December 1996, in  
connection with the acquisition of a controlling interest in Innovir. These     
charges to the statement of operations reflect the value placed on the on-      
going research and development of the Oligozyme technologies. Approximately     
$13.5 million of this expense is non-cash incurred through the issuance of      
3,000,000 shares of Common Stock and warrants to purchase 365,000 shares of     
Common Stock.                                                                   

General and administrative expenses increased 89% ($2,028,000) principally  
due to approximately $1 million non-recurring costs principally related to      
employees, recruiting, and bridge loan finance costs and approximately $1       
million increases in recurring expenses for public and stockholder relations,   
consulting fees and costs related to VHL's European operations and Innovir.     

Research and development expenses increased 4% ($110,000) principally due to
an increase in salaries and expenses related to VHL's European operations and   
$350,000 write-down on Epoch Investment, offset by a $464,000 termination of    
agreement credit resulted from the termination of the Company's research and    
development with Ribonetics in 1996.                                            

Interest income increased $1.6 million in 1996 as compared to 1995 due to an
increase in funds available for investments (see Liquidity and Capital          
Resources) and a higher effective interest rate. Interest expense of $327,000   
related principally to the December 1995 bridge loan which was repaid in June   
1996.                                                                           

Other income increased $396,000 due to capital gains on short-term          
investments.                                                                    

The foregoing resulted in a 279% ($14,620,000) increase in the net loss for 
the year ending December 31, 1996.                                              

Years Ended December 31, 1995 and 1994                                        

Total operating expenses increased by 64% ($2,003,000) due to a 94% increase
in research and development expenses, and a 38% increase in general and         
administrative expenses.                                                        

Research and development expenses increased 94% ($1,377,000) due to (1)     
$1,053,000 paid to Ribonetics in 1995 under the Ribonetics research and         
development agreement, (2) a $464,000 expense for the accrual of common stock   
due to Ribonetics under the Ribonetics research and development agreement       
(this accrual was reversed in the first quarter of 1996 when the agreement was  
terminated), (3) a $317,000 increase in research and development                
administrative salaries, (4) a $76,000 increase in consulting and other         
expenses related to research in the United Kingdom, partially offset by (5)     
$125,000, $213,000 and $126,000 decreases in expenses related to CambES Ltd.,   
drug production support and drug production development, respectively, and (6)  
a $69,000 decrease in miscellaneous research and development expenses.          

General and administrative expenses increased 38% ($626,000) due to (1) a   
$449,000 increase in legal fees for the acquisition of intellectual property    
from Ribonetics, (2) a $37,000 increase in rent expense as a result of the      
Company's lease in the third quarter of 1994 of new space for its executive     
offices and new space for the newly formed U.K. subsidiary company and (3) a    
$90,000 increase in legal fees for patents, partially offset by (4) $24,000     
net decreases in recruiting, relocating, consulting and other expenses.         

Other (income) expense decreased by $372,000 principally due to a decrease  
in investments in and advances for research and development entities charged    
to expense.                                                                     

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The foregoing resulted in a 45% ($1,631,000) increase in the net loss for   
the year ended December 31, 1995.                                               

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company is in the development stage, has realized no operating revenues 
and has financed its operations through the sale of its securities.             

The Company had $46,911,000 in cash, cash equivalents and marketable        
securities held for sale at December 31, 1996, as compared to $2,219,000 at     
December 31, 1995 and working capital of $44,848,000 at December 31, 1996, as   
compared to $391,000 at December 31, 1995. The increase in cash and working     
capital position results from the net proceeds upon exercise of the Company's   
Redeemable Class A and Class B Warrants and a private placement financing       
offset, in part, by funds used in the operations of the Company.                

On April 9, 1996, the Company exercised its right to redeem all outstanding 
Redeemable Class Warrants (the "Class A Warrants") on May 10, 1996 (the         
"Redemption Date"). Between January 1, 1996 and the Redemption Date,            
approximately 13,900,000 Class A Warrants were exercised resulting in the       
issue of one share of Common Stock and one Redeemable Class B Warrant (the      
"Class B Warrant") resulting in net proceeds of approximately $20.1 million.    

On April 25, 1996, the Company exercised its rights to redeem all           
outstanding Redeemable Class B Warrants on June 13, 1996, (the "B Class         
Redemption Date"). Between January 1, 1996 and the B Class Redemption Date,     
approximately 14,200,000 Class B Warrants were exercised, resulting in the      
issuance of one share of Common Stock for $2.25. The exercise of Class B        
Warrants yielded net proceeds of approximately $30.7 million.                   

On June 21, 1996, the Company completed a private placement pursuant to a   
subscription agreement dated March 21, 1996, to a group of investors, of        
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription        
Warrants, for an aggregate purchase price of approximately $4,199,987. Each     
Common Stock Subscription Warrant is exercisable through June 20, 2006 to       
purchase one share of Common Stock at an exercise price of $1.50 per share.     
Pursuant to the subscription agreement, the private placement investors agreed  
not to transfer their shares of Common Stock or warrants prior to June 21,      
1997, and the Company agreed to register the shares of Common Stock and         
warrants for public sale under the Securities Act of 1933 subsequent thereto.   
Concurrently with the closing of the private placement, 1,000,000 warrants      
issued in conjunction with the Company's December 1995 bridge loan financing    
automatically were converted into 1,000,000 Common Stock Subscription           
Warrants.                                                                       

The Company expects to incur substantial expenditures in the foreseeable    
future for the research and development and commercialization of its proposed   
products. Based on current projections, which are subject to change, the        
Company's management believes that the present balance of cash, cash            
equivalents and marketable securities held for sale, is sufficient to fund its  
operations for over two years, assuming no capital infusions or revenues are    
received (it is management's belief, however, that such capital infusions and   
revenues will occur). Thereafter, the Company will require additional funds,    
which it may seek to raise through public or private equity or debt             
financings, collaborative or other arrangements with corporate sources, or      
through other sources of financing.                                             

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                            

See Index to Financial Statements on page F-1.                              

No financial statement schedules are required because they are not          
applicable or the information is disclosed in the financial statements or       
related notes.                                                                  

Item 302--Supplementary Financial Information of Regulation S-K is not      
applicable.                                                                     

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE.                                                           

None.                                                                       

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PART III  

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                    

The directors and executive officers of VIMRx are as follows:               

                                                                [Download Table]

         NAME            AGE POSITION                                             
         ----            --- --------                                             
                                                                                  
Richard L. Dunning......  51 President and Chief Executive Officer                
Francis M. O'Connell....  51 Vice President, Finance and Chief Financial Officer  
David A. Jackson,         54 Executive Vice President and Chief Scientific Officer
 Ph.D...................                                                          
Alfonso J. Tobia,         54 Vice President, Research and Development             
 Ph.D...................                                                          
Donald G. Drapkin.......  48 Director (1)                                         
Laurence D. Fink........  48 Director (2)                                         
Jerome Groopman, M.D....  44 Director                                             
Linda G. Robinson.......  43 Director (2)                                         
Eric A. Rose, M.D.......  45 Director (1)                                         
Lindsay A. Rosenwald,     41 Director (1)                                         
 M.D....................                                                          
Michael Weiner, M.D.....  50 Director (2)                                         

--------                                                                        
(1) Member of Compensation Committee.                                           

(2) Member of Audit Committee.                                                  

RICHARD L. DUNNING has been President and Chief Executive Officer of the    
Company since April 1996. Prior to joining the Company, Mr. Dunning served as   
Executive Vice President and Chief Financial Officer of the DuPont Merck        
Pharmaceutical Company since 1991.                                              

FRANCIS M. O'CONNELL, CPA, has served as Chief Financial Officer of the     
Company since February 1995. Prior to joining the Company, Mr. O'Connell was    
Director of Litigation Support in the New York office of J.H. Cohn & Company,   
a C.P.A. firm, from June 1994 to February 1995, and was Vice-President of       
Hickok Associates Inc., a financial consulting company, from March 1992 to      
June 1994, and for 17 years prior thereto, was a partner with KPMG Peat         
Marwick (formerly KMG Main Hurdman).                                            

DAVID A. JACKSON, Ph.D., has served as Executive Vice President and Chief   
Scientific Officer of VIMRx Pharmaceuticals Inc. since September 1996. Prior    
to joining VIMRx, Dr. Jackson was with DuPont Merck Pharmaceutical Company      
since 1991, most recently serving as Senior Director, Cancer, Virology and      
Molecular Biology Research.                                                     

ALFONSO J. TOBIA, Ph.D. was elected an executive officer of the Company in  
March 1995, having joined the Company as Vice President, Research and           
Development in June 1994. Prior to joining VIMRx, Dr. Tobia served as Vice      
President of Scientific Affairs at Great Valley Pharmaceuticals, a              
biopharmaceutical company, from April 1993 to June 1994. From 1990 to 1991,     
Dr. Tobia served as Senior Director of R.W. Johnson Pharmaceutical Research     
Institute; from 1985 to 1990, as Director of Pharmacology at Johnson &          
Johnson's Ortho Pharmaceutical Corporation; and from 1974 to 1977 as Senior     
Scientist at SmithKline Laboratories.                                           

DONALD G. DRAPKIN was elected a director of the Company on November 17,     
1995. Since March 1987, Mr. Drapkin has served as Vice Chairman and a director  
of MacAndrews & Forbes Holdings Inc., and was a partner in the law firm of      
Skadden, Arps, Slate, Meagher & Flom in New York City for more than five years  
prior thereto. Mr. Drapkin also serves as a director of the following           
corporations which file reports pursuant to the Securities Exchange Act of      
1934: The Coleman Company, Inc., Coleman Holdings Inc., Coleman Worldwide       
Corporation, Marvel Entertainment Group, Inc., Marvel Holdings Inc., Marvel     
(Parent) Holdings Inc., Marvel III Holdings Inc., Revlon Consumer Products      
Corporation, Revlon Worldwide Corporation and Toy Biz, Inc.                     

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LAURENCE D. FINK was elected a director of the Company in June 1996. Mr.    
Fink has been Chairman and Chief Executive Officer and Director of BlackRock    
Financial Management (investment advisor) since 1988. Mr. Fink is a director    
of the closed end funds for which BlackRock serves as investment advisor.       

JEROME GROOPMAN, M.D. was elected a director of the Company in June 1996.   
Dr. Groopman has been a professor of Medicine at Harvard Medical School since   
1993. Dr. Groopman has been an attending physician and member of the executive  
committee of New England Deaconess Hospital since 1989. Dr. Groopman is         
director of the following corporations which file reports pursuant to the       
Exchange Act: Advance Tissues Sciences.                                         

LINDA G. ROBINSON was elected a director of the Company in June 1996. Ms.   
Robinson has been Chairman, Chief Executive Officer and Partner of Robinson     
Lerer Sawyer Miller (strategic communications) for more than the past five      
years. Ms. Robinson is a director of the following corporation which files      
reports pursuant to the Exchange Act: Laboratory Corporation of America         
Holdings.                                                                       

ERIC A. ROSE, M.D. was elected a director of the Company in November 1995.  
Dr. Rose is Surgeon-In-Chief at Columbia Presbyterian Medical Center in New     
York, a position he has held since August 1994, has served as Chairman of the   
Department of Surgery at the College of Physicians and Surgeons of Columbia     
University since 1994 and as Director of the Division of Cardiothoracic         
Surgery of the Department since 1990. Dr. Rose is a past president of the       
International Society for Heart and Lung Transplantation.                       

LINDSAY A. ROSENWALD, M.D. was elected a director of the Company in June    
1996. Dr. Rosenwald has been the Chairman and Chief Executive Officer of        
Paramount Capital, Incorporated (investment bank) since 1992. Dr. Rosenwald is  
also chairman of Paramount Capital Investments, LLC, Paramount Capital Asset    
Mgt., and The Castle Group. Dr. Rosenwald serves as a director of the           
following corporations which file reports pursuant to the Exchange Act: Ansan,  
Inc., Avigen, Inc., Atlantic Pharmaceuticals, Inc., BioCryst Pharmaceuticals,   
Inc., Interneuron Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta       
Pharmaceuticals, Inc., Titan Pharmaceuticals, Inc. and Xenometrix, Inc.         

MICHAEL WEINER, M.D. was elected a director of the Company in June 1996. Dr.
Weiner has been the Hellinger Professor of Clinical Pediatrics at Columbia      
University College of Physicians and Surgeons since January 1996 and has been   
an attending pediatrician at Columbia Presbyterian Medical Center since         
January 1996. Dr. Weiner has served as Associate Director of Pediatrics         
Hematology/Oncology and Associate Attending Physician of Hackensack Medical     
Center and an Associate Attending Pediatrician UMDNJ Division of Pediatric      
Hematology/Oncology, since 1987.                                                

All directors hold office until the next annual meeting of shareholders and 
until their successors are elected and qualified. Officers are elected          
annually and serve at the pleasure of the Board of Directors, subject to        
rights, if any, under contracts of employment.                                  

Section 16(a) Beneficial Ownership Reporting Compliance                       

Section 16 of the Securities Exchange Act of 1934, as amended, requires that
officers, directors and holders of more than 10% of the Common Stock            
(collectively, "Reporting Persons") file reports of their trading in Company    
equity securities with the Securities and Exchange Commission. Based on a       
review of Section 16 forms filed by the Reporting Persons during the last       
fiscal year, Eric Rose, M.D., a director of the Company, filed his Form 5       
reporting the exercise of warrants approximately one month late; the Company    
believes that the Reporting Persons otherwise timely complied with all          
applicable Section 16 filing requirements.                                      

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ITEM 11. EXECUTIVE COMPENSATION.                                                

Summary Compensation                                                          

The following table sets forth a summary of the compensation for the year   
ended December 31, 1996 earned by the Company's Principal Executive Officer     
and be each other executive officer whose compensation exceeded $100,000        
during 1996:                                                                    

SUMMARY COMPENSATION TABLE  

                                                                [Download Table]

                                                        LONG-TERM                
                                  ANNUAL COMPENSATION  COMPENSATION              
                                  --------------------    AWARDS                 
NAME AND PRINCIPAL POSITION  YEAR   SALARY     BONUS     OPTIONS     COMPENSATION
---------------------------  ---- ---------- --------- ------------  ------------
                                                                                 
Richard L. Dunning.......    1996 $  133,833 $  40,000   800,000(1)    $ 4,500(2)
 President and Chief         1995        --        --        --            --    
 Executive Officer           1994        --        --        --            --    
Francis M. O'Connell.....    1996   $123,800 $  35,000       --            --    
 Vice President, Finance                                                         
  and                        1995 $   96,125       --    100,000(3)        --    
 Chief Financial Officer     1994        --        --        --            --    
Alfonso J. Tobia, Ph.D...    1996 $  147,272 $  50,000       --            --    
 Senior Vice President       1995 $  130,000 $  12,500       --            --    
                             1994 $   59,696       --    150,000(4)    $25,000(5)

--------                                                                        
(1) Number of shares of Common Stock purchasable. See Option Grant Table below  
for exercise price and vesting terms.                                   

(2) Reimbursement of personal medical and health care insurance.                

(3) Number of shares of Common Stock purchasable at $.44 per share.             

(4) Number of shares of Common Stock purchasable at $.69 per share.             

(5) Consists of a one-time relocation fee.                                      

Option Grant Table                                                            

The following table sets forth certain information concerning options       
granted in 1996 to the individuals named in the Summary Compensation Table:     

INDIVIDUAL GRANTS 

                                                        [Enlarge/Download Table]

                                                  % OF TOTAL                          
                         NUMBER OF SECURITIES OPTIONS GRANTED TO  EXERCISE            
                          UNDERLYING OPTIONS  EMPLOYEES IN FISCAL PRICE PER EXPIRATION
      NAME                     GRANTED               YEAR           SHARE      DATE   
      ----               -------------------- ------------------- --------- ----------
                                                                                      
Richard L. Dunning......       800,000(1)            54.4           $2.56     4/2/01  

--------                                                                        
(1) Granted pursuant to Mr. Dunning's agreement. See "Employment Arrangements"  
below.                                                                  

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Option Exercises and Value Table                                              

The following table sets forth certain information concerning options       
exercised during 1996, and the number of unexercised options as at December     
31, 1996 held, by the individuals named in the Summary Compensation Table:      

OPTION EXERCISE AND VALUES AT DECEMBER 31, 1996 

                                                                [Download Table]

                                               NUMBER OF                         
                                              UNEXERCISED                        
                          SHARES              OPTIONS AT     VALUE OF UNEXERCISED
                         ACQUIRED          DECEMBER 31, 1996 IN-THE-MONEY OPTIONS
                            ON     VALUE   EXERCISABLE (E)/           AT         
       NAME              EXERCISE REALIZED UNEXERCISABLE (U) DECEMBER 31, 1996(1)
       ----              -------- -------- ----------------- --------------------
                                                                                 
Richard L. Dunning......                       800,000(U)          $650,000      
Francis M. O'Connell....                        25,000(E)          $ 73,438      
                                                75,000(U)          $220,313      
Alfonso J. Tobia,                                                                
 Ph.D...................                        75,000(E)          $201,375      
                                                75,000(U)          $201,375      

--------                                                                        
(1) Based upon the $3 7/16 closing sale price of the Common Stock on The        
Nasdaq Stock Market on December 31, 1996.                               

Employment Arrangements                                                       

In October 1996, the Company entered into a restated employment agreement   
with Richard L. Dunning, effective March 27, 1996, pursuant to which Mr.        
Dunning serves as President and Chief Executive Officer of the Company. The     
agreement provides for a base annual salary of $200,000, which may be           
increased at the discretion of the Board of Directors or the Compensation       
Committee, and an annual cash bonus based on performance criteria, with an      
initial cash bonus targeted to be at least 33% of Mr. Dunning's base            
compensation. Mr. Dunning is entitled to four weeks' vacation and to            
participate in the Company's medical, dental, life and long-term disability     
insurance and other benefit programs. Pursuant to the agreement, Mr. Dunning    
was granted stock options to purchase an aggregate of 800,000 shares of Common  
Stock at an exercise price of $2.56 per share, exercisable cumulatively at the  
rate of 25% per annum commencing March 28, 1997 (one year from the date of      
grant). Mr. Dunning's employment may be terminated by the Company for cause,    
or without cause upon 60 days' notice by either the Company or Mr. Dunning. In  
the event Mr. Dunning's employment is terminated by the Company without cause,  
or in the event Mr. Dunning terminates his employment following certain         
actions by the Company (including a material reduction in Mr. Dunning's duties  
or a relocation of the Company's principal executive offices), Mr. Dunning is   
entitled to a severance payment equal to six months' of his base salary,        
payable in monthly installments. The agreement contains certain non-            
competition and confidentiality provisions, and provides that the Company may   
obtain "key man" life insurance on the life of Mr. Dunning for the Company's    
benefit. Mr. Dunning received a $40,000 signing bonus upon execution of the     
agreement.                                                                      

In August 1996, the Company entered into an employment agreement with David 
A. Jackson, Ph.D., pursuant to which Dr. Jackson serves as Vice President--     
Research and Development and Chief Scientific Officer of the Company. The       
agreement provides for a base annual salary of $175,000, which may be           
increased at the discretion of the Board of Directors or the Compensation       
Committee, and an annual cash bonus based on performance criteria, with an      
initial cash bonus targeted to be at least 33% of Dr. Jackson's base            
compensation. Dr. Jackson is entitled to four weeks' vacation and to            
participate in the Company's medical, dental, life and long-term disability     
insurance and other benefit programs. Pursuant to the agreement, Dr. Jackson    
was granted stock options to purchase an aggregate of 500,000 shares of Common  
Stock at an exercise price of $3.3125 per share, exercisable cumulatively at    
the rate of 25% per annum commencing August 26, 1997 (one year from the date    
of grant). Dr. Jackson's employment may be terminated by the Company for        
cause, or without cause upon 60 days' notice by either the Company or Dr.       
Jackson. In the event Dr. Jackson's employment is terminated by the             

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Company without cause, or in the event Dr. Jackson terminates his employment    
following certain actions by the Company (including a material reduction in     
Dr. Jackson's duties or a relocation of the Company's principal executive       
offices), Dr. Jackson is entitled to a severance payment equal to twelve        
months' of his base salary, payable in monthly installments. The agreement      
contains certain non-competition and confidentiality provisions, and provides   
that the Company may obtain "key man" life insurance on the life of Dr.         
Jackson for the Company's benefit. Dr. Jackson received a $40,000 signing       
bonus upon execution of the agreement.                                          

In June 1994, the Company entered into an employment agreement with Alfonso 
J. Tobia, Senior Vice President of the Company, effective July 1, 1994,         
providing for a base annual salary of $125,000, to be increased to $150,000     
upon the redemption by the Company of its outstanding Class A Warrants, and     
eligibility for a discretionary bonus up to $25,000. The agreement provides     
that Dr. Tobia is eligible to receive options to purchase 150,000 shares of     
Common Stock (which were granted on August 24, 1994), and is eligible to        
participate in the Company's benefit programs, which currently include a        
medical program, dental/vision insurance and group life insurance.              

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.        

The following table sets forth as of January 31, 1997 information with      
respect to the beneficial ownership of the Company's Common Stock by (i) each   
person known by the Company to own beneficially more than five percent of such  
Common Stock, (ii) each director of the Company, (iii) each executive officer   
named in the Summary Compensation Table in "Item 11. Executive Compensation,"   
and (iv) all directors and executive officers as a group, together with their   
respective percentage ownership of such shares:                                 

                                                                [Download Table]

                                                 SHARES           PERCENT  
          NAME                             BENEFICIALLY OWNED   OUTSTANDING
          ----                             ------------------   -----------
                                                                           
Richard L. Dunning.......................        203,595(1)           *    
Francis M. O'Connell.....................         50,000(2)           *    
Alfonso, J. Tobia, Ph.D..................         75,000(2)           *    
Donald G. Drapkin........................        462,500(3)(4)        *    
Laurence D. Fink.........................        450,000(3)(5)        *    
Jerome Groopman, M.D.....................         50,000(3)           *    
Linda G. Robinson........................        183,333(3)           *    
Eric A. Rose, M.D........................        584,900(6)           *    
Lindsay A. Rosenwald, M.D................      6,014,999(3)(7)     10.7%   
Michael Weiner, M.D......................         62,410(3)           *    
Paramount Capital Asset Management,                                        
 Inc.....................................      4,049,999(8)         7.4%   
 787 Seventh Avenue                                                        
 New York, New York 10019                                                  
Mellon Bank Corporation..................      2,865,000(9)                
 One Mellon Bank Center                                                    
 Pittsburgh, Pennsylvania 15258                                            
All directors and executive officers as a                                  
 group (11) persons).....................      8,136,737(10)       14.3%   

--------                                                                        
* Less than one percent.                                                      

(1)  Consists of currently exercisable options to purchase 200,000 shares       
owned by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning,
and 500 shares owned by each of Mr. Dunning's spouse, son and another 
   daughter, respectively. Mr. Dunning disclaims beneficial ownership of the
shares held by his spouse, son and daughters.                         

(2)  Consists of currently exercisable options.                                 

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(3)  Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of Mr.  
Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of     
  restricted stock which vests at the rate of 25% per year commencing June
20, 1997, provided the respective individual continues to serve as a  
director of the Company, and subject to a non-lapsing right of first  
refusal by the Company.                                               

(4)  Includes currently exercisable options to purchase 262,500 shares.         

(5)  Includes 66,666 shares owned by a family trust for the benefit of Mr.      
Fink's children. Mr. Fink disclaims beneficial ownership of the shares
held by the family trust.                                             

(6)  Includes currently exercisable options to purchase 262,500 shares.         

(7)  Includes currently exercisable options to purchase 1,915,000 shares owned  
by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by      
 Paramount Capital Asset Management, Inc. ("PCAM") (see note (8) below).
Dr. Rosenwald serves as President and is sole shareholder of PCAM. Dr.
   Rosenwald disclaims beneficial ownership of the shares beneficially owned
by PCAM except to the extent of his pecuniary interest, if any.       

(8)  Information is from a Schedule 13D dated December 23, 1996 filed by PCAM   
which is the investment manager of The Aries Fund, a Cayman Islands   
Trust, (the "Aries Trust") and the general partner of Aries Domestic  
 Fund, L.P. (the "Aries Limited Partnership"), and reports shared voting
and dispositive power of 5,964,999 shares and 2,750,000 shares,       
respectively, by the Aries Trust and the Aries Limited Partnership.   

(9)  Information is from a Schedule 13G dated January 24, 1997, filed by        
   Mellon Bank Corporation, which reflects sole voting power with respect to
2,865,000 shares and sole dispositive power with respect to 2,750,000 
shares.                                                               

(10)  See notes (1)-(7).                                                        

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

In August 1995, the Company entered into a consulting agreement with Lindsay
A. Rosenwald, M.D., who was elected a director of the Company in June 1996,     
pursuant to which Dr. Rosenwald has agreed to act as a financial consultant to  
the Company pursuant to the terms thereof and the Company granted Dr.           
Rosenwald an option to purchase 2,000,000 shares of Common Stock at $.53125     
per share (the closing bid price of the Common Stock on The Nasdaq Stock        
Market on the date preceding the date of grant), exercisable through August 6,  
1998. In June 1996, Dr. Rosenwald transferred 85,000 of the underlying option   
shares to other persons.                                                        

In November 1995, the Company entered into an arrangement with Donald G.    
Drapkin, a director of the Company, pursuant to which Mr. Drapkin agreed to     
make available to the Company his business and financial acumen for a five-     
year period, and the Company granted Mr. Drapkin an option to purchase 650,000  
shares at $.9375 per share (the closing bid price of the Common Stock on The    
Nasdaq Small Cap Market on the date preceding the date of grant), exercisable   
at the rate of 25% of the aggregate number of underlying shares per annum       
commencing one year from the date of grant. Concurrently, the Company entered   
into a five-year consulting arrangement with Eric A. Rose, M.D., a director of  
the Company, pursuant to which Dr. Rose agreed to provide scientific            
consulting services to the Company, and the Company granted Dr. Rose an option  
to purchase 650,000 shares at $.9375 per share, exercisable at the rate of 25%  
of the aggregate number of underlying shares per annum commencing one year      
from the date of grant.                                                         

On June 21, 1996, the Company completed a private placement pursuant to a   
subscription agreement dated March 21, 1996 to a group of investors (see "Item  
5.--Market for Registrant's Securities and Related Stockholder Matters--Recent  
Sales of Unregistered Securities"), including the following directors or        
persons or entities affiliated with such directors: (i) Laurence D. Fink, a     
director of the Company, purchased 266,667 shares of Common Stock and 133,333   
Common Stock Purchase Warrants for $400,000, and a family trust of Mr. Fink     
purchased 66,666 shares of Common Stock and 33,333 Common Stock Purchase        
Warrants for $100,000; (ii) Linda G. Robinson, a director of the Company,       
purchased 133,333 shares of Common Stock and 66,666 Common Stock Subscription   
Warrants for $200,000; and (iii) The Aries Trust Fund, a Cayman Island trust    
(the                                                                            

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"Aries Trust"), and The Aries Domestic Fund, L.P., a Delaware limited           
partnership ("The Aries Limited Partnership" and, together with the Aries       
Trust, the "Aries Funds"), in the manner described below, purchased an          
aggregate of 666,666 shares of Common Stock and 333,333 Common Stock            
Subscription Warrants for an aggregate of $1,000,000. Lindsay A. Rosenwald,     
M.D., a director of the Company, serves as President and is the sole            
shareholder of the investment manager of the Aries Trust, and serves as         
President and is the sole shareholder of the general partner of the Aries       
Limited Partnership. Jerome Groopman, M.D., a director of the Company, is a     
member of the Scientific Advisory Board of the Aries Funds.                     

On December 23, 1996, the Company acquired an approximate 68% ownership     
interest in Innovir pursuant to an agreement dated November 21, 1996, as        
amended, among the Company and the Aries Funds and an agreement dated November  
21, 1996 between the Company and Innovir. Pursuant to the agreements, as        
amended (i) the Aries Funds, which owned 4 million shares of Innovir's common   
stock prior to the transaction, exercised warrants and unit purchase options    
to purchase an additional 6 million shares, thereby providing $3 million in     
cash to Innovir and resulting in the Aries Funds owning 10 million shares of    
Innovir's common stock; (ii) the Company acquired 9.5 million shares of         
Innovir's common stock from the Aries Funds for $3,000,000 in cash and          
3,000,000 newly issued shares of the Company's Common Stock, and (iii) the      
Company exchanged all of the capital stock of its wholly-owned subsidiary,      
VIMRx Holdings Ltd., a Delaware corporation ("VHL") (to which, prior to         
closing, the Company had made a capital contribution of $4,000,000), for 8.7    
million shares of Innovir's convertible preferred stock (convertible into 8.7   
million shares of Innovir's common stock), plus five-year warrants to purchase  
an additional 2 million shares of Innovir's common stock (1 million shares at   
an exercise price of $1.00 per share and 1 million shares at an exercise price  
of $2.00 per share). The Company has agreed to file a registration statement    
(the "Registration Statement") with the Securities and Exchange Commission      
(the "Commission") for the public resale of the 3,000,000 shares of Common      
Stock issued to the Aries Funds, to use its best efforts to cause the           
Registration Statement to be declared effective by the Commission under the     
Securities Act as soon as practicable and to use its best efforts to keep the   
Registration Statement effective until the earlier of the date such shares      
shall have been disposed of or the date on which all of such shares are         
eligible for sale pursuant to Rule 144 under the Securities Act. The            
acquisition of the 9.5 million shares of Innovir stock from the Aries Funds     
was negotiated at arms' length with the Aries Funds and an opinion was issued   
by an independent investment banking firm that the transaction was fair from a  
financial point of view to the Company and its public shareholders. Drs.        
Rosenwald and Groupman did not participate in the meeting of the Board of       
Directors in which the acquisition was approved.                                

On March 7, 1997, the Company entered into a research agreement with        
Columbia University ("Columbia") whereby the Company, through a newly           
established subsidiary, VIMRx Genomics, Inc. ("Genomics"), 90%-owned by the     
Company and 10%-owned by Columbia University, will provide $30 million in       
funding to the Columbia Genome Center established by Columbia, with $4.7        
million to be paid during the first year in quarterly installments. In          
exchange, Genomics will receive an exclusive license to develop, manufacture,   
use, sell or market products resulting from any invention or research product   
developed by the Columbia Genome Center and funded under the agreement.         
Following an initial five-year term, the agreement automatically will renew     
for successive two-year terms and, in the absence of an agreement to the        
contrary, the amount of funding will be increased at a rate of 9% for every     
additional year. Under the agreement, the Company agreed to issue Columbia a    
one-time payment of 200,000 shares of Common Stock, and granted Columbia        
"piggyback" registration rights with respect to such shares during the period   
April 1, 1997 to April 1, 1999. See "Item 1--Business--Research Agreement with  
Columbia University." Eric A. Rose, M.D., a director of the Company, is a       
Surgeon-In-Chief at Columbia Presbyterian Medical Center in New York, an        
affiliate of Columbia, and has served as Chairman of the Department of Surgery  
at the College of Physicians and Surgeons of Columbia since 1994 and as a       
Director of the Division of Cardiothoracic Surgery of the Department since      
1990. Michael Weiner, M.D., a director of the Company, is the Hellinger         
Professor of Clinical Pediatrics at Columbia's College of Physicians and        
Surgeons, Director of Pediatric Oncology, and is an attending physician at      
Columbia Presbyterian Medical Center.                                           

The Company believes that the consulting arrangements with Dr. Rosenwald,   
Mr. Drapkin and Dr. Rose are on terms no less favorable than could have been    
negotiated with unrelated third parties of similar expertise, and the research  
agreement with Columbia was negotiated on an arm's length basis.                

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PART IV 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.      

(a) Lists.                                                                    

                                                                [Download Table]
                                                       
1.  See Index to Financial Statements on page F-1.     
2.  See Item 8 regarding financial statement schedules.
3.  Exhibits.                                          

                                                                [Download Table]

EXHIBIT                                                                       
NUMBER  DESCRIPTION                                                           
------- -----------                                                           
                                                                              
 2.2a   Copy of Agreement dated November 21, 1996 (the "Aries Agreement") by  
        and among the Company and The Aries Domestic Fund, L.P. (1)           
 2.2b   Copy of Amendment to the Aries Agreement dated December 23, 1996 by   
        and among the Company and the Aries Fund and The Aries Domestic Fund, 
        L.P. (1)                                                              
 2.3    Copy of Agreement dated November 21, 1996 by and between the          
        Registrant and Innovir Laboratories, Inc. (1)                         
 4.4    Copy of Warrant Agreement dated June 17, 1996 between the Company and 
        American Stock Transfer & Trust Company.                              
10.3    Copy of the Company's Amended and Restated 1990 Incentive and Non-    
        Incentive Stock Option Plan, as amended through February 22, 1997.*   
10.9    Copy of Employment letter agreement dated June 21, 1994 between the   
        Company and Alfonso J. Tobia.* (2)                                    
10.11   Copy of the Company's 1995 Outside Directors Stock Option Plan.* (3)  
10.12   Copy of letter agreement dated August 7, 1995 between the Company and 
        Lindsay A. Rosenwald, M.D. (3)                                        
10.13   Copy of Stock Option Agreement dated August 7, 1995 between Registrant
        and Lindsay A. Rosenwald, M.D. (3)                                    
10.14   Copy of Consulting and Stock Option Agreement dated November 17, 1995 
        between the Company and Eric A. Rose, M.D. (3)                        
10.15   Copy of Stock Option Agreement dated November 17, 1995 between the    
        Company and Donald G. Drapkin. (3)                                    
10.16   Copy of the Company's 1996 Non-Employee Director Restricted Stock     
        Award Plan.* (3)                                                      
10.17   Copy of Registration Rights Agreement dated December 23, 1996, between
        Registrant and The Aries Fund and The Aries Domestic Fund, L.P. (1)   
10.18   Copy of Research Agreement dated as of March 7, 1997 among the        
        Company, The Trustees of Columbia University in the City of New York  
        and VIMRx Genomics, Inc. (4)                                          
10.19   Copy of the Company's 1997 Incentive and Non-Incentive Stock Option   
        Plan, together with forms of stock option agreements.*                
10.20   Copy of Employment Agreement dated October 30, 1996 between the       
        Company and Richard L. Dunning.*                                      
10.21   Copy of Employment Agreement dated August 26, 1996 between the Company
        and David A. Jackson, Ph.D.*                                          
21      List of Subsidiaries.                                                 
23      Consent of Richard A. Eisner & Company, LLP.                          

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--------                                                                        
* Denotes management contract or compensatory plan or arrangement required to 
be filed as an exhibit to this Annual Report on Form 10-K.                

(1) Filed as the same numbered Exhibit to the Company's Current Report on Form  
8-K (Commission File No. 0-19153) filed January 3, 1997 and incorporated
herein by reference thereto.                                            

(2) Filed as the same numbered Exhibit to the Company's Annual Report on Form   
   10-K for the year ended December 31, 1994 (Commission File No. 0-19153) and
incorporated herein by reference.                                       

(3) Filed as the same numbered Exhibit to the Company's Annual Report on Form   
   10-K for the year ended December 31, 1995 (Commission File No. 0-19153) and
incorporated herein by reference thereto.                               

(4) Filed as the same numbered Exhibit to the Company's Current Report on Form  
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated 
herein by reference thereto.                                            

(b) Reports on Form 8-K.                                                      

None.                                                                       

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SIGNATURES  

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES       
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT ON      
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY         
AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF DELAWARE, ON THE 31TH DAY OF    
MARCH, 1997.                                                                    

                              VIMRx PHARMACEUTICALS INC.

                                        /s/ Richard L. Dunning
                                         By: _________________________________
                                          Richard L. Dunning President and
                                 Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this   
Annual Report on Form 10-K has been signed below by the following persons on    
behalf of the Registrant in the capacities and on the dates indicated.          

SIGNATURE                      TITLE                    DATE

/s/ Richard L. Dunning      President and Chief        March 31, 1997     
-----------------------------  Executive Officer and                            
RICHARD L. DUNNING        Director (Principal                         
Executive Officer)

/s/ Donald G. Drapkin      Chairman of the Board      March 31, 1997    
-----------------------------  and Director                                     
DONALD G. DRAPKIN                                                   

/s/ Francis M. O'Connell     Chief Financial Officer    March 31, 1997      
-----------------------------  (Principal Financial and                         
FRANCIS M. O'CONNELL       Accounting Officer)                          

/s/ Laurence D. Fink       Director                   March 31, 1997    
-----------------------------                                                   
LAURENCE D. FINK                                                    

/s/ Jerome Groopman, M.D.    Director                   March 31, 1997      
-----------------------------                                                   
JEROME GROOPMAN, M.D.                                                   

/s/ Linda G. Robinson      Director                   March 31, 1997    
-----------------------------                                                   
LINDA G. ROBINSON                                                   

/s/ Lindsay A. Rosenwald,    Director                   March 31, 1997      
M.D.                                                    
-----------------------------                                                   
LINDSAY A. ROSENWALD, M.D.                                                    

/s/ Eric Rose, M.D.       Director                   March 31, 1997   
-----------------------------                                                   
ERIC A. ROSE, M.D.                                                    

/s/ Michael Weiner, M.D.     Director                   March 31, 1997      
-----------------------------                                                   
MICHAEL WEINER, M.D.                                                    

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INDEX TO EXHIBITS 

EXHIBIT INDEX 

                                                                          PAGE

2.2a                                                                          
--Copy of Agreement dated November 21, 1996 (the "Aries Agreement")     
    by and among the Registrant and The Aries Domestic Fund, L.P........   (1)

2.2b                                                                          
--Copy of Amendment to the Aries Agreement dated December 23, 1996      
    by and among the Registrant and the Aries Fund and The Aries           (1)
Domestic Fund, L.P..................................................  

2.3--Copy of Agreement dated November 21, 1996 by and between the             
    Registrant and Innovir Laboratories, Inc............................   (1)

4.4--Copy of Warrant Agreement dated June 17, 1996 between the                
Registrant and American Stock Transfer & Trust Company..............  

10.3--Copy of Registrant's Amended and Restated 1990 Incentive and Non-         
Incentive Stock Option Plan, as amended through February 22, 1997...  

10.9--Copy of Employment letter agreement dated June 21, 1994 between           
    Registrant and Alfonso J. Tobia.....................................   (2)

10.11                                                                           
   --Copy of Registrant's 1995 Outside Directors Stock Option Plan......   (3)

10.12                                                                           
--Copy of letter agreement dated August 7, 1995 between Registrant      
    and Lindsay A. Rosenwald, M.D.......................................   (3)

10.13                                                                           
--Copy of Stock Option Agreement dated August 7, 1995 between           
    Registrant and Lindsay A. Rosenwald, M.D............................   (3)

10.14                                                                           
--Copy of Consulting and Stock Option Agreement dated November 17,      
    1995 between Registrant and Eric A. Rose, M.D.......................   (3)

10.15                                                                           
--Copy of Stock Option Agreement dated November 17, 1995 between        
    Registrant and Donald G. Drapkin....................................   (3)

10.16                                                                           
   --Copy of Registrant's 1996 Non-Employee Director Restricted Stock      (3)
Award Plan..........................................................  

10.17                                                                           
--Copy of Registration Rights Agreement dated December 23, 1996,        
    between Registrant and The Aries Fund and The Aries Domestic Fund,     (1)
L.P.................................................................  

10.18                                                                           
--Copy of Research Agreement dated as of March 7, 1997 among            
    Registrant, The Trustees of Columbia University in the City of New     (4)
York and VIMRx Genomics, Inc........................................  

10.19                                                                           
--Copy of Registrant's 1997 Incentive and Non-Incentive Stock Option    
Plan................................................................  

10.20                                                                           
--Copy of Employment Agreement dated October 30, 1996 between the       
Registrant and Richard L. Dunning ..................................  

10.21                                                                           
--Copy of the Employment Agreement dated August 26, 1996 between the    
Registrant and David A. Jackson, Ph.D. .............................  

21  --List of Subsidiaries...............................................       

23  --Consent of Richard A. Eisner & Company, LLP........................       
--------                                                                        
(1) Filed as the same numbered Exhibit to Registrant's Current Report on Form   
8-K (Commission File No. 0-19153) filed January 3, 1997 and incorporated
herein by reference thereto.                                            

(2) Filed as the same numbered Exhibit to Registrant's Annual Report on Form    
10-K for the year ended December 31, 1994 (Commission File No. 0-19153) 
and incorporated herein by reference.                                   

(3) Filed as the same numbered Exhibit to Registrant's Annual Report on Form    
10-K for the year ended December 31, 1995 (Commission File No. 0-19153) 
and incorporated herein by reference thereto.                           

(4) Filed as the same numbered Exhibit to Registrant's Current Report on Form   
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated 
herein by reference thereto.                                            

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                                          PAGE 
                                                                         NUMBER
                                                                         ------
                                                                               
Report of Independent Auditors.........................................   F-2  
Consolidated Balance Sheets as at December 31, 1996 and December 31,           
 1995..................................................................   F-3  
Consolidated Statements of Operations for each of the Years in the             
 Three-Year Period Ended December 31, 1996 and for the Period from             
 December 30, 1986 (Inception) to December 31, 1996....................   F-4  
Consolidated Statements of Changes in Shareholders' Equity for each of         
 the Years in the Ten-Year Period from December 30, 1986 (Inception) to        
 December 31, 1996.....................................................   F-5  
Consolidated Statements of Cash Flows for each of the Years in the             
 Three-Year Period Ended December 31, 1996 and for the Period from             
 December 30, 1986 (Inception) to December 31, 1996....................   F-8  
Notes to Financial Statements..........................................   F-9  

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REPORT OF INDEPENDENT AUDITORS  

Board of Directors and Stockholders                                             
VIMRx Pharmaceuticals Inc.                                                      
Wilmington, Delaware                                                            

We have audited the accompanying consolidated balance sheets of VIMRx       
Pharmaceuticals Inc. and subsidiaries (a development stage enterprise) as at    
December 31, 1996 and December 31, 1995, and the related consolidated           
statements of operations, changes in shareholders' equity and cash flows for    
each of the years in the three-year period ended December 31, 1996 and the      
amounts for such years included in the period December 30, 1986 (inception) to  
December 31, 1996. These consolidated financial statements are the              
responsibility of the Company's management. Our responsibility is to express    
an opinion on these consolidated 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 enumerated above present fairly, in
all material respects, the consolidated financial position of VIMRx             
Pharmaceuticals Inc. and subsidiaries at December 31, 1996 and December 31,     
1995, and the consolidated results of their operations and their consolidated   
cash flows for each of the years in the three-year period ended December 31,    
1996 in conformity with generally accepted accounting principles.               

                                    Richard A. Eisner & Company, LLP

New York, New York                                                              
March 14, 1997                                                                  

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                           DECEMBER 31,         
                                                     -------------------------- 
                                                         1996          1995     
                                                     ------------  ------------ 
                                                                                
                      ASSETS                                                    
Current assets:                                                                 
  Cash and cash equivalents........................  $  8,611,000  $  2,219,000 
  Short-term investments...........................    38,300,000               
  Deferred finance costs...........................                     310,000 
  Other current assets.............................       348,000        96,000 
                                                     ------------  ------------ 
    Total current assets...........................    47,259,000     2,625,000 
Equipment--net.....................................     2,650,000       108,000 
Notes receivable...................................                     225,000 
Marketable equity securities.......................       286,000               
Other assets.......................................       261,000               
Goodwill...........................................     1,236,000               
                                                     ------------  ------------ 
    Total..........................................  $ 51,692,000  $  2,958,000 
                                                     ============  ============ 
                    LIABILITIES                                                 
Current liabilities:                                                            
  Accounts payable and accrued expenses............  $  1,903,000  $    432,000 
  Innovir note payable--warrantholder; current                                  
   portion includes accrued interest of $5,000.....        36,000               
  Notes payable....................................                   1,802,000 
  Capital lease--current portion...................       472,000               
                                                     ------------  ------------ 
    Total current liabilities......................     2,411,000     2,234,000 
Innovir note payable--warrantholder, includes                                   
 accrued interest of $39,000.......................       227,000               
Capital leases.....................................       463,000               
Other liabilities..................................                     464,000 
                                                     ------------  ------------ 
    Total liabilities..............................     3,101,000     2,698,000 
                                                     ------------  ------------ 
Minority interest in subsidiary....................     2,381,000               
                                                     ------------               
Contingencies, commitments and other matters (Notes                             
 4, 10, 11, 13, 14 and 16)                                                      
               SHAREHOLDERS' EQUITY                                             
Common stock; $0.001 par value, 120,000,000 shares                              
 authorized, 54,429, 887 and 19,894,576 shares                                  
 issued and outstanding at December 31, 1996 and                                
 December 31, 1995, respectively...................        54,000        20,000 
Additional paid-in capital.........................    89,478,000    23,244,000 
Unearned compensation..............................      (800,000)     (493,000)
Unrealized (loss) on investment....................      (143,000)              
Cumulative translation adjustment..................        (8,000)              
Deficit accumulated during the development stage...   (42,371,000)  (22,511,000)
                                                     ------------  ------------ 
    Total shareholders' equity.....................    46,210,000       260,000 
                                                     ------------  ------------ 
    Total..........................................  $ 51,692,000  $  2,958,000 
                                                     ============  ============ 

The accompanying notes to financial statements are an integral part hereof. 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                                [Download Table]

                                                                    DECEMBER   
                                                                    30, 1986   
                                  YEAR ENDED DECEMBER 31,          (INCEPTION) 
                            -------------------------------------  TO DECEMBER 
                               1996         1995         1994       31, 1996   
                            -----------  -----------  -----------  ----------- 
                                                                               
Operating expenses:                                                            
  Research and                                                                 
   development............. $ 2,950,000  $ 2,840,000  $ 1,463,000  $15,939,000 
  Purchased research and                                                       
   development (net of gain                                                    
   on sale of subsidiary of                                                    
   $2,889,000).............  14,484,000                             14,484,000 
  General and                                                                  
   administrative..........   4,300,000    2,272,000    1,646,000   13,782,000 
                            -----------  -----------  -----------  ----------- 
                             21,734,000    5,112,000    3,109,000   44,205,000 
                            -----------  -----------  -----------  ----------- 
Other (income) expenses:                                                       
  Royalty payments.........     100,000      100,000      100,000      300,000 
  Interest (income)........  (1,792,000)    (160,000)    (189,000)  (2,951,000)
  Interest expense.........     329,000        2,000                   413,000 
  Provision for losses on                                                      
   notes receivable........                                            135,000 
  Investment in and                                                            
   advances to research and                                                    
   development entities                                                        
   charged to expense......                  185,000      515,000      700,000 
  Minority interest in net                                                     
   loss of consolidated                                                        
   subsidiary..............    (116,000)                              (116,000)
  Other--net...............    (395,000)       1,000       74,000     (315,000)
                            -----------  -----------  -----------  ----------- 
                             (1,874,000)     128,000      500,000   (1,834,000)
                            -----------  -----------  -----------  ----------- 
NET LOSS................... $19,860,000  $ 5,240,000  $ 3,609,000  $42,371,000 
                            ===========  ===========  ===========  =========== 
NET LOSS PER SHARE......... $      0.50  $      0.27  $      0.19              
                            ===========  ===========  ===========              
WEIGHTED AVERAGE NUMBER OF                                                     
 SHARES OF COMMON STOCK                                                        
 OUTSTANDING...............  39,398,644   19,747,595   19,066,754              
                            ===========  ===========  ===========              

The accompanying notes to financial statements are an integral part hereof. 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996

                                                        [Enlarge/Download Table]

                              PREFERRED STOCK                TREASURY STOCK                                                 
                    --------------------------------------  -----------------                                               
                        SERIES A            SERIES B                              COMMON STOCK      ADDITIONAL              
                    -----------------  -------------------   COMMON            -------------------   PAID-IN      UNEARNED  
                     SHARES   AMOUNT     SHARES    AMOUNT    SHARES   AMOUNT     SHARES    AMOUNT    CAPITAL    COMPENSATION
                    --------  -------  ----------  -------  --------  -------  ----------  -------  ----------  ------------
                                                                                                                            
Balance--                                                                                                                   
December 30,                                                                                                                
1986                                                                                                                        
Issuance of                                                                                                                 
common stock                                                                                                                
($.02 a share)..                                                                1,066,158  $ 1,000  $   17,000              
Net (loss) for                                                                                                              
year............                                                                                                            
                                                                               ----------  -------  ----------              
Balance--                                                                                                                   
December 31,                                                                                                                
1987............                                                                1,066,158    1,000      17,000              
Reverse stock                                                                                                               
split of one for                                                                                                            
ten shares......                                                                 (959,543)  (1,000)      1,000              
Return of                                                                                                                   
capital to                                                                                                                  
adjust purchase                                                                                                             
price for effect                                                                                                            
of reverse stock                                                                                                            
split...........                                                                                       (14,000)             
Issuance of                                                                                                                 
common stock                                                                                                                
($.03 a share)..                                                                  876,295    1,000      28,000              
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                              (1,797)                                                       
Sale of treasury                                                                                                            
stock ($.03 a                                                                                                               
share)..........                                               1,797                                                        
Issuance of                                                                                                                 
Series A                                                                                                                    
preferred stock                                                                                                             
($1.07 a                                                                                                                    
share)..........     600,000  $ 6,000                                                                  637,000              
Issuance of                                                                                                                 
Series B                                                                                                                    
preferred stock                                                                                                             
($2.58495 a                                                                                                                 
share) and                                                                                                                  
related                                                                                                                     
warrants........                          773,709  $ 8,000                                           1,992,000              
Net (loss) for                                                                                                              
year............                                                                                                            
                    --------  -------  ----------  -------  --------  -------  ----------  -------  ----------              
Balance--                                                                                                                   
December 31,                                                                                                                
1988............     600,000    6,000     773,709    8,000     - 0 -  $ - 0 -     982,910    1,000   2,661,000              
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                            (242,611)  (8,000)                                              
Issuance of                                                                                                                 
common stock                                                                                                                
($.50 a share)..                                                                    6,888                3,000              
Issuance of                                                                                                                 
common stock                                                                                                                
(.03 share).....                                                                   55,928                2,000              
Issuance of                                                                                                                 
Series B                                                                                                                    
preferred stock                                                                                                             
($2.58495 a                                                                                                                 
share) and                                                                                                                  
related                                                                                                                     
warrants........                          604,461    6,000                                           1,557,000              
Net (loss) for                                                                                                              
year............                                                                                                            
                    --------  -------  ----------  -------  --------  -------  ----------  -------  ----------              
Balance--                                                                                                                   
December 31,                                                                                                                
1989............     600,000    6,000   1,378,170   14,000  (242,611)  (8,000)  1,045,726    1,000   4,223,000              
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                              (7,188)                                                       
Conversion of                                                                                                               
bridge loan plus                                                                                                            
accrued interest                                                                                                            
in common                                                                                                                   
stock...........                                                                2,117,782    2,000     928,000              
Issuance of                                                                                                                 
common stock                                                                                                                
(average price                                                                                                              
of $.05 a share)                                                                                                            
161,063.........                                                                                         7,000              
Recapitalization..  (600,000)  (6,000) (1,378,170) (14,000)  249,799    8,000   1,435,858    2,000      10,000              
Initial public                                                                                                              
offering--net                                                                                                               
($5.00 a unit)                                                                                                              
($1.00 per                                                                                                                  
share)..........                                                                5,750,000    6,000   4,540,000              
Issuance of                                                                                                                 
common stock                                                                                                                
($.50 a share).....                                                                18,010                9,000              
Net (loss) for                                                                                                              
year............                                                                                                            
                    --------  -------  ----------  -------  --------  -------  ----------  -------  ----------              
Balance--                                                                                                                   
December 31,                                                                                                                
1990 (carried                                                                                                               
forward)........       - 0 -    - 0 -       - 0 -    - 0 -     - 0 -    - 0 -  10,528,439   11,000   9,717,000              

                                              DEFICIT                                                                       
                                            ACCUMULATED                                                                     
                    UNREALIZED  CUMULATIVE    DURING                                                                        
                     (LOSS) ON  TRANSLATION DEVELOPMENT                                                                     
                    INVESTMENTS ADJUSTMENT     STAGE                                                                        
                    ----------- ----------- ------------                                                                    
                                                                                                                            
Balance--                                                                                                                   
December 30,                                                                                                                
1986                                                                                                                        
Issuance of                                                                                                                 
common stock                                                                                                                
($.02 a share)..                                                                                                            
Net (loss) for                                                                                                              
year............                            $  (106,000)                                                                    
                                            ------------                                                                    
Balance--                                                                                                                   
December 31,                                                                                                                
1987............                               (106,000)                                                                    
Reverse stock                                                                                                               
split of one for                                                                                                            
ten shares......                                                                                                            
Return of                                                                                                                   
capital to                                                                                                                  
adjust purchase                                                                                                             
price for effect                                                                                                            
of reverse stock                                                                                                            
split...........                                                                                                            
Issuance of                                                                                                                 
common stock                                                                                                                
($.03 a share)..                                                                                                            
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                                                                                            
Sale of treasury                                                                                                            
stock ($.03 a                                                                                                               
share)..........                                                                                                            
Issuance of                                                                                                                 
Series A                                                                                                                    
preferred stock                                                                                                             
($1.07 a                                                                                                                    
share)..........                                                                                                            
Issuance of                                                                                                                 
Series B                                                                                                                    
preferred stock                                                                                                             
($2.58495 a                                                                                                                 
share) and                                                                                                                  
related                                                                                                                     
warrants........                                                                                                            
Net (loss) for                                                                                                              
year............                             (1,046,000)                                                                    
                                            ------------                                                                    
Balance--                                                                                                                   
December 31,                                                                                                                
1988............                             (1,152,000)                                                                    
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                                                                                            
Issuance of                                                                                                                 
common stock                                                                                                                
($.50 a share)..                                                                                                            
Issuance of                                                                                                                 
common stock                                                                                                                
(.03 share).....                                                                                                            
Issuance of                                                                                                                 
Series B                                                                                                                    
preferred stock                                                                                                             
($2.58495 a                                                                                                                 
share) and                                                                                                                  
related                                                                                                                     
warrants........                                                                                                            
Net (loss) for                                                                                                              
year............                             (2,531,000)                                                                    
                                            ------------                                                                    
Balance--                                                                                                                   
December 31,                                                                                                                
1989............                             (3,683,000)                                                                    
Purchase of                                                                                                                 
treasury stock                                                                                                              
($.03 a share)..                                                                                                            
Conversion of                                                                                                               
bridge loan plus                                                                                                            
accrued interest                                                                                                            
in common                                                                                                                   
stock...........                                                                                                            
Issuance of                                                                                                                 
common stock                                                                                                                
(average price                                                                                                              
of $.05 a share)                                                                                                            
161,063.........                                                                                                            
Recapitalization..                                                                                                          
Initial public                                                                                                              
offering--net                                                                                                               
($5.00 a unit)                                                                                                              
($1.00 per                                                                                                                  
share)..........                                                                                                            
Issuance of                                                                                                                 
common stock                                                                                                                
($.50 a share).....                                                                                                         
Net (loss) for                                                                                                              
year............                             (2,988,000)                                                                    
                                            ------------                                                                    
Balance--                                                                                                                   
December 31,                                                                                                                
1990 (carried                                                                                                               
forward)........                             (6,671,000)                                                                    

                                                                     (continued)

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996--
(CONTINUED) 

                                                        [Enlarge/Download Table]

                         PREFERRED STOCK        TREASURY STOCK                                                                    
                  ----------------------------- --------------                                                                    
                     SERIES A       SERIES B                      COMMON STOCK    ADDITIONAL               UNREALIZED  CUMULATIVE 
                  -------------- -------------- COMMON         ------------------   PAID-IN     UNEARNED    (LOSS) ON  TRANSLATION
                  SHARES AMOUNT  SHARES AMOUNT  SHARES AMOUNT    SHARES   AMOUNT    CAPITAL   COMPENSATION INVESTMENTS ADJUSTMENT 
                  ------ ------- ------ ------- ------ ------- ---------- ------- ----------- ------------ ----------- -----------
                                                                                                                                  
Balance--                                                                                                                         
December 31,                                                                                                                      
1990 (brought                                                                                                                     
forward)........  - 0 -  $ - 0 - - 0 -  $ - 0 - - 0 -  $ - 0 - 10,528,439 $11,000 $ 9,717,000                                     
Exercise of                                                                                                                       
options ($.30 a                                                                                                                   
share)..........                                                      500                                                         
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------                                     
Balance--                                                                                                                         
December 31,                                                                                                                      
1991............  - 0 -    - 0 - - 0 -    - 0 - - 0 -    - 0 - 10,528,939  11,000   9,717,000                                     
Issuance of                                                                                                                       
common stock in                                                                                                                   
public                                                                                                                            
offering--net                                                                                                                     
($5,000 a unit)                                                                                                                   
($2.20 per                                                                                                                        
share)..........                                                3,139,500   4,000   5,706,000                                     
Exercise of                                                                                                                       
options and                                                                                                                       
warrants--net                                                                                                                     
($.30-$.50 per                                                                                                                    
share)..........                                                  412,754             489,000                                     
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------                                     
Balance--                                                                                                                         
December 31,                                                                                                                      
1992............  - 0 -    - 0 - - 0 -    - 0 - - 0 -    - 0 - 14,081,193  15,000  15,912,000                                     
Exercise of                                                                                                                       
options and                                                                                                                       
warrants--net                                                                                                                     
($.30-$.50 per                                                                                                                    
share)..........                                                   27,683              17,000                                     
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------                                     
Balance--                                                                                                                         
December 31,                                                                                                                      
1993............  - 0 -    - 0 - - 0 -    - 0 - - 0 -    - 0 - 14,108,876  15,000  15,929,000                                     
Issuance of                                                                                                                       
common stock in                                                                                                                   
public                                                                                                                            
offering--net                                                                                                                     
($5,000 a unit)                                                                                                                   
($2.20 per                                                                                                                        
share)..........                                                5,393,200   5,000   6,380,000                                     
Exercise of                                                                                                                       
warrants--net                                                                                                                     
($1.50 per                                                                                                                        
share)..........                                                      500                                                         
Issuance of                                                                                                                       
common stock for                                                                                                                  
services                                                                                                                          
($0.3125 per                                                                                                                      
share)..........                                                  240,000              75,000                                     
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------                                     
Balance--                                                                                                                         
December 31,                                                                                                                      
1994............  - 0 -    - 0 - - 0 -    - 0 - - 0 -    - 0 - 19,742,576  20,000  22,384,000                                     
Exercise of                                                                                                                       
warrants--net                                                                                                                     
($1.50 per                                                                                                                        
share)..........                                                    2,000               3,000                                     
Exercise of                                                                                                                       
options ($0.4375                                                                                                                  
per share)......                                                  150,000              65,000                                     
Value of options                                                                                                                  
issued to                                                                                                                         
consultants.....                                                                      591,000  $(493,000)                         
Value assigned                                                                                                                    
to warrants                                                                                                                       
issued in                                                                                                                         
private                                                                                                                           
placement of                                                                                                                      
debt                                                                                                                              
securities......                                                                      200,000                                     
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------  ---------                          
Balance--                                                                                                                         
December 31,                                                                                                                      
1995 (carried                                                                                                                     
forward)........  - 0 -    - 0 - - 0 -    - 0 - - 0 -    - 0 - 19,894,576  20,000  23,243,000   (493,000)                         

                    DEFICIT                                                                                                       
                  ACCUMULATED                                                                                                     
                     DURING                                                                                                       
                  DEVELOPMENT                                                                                                     
                     STAGE                                                                                                        
                  -------------                                                                                                   
                                                                                                                                  
Balance--                                                                                                                         
December 31,                                                                                                                      
1990 (brought                                                                                                                     
forward)........  $ (6,671,000)                                                                                                   
Exercise of                                                                                                                       
options ($.30 a                                                                                                                   
share)..........                                                                                                                  
Net (loss) for                                                                                                                    
year............    (2,016,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1991............    (8,687,000)                                                                                                   
Issuance of                                                                                                                       
common stock in                                                                                                                   
public                                                                                                                            
offering--net                                                                                                                     
($5,000 a unit)                                                                                                                   
($2.20 per                                                                                                                        
share)..........                                                                                                                  
Exercise of                                                                                                                       
options and                                                                                                                       
warrants--net                                                                                                                     
($.30-$.50 per                                                                                                                    
share)..........                                                                                                                  
Net (loss) for                                                                                                                    
year............    (2,451,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1992............   (11,138,000)                                                                                                   
Exercise of                                                                                                                       
options and                                                                                                                       
warrants--net                                                                                                                     
($.30-$.50 per                                                                                                                    
share)..........                                                                                                                  
Net (loss) for                                                                                                                    
year............    (2,524,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1993............   (13,662,000)                                                                                                   
Issuance of                                                                                                                       
common stock in                                                                                                                   
public                                                                                                                            
offering--net                                                                                                                     
($5,000 a unit)                                                                                                                   
($2.20 per                                                                                                                        
share)..........                                                                                                                  
Exercise of                                                                                                                       
warrants--net                                                                                                                     
($1.50 per                                                                                                                        
share)..........                                                                                                                  
Issuance of                                                                                                                       
common stock for                                                                                                                  
services                                                                                                                          
($0.3125 per                                                                                                                      
share)..........                                                                                                                  
Net (loss) for                                                                                                                    
year............    (3,609,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1994............   (17,271,000)                                                                                                   
Exercise of                                                                                                                       
warrants--net                                                                                                                     
($1.50 per                                                                                                                        
share)..........                                                                                                                  
Exercise of                                                                                                                       
options ($0.4375                                                                                                                  
per share)......                                                                                                                  
Value of options                                                                                                                  
issued to                                                                                                                         
consultants.....                                                                                                                  
Value assigned                                                                                                                    
to warrants                                                                                                                       
issued in                                                                                                                         
private                                                                                                                           
placement of                                                                                                                      
debt                                                                                                                              
securities......                                                                                                                  
Net (loss) for                                                                                                                    
year............    (5,240,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1995 (carried                                                                                                                     
forward)........   (22,511,000)                                                                                                   

                                                                     (continued)

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996--  
(CONTINUED) 

                                                        [Enlarge/Download Table]

                         PREFERRED STOCK        TREASURY STOCK                                                                    
                  ----------------------------- --------------                                                                    
                     SERIES A       SERIES B                      COMMON STOCK    ADDITIONAL               UNREALIZED  CUMULATIVE 
                  -------------- -------------- COMMON         ------------------   PAID-IN     UNEARNED    (LOSS) ON  TRANSLATION
                  SHARES AMOUNT  SHARES AMOUNT  SHARES AMOUNT    SHARES   AMOUNT    CAPITAL   COMPENSATION INVESTMENTS ADJUSTMENT 
                  ------ ------- ------ ------- ------ ------- ---------- ------- ----------- ------------ ----------- -----------
                                                                                                                                  
Balance--                                                                                                                         
December 31,                                                                                                                      
1995 (brought                                                                                                                     
forward)........  - 0 -  $ - 0 - - 0 -  $ - 0 - - 0 -  $ - 0 - 19,894,576 $20,000 $23,243,000  $(493,000)                         
Exercise of                                                                                                                       
warrants ($1.50                                                                                                                   
per share) (net                                                                                                                   
of $712,000                                                                                                                       
expense)........                                               13,907,015  14,000  20,135,000                                     
Exercise of                                                                                                                       
warrants ($2.25                                                                                                                   
per share) (net                                                                                                                   
of $1,275,000                                                                                                                     
expense)........                                               14,210,315  14,000  30,684,000                                     
Issuance of                                                                                                                       
common stock in                                                                                                                   
private                                                                                                                           
placement ($1.50                                                                                                                  
per unit) (net                                                                                                                    
of $142,000                                                                                                                       
expense)........                                                2,799,991   3,000   4,055,000                                     
Issuance of                                                                                                                       
warrants in                                                                                                                       
connection with                                                                                                                   
acquisition of                                                                                                                    
Ribonetics......                                                                    1,562,000                                     
Exercise of                                                                                                                       
options ($.50-                                                                                                                    
$1.16 per                                                                                                                         
share)..........                                                  217,990             195,000                                     
Issuance of                                                                                                                       
restricted stock                                                                                                                  
to nonemployee                                                                                                                    
directors.......                                                  400,000             400,000   (347,000)                         
Issuance of                                                                                                                       
shares in                                                                                                                         
connection with                                                                                                                   
acquisition of                                                                                                                    
Innovir ($3 per                                                                                                                   
share)..........                                                3,000,000   3,000   8,997,000                                     
Compensatory                                                                                                                      
stock options...                                                                      207,000     40,000                          
Translation                                                                                                                       
adjustment......                                                                                                         $(8,000) 
Unrealized                                                                                                                        
(loss) on                                                                                                                         
investments.....                                                                                            $(143,000)            
Net (loss) for                                                                                                                    
year............                                                                                                                  
                  -----  ------- -----  ------- -----  ------- ---------- ------- -----------  ---------    ---------    -------  
Balance--                                                                                                                         
December 31,                                                                                                                      
1996............  - 0 -  $ - 0 - - 0 -  $ - 0 - - 0 -  $ - 0 - 54,429,887 $54,000 $89,478,000  $(800,000)   $(143,000)   $(8,000) 
                  =====  ======= =====  ======= =====  ======= ========== ======= ===========  =========    =========    =======  

                    DEFICIT                                                                                                       
                  ACCUMULATED                                                                                                     
                     DURING                                                                                                       
                  DEVELOPMENT                                                                                                     
                     STAGE                                                                                                        
                  -------------                                                                                                   
                                                                                                                                  
Balance--                                                                                                                         
December 31,                                                                                                                      
1995 (brought                                                                                                                     
forward)........  $(22,511,000)                                                                                                   
Exercise of                                                                                                                       
warrants ($1.50                                                                                                                   
per share) (net                                                                                                                   
of $712,000                                                                                                                       
expense)........                                                                                                                  
Exercise of                                                                                                                       
warrants ($2.25                                                                                                                   
per share) (net                                                                                                                   
of $1,275,000                                                                                                                     
expense)........                                                                                                                  
Issuance of                                                                                                                       
common stock in                                                                                                                   
private                                                                                                                           
placement ($1.50                                                                                                                  
per unit) (net                                                                                                                    
of $142,000                                                                                                                       
expense)........                                                                                                                  
Issuance of                                                                                                                       
warrants in                                                                                                                       
connection with                                                                                                                   
acquisition of                                                                                                                    
Ribonetics......                                                                                                                  
Exercise of                                                                                                                       
options ($.50-                                                                                                                    
$1.16 per                                                                                                                         
share)..........                                                                                                                  
Issuance of                                                                                                                       
restricted stock                                                                                                                  
to nonemployee                                                                                                                    
directors.......                                                                                                                  
Issuance of                                                                                                                       
shares in                                                                                                                         
connection with                                                                                                                   
acquisition of                                                                                                                    
Innovir ($3 per                                                                                                                   
share)..........                                                                                                                  
Compensatory                                                                                                                      
stock options...                                                                                                                  
Translation                                                                                                                       
adjustment......                                                                                                                  
Unrealized                                                                                                                        
(loss) on                                                                                                                         
investments.....                                                                                                                  
Net (loss) for                                                                                                                    
year............   (19,860,000)                                                                                                   
                  -------------                                                                                                   
Balance--                                                                                                                         
December 31,                                                                                                                      
1996............  $(42,371,000)                                                                                                   
                  =============                                                                                                   

The accompanying notes to financial statements are an integral part hereof. 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                                [Download Table]

                                                                  DECEMBER 30, 
                                                                      1986     
                               YEAR ENDED DECEMBER 31,           (INCEPTION) TO
                         --------------------------------------   DECEMBER 31, 
                             1996         1995         1994           1996     
                         ------------  -----------  -----------  --------------
                                                                               
Cash flows from                                                                
 operating activities:                                                         
 Net (loss)............  $(19,860,000) $(5,240,000) $(3,609,000)  $(42,371,000)
 Adjustments to                                                                
  reconcile net (loss)                                                         
  to net cash (used in)                                                        
  operating activities:                                                        
 Depreciation and                                                              
  amortization.........       155,000       24,000       10,000        254,000 
 Amortization of debt                                                          
  discount.............       198,000        2,000                     200,000 
 Interest expense                                                              
  settled through                                                              
  issuance of stock....                                                 72,000 
 Consulting fees                                                               
  settled through                                                              
  issuance of stock....                                  75,000         75,000 
 Research and                                                                  
  development expenses                                                         
  to be settled through                                                        
  the issuance of                                                              
  stock................      (464,000)     464,000                             
 Provision for losses                                                          
  on notes receivable..                                                135,000 
 Investment in and                                                             
  advances to research                                                         
  and development                                                              
  entities charged to                                                          
  expense..............                    185,000      515,000        700,000 
 (Gain) on sale of                                                             
  subsidiaries.........    (2,889,000)                              (2,889,000)
 Noncash compensation..       481,000       98,000                     579,000 
 Purchased in process                                                          
  research and                                                                 
  development..........    17,374,000                               17,374,000 
 Loss from disposal of                                                         
  equipment............        12,000                                   20,000 
 Deferred financing                                                            
  cost.................       310,000                                  310,000 
 Minority interest in                                                          
  net loss.............      (116,000)                                (116,000)
 Changes in operating                                                          
  assets and                                                                   
  liabilities:                                                                 
  Decrease in                                                                  
   prepayments under                                                           
   research contracts..                     47,000        8,000                
  (Increase) in                                                                
   organization costs..                                                 (3,000)
  (Increase) decrease                                                          
   in other current                                                            
   assets and other                                                            
   assets..............      (103,000)      69,000     (110,000)      (199,000)
  Increase (decrease)                                                          
   in accounts payable                                                         
   and accrued                                                                 
   expenses............      (265,000)     266,000        1,000        116,000 
                         ------------  -----------  -----------   ------------ 
   Net cash (used in)                                                          
    operating                                                                  
    activities.........    (5,167,000)  (4,085,000)  (3,110,000)   (25,743,000)
                         ------------  -----------  -----------   ------------ 
Cash flows from                                                                
 investing activities:                                                         
 Net (purchases) sales                                                         
  of short-term                                                                
  investments..........   (38,279,000)   2,590,000     (588,000)   (38,279,000)
 Payment for                                                                   
  acquisition, net of                                                          
  cash acquired........    (2,011,000)                              (2,011,000)
 Purchase of marketable                                                        
  securities...........      (450,000)                                (450,000)
 Purchases of                                                                  
  equipment............      (802,000)     (50,000)     (71,000)    (1,040,000)
 Proceeds from sale of                                                         
  equipment............        12,000                                   39,000 
 Loans to DNA                                                                  
  Pharmaceuticals,                                                             
  Inc..................                                               (296,000)
 Repayment of DNA                                                              
  Pharmaceuticals, Inc.                                                        
  loans................                                                161,000 
 Loans to Ribonetics                                                           
  GmbH.................                                (600,000)      (600,000)
 Investment in and loan                                                        
  to CambES, Ltd.......                   (100,000)    (225,000)      (325,000)
                         ------------  -----------  -----------   ------------ 
   Net cash provided by                                                        
    (used in) investing                                                        
    activities.........   (41,530,000)   2,440,000   (1,484,000)   (42,801,000)
                         ------------  -----------  -----------   ------------ 
Cash flows from                                                                
 financing activities:                                                         
 Proceeds from sales of                                                        
  preferred and common                                                         
  stock, net...........     4,058,000                 6,450,000     24,836,000 
 Proceeds from issuance                                                        
  of common stock in                                                           
  connection with the                                                          
  exercise of                                                                  
  warrants/options.....    51,042,000       69,000        1,000     51,111,000 
 Purchase of treasury                                                          
  stock................                                                 (8,000)
 Proceeds from bridge                                                          
  loans................                  1,740,000                   3,141,000 
 Repayment of bridge                                                           
  loans................    (2,000,000)                              (2,500,000)
 Issuance of                                                                   
  convertible demand                                                           
  notes payable........                                                600,000 
 Return of capital.....                                                (14,000)
                         ------------  -----------  -----------   ------------ 
   Net cash provided by                                                        
    financing                                                                  
    activities.........    53,100,000    1,809,000    6,451,000     77,166,000 
                         ------------  -----------  -----------   ------------ 
Effect of exchange rate                                                        
 changes on cash.......       (11,000)                                 (11,000)
                         ------------                             ------------ 
NET INCREASE IN CASH                                                           
 AND CASH EQUIVALENTS..     6,392,000      164,000    1,857,000      8,611,000 
Cash and cash                                                                  
 equivalents at                                                                
 beginning of period...     2,219,000    2,055,000      198,000                
                         ------------  -----------  -----------   ------------ 
CASH AND CASH                                                                  
 EQUIVALENTS AT END OF                                                         
 PERIOD................  $  8,611,000  $ 2,219,000  $ 2,055,000   $  8,611,000 
                         ============  ===========  ===========   ============ 
Supplemental disclosure                                                        
 of cash flow                                                                  
 information:                                                                  
 Cash paid for                                                                 
  interest.............  $    124,000                             $    124,000 
 For noncash                                                                   
  transactions see                                                             
  Notes 2, 7 and 11.                                                           

The accompanying notes to financial statements are an integral part hereof. 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS 

NOTE 1--THE BUSINESS:                                                           

VIMRx Pharmaceuticals Inc. ("VIMRx") is a development stage company focused 
on identifying, evaluating, acquiring and commercializing scientific            
technologies to be developed by the Company in partnership with others. The     
Company is engaged in developing therapeutic and related products form          
synthetic hypericin principally for the treatment of viral and retroviral       
diseases. The Company also owns approximately 68% of the capital stock of       
Innovir Laboratories, Inc. ("Innovir") (see below) which, together with its     
subsidiaries, is engaged in the research and development of oligozymes, a new   
class of biopharmaceutical agents for the treatment of a wide array of human    
diseases.                                                                       

In January 1995, to complement and diversify its potential hypericin-based  
product line, VIMRx, through its subsidiary, VIMRx Holdings, Ltd. ("VHL"),      
acquired a worldwide exclusive license from Ribonetics GmbH ("Ribonetics"), a   
German company. The worldwide exclusive license gives VHL the right to          
commercialize and exploit oligozymes for pharmaceutical and diagnostic          
products. On May 23, 1996, VHL acquired 100% of the outstanding capital stock   
of Ribonetics (see Note 2[b]).                                                  

On December 23, 1996, VIMRx and Innovir and certain shareholders of Innovir 
entered into a series of agreements (the "Transaction") whereby VIMRx           
effectively acquired 68% of Innovir and Innovir acquired all of the issued and  
outstanding shares of VHL, a wholly owned subsidiary of VIMRx. As discussed     
further in Note 2, for financial reporting purposes, the Transaction has been   
accounted for as a partial sale of VHL to Innovir and a partial acquisition of  
Innovir. In connection therewith, the purchase price has been allocated to net  
tangible assets, purchased in-process research and development and goodwill.    
The purchased in-process research and development was charged to operations.    
The accompanying consolidated financial statements include the accounts of      
VIMRx, Innovir and all subsidiaries which are wholly owned (collectively, the   
"Company").                                                                     

The Company is subject to those risks associated with development stage     
companies. All of the Company's efforts to date have been devoted to acquiring  
technology, research and development, setting up laboratories and raising       
capital. The Company does not yet generate any revenues from product sales.     
The Company has research laboratories in the United States, the United Kingdom  
and Germany. In addition, research and development and clinical trials are      
contracted to independent institutions in the United States and elsewhere.      

NOTE 2--ACQUISITIONS:                                                           

(a) Transactions to acquire 68% of Innovir Laboratories, Inc.:                

As discussed in Note 1, VIMRx, Innovir and certain stockholders of Innovir  
(the "Aries Funds") entered into the Transaction whereby VIMRx acquired 68% of  
Innovir and Innovir acquired 100% of the outstanding capital stock of VHL. In   
consideration of the acquisition of VHL, Innovir, on December 23, 1996, issued  
8,666,666 shares of a newly designated series of preferred stock, Class D       
convertible preferred stock and warrants to purchase two million shares of the  
Innovir's common stock. The warrants expire after five years. The exercise      
price for one million warrants is $1.00 per share; the remaining one million    
warrants have an exercise price of $2.00 per share.                             

Simultaneously with Innovir's acquisition of VHL, VIMRx, in exchange for $3 
million and three million shares of VIMRx's common stock, acquired 9.5 million  
shares of Innovir's common stock from the Aries Funds. In addition, VIMRx and   
the Aries Funds entered into an agreement whereby VIMRx obtained the right to   
vote 500,000 shares of Innovir's common stock held by the Aries Funds, thereby  
effectively giving VIMRx voting control of an aggregate of 18,666,666 shares    
of Innovir's stock.                                                             

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

VIMRx's partial acquisition of Innovir and Innovir's acquisition of VHL,    
have been accounted for as a purchase in accordance with APB Opinion No. 16,    
"Business Combinations" ("APB No. 16") and Emerging Issues Task Force Issue     
No. 90-13, "Accounting for Simultaneous Common Control Mergers" ("EITF No. 90-  
13"). The application of APB No. 16 and EITF No. 90-13 requires that the        
Transaction be accounted for as a partial sale of VHL to the minority           
shareholders of Innovir and a partial acquisition of Innovir. VIMRx's purchase  
price of its 68% of Innovir totaled approximately $17 million. Of the total     
purchase price, approximately $3.7 million was allocated to tangible assets,    
$1.8 million to liabilities, $13.8 million to purchased in-process research     
and development and the balance to goodwill. Technological feasibility of the   
purchased in-process research and development has not yet been established and  
the technology has no alternative future use. In connection with the partial    
sale of VHL, the Company recorded a gain on $2.8 million which has been         
included with purchased research and development expense. The accompanying      
statement of operations include the operations of Innovir from December 23,     
1996 to December 31, 1996.                                                      

(b) Acquisition of Ribonetics:                                                

During 1996, VHL acquired 100% of the outstanding capital stock of          
Ribonetics in consideration for approximately $1.6 million of cash and a        
warrant to purchase 365,000 shares of VIMRx's common stock at an exercise       
price of $.01 per share (the "Acquisition"). The Company valued the warrants    
at approximately $1,562,000. The Acquisition has been accounted for as a        
purchase and the operating results of the Company include those of Ribonetics   
for the seven months ended December 31, 1996. The total purchase price          
aggregated approximately $3.7 million and has been allocated to tangible        
assets, liabilities and purchased in-process research and development of        
$475,000, $289,000 and $3,528,000, respectively. It was determined at the date  
of acquisition that the purchased in-process research and development had not   
reached technological feasibility and that the technology had no alternative    
future use.                                                                     

(c) Pro forma results of operations (unaudited):                              

The following pro forma unaudited results of operations have been prepared  
as if the Transaction and the Acquisition discussed above had occurred at the   
beginning of the respective periods ended December 31.                          

                                                                [Download Table]

                                                      YEAR ENDED DECEMBER 31,
                                                      -----------------------
                                                         1996        1995    
                                                      ----------- -----------
                                                            (UNAUDITED)      
                                                                             
Revenues............................................. $ 2,089,000 $   470,000
Expenses.............................................  17,367,000  12,021,000
                                                      ----------- -----------
Net loss............................................. $15,278,000 $11,551,000
                                                      =========== ===========
Net loss per share................................... $      0.36 $      0.51
                                                      =========== ===========

The pro forma results of operations above include adjustments for the       
amortization of intangibles and exclude nonrecurring charges related to         
purchased in-process research and development arising from the Transaction and  
the Acquisition.                                                                

The pro forma financial information is not necessarily indicative of the    
operating results that would have occurred had the Transaction and the          
Acquisition been consummated at the beginning of the respective periods, nor    
are they necessarily indicative of future operating results.                    

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                             

(a) Consolidation:                                                            

The accompanying consolidated financial statements include the accounts of  
VIMRx, Innovir and all subsidiaries which are wholly owned. All significant     
inter-company balances and transactions have been eliminated.                   

(b) Research and development:                                                 

Research and development costs are charged to expense as incurred.          

(c) Foreign currency translation:                                             

Financial statements of foreign subsidiaries are translated into U.S.       
dollars at the exchange rate at each balance sheet date for assets and          
liabilities and a weighted average exchange rate for each period for revenues,  
expenses and gains and losses. Where the local currency is the functional       
currency, translation adjustments are recorded as a separate component of       
shareholders' equity (deficit). Where the U.S. dollar is the functional         
currency, translation adjustments are included in operating results. Foreign    
exchange gains and losses included in operations were not material. As of       
December 31, 1996, approximately 2% and approximately 3% of the Company's       
total assets are located in the United Kingdom and Germany, respectively.       

(d) Amortization of goodwill:                                                 

Goodwill represents the excess of the purchase price paid by the Company    
over 68% of the fair value of the net assets and purchased in-process research  
and development of Innovir. Such amount is being amortized on a straight-line   
basis over the period of expected benefit of three years. Total amortization    
of goodwill for the year ended December 31, 1996 was not material. The          
carrying value of goodwill will be reviewed periodically based on the           
advancement of Innovir's technology and the continued employment of Innovir's   
workforce and consultants. Should this review indicate that goodwill will not   
be realized, the Company's carrying value of the goodwill will be reduced.      

(e) Fixed assets:                                                             

Fixed assets consist of office and laboratory equipment and leasehold       
improvements stated at cost. Equipment is depreciated on a straight-line basis  
over its estimated useful life of five years. Leasehold improvements are        
amortized over the life of the lease or of the improvement, whichever is        
shorter. Expenditures for maintenance and repairs which do not materially       
extend the useful lives of the assets are charged to operations as incurred.    
The cost and related accumulated depreciation or amortization of assets         
retired or sold are removed from the respective accounts and any gain or loss   
is recognized in operations.                                                    

(f) Deferred financing costs:                                                 

Direct costs associated with obtaining debt financing have been capitalized 
and are being amortized on a basis which approximates the interest method,      
over the terms of the respective loans.                                         

(g) Cash and cash equivalents:                                                

The Company considers all highly liquid debt instruments which have         
maturities of three months or less when acquired to be cash equivalents. The    
carrying amount reported in the balance sheet for cash and cash                 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

equivalents approximates its fair value. Cash and cash equivalents subject the  
Company to concentrations of credit risk. At December 31, 1996, the Company     
had invested approximately $6.6 million in money market funds with two          
investment companies and held approximately $1.7 million of commercial paper    
issued by four entities, with maturities not in excess of three months. The     
Company holds no collateral for these financial instruments.                    

(h) Investments:                                                              

The Company classifies certain investments as "available-for-sale".         
Investments in securities that are classified as available-for-sale and have    
readily determinable fair values are measured at fair market value in the       
balance sheet, and unrealized holding gains and losses for these investments    
are reported as a separate component of shareholders' equity until realized.    

(i) Net loss per share:                                                       

Net loss per share is computed on the basis of the net loss for the period  
divided by the weighted average number of shares of common stock outstanding    
during the period. The net loss per share for all periods excludes the number   
of shares issuable upon exercise of the outstanding options and warrants since  
such inclusion would be anti-dilutive.                                          

(j) Government grants:                                                        

Proceeds from government grants are recognized as income as the related     
research is performed. For the year ended December 31, 1996, approximately      
$90,000 was recognized as income and is included in other income.               

(k) Use of estimates:                                                         

The preparation of financial statements in conformity with generally        
accepted accounting principles requires management to make estimates and        
assumptions that affect the amounts reported in the financial statements and    
accompanying notes. Actual results could differ from those estimates.           

(l) Income taxes:                                                             

The Company accounts for income taxes in accordance with Statement of       
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS    
109"). SFAS 109 requires recognition of deferred tax liabilities and assets     
for the expected future tax consequences of events that have been included in   
the financial statements or tax returns. Under this method, deferred tax        
liabilities and assets are determined on the basis of the difference between    
tax bases of assets and liabilities and their respective financial-reporting    
amounts ("temporary differences") at enacted tax rates in effect for the year   
in which the temporary differences are expected to reverse (see Note 12).       

(m) Stock based employee compensation:                                        

The accompanying financial position and results of operations of the Company
have been prepared in accordance with APB Opinion No. 25, "Accounting for       
Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no      
compensation expense is recognized in the accompanying financial statements in  
connection with the awarding of stock option grants to employees provided       
that, as of the grant date, all terms associated with the award are fixed and   
the quoted market price of the Company's stock, as of the grant date, is not    
greater than the amount an employee must pay to acquire the stock as defined;   
however, to the extent that                                                     

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

stock options are granted to nonemployees for goods or services, the fair       
value of these options are included in operating results as an expense.         

Disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro       
forma operating results had the Company prepared its financial statements in    
accordance with the fair value based method of accounting for stock-based       
compensation, have been included in Note 11(b).                                 

(n) Fair value of financial instruments:                                      

Financial instruments include notes receivable and accounts payable. The    
carrying amount of these instruments approximate fair value due either to       
their short-term nature or because the Company believes the instrument could    
be exchanged in a current transaction for that carrying amount (also see Note   
10).                                                                            

(o) Reclassifications:                                                        

Certain reclassifications have been made to the financial statements for    
1995 in order to conform with current year's presentation.                      

NOTE 4--RESEARCH CONTRACTS:                                                     

(a) Pursuant to an agreement with New York University ("NYU") and Yeda      
Research and Development Co., Ltd. ("Yeda"), located in Israel, (NYU and Yeda,  
collectively, the "Licensors"), the Licensors granted VIMRx a worldwide         
exclusive license to commercialize and exploit natural hypericin and synthetic  
hypericin compounds to inactivate viruses and retro-viruses as a therapeutic    
or preventive treatment for viral or retroviral diseases, and for anti-glioma   
(brain tumor) indications. Between 1988 and May 1995, VIMRx paid the Licensors  
an aggregate of approximately $4,928,000 for research and development with      
respect to hypericin, and approximately $434,000 for reimbursement of patent    
expenses and approximately $300,000 in minimum royalty payments since June 1,   
1993. The agreement requires VIMRx to protect the Licensors and their related   
parties (consultants and scientists) from damages arising out of the conduct    
of the research project and the use or practice of the research technology,     
products or processes by VIMRx or its related parties. VIMRx must also          
maintain employer's liability insurance for all its employees engaged in work   
involving the research project.                                                 

In addition, the Company is required to make royalty and related payments to
licensors under the agreement consisting of: (1) royalties of 7% on net sales   
of products licensed; (2) royalties of 4.4% on net sales of products            
sublicensed; (3) 40% of payments from third parties to Fund research and        
development and (4) 12% of consideration received from an entity selling        
licensed products.                                                              

Commencing June 1, 1993, minimum annual royalty payments of $100,000 are due
until the later of the expiration of the Licensors' patents or 15 years from    
the first commercial sale of products under the agreement. During 1996, 1995    
and 1994, such payments were made.                                              

(b) On March 7, 1995, VHL entered into a one year research and development  
agreement with Ribonetics with respect to rights and the related technology     
acquired from Ribonetics. During 1995, approximately $1,050,000 of such         
funding was made. The agreement provides for the issuance by the Company of     
500,000 shares of its common stock at the anniversary date of the research and  
development agreement. However, should the agreement be terminated prior to     
any anniversary date the unissued shares shall not be payable. At December 31,  
1995 a liability of $464,000 reflecting this agreement has been recorded based  
on the pro rata shares earned at the current market price, and research and     
development expense had been charged.                                           

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

In 1996, VHL terminated its research and development agreement with         
Ribonetics resulting in a reversal of the accrual for payments of common stock  
under that agreement.                                                           

(c) Innovir (as licensee) has entered into an exclusive worldwide licensing 
agreement with a university whereby Innovir has the exclusive right to use      
certain technology owned by the university. According to the terms of the       
agreement, as amended, Innovir is required to pay royalties which commence one  
year after the first sale of a product developed from the licensed technology.  
Such royalties are based upon the greater of annual minimum royalties, as       
defined, or a percentage of net sales of licensed products and a portion of     
sublicensing income, as defined. Annual minimum royalties are not material.     
The licensing agreement expires on a country by country basis as underlying     
patents expire in such country. In addition, the license may be terminated in   
the event that Innovir fails to implement a plan directed at development and    
commercialization of products based on the licensed technology or if Innovir    
fails to satisfy certain other contractual obligations. In the event of         
termination, all licensing rights under the agreement would revert to the       
university. The termination of the license would have a material adverse        
effect on the business of Innovir. Although Innovir intends to use its best     
efforts to comply with the terms of the license, there can be no assurance      
that the licensing agreement will not be terminated. Innovir believes, based    
on the opinion of counsel, that the use of this licensed technology does not    
infringe on a patent held by a third party. Nevertheless, there can be no       
assurance that infringement proceedings will not be brought against Innovir.    

In April 1994, Innovir (as licensee) entered into another non-exclusive     
licensing agreement with a university whereby Innovir has the non-exclusive,    
non-transferable right to use certain technology owned by the university.       
According to the terms of this agreement, Innovir is required to remit          
royalties on a quarterly basis, at various rates, as defined, beginning after   
the first commercial sale of a licensed product, as defined. In addition,       
Innovir is required to pay a minimum annual advance on earned royalties         
("Advance") of $10,000, which is nonrefundable, but may be credited, as         
defined, against future royalties due the university. Advances paid to date     
have not been material. Royalties shall continue to be payable, irrespective    
of the termination of this license agreement, until such time as all sales of   
licensed products shall have ceased.                                            

During 1996, VHL entered into a research collaboration and licensing        
agreement with a pharmaceutical company ("Pharmaceutical Company"). Under the   
terms of the agreement, the Pharmaceutical Company and VHL will jointly         
develop certain technology and the Pharmaceutical Company obtained certain      
rights to the technology or received a defined royalty in the event VHL         
licenses the technology to a third party. The agreement also provides for the   
Pharmaceutical Company to make defined payments to VHL upon the occurrence of   
certain events related to the technology's development and the achievement of   
defined milestones. The agreement is for one year unless extended by the        
parties. During the year ended December 31, 1996, VHL received $40,000 from     
the Pharmaceutical Company in accordance with the agreement. Such amount has    
been included in other income.                                                  

NOTE 5--INVESTMENTS:                                                            

Securities available for sale at December 31, 1996 are summarized as        
follows:                                                                        

                                                                [Download Table]

                                                       ESTIMATED  UNREALIZED 
                                             COST     FAIR VALUE  GAIN (LOSS)
                                          ----------- ----------- -----------
                                                                             
U.S. Treasury and agencies............... $ 4,867,000 $ 4,845,000  $(22,000) 
Mortgage-backed securities...............  17,548,000  17,583,000    35,000  
Asset-backed securities..................  11,181,000  11,182,000     1,000  
Corporate debt securities................   4,683,000   4,690,000     7,000  
                                          ----------- -----------  --------  
                                          $38,279,000 $38,300,000  $ 21,000  
                                          =========== ===========  ========  

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

During the year ended December 31, 1996 and December 31, 1994, the Company  
realized a gain (loss) of approximately $272,000 and ($74,000), respectively,   
on the sale of available-for-sale investments, included in other income.        

The cost and estimated fair value of available for sale securities by       
contractual maturity at December 31, 1996 is as follows:                        

                                                                [Download Table]

                                                      ESTIMATED             
                                                        COST     FAIR VALUE 
                                                     ----------- -----------
                                                                            
Due after one year through five years............... $14,098,000 $14,083,000
Due after five years through ten years..............   5,721,000   5,719,000
Due after ten years.................................     912,000     915,000
Mortgage-backed securities..........................  17,548,000  17,583,000
                                                     ----------- -----------
                                                     $38,279,000 $38,300,000
                                                     =========== ===========

Expected maturities may differ from contractual maturities because the      
issuers of the securities may have the right to repay obligations without       
repayment penalties.                                                            

During 1996, the Company purchased for $800,000 an aggregate of 457,143     
shares of the common stock of Epoch Pharmaceuticals, Inc. ("Epoch"), warrants   
to purchase 450,000 shares of Epoch's common stock at $2.00 per share and       
warrants to purchase an additional 450,000 common shares at $3.00 per share,    
which warrants expire on October 1, 1997 and October 1, 1998, respectively. In  
connection therewith, Epoch released the Company and its affiliates from any    
claims Epoch might have with respect to the Innovir's subsidiary, Ribonetics.   
During 1996, the Company recorded a charge to operations of $350,000            
representing the excess over the fair value of securities at the date of        
purchase. On December 31, 1996, the Company recorded an unrealized loss of      
$164,000 on this investment which has been included as a reduction of           
shareholders' equity.                                                           

NOTE 6--EQUIPMENT:                                                              

Equipment consists of the following:                                        

                                                                [Download Table]

                                                            DECEMBER 31,    
                                                         -------------------
                                                            1996      1995  
                                                         ---------- --------
                                                                            
Office and laboratory equipment......................... $2,042,000 $ 91,000
Computers...............................................    114,000   57,000
Leasehold improvements..................................    689,000         
                                                         ---------- --------
                                                          2,845,000  148,000
Less accumulated depreciation and amortization..........    195,000   40,000
                                                         ---------- --------
Net equipment........................................... $2,650,000 $108,000
                                                         ========== ========

NOTE 7--NOTES RECEIVABLE:                                                       

Notes receivable, at December 31, 1995, consist of two notes of $250,000,   
each bearing interest at 12.5%, due on December 7, 1994 and January 21, 1995,   
respectively, and a $250,000 unsecured demand note bearing interest at 10%      
from Ribonetics. The notes were collateralized by laboratory equipment and a    
license for certain patent rights. At December 31, 1995 and December 31, 1994,  
$85,000 and $290,000, respectively, of the notes were charged to expense. On    
January 16, 1995, the Company assigned its rights to the notes and related      

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

agreements to VHL. On January 18, 1995, VHL took possession of the license in   
return for $150,000 of the notes which have been included in research and       
development expense as of December 31, 1994. No interest income was recognized  
for these notes for 1996, 1995 and 1994. The carrying value of these notes was  
included in the purchase price when the Company acquired Ribonetics as          
discussed in Note 2.                                                            

NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES:                                  

Accounts payable and accrued expenses consist of the following:             

                                                                [Download Table]

                                                            DECEMBER 31,    
                                                         -------------------
                                                            1996      1995  
                                                         ---------- --------
                                                                            
Accounts payable........................................ $  859,000 $136,000
Accrued expenses........................................    435,000         
Accrued payroll and related costs.......................     42,000         
Professional fees.......................................    567,000  296,000
                                                         ---------- --------
                                                         $1,903,000 $432,000
                                                         ========== ========

NOTE 9--NOTES PAYABLE:                                                          

In December 1995, the Company issued $2,000,000 of unsecured promissory     
notes due at the earlier of one year or five days following a sale of equity    
securities of the Company, grossing proceeds of at least $2,000,000. The notes  
were issued in connection with a private placement of units, each unit          
consisting of a $50,000 unsecured promissory note bearing interest at a rate    
of 12% per annum (effective interest rate 24%) and 25,000 warrants ("bridge     
warrants") of the Company. The Company valued the warrants issued at $200,000   
which has been accounted for as debt discount. The warrants contained           
provisions that in the event the Company consummates a public or private        
placement of its equity securities prior to December 26, 1998 which includes    
warrants ("new warrants"), then the bridge warrants would convert into new      
warrants. Effective with the private placement in 1996 (see Note 11), the       
bridge warrants were converted into new warrants. On June 28, 1996, the         
Company repaid the notes and accrued interest. The debt discount was recorded   
as interest expense.                                                            

NOTE 10--INNOVIR NOTE PAYABLE--WARRANTHOLDER:                                   

The term note provides for interest, payable quarterly at a rate of 8% per  
annum. The noteholder holds a lein on all the assets of Innovir. In connection  
with the issuance of the term note, Innovir issued a warrant which provides     
the holder with the right to acquire an aggregate of 40,000 shares of           
Innovir's common stock at $6.25 per share. Any accrued and unpaid interest      
($44,000 as of December 31, 1996) related to the term note may also be used to  
acquire additional shares of common stock at a price of $6.25 per share. The    
warrant expires on February 10, 1998 and contains anti-dilution provisions and  
other defined adjustments in the event of a merger or reorganization, as        
defined. As of December 31, 1996, the warrant was exercisable and outstanding.  
The estimated fair value of the term note at December 31, 1996 was              
approximately $200,000. The fair value was estimated on the basis of the        
current rate of debt with similar characteristics.                              

In addition, during November 1996, the payment terms of the term note were  
amended. (the "Amended Note") and related accrued and unpaid interest as of     
that date was deferred. In consideration for such amendment, Innovir issued a   
second warrant, which expires on November 21, 2001, to the noteholder to        
purchase 20,000 shares of the Company's common stock at $1.50 per share. The    
fair value of the warrant totaled approximately $16,000. Such amount is being   
accounted for as deferred financing cost and amortized over the                 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

remaining life of the Amended Note. Pursuant to the Amended Note, future        
payments of principal and deferred interest are as follows:                     

                                                                [Download Table]

YEAR ENDING                                                        FUTURE 
DECEMBER 31,                                                      PAYMENTS
------------                                                      --------
                                                                          
1997............................................................. $ 36,000
1998.............................................................  130,000
1999.............................................................   97,000
                                                                  --------
                                                                  $263,000
                                                                  ========

Interest expense with regard to the Amended Note was not material for all   
periods presented.                                                              

NOTE 11--SHAREHOLDERS' EQUITY:                                                  

(a) Public offerings:                                                         

On July 25, 1990, the Company effected an initial public offering of its    
securities. A total of 1,150,000 units, each comprised of five shares of        
common stock and five redeemable Class A warrants, were sold for $5.00 a unit,  
yielding net proceeds of approximately $4,546,000 after underwriting            
commissions and expenses.                                                       

Prior to the initial public offering, the Company was recapitalized, whereby
all outstanding preferred stock was converted into common stock, the treasury   
stock was retired, the par value of the common stock was changed from $0.01 to  
$0.001 a share, and the Company effected a .599-for-1 reverse stock split.      

On January 23, 1992, the Company effected a second public offering of its   
securities. A total of 1,380 units, each comprised of 2,275 shares of common    
stock and 2,275 redeemable Class A warrants, were sold for $5,000 a unit        
during January and February of 1992. This offering yielded net proceeds of      
approximately $5,710,000 after underwriting commissions and expenses.           

On January 27, 1994, the Company effected a third public offering of its    
securities. A total of 1,552 units, each comprised of 3,475 shares of common    
stock and 3,475 redeemable Class A warrants, were sold for $5,000 a unit,       
yielding net proceeds of approximately $6,385,000 after underwriting            
commissions and expenses.                                                       

On April 9, 1996, the Company exercised its right to redeem all outstanding 
redeemable Class A warrants (the "Class A warrants") on May 10, 1996 (the       
"Redemption Date"). Between January 1, 1996 and the Redemption Date,            
approximately 13,900,000 Class A warrants were exercised resulting in the       
issue of one share of common stock and one redeemable Class B warrant (the      
"Class B warrant") for $1.50. On April 25, 1996, the Company exercised its      
right to redeem all outstanding Class B warrants on June 13, 1996 (the "B       
Class Redemption Date"). Between January 1, 1996 and the B Class Redemption     
Date, approximately 14,200,000 Class B warrants were exercised, resulting in    
the issuance of one share of common stock for $2.25. The exercise of Class A    
and B warrants yielded net proceeds of approximately $50,847,000 after          
commissions of $1,949,000 to an investment firm.                                

On March 21, 1996, VIMRx entered into a Subscription and Registration Rights
Agreement (the "Agreement") with a group of individuals, under which the        
Company agreed to issue 2,799,991 units, at a price of $1.50 per unit,          
consisting of one share of common stock and one-half of a warrant. Each         
warrant entitles the holder to purchase one share of common stock at an         
exercise price of $1.50 per share subject to adjustment, and exercisable        
through June 20, 2006. The net proceeds to the Company were approximately       
$4,058,000.                                                                     

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

On June 21, 1996, the authorized capital stock of the Company was increased 
from 60,000,000 to 120,000,000 shares of common stock.                          

(b) Stock option plans:                                                       

The Company has established two employee stock option plans (the "1989 Plan"
and the "1990 Plan"). No further options may be granted under the 1989 Plan.    
On June 20, 1996, the 1990 Plan was amended increasing the number of shares of  
common stock issuable upon exercise of options granted under the Plan from      
1,200,000 to 2,400,000 shares. The shares of common stock are reserved for      
issuance upon exercise of either incentive or nonincentive options, which may   
be granted from time to time by a committee of the Board of Directors to        
employees and others. The terms of each incentive option and nonincentive       
option are for five years and ten years, respectively, from date of grant. The  
grant prices must be no less than 50% and 100% of the fair market value for     
nonincentive and incentive options, respectively. At December 31, 1996,         
options for 411,900 shares were available for future grant. Generally, options  
vest 25% per annum on the anniversary date of grant.                            

Stock options outstanding under these plans are as follows:                 

                                                                [Download Table]

                                           1989 PLAN           1990 PLAN       
                                       ------------------ ---------------------
                                                WEIGHTED-             WEIGHTED-
                                                 AVERAGE               AVERAGE 
                                                EXERCISE              EXERCISE 
                                       SHARES     PRICE     SHARES      PRICE  
                                       ------   ---------   ------    ---------
                                                                               
Outstanding at December 31, 1993......  15,594               520,808           
  Granted.............................                     1,545,146    $0.87  
  Expired.............................                    (1,755,954)    0.80  
                                       -------            ----------           
Outstanding at December 31, 1994......  15,594               310,000           
  Granted.............................                       250,000     0.44  
  Expired............................. (15,594)   $0.50     (135,500)    1.59  
  Exercised...........................                      (150,000)    0.44  
                                       -------            ----------           
Outstanding at December 31, 1995......     -0-               274,500           
  Granted.............................                     1,475,000     2.71  
  Exercised...........................                       (12,000)    1.16  
                                       -------            ----------    -----  
Outstanding at December 31, 1996......     -0-             1,737,500    $2.34  
                                       =======            ==========    =====  

The following table summarizes information about stock options outstanding  
at December 31, 1996 under the 1990 Plan:                                       

                                                                [Download Table]

                                      OPTIONS OUTSTANDING   OPTIONS EXERCISABLE 
                                     --------------------- ---------------------
                                      WEIGHTED-                                 
                                       AVERAGE                                  
                                      REMAINING  WEIGHTED-             WEIGHTED-
                                     CONTRACTUAL  AVERAGE               AVERAGE 
                           NUMBER       LIFE     EXERCISE    NUMBER    EXERCISE 
RANGE OF EXERCISE PRICE  OUTSTANDING (IN YEARS)    PRICE   EXERCISABLE   PRICE  
-----------------------  ----------- ----------- --------- ----------- ---------
                                                                                
   .44-- .69...........     250,000     2.88       $ .59     100,000     $0.63  
  1.38--1.66...........     187,500     3.95        1.64      12,500      1.38  
  2.56--3.31...........   1,300,000     4.41        2.85                        
                          ---------     ----       -----     -------     -----  
                          1,737,500     4.14       $2.34     112,500     $1.46  
                          =========     ====       =====     =======     =====  

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

In August 1995, the Company adopted a Directors Stock Option Plan (the      
"Directors Plan") authorizing the issuance of five year options to purchase an  
aggregate of 920,000 shares at an exercise price equal to the fair market       
value of the common stock at date of grant. All the options were granted under  
the Directors Plan and no further options are available for grant.              

Additional information with respect to the Directors Plan option activity is
summarized as follows:                                                          

                                                                [Download Table]

                                                                    WEIGHTED-
                                                                     AVERAGE 
                                                                    EXERCISE 
                                                           SHARES     PRICE  
                                                          --------  ---------
                                                                             
Granted..................................................  920,000    $0.86  
                                                          --------           
Outstanding at December 31, 1995.........................  920,000     0.86  
Exercised................................................ (200,000)    0.89  
                                                          --------    -----  
Outstanding at December 31, 1996.........................  720,000    $0.85  
                                                          ========    =====  

At December 31, 1996, all the options under the Directors Plan are          
exercisable.                                                                    

The following table summarizes information about stock options outstanding  
at December 31, 1996 under the Directors Plan:                                  

                                                                [Download Table]

                                                        OPTIONS OUTSTANDING  
                                                      -----------------------
                                                                   WEIGHTED- 
                                                                    AVERAGE  
                                                                   REMAINING 
                                                                  CONTRACTUAL
EXERCISE                                                NUMBER       LIFE    
  PRICE                                               OUTSTANDING (IN YEARS) 
--------                                              ----------- -----------
                                                                             
$.75.................................................   350,000      3.67    
 .9375...............................................   370,000      3.88    
                                                        -------      ----    
                                                        720,000      3.80    
                                                        =======      ====    

The Company applies APB 25 in accounting for its stock option incentive plan
and, accordingly, recognizes compensation expense for the difference between    
the fair value of the underlying common stock and the grant price of the        
option at the date of grant. The effect of applying SFAS No. 123 on 1995 and    
1996 pro forma net loss as stated above is not necessarily representative of    
the effects on reported net loss for future years due to, among other things,   
(1) the vesting period of the stock options and the (2) fair value of           
additional stock options in future years. Had compensation cost for the         
Company's stock option plans been determined based upon the fair value at the   
grant date for awards under the plans consistent with the methodology           
prescribed under SFAS No. 123, the Company's net loss in 1996 and 1995 would    
have been approximately $20.948 million and $5.28 million, or $.53 per share    
and $.27 per share, respectively. The fair value of the options granted during  
1996 and 1995 are estimated at $2.20 per share and $.61 per share,              
respectively, on the date of grant using the Black-Scholes option-pricing       
model with the following assumptions: dividend yield of 0%, volatility of       
1.10%, risk-free interest rate of 6.10%-6.73% for 1996 and 5.77%-7.08% for      
1995, and expected life of 5 years.                                             

(c) Nonemployee director restricted stock award plan:                         

On June 21, 1996, the Company adopted the 1996 Nonemployee Director         
Restricted Stock Award Plan (the "Award Plan") under which an aggregate of      
900,000 shares of common stock are reserved for issuance as restricted shares   
of common stock to nonemployer directors. Restricted shares shall be forfeited  
by the                                                                          

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

nonemployee director in the event the director ceases to serve as director of   
the Company, except that such forfeiture provision will lapse at a rate of 25%  
of the number of restricted shares per annum commencing one year from the date  
of issuance.                                                                    

The Company has the right of first refusal to purchase any vested restricted
shares proposed to be transferred by a nonemployee director for a period of 30  
days after receipt of written notice at a per share price equal to the          
difference between the fair market value at the date of proposed transfer       
minus the difference between the fair market value at the date of grant less    
$1.00. During the year ended December 31, 1996, the Company granted 400,000     
restricted shares under the Award Plan, none of which have vested. The Company  
valued these shares at $400,000, which is being amortized over the vesting      
period.                                                                         

(d) Warrants to acquire common stock:                                         

As of December 31, 1996, the Company had warrants to purchase 2,400,000     
shares of common stock at an exercise price of $1.50 per share, exercisable     
through June 20, 2006 (see Notes 9 and 11).                                     

In addition, at December 31, 1996 the Company has warrants to purchase      
365,000 shares of common stock at an exercise price of $.01 per share,          
exercisable through May 21, 2006 (see Note 2[b]).                               

As of December 31, 1996 there were 2,765,000 warrants exercisable at a      
weighted-average exercise price of $1.30.                                       

(e) Other options:                                                            

In connection with its public offerings, the Company sold to the            
underwriter, at a nominal amount, the following options for the purchase of     
units:                                                                          

                                                                [Download Table]

                                   NUMBER EXERCISE NUMBER OF                 
                                     OF    PRICE    SHARES                   
                                   UNITS  PER UNIT RESERVED  EXPIRATION DATE 
                                   ------ -------- --------- ----------------
                                                                             
1992 offering.....................  120    $8,000    819,000 July 24, 1997   
1994 offering.....................  135     7,000  1,407,374 January 20, 1999

The units are identical to the units sold in the respective offerings except
that the warrants included therein, which expire on July 24, 1997, are not      
subject to redemption by the Company. The units are subject to adjustment for   
dilution (as defined). Each Class A warrant entitles the holder to purchase a   
unit consisting of one share of common stock and one redeemable Class B         
detachable warrant. Each Class B warrant entitles the holder to purchase one    
share of common stock.                                                          

The Company has granted stock options to certain consultants, who are also  
directors, of the Company as follows:                                           

                                                                [Download Table]

NUMBER OF                              EXERCISE                              
 SHARES                                 PRICE     TERM     EXPIRATION DATE   
---------                              -------- -------- --------------------
                                                                             
1,300,000.............................  $0.94    5 years November 17, 2000(1)
2,000,000.............................   0.53    3 years August 6, 1998(1)   
  100,000.............................   1.47   10 years March 11, 2006(2)   
  100,000.............................   1.47   10 years March 11, 2006(2)   

--------                                                                        
(1) During 1995 the Company valued these options at an aggregate of $591,000    
which are being amortized over the vesting period.                      
(2) Options granted in connection with the March 1996 agreement (see Note 11    
  [a]) whereby certain directors agreed to provide operating funds if needed
through September 1996.                                                 

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

NOTE 12--INCOME TAXES:                                                          

There is no provision (benefit) for federal, state or local income taxes for
all periods presented, since the Company has incurred operating losses since    
inception and has established a valuation allowance equal to the total          
deferred tax asset.                                                             

The federal tax effect of net operating loss carryforwards, temporary       
differences and research and development tax credit carryforwards is as         
follows:                                                                        

                                                                [Download Table]

                                                       DECEMBER 31,        
                                                 ------------------------- 
                                                     1996         1995     
                                                 ------------  ----------- 
                                                                           
Deferred tax assets and valuation allowance:                               
  Net operating loss carryforwards.............. $ 15,947,000  $ 6,698,000 
  Deferred liabilities..........................       40,000              
  Deferred costs................................      285,000              
  Research and experimental tax credit                                     
   carryforwards................................      570,000              
  Valuation allowance...........................  (16,842,000)  (6,698,000)
                                                 ------------  ----------- 
                                                 $        -0-  $       -0- 
                                                 ============  =========== 

As of December 31, 1996, the Company has available for tax purposes the     
following net operating loss carryforwards:                                     

                                                                [Download Table]
                                                                          
United States (expires through 2011) (including approximately             
 $25,000,000 relating to Innovir)............................. $47,000,000
United Kingdom (no expiration date)...........................     970,000
Germany (no expiration date)..................................   1,700,000

The Company's research and development tax credit carryforward of           
approximately $570,000 expires in various years from 2005 through 2012 and is   
subject to limitation due to a change in ownership pursuant to Section 382 of   
the Internal Revenue Code.                                                      

At December 31, 1996 the Company had available net operating loss           
carryforwards to reduce future taxable income of approximately $47,000,000.     
The net operating loss carryforwards expire in various amounts through 2011.    
The Company's ability to utilize $25,000,000 of its $47,000,000 net operating   
loss carryforwards is subject to a cumulating, annual limitation of             
approximately $1,200,000 pursuant to Section 382 of the Internal Revenue Code.  
The $22,000,000 balance would become subject to limitation (the amount of       
which would be based on the then value of the Company's outstanding shares) if  
and when an "ownership change" (as defined in Section 382 of the Internal       
Revenue Code) were to occur.                                                    

NOTE 13--RELATED PARTY TRANSACTIONS:                                            

(a) Employment agreements:                                                    

On April 1, 1996 Innovir entered into an employment agreement with an       
officer/stockholder ("officer") of Innovir expiring March 31, 1998, whereby     
the officer has agreed to devote his full business time to Innovir to further   
develop certain Company technology. The terms of the agreement provide for a    
base salary of $200,000 per annum, adjusted annually, plus a key performance    
bonus, as determined by Innovir's Board of Directors (the "Board"). In          
addition, the agreement provides for the officer to supply certain equipment    
to Innovir to be used during his term of employment. At the conclusion of       
employment, the equipment will be returned to the officer.                      

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

(b) Consulting agreements:                                                    

Innovir has several agreements with consultants, two of whom are            
stockholders ("stockholders/ consultants") of Innovir. The consultants perform  
services for Innovir in consideration for certain fees. The consultants have    
also agreed to assign to Innovir any inventions, ideas, patents and copyrights  
conceived if related to Innovir's business and provide other services as        
defined in agreements. To date, fees paid to the stockholders/consultants have  
not been material. Future minimum quarterly payments to the                     
stockholders/consultants are approximately $46,000 through March 31, 1998 and   
$24,000 thereafter through March 31, 2000. Under certain conditions, Innovir    
may have to pay additional amounts ("patent award"), as defined, in the event   
the research performed by one of the consultants leads to the issuance of a     
patent. Patent awards paid to date have not been material.                      

In April 1994, the Company retained MKS Enterprises Inc. ("MKS"), an entity 
50% owned by one of the then Company's directors, to perform financial and      
consulting services. In consideration, therefore, the Company paid $62,500 and  
$112,500, respectively, in 1995 and 1994 and issued 240,000 shares of common    
stock in December 1994 valued at $75,000. MKS was dissolved in 1995.            

(c) CambES, Ltd:                                                              

In 1994, the Company completed its purchase of 60,060 shares of preferred   
stock of CambES, Ltd. ("CambES), a U.S. company, for $200,000 and provided      
$50,000 of additional funding.                                                  

In April 1995, VIMRx acquired the debt and equity interest in CambES held by
Venkol Ventures, Ltd. and Venkol Ventures, L.P. (collectively, the "Venkol      
Entities") for $100,000. The then Chairman of the Company is a general partner  
of Venkol Ventures General Partners, L.P., which is the general partner of      
Venkol Ventures, L.P. and a shareholder and advisor to Venkol Ventures, Ltd.    

CambES has no material assets or liabilities at December 31, 1996, December 
31, 1995 and December 31, 1994 and no material operations in 1996, 1995 and     
1994.                                                                           

NOTE 14--COMMITMENTS AND OTHER MATTERS:                                         

(a) Research agreements:                                                      

The Company has entered into research fellowships and other agreements with 
universities and institutions (the "Institutions"). Future payments aggregate   
approximately $600,000 payable at various dates through June 1998. Under        
certain conditions, the Company or the Institutions may terminate the           
respective agreements with 30 or 60 days notice.                                

(b) Lease commitments:                                                        

Operating leases:                                                           

The Company leases various office and laboratory spaces under noncancelable 
operating leases and subleases (the "Leases") expiring at periods between May   
31, 1999 and June 30, 2001. In addition, the Company leases certain laboratory  
space on a month-to-month basis. The Leases provide for escalations of the      
minimum rent during the lease terms.                                            

The Company also leases automobiles and office equipment under noncancelable
operating leases. The Leases expire at various times through June 2001.         

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

Future minimum rental payments under all operating leases are as follows:   

                                                                [Download Table]

YEAR ENDING                                                     MINIMUM   
DECEMBER 31,                                                 ANNUAL RENTAL
------------                                                 -------------
                                                                          
 1997.......................................................  $  534,000  
 1998.......................................................     553,000  
 1999.......................................................     312,000  
 2000.......................................................      80,000  
 2001.......................................................      39,000  
                                                              ----------  
                                                              $1,518,000  
                                                              ==========  

Rent expense approximated $250,000, $107,000 and $31,000 for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994, respectively.       

Innovir was required by the terms of one of the leases to obtain the        
required approval for the lessor prior to the consummation of the Transaction   
discussed in Note 2 to the financial statements. Accordingly, the Company may   
be considered to be in violation of the terms of the amended sublease, which    
would also trigger certain cross default provisions contained in capital        
leases obligations. The present value of long-term portion of the capital       
lease obligations, which may be considered to be in default, totals             
approximately $40,000. The accompanying financial statements reflect such       
amount as a current liability.                                                  

Capital leases:                                                             

Innovir leases certain equipment under various noncancelable capital lease  
agreements. Lease terms range from three to five years, after which Innovir     
has the option to purchase the equipment at amounts defined by the respective   
lease agreements. In lieu of purchasing the equipment, certain leases may be    
extended for specified periods, at defined monthly payments. Upon expiration    
of the extended lease terms, Innovir may purchase the equipment for one dollar  
or must return the equipment to the lessor.                                     

Certain capital leases, as amended (the "Amended Leases") contain various   
covenants which include maintaining a minimum cash level, as defined, of        
$250,000 during the term of the leases. This covenant indirectly restricts      
Innovir's ability to pay dividends.                                             

At December 31, 1996, minimum rental payments under all capital leases,     
including payments to acquire leased equipment, are as follows:                 

                                                                [Download Table]

YEAR ENDING                                                     MINIMUM   
DECEMBER 31,                                                 ANNUAL RENTAL
------------                                                 -------------
                                                                          
 1997.......................................................  $  536,000  
 1998.......................................................     357,000  
 1999.......................................................     165,000  
 2000.......................................................      46,000  
 2001.......................................................      36,000  
                                                              ----------  
                                                               1,140,000  
 Less amount representing interest..........................     205,000  
                                                              ----------  
 Present value of net minimum capital lease payments........  $  935,000  
                                                              ==========  

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

Leased equipment included as a component of fixed assets was approximately  
$1,387,000 at December 31, 1996; related accumulated depreciation was           
approximately $405,000 for the same period. There was no leased equipment at    
December 31, 1995.                                                              

NOTE 15--RETIREMENT PLANS:                                                      

Innovir adopted the provisions of two defined contribution retirement plans 
(the "Plans"). The terms of the Plans, among other things, allow certain        
eligible employees who have met certain age and service requirements to         
participate in the Plans. Innovir has agreed to contribute defined amounts      
("Contributions") to the plans. In addition, based upon Innovir's               
profitability, Innovir may also make discretionary contributions to the Plans.  
Contributions to date have not been material.                                   

NOTE 16--CONTINGENCIES:                                                         

During February 1996, Innovir was named as a defendant in an action filed by
an investor alleging that Innovir refused to honor the investor's request to    
convert certain shares of Innovir's common stock. During February 1997, the     
investor and Innovir settled the action at no material cost to Innovir or to    
the Company.                                                                    

The Company is aware of patents in the United States and Europe held by an  
unaffiliated third party relating to certain technology which may be infringed  
by certain of VHL's oligozymes, in which event a license from such third party  
would be required.                                                              

NOTE 17--FOREIGN OPERATIONS:                                                    

A summary of financial data of foreign subsidiaries included in the         
consolidated financial statements as follows:                                   

                                                                [Download Table]

                                                            DECEMBER 31,     
                                                        ---------------------
                                                           1996       1995   
                                                        ---------- ----------
                                                                             
Assets................................................. $  853,000 $  117,000
Liabilities............................................    336,000     19,000
Net Loss...............................................  1,535,000  1,311,000

NOTE 18--SUBSEQUENT EVENT:                                                      

On March 7, 1997 the Company entered into a research agreement with the     
trustees of Columbia University in the City of New York ("Columbia") to fund    
the Columbia Genome Center ("CGC"). In connection therewith VIMRx Genomics,     
Inc. was formed (owned 90% by the Company and 10% by Columbia) to provide       
$30,000,000 ($4.7 million to be paid during the first year in quarterly         
installments) of funding for CGC related projects over five years. In           
addition, the Company granted Columbia 200,000 shares of common stock.          

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                                                                       ANNEX C

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549  

----------------  

FORM 10-Q 

[X]               QUARTERLY REPORT PURSUANT TO SECTION 13 OR                    
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997  

OR  

[_]               TRANSITION REPORT PURSUANT TO SECTION 13 OR                   
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  

FOR THE TRANSITION PERIOD FROM        TO        

COMMISSION FILE NO. 0-19153 

----------------  

VIMRX PHARMACEUTICALS INC.  
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)  

DELAWARE                              06-1192468  
(STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)                                          

2751 CENTERVILLE ROAD, SUITE 210,                    19808                
WILMINGTON, DELAWARE                        (ZIP CODE)        
(ADDRESS OF PRINCIPAL EXECUTIVE                                         
OFFICES)                                          

Registrant's telephone number, including area code: (302) 998-1734  

Indicate by check mark whether the Registrant (1) has filed all reports     
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
Registrant was required to file such reports), and (2) has been subject to      
such filing requirements for the past 90 days.                                  
Yes [X]  No [_] 

The aggregate number of Registrant's shares outstanding on August 11, 1997  
was 55,358,676 shares of Common Stock, $.001 par value.                         

------------------------------------------------------------------------------- 
------------------------------------------------------------------------------- 

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VIMRX PHARMACEUTICALS INC.

INDEX 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
PART I--FINANCIAL INFORMATION                                                  
Item 1. Financial Statements:                                                  
        Consolidated Balance Sheets as of June 30, 1997 (unaudited) and        
         December 31, 1996...............................................   C-3
        Consolidated Statements of Operations (unaudited) for the Three        
         and Six Months Ended                                                  
         June 30, 1997 and 1996, and for the Period from Inception             
         through June 30, 1997...........................................   C-4
        Consolidated Statements of Cash Flows (unaudited) for the Six          
         Months Ended June 30, 1997 and 1996, and for the Period from          
         Inception through June 30, 1997.................................   C-5
        Notes to Financial Statements (unaudited)........................   C-6
        Management's Discussion and Analysis of Financial Condition and        
Item 2.  Results of Operations...........................................   C-8
PART II--OTHER INFORMATION                                                     
Item 1. Legal Proceedings................................................  C-10
Item 2. Changes in Securities............................................  C-10
Item 3. Defaults upon Senior Securities..................................  C-10
Item 4. Submission of Matters to a Vote of Security Holders..............  C-10
Item 5. Other Information................................................  C-10
Item 6. Exhibits and Reports on Form 8-K.................................  C-11
SIGNATURES................................................................ C-12

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PART I--FINANCIAL INFORMATION                                                   

ITEM 1. FINANCIAL STATEMENTS                                                    

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                        JUNE 30,               
                                                          1997     DECEMBER 31,
                                                       (UNAUDITED)     1996    
                                                       ----------- ------------
                                                         (IN THOUSANDS EXCEPT  
                                                             SHARE DATA)       
                                                                               
                        ASSETS                                                 
Current assets:                                                                
  Cash and cash equivalents...........................  $  2,445     $  8,611  
  Shortterm investments...............................    34,372       38,300  
  Other current assets................................       246          348  
                                                        --------     --------  
  Total current assets................................    37,063       47,259  
  Equipment--net......................................     3,096        2,650  
  Marketable equity securities........................       286          286  
  Other assets........................................       292          261  
  Goodwill............................................     1,030        1,236  
                                                        --------     --------  
    Total.............................................  $ 41,767     $ 51,692  
                                                        ========     ========  
                     LIABILITIES                                               
Current liabilities:                                                           
  Accounts payable and accrued expenses...............  $  1,845     $  1,903  
  Term note payable--warrantholder....................        36           36  
  Capital leases......................................       472          472  
                                                        --------     --------  
    Total current liabilities.........................     2,353        2,411  
Term note payable--warrantholder......................       227          227  
Capital leases........................................       292          463  
                                                        --------     --------  
    Total liabilities.................................     2,872        3,101  
                                                        --------     --------  
Minority interest in subsidiary.......................     1,035        2,381  
                                                        --------     --------  
                 SHAREHOLDERS' EQUITY                                          
Common stock; $0.001 par value, 120,000,000 shares                             
 authorized, 55,187,387 and 54,429,887 shares issued                           
 and outstanding at June 30, 1997 and December 31,                             
 1996, respectively...................................        55           54  
Additional paid-in capital............................    90,649       89,478  
Unearned compensation.................................      (534)        (800) 
Unrealized (loss) on investment                             (167)        (143) 
Cumulative translation adjustment.....................       (65)          (8) 
Deficit accumulated during the development stage......   (52,078)     (42,371) 
                                                        --------     --------  
    Total shareholders' equity........................    37,860       46,210  
                                                        --------     --------  
    Total.............................................  $ 41,767     $ 51,692  
                                                        ========     ========  

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS 
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                           THREE MONTHS ENDED       SIX MONTHS ENDED                       
                                JUNE 30,                JUNE 30,          DECEMBER 30, 1986
                          ----------------------  ----------------------   (INCEPTION) TO  
                             1997        1996        1997        1996       JUNE 30, 1997  
                          ----------  ----------  ----------  ----------  -----------------
                                                                                           
Operating expenses:                                                                        
  Research and                                                                             
   development..........     $ 3,497      $  606     $ 6,714      $  976       $22,653     
  Purchased research and                                                                   
   development..........         600       2,942       1,800       2,942        16,284     
  Termination of                                                                           
   Agreement............         --          --          --         (464)          --      
  General and                                                                              
   administrative.......       2,528       1,156       4,128       2,124        17,910     
                          ----------  ----------  ----------  ----------       -------     
                               6,525       4,704      12,642       5,578        56,847     
                          ----------  ----------  ----------  ----------       -------     
Other (income) expenses:                                                                   
  Royalty payments......          50         --          100         100           400     
  Interest (income).....        (601)        (77)     (1,282)        (95)       (4,233)    
  Interest expense......          46         213          83         319           496     
  Provision for losses                                                                     
   on notes receivable..         --          --          --          --            135     
  Investment in and                                                                        
   advances to research                                                                    
   and development                                                                         
   entities charged to                                                                     
   expense..............         --          --          --          --            700     
  Minority interest in                                                                     
   net loss of                                                                             
   consolidated                                                                            
   subsidiary...........        (929)        --       (1,876)        --         (1,992)    
  Other--net............         (64)        --           40         --           (275)    
                          ----------  ----------  ----------  ----------       -------     
                              (1,498)        136      (2,935)        324        (4,769)    
                          ----------  ----------  ----------  ----------       -------     
NET LOSS................     $ 5,027      $4,840     $ 9,707      $5,902       $52,078     
                          ==========  ==========  ==========  ==========       =======     
NET LOSS PER SHARE......     $   .09      $  .11     $   .18      $  .18                   
                          ----------  ----------  ----------  ----------                   
WEIGHTED AVERAGE NUMBER                                                                    
 OF SHARES OF COMMON                                                                       
 STOCK OUTSTANDING......  54,770,848  43,157,768  54,626,741  32,336,359                   
                          ==========  ==========  ==========  ==========                   

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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES 
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(UNAUDITED) 

                                                                [Download Table]

                                                 SIX MONTHS       DECEMBER 30, 
                                               ENDED JUNE 30,         1986     
                                               ----------------  (INCEPTION) TO
                                                1997     1996     JUNE 30, 1997
                                               -------  -------  --------------
                                               (IN THOUSANDS EXCEPT PER SHARE  
                                                           DATA)               
                                                                               
Cash flows from operating activities:                                          
 Net loss..................................... $(9,707) $(5,902)    $(52,078)  
 Adjustments to reconcile net (loss) to net                                    
  cash (used in) operating activities:                                         
 Depreciation and amortization................     514       10          768   
 Amortization of debt discount................              198          200   
 Interest expense settled through issuance of                                  
  stock.......................................                            72   
 Consulting fees settled through issuance of                                   
  stock.......................................               41           75   
 Research and development expenses to be                                       
  settled through the issuance of stock.......             (464)               
 Provision for losses on notes receivable.....                           135   
 Investment in and advances to research and                                    
  development entities charged to expense.....                           700   
 (Gain) on sale of subsidiaries...............                        (2,889)  
 Noncash compensation.........................     266                   845   
 Purchased in process research and                                             
  development.................................   1,200    1,787       18,574   
 Loss from disposal of equipment..............                            20   
 Deferred financing cost......................              310          310   
 Minority interest in net loss................  (1,846)               (1,962)  
 Changes in operating assets and liabilities:                                  
  Decrease in prepayments under research                                       
   contracts (Increase) in organization                                        
   costs......................................                            (3)  
  (Increase) decrease in other current assets                                  
   and other assets...........................      70       42         (129)  
  Increase (decrease) in accounts payable and                                  
   accrued expenses...........................     (58)      74           58   
                                               -------  -------     --------   
   Net cash (used in) operating activities....  (9,561)  (3,904)     (35,304)  
                                               -------  -------     --------   
Cash flows from investing activities:                                          
 Net (purchases) sales of short-term                                           
  investments.................................   3,904               (34,375)  
 Payment for acquisition, net of cash                                          
  acquired....................................                        (2,011)  
 Purchase of marketable securities............                          (450)  
 Purchases of equipment.......................    (754)    (385)      (1,794)  
 Proceeds from sale of equipment..............                            39   
 Loans to DNA Pharmaceuticals, Inc............                          (296)  
 Repayment of DNA Pharmaceuticals, Inc.                                        
  loans.......................................                           161   
 Loans to Ribonetics GmbH.....................                          (600)  
 Investment in and loan to CambES, Ltd........                          (325)  
                                               -------  -------     --------   
   Net cash provided by (used in) investing                                    
    activities................................   3,150     (385)     (39,651)  
                                               -------  -------     --------   
Cash flows from financing activities:                                          
 Proceeds from sales of preferred and common                                   
  stock, net..................................            4,200       24,836   
 Proceeds from issuance of common stock in                                     
  connection with the exercise of                                              
  warrants/options............................     472   51,873       51,583   
 Purchase of treasury stock...................                            (8)  
 Proceeds from bridge loans...................                         3,141   
 Repayment of bridge loans....................           (2,000)      (2,500)  
 Repayment of leased obligations..............    (171)                 (171)  
 Issuance of convertible demand notes                                          
  payable.....................................                           600   
 Return of capital............................                           (14)  
                                               -------  -------     --------   
   Net cash provided by financing activities..     301   54,073       77,467   
                                               -------  -------     --------   
Effect of exchange rate used in changes on                                     
 cash.........................................     (56)                  (67)  
                                               -------  -------     --------   
NET INCREASE (DECREASE) IN CASH AND CASH                                       
 EQUIVALENTS..................................  (6,166)  49,784        2,445   
Cash and cash equivalents at beginning of                                      
 period.......................................   8,611    2,219                
                                               -------  -------     --------   
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 2,445  $52,003     $  2,445   
                                               =======  =======     ========   

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VIMRX PHARMACEUTICALS INC.  

NOTES TO FINANCIAL STATEMENTS 

JUNE 30, 1997 (UNAUDITED) 

(1) FINANCIAL STATEMENT PRESENTATION                                            

The unaudited financial statements of VIMRx Pharmaceuticals Inc. and        
subsidiaries (the "Company") herein have been prepared pursuant to the rules    
and regulations of the Securities and Exchange Commission (SEC) and, in the     
opinion of management, reflect all adjustments (consisting only of normal       
recurring accruals) necessary to present fairly the results of operations for   
the interim periods presented. Certain information and footnote disclosures     
normally included in financial statements, prepared in accordance with          
generally accepted accounting principles, have been condensed or omitted        
pursuant to such rules and regulations. However, management believes that the   
disclosures are adequate to make the information presented not misleading.      
These financial statements and the notes thereto should be read in conjunction  
with the financial statements and the notes thereto included in the Company's   
Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The     
results for the interim periods are not necessarily indicative of the results   
for the full fiscal year.                                                       

(2) PRINCIPLE OF CONSOLIDATION                                                  

Consolidated Financial Statements include the accounts of VIMRx             
Pharmaceuticals Inc., Innovir Laboratories, Inc., and all subsidiaries which    
are at least majority owned. All significant inter-company transactions and     
balances have been eliminated.                                                  

(3) CASH FLOWS AND SUPPLEMENTAL CASH FLOW DISCLOSURES                           

For purposes of the statements of cash flows, the Company considers         
investments with original maturities of up to 90 days to be cash equivalents.   

(4) ROYALTY PAYMENTS                                                            

Royalty payments represents the annual $100,000 minimum royalty payment     
under the Company's license agreement with New York University Medical Center   
and the Weizmann Institute of Science in Israel.                                

(5) RESEARCH AGREEMENTS                                                         

On March 7, 1997, the Company entered into a research agreement with        
Columbia University whereby the Company, through a newly established            
subsidiary, VIMRx Genomics, Inc., will provide $30 million in funding to        
Columbia over the next five years at approximately $6 million per year in       
exchange for the right to exclusively license technology developed by           
Columbia. Columbia has a 10% interest in VIMRx Genomics, Inc. (valued at        
$500,000), and has received 200,000 common shares of the Company (valued at     
$700,000), which collectively ($1.2 million) have been allocated to purchased   
research and development.                                                       

On March 28, 1997, the Company entered into a research agreement with       
Columbia University whereby the Company will provide $2.7 million in funding    
over 3 years to research and develop Blood Factor IXai.                         

During the second quarter of 1997, the Company acquired the rights to two   
compounds, Blood Factor IXai (VM201) and a wound healing compounds (VM301) for  
cash payments aggregating $400,000. These payments and fees paid in relation    
to the agreement between Columbia and VGI ($200,000) were allocated to          
purchased research and development ($600,000).                                  

(6) LETTER OF INTENT                                                            

On June 12, 1997, the Company signed a letter of intent with Baxter         
Healthcare Corporation to form a new company to acquire the assets and          
licenses of Baxter's Immunotherapy Division.                                    

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VIMRX PHARMACEUTICALS INC.  

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)  

JUNE 30, 1997 (UNAUDITED) 

Pursuant to the letter of intent, the Company and Baxter will form a new    
company, yet to be named, into which the assets of Baxter's Immunotherapy       
Division will be transferred. VIMRx will hold a majority ownership (80%)        
position in the new company and Baxter will hold a minority ownership (20%)     
position. VIMRx will issue to Baxter 11 million shares of common stock and      
convertible preferred shares with a nominal value of $40 million. To the        
extent the 11 million shares of common stock are worth less than $50 million    
at the time of closing, Baxter will receive additional convertible preferred    
shares. The conversion price for the preferred shares will be determined        
according to the closing prices of VIMRx's common stock within an 18 month      
period following the closing of the transaction, subject to a floor of $5.50    
per share and a ceiling of $7.50 per share. Baxter will provide $20 million     
and VIMRx will provide $10 million to the new company as initial operating      
funds. The new company will pay Baxter milestone payments, related to           
regulatory approvals, of up to $21 million over several years. Baxter will      
retain its exclusive license to the CD34 antibody used in selection technology  
and sublicense it to the new company. Baxter will have one representative on    
the new company's board of directors and one representative on VIMRx's board    
of directors. The terms included in the letter of intent are subject to the     
signing of a definitive agreement between VIMRx and Baxter and the approval by  
the boards of directors of VIMRx and Baxter and the stockholders of VIMRx,      
which is anticipated to occur in the third quarter of 1997.                     

(7) NEW ACCOUNTING PRONOUNCEMENTS                                               

In February 1997, the Financial Accounting Standards Board ("FASB") issued  
SFAS No. 128, "Earnings Per Share." This Statement establishes standards for    
computing and presenting earnings per share (EPS) and applies to entities with  
publicly held common stock or potential common stock. This Statement            
simplifies the standards for computing earnings per share previously found in   
APB Opinion No. 15, "Earnings Per Share," and makes them comparable to          
international EPS standards. It replaces the presentation of primary EPS with   
a presentation of basic EPS. It also requires dual presentation of basic and    
diluted EPS on the face of the income statement for all entities with complex   
capital structures and requires a reconciliation of the numerator and           
denominator of the basic EPS computation to the numerator and denominator of    
the diluted EPS computation. This Statement is effective for financial          
statements issued for periods ending after December 15, 1997, including         
interim periods; earlier application is not permitted. This Statement requires  
restatement of all prior-period EPS data presented. The adoption of this        
Statement will not have any impact on the Company's EPS disclosure, as the      
Company's stock options and warrants are anti-dilutive and will be excluded     
from the denominator of earnings per share; thus, earnings per common share is  
equal to basic earnings per share as computed under SFAS No. 128.               

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VIMRX PHARMACEUTICALS INC.  

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND         
RESULTS OF OPERATIONS.                                                          

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly     
Report on Form 10-Q and with the Company's Annual Report on Form 10K for the    
fiscal year ended December 31, 1996. The Company is in the development stage    
and has had no operating revenues since its organization in December 1986.      

Three Months Ended June 30, 1997 and 1996                                     

Total operating expenses increased by $1,821,000, or 39%, due to a          
$2,891,000 increase in research and development expenses, a $2,342,000          
decrease in purchased research and development, a $1,169,000 increase in        
general and administrative expenses and $103,000 amortization of goodwill.      

Research and development expenses increased $2,891,000 due to the inclusion 
of the New York operations of Innovir Laboratories, Inc. ("Innovir"), a         
majority interest of which was acquired by the Company on December 23, 1996     
($1,050,000), increased operations in Europe ($447,000), funding paid under     
the collaboration agreement with Columbia University by VIMRX Genomics Inc.     
($1,175,000) and increases in expenses related to clinical trials and other     
expenses.                                                                       

The purchased research and development incurred for the three months ended  
June 30, 1997 ($600,000) relates to payments made to acquire rights to two      
compounds and fees paid in relation to ongoing research and development made    
available to VIMRX Genomics, Inc. by Columbia University. In 1996, the          
purchased research and development expense related to the acquisition of        
Ribonetics GmbH ($2,942,000).                                                   

General and administrative expenses increased $1,169,000 (101%) principally 
due to the inclusion of Innovir's operations ($609,000) and increased           
compensation expenses net of decreases in director's consulting fees and legal  
fees ($560,000).                                                                

Goodwill, which was recorded in the acquisition of Innovir, will be         
amortized over three years.                                                     

Interest income increased $524,000 (680%), due to an increase in funds      
available for investment (see "Liquidity and Capital Resources") and a higher   
effective interest rate. Interest expense decreased $167,000 (78%) due          
principally to the repayment of a bridge loan in June 1996.                     

The minority interest in the net loss of consolidated subsidiaries          
($929,000) results from the interest of minority stockholders in Innovir and    
VIMRX Genomics, Inc., two of the Company's subsidiaries.                        

Other income expenses increased $64,000 due to capital losses on short-term 
investments.                                                                    

The foregoing resulted in a $187,000 (4%) increase in the net loss for the  
three month period ended June 30, 1997.                                         

Six Months Ended June 30, 1997 and 1996                                       

Operating expenses for the six months ended June 30, 1997 increased         
$7,064,000 (127%) from the same period in 1996, due principally to              
acquisitions of companies and technologies made at various times during 1996    
and 1997. During that period, research and development expenses increased       
$5,738,000 (588%), general and administrative expenses increased $1,798,000     
(85%) and amortization of goodwill was recorded at $206,000. These increases    
were offset by a $1,142,000 (39%) decrease in purchased research and            
development. In addition, the 1996 period experienced a one-time $464,000       
credit for termination of agreement.                                            

The $5,738,000 increase in research and development expense resulted from   
the acquisition of Innovir Laboratories, Inc. which was included in the         
financial statements from the date of acquisition, December 23, 1996            
($2,096,000), increased operations in Europe ($952,000), funding paid under     
the collaboration agreement                                                     

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with Columbia University by VIMRX Genomics, Inc. ($2,350,000) and increases in  
expenses related to clinical trials and other expenses.                         

General and administrative expenses increased $1,798,000 principally due to 
the inclusion of Innovir's operations ($1,327,000) and increased compensation   
expense, net of decreased legal, financing and other costs.                     

Goodwill, which was recorded in the acquisition of Innovir, is being        
amortized over three years.                                                     

The purchased research and development expense recorded for the six months  
ended June 30, 1997 ($1,800,000) relates to the issuance of common stock of     
the Company to Columbia University, the purchase of compound VM 201 from        
Columbia University and the purchase of compound VM 301. The purchased          
research and development expense recorded for the six months ended June 30,     
1996 relates to the acquisition of Ribonetics GmbH ($2,942,000).                

Interest income increased $1,187,000, due to an increase in funds available 
for investment and a higher effective interest rate. Interest expenses          
decreased $236,000 (74%) due to the bridge loan that was repaid in June 1996.   

The minority interest in the net loss of consolidated subsidiaries          
($1,876,000) results from the interest of minority stockholders in Innovir and  
VIMRX Genomics, two of the Company's subsidiaries.                              

Other expenses of $40,000 is due to capital losses on short-term            
investments.                                                                    

The foregoing resulted in a $3,805,000 increase in the net loss for the six 
months ended June 30, 1997.                                                     

Liquidity and Capital Resources                                               

The Company is in the development stage, has realized no operating revenues 
and has financed its operations through the sale of its securities.             

The Company had $36,817,000 in cash, cash equivalents and marketable        
securities held for sale at June 30, 1997, as compared to $46,911,000 at        
December 31, 1996 and working capital of $34,710,000 at June 30, 1997, as       
compared to $44,848,000 at December 31, 1996. The decrease in cash and working  
capital position results from the funds expended in operations and the          
expansion and upgrade of Innovir's laboratory facilities.                       

The Company expects to incur substantial expenditures in the foreseeable    
future for the research and development and commercialization of its proposed   
products. Based on current projections, which are subject to change, the        
Company's management believes that the present balance of cash, cash            
equivalents and marketable securities held for sale is sufficient to fund its   
operations for about two years, assuming no capital infusions or revenues are   
received (it is management's belief, however, that such capital infusions and   
revenues will occur). Thereafter, the Company will require additional funds,    
which it may seek to raise through public or private equity or debt             
financings, collaborative or other arrangements with corporate sources, or      
through other sources of financing.                                             

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PART II--OTHER INFORMATION  

ITEM 1. LEGAL PROCEEDINGS.                                                      

Not Applicable.                                                             

ITEM 2. CHANGES IN SECURITIES.                                                  

Not applicable.                                                             

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.                                        

Not applicable.                                                             

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                    

On June 24, 1997, the stockholders of VIMRx Pharmaceuticals Inc. ("VIMRx" or
the "Company") held their Annual Meeting in New York City. The holders of       
45,298,248 shares of Common Stock were present or represented by proxy, out of  
54,642,437 shares of Common Stock issued and outstanding on May 9, 1997, the    
record date for the Annual Meeting and, accordingly, a quorum was present and   
matters were voted on as follows:                                               

a. By plurality vote, the following persons were elected directors of the   
Company:                                                              

                                                                [Download Table]

                                                           FOR     WITHHELD
                                                        ---------- --------
                                                                           
Donald G. Drapkin...................................... 45,069,625 228,623 
Richard L. Dunning..................................... 45,083,765 214,488 
Eric A. Rose, M.D. .................................... 45,083,765 214,488 
Laurence D. Fink....................................... 45,083,765 214,488 
Jerome Groopman, M.D. ................................. 45,083,765 214,488 
Linda G. Robinson...................................... 45,083,765 214,488 
Lindsay A. Rosenwald, M.D. ............................ 45,082,765 215,483 
Michael Weiner, M.D. .................................. 45,083,765 214,488 

b. Certain amendments to the Company's 1990 Incentive and Non-Incentive     
Stock Option Plan to conform the plan to certain statutory and        
regulatory developments and to provide the Board of Directors and the 
  Compensation Committee with greater flexibility in determining the terms
  and conditions of options, were approved. Votes totaling 34,081,376 were
in favor of the amendments, 4,084,847 were against them, 458,824      
abstained, and there were no broker non-votes.                        

c. Approval of the Company's 1997 Stock Option Plan was approved. Votes     
 totaling 44,922,919 were in favor of the plan, 190,179 were against it,
185,150 abstained, and there were no broker non-votes.                

d. Ratification of the appointment of KPMG Peat Marwick, LLP as independent 
auditors for the year ending December 31, 1997 also passed. Votes     
totaling 44,922,919 were in favor of the ratification, 190,179 were   
against it, 185,150 abstained, and there were no broker non-votes.    

ITEM 5. OTHER INFORMATION.                                                      

In June 1997, the Company entered into a letter of intent with Baxter       
Healthcare Corporation ("Baxter"), the principal U.S. operating subsidiary of   
Baxter International Inc. (NYSE: BAX) to form a new cell therapy company to     
develop innovative treatments for cancer and other life-threatening diseases.   
The proposed alliance would combine Baxter's ex vivo cellular selection and     
storage business with the Company's access to genomics technology to create a   
leading comprehensive ex vivo and gene therapy enterprise.                      

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Pursuant to the letter of intent, the Company and Baxter will form a new    
company, yet to be named, into which the assets of Baxter's Immunotherapy       
Division will be transferred. VIMRx will hold a majority ownership (80%)        
position in the new company and Baxter will hold a minority ownership (20%)     
position. VIMRx will issue to Baxter 11 million shares of common stock and      
convertible preferred shares with a nominal value of $40 million. To the        
extent the 11 million shares of common stock are worth less than $50 million    
at the time of closing, Baxter will receive additional convertible preferred    
shares. The conversion price for the preferred shares will be determined        
according to the closing prices of VIMRx's common stock within an 18 month      
period following the closing of the transaction, subject to a floor of $5.50    
per share and a ceiling of $7.50 per share. Baxter will provide $20 million     
and VIMRx will provide $10 million to the new company as initial operating      
funds. The new company will pay Baxter milestone payments, related to           
regulatory approvals, of up to $21 million over several years. Baxter will      
retain its exclusive license to the CD34 antibody used in selection technology  
and sublicense it to the new company. Baxter will have one representative on    
the new company's board of directors and one representative on VIMRx's board    
of directors. The terms included in the letter of intent are subject to the     
signing of a definitive agreement between VIMRx and Baxter and the approval by  
the boards of directors of VIMRx and Baxter and the stockholders of VIMRx,      
which is anticipated to occur in the third quarter of 1997.                     

In July 1997, the Company's 2,399,993 outstanding Common Stock Purchase     
Warrants (the "Warrants") commenced trading on The Nasdaq National Market.      
Each Warrant entitles the registered holder to purchase one shares of Common    
Stock at an exercise price of $1.50 per share at any time through January 20,   
2006.                                                                           

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                       

(a) Exhibits:                                                                 

None.                                                                       

(b) Reports on Form 8-K:                                                      

Pursuant to a Report on Form 8-K filed on May 21, 1997, the Company reported
that Richard A. Eisner & Company LLP, who previously served as the independent  
auditors of the Company, were dismissed upon recommendation of the Audit        
Committee effective May 16, 1997, and replaced by KPMG Peat Marwick, LLP. The   
Company reported that at no time did any report on the financial statements of  
the Company by Richard A. Eisner & Company, LLP contain an adverse opinion or   
a disclaimer of opinion, or a qualification or modification as to uncertainty,  
audit scope or accounting principles. The decision to change accountants was    
occasioned by the developments of the past year, and not by any disagreement    
or advice given on any matter of accounting principles or practices, financial  
statement disclosure, or auditing scope or procedure. In particular, in light   
of the acquisition by the Company of a controlling interest in Innovir          
Laboratories, Inc. the Audit Committee concluded that it would be most          
efficient and in the best interests of both Innovir and the Company for the     
same auditors to audit both companies. The Company solicited proposals from     
four auditing firms, including Richard A. Eisner & Company, LLP. KPMG Peat      
Marwick LLP was chosen as a result of this process, and was engaged by the      
Company as its principal auditors on May 16, 1997.                              

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SIGNATURES  

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE    
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE        
UNDERSIGNED THEREUNTO DULY AUTHORIZED.                                          

Dated: August 13, 1997                                                          

                              VIMRx Pharmaceuticals Inc.
                            a Delaware Corporation
                  (Registrant)

                                          /s/ Richard L. Dunning
                                         By: _________________________________
                            Richard L. Dunning
                                       President and Chief Executive
                   Officer

                                          /s/ Francis M. O'Connell
                                         By: _________________________________
                              Francis M. O'Connell
                                  Chief Accounting Officer

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                                                                       ANNEX D

CERTIFICATE OF AMENDMENT  
OF  
CERTIFICATE OF INCORPORATION  
OF  
VIMRX PHARMACEUTICALS INC.  

----------------  

PURSUANT TO SECTION 242 OF THE GENERAL  
CORPORATION LAW OF THE STATE OF DELAWARE  

----------------  

VIMRx Pharmaceuticals Inc., a corporation organized and existing under the  
General Corporation Law of the State of Delaware (the "Corporation"), hereby    
certifies as follows:                                                           

1. The name of the Corporation is VIMRx Pharmaceuticals Inc. and the name   
under which the Corporation originally was incorporated was "Cellular           
Immunology Corporation."                                                        

2. The original Certificate of Incorporation of the Corporation was filed   
with the Secretary of State of Delaware on December 13, 1986.                   

3. The Amended and Restated Certificate of Incorporation of the Corporation,
as heretofore amended or supplemented (the "Certificate of Incorporation"), is  
hereby further amended by striking out "Article IV" and substituting in lieu    
thereof a new "Article IV" changing the authorized capital stock of the         
Corporation to read as follows:                                                 

"FOURTH"                                                                    

A. The authorized capital stock of the Corporation shall consist of one 
hundred twenty-one million (121,000,000) shares, consisting of one hundred  
twenty million (120,000,000) shares of Common Stock, each having a par      
value of $.001 (the "Common Stock"), and one million (1,000,000) shares of  
Preferred Stock, each having a par value of $.001 (the "Preferred Stock").  

B. The Preferred Stock may be issued from time to time in one or more   
series of any number of shares provided that the aggregate number of shares 
issued and not canceled of any and all such series shall not exceed the     
total number of shares of Preferred Stock hereinabove authorized. Each      
series of Preferred Stock shall be distinctively designated by letter or    
descriptive words. All series of Preferred Stock shall rank equally and be  
identical in all respects except as permitted by the provisions of the      
Article FOURTH.                                                             

C. Authority is hereby expressly vested in the Board of Directors from  
time to time to issue the Preferred Stock as Preferred Stock of any series  
and in connection with the creation of each such series to fix by the       
resolution or resolutions providing for the issue of shares thereof the     
designations, preferences, limitations and relative participating, optional 
or other special rights, and the qualifications, limitations or             
restrictions thereof, to the full extent now or hereafter permitted by this 
Certificate of Incorporation and the laws of the State of Delaware,         
including, without limitation:                                              

(1) the distinctive designation of such series and the number of    
shares which shall constitute such series, which number may be          
increased (but not above the total number of authorized shares of the   
series) or decreased (but not below the number of shares thereof then   
outstanding) from time to time by a resolution or resolutions of the    
Board of Directors, all subject to the conditions or restrictions set   
forth in the resolution or resolutions adopted by all Board of          
Directors providing for the issuance of any series of Preferred Stock;  

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(2) the dividend rate payable on shares of such series, the         
conditions and dates upon which such dividends shall be payable, the    
preferences or relation which such dividend shall bear to the dividends 
payable on any other class or classes or any other series of capital    
stock (except as otherwise expressly provided in this Certificate of    
Incorporation), and whether such dividends shall be cumulative or non-  
cumulative and, if cumulative, the date or dates from which dividends   
shall accumulate;                                                       

(3) whether the shares of such series shall be subject to redemption
by the Corporation and, if made subject to redemption, the price or     
prices at which, and the terms and conditions on which, the shares of   
such series may be redeemed by the Corporation;                         

(4) the amount or amounts payable upon the shares of such series in 
the event of any voluntary or involuntary liquidation, dissolution or   
winding up of the Corporation and the preferences or relation which     
such payments shall bear to such payments made on any other class or    
classes or any other series of capital stock (except as otherwise       
expressly provided in this Certificate of Incorporation);               

(5) whether or not the shares of such series shall be made          
convertible into, or exchangeable for, shares of any other class or     
classes of capital stock of the Corporation, or any series thereof, or  
for any other series of the same class of capital stock of the          
Corporation or for debt of the Corporation evidenced by an instrument   
of indebtedness, and, if so convertible or exchangeable, the conversion 
price or prices, or the rate or rates of exchange, and the adjustments  
thereof, if any, at which such conversion or exchange may be made, and  
any other terms and conditions of such conversion or exchange;          

 (6) whether the holders of shares of such series shall have any right
or power to vote or to receive notice of any meeting of stockholders,   
either generally or as a condition to specified corporate action; and   

(7) any other preferences and relative, participating, optional or  
other special rights and qualifications, limitations or restrictions    
thereof as may be permitted by the laws of the State of Delaware and as 
shall not be inconsistent with this Article FOURTH.                     

 D. Shares of Preferred Stock which have been issued and reacquired in any
manner by the Corporation (excluding, until the Corporation elects to       
retire them, shares which are held as treasury shares, but including shares 
redeemed, shares purchased and retired and shares which have been converted 
into shares of Common Stock) shall have the status of authorized but        
unissued shares of Preferred Stock and may be reissued as a part of the     
series of which they were originally a part or may be reissued as a part of 
another series of Preferred Stock, all subject to the conditions or         
restrictions on issuance set forth in the resolution or resolutions adopted 
by the Board of Directors providing for the issuance of any series of       
Preferred Stock.                                                            

E. Except as otherwise provided by the resolution or resolutions        
providing for the issuance of any series of Preferred Stock, after payment  
shall have been made to the holders of Preferred Stock of the full amount   
of dividends to which they shall be entitled pursuant to the resolution or  
resolutions providing for the issuance of any series of Preferred Stock,    
the holders of Common Stock shall be entitled, to the exclusion of the      
holders of Preferred Stock of any and all series, to receive such dividends 
as from time to time may be declared by the Board of Directors.             

F. Except as otherwise provided by the resolution or resolutions        
providing for the issuance of any series of Preferred Stock, in the event   
of any liquidation, dissolution or winding up of the Corporation, whether   
voluntary or involuntary, after payment shall have been made to the holders 
of Preferred Stock of the full amounts to which they shall be entitled      
pursuant to the resolution or resolutions providing for the issuance of any 
series of Preferred Stock, the holders of Common Stock shall be entitled,   
to the exclusion of the holders of Preferred Stock of any and all series,   
to share, ratably according to the number of shares of Common Stock held by 
them, in all remaining assets of the Corporation available for distribution 
to its stockholders.                                                        

G. The holders of Preferred Stock shall not have any preemptive rights  
except to the extent such rights shall be specifically provided for in the  
resolution or resolutions providing for the issuance thereof adopted by the 
Board of Directors."                                                        

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4. The amendment to the Certificate of Incorporation herein certified has   
been duly adopted in the manner and by the vote prescribed by Section 242 of    
the General Corporation Law of the State of Delaware.                           

IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be     
affixed hereto and this certificate be signed by its Chief Executive Officer    
and attested by its Secretary this    day of December, 1997.                    

                              VIMRx Pharmaceuticals Inc.

                                         By: _________________________________
                            Richard L. Dunning
                                 Chief Executive Officer

Attest:                                                                         

By: _________________________________                                           
Lowell S. Lifschultz                                                        
Secretary                                                                   

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                                                                       ANNEX E

CERTIFICATE OF DESIGNATIONS OF  
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK 
OF VIMRX PHARMACEUTICALS, INC.  

----------------------------------- 
PURSUANT TO SECTION 151(A) OF THE GENERAL 
CORPORATION LAW OF THE STATE OF DELAWARE  
----------------------------------- 

VIMRx Pharmaceuticals, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does       
hereby certify:                                                                 

FIRST: That pursuant to authority conferred upon the Board of Directors of  
the Corporation by its Certificate of Incorporation, and pursuant to the        
provisions of Section 151(a) of the General Corporation Law of the State of     
Delaware, the Board of Directors, acting at a meeting duly called and held on   
September  , 1997, adopted the following resolution which remains in full       
force and effect as of the date hereof:                                         

RESOLVED, that pursuant to the authority expressly granted to and vested in 
the Board of Directors of this Corporation by Article IV of the Certificate of  
Incorporation of this Corporation, as amended, and pursuant to Section 151(a)   
of the General Corporation Law of the State of Delaware, the Board of           
Directors hereby creates and establishes and authorizes the issuance of a       
first series of preferred stock, such series to consist of [100,000] shares of  
this Corporation's authorized and unissued Preferred Stock, each share having   
a par value of $.001, and the Board of Directors hereby fixes the designation   
of such series as "Series A Cumulative Convertible Preferred Stock"             
(hereinafter referred to as the "Preferred Stock") and fixes the number of      
shares constituting such series at [100,000], and hereby determines the         
powers, preferences, rights, qualifications, limitations and restrictions of    
such series as follows:                                                         

SECTION 1.  
DIVIDENDS.  

(a)The holders of the Preferred Stock shall be entitled to receive dividends
thereon at the rate of 6% of the Liquidation Preference (as defined in Section  
2) per share per annum, (as adjusted for any combinations, consolidations,      
stock distributions or stock dividends with respect to such shares) as and      
when declared by the Board of Directors, before any dividend or distribution    
shall be declared, set apart for, or paid upon the Common Stock of the          
Corporation, which dividend shall be payable in additional shares of Preferred  
Stock, each valued at their Liquidation Preference. The dividends on the        
Preferred Stock shall be cumulative, so that if the Corporation fails in any    
fiscal year to pay such dividends on all of the issued and outstanding          
Preferred Stock, such deficiency in the dividends shall be fully paid before    
any dividends or distributions shall be paid on or set apart for the Common     
Stock. All dividends and distributions on the Preferred Stock shall be made     
pro rata per share to all holders of Preferred Stock; provided, however, that,  
notwithstanding the foregoing, until all cumulative dividends on the Preferred  
Stock shall have been fully paid, all dividends and distributions on the        
Preferred Stock shall be made ratably to the holders thereof in proportion to   
the respective amounts that would be payable on such shares if such dividend    
arrearages were paid in full. Such dividends shall accrue annually on the       
anniversary of the Original Issuance Date (as defined in Section 3(d)).         

(b)For purposes of this Section 1, unless the context requires otherwise,   
"distribution" shall mean the transfer of cash or property without              
consideration, whether by way of dividend or otherwise, or the purchase or      
redemption of shares of the Corporation (other than repurchases of Common       
Stock held by employees or directors of, or consultants to, the Corporation     
upon termination of their employment or services pursuant to agreements         
providing for such repurchase and other than redemptions in liquidation or      
dissolution of the Corporation) for cash or property, including any such        
transfer, purchase or redemption by a subsidiary of the Corporation.            

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SECTION 2.  
LIQUIDATION RIGHTS. 

(a) Treatment at Liquidation, Dissolution or Winding Up.                    

(i)Except as otherwise provided in Section 2(b) below, in the event of  
any liquidation, dissolution or winding up of the affairs of the            
Corporation, whether voluntary or involuntary, the holders of Preferred     
Stock shall be entitled to be paid first out of the assets of the           
Corporation available for distribution to holders of the Corporation's      
capital stock of all classes, before payment or distribution of any of such 
assets to the holders of any other class of the corporation's capital       
stock, an amount equal to $1,000 per share of Preferred Stock (the          
"Liquidation Preference,") which amount shall be subject to equitable       
adjustment whenever there shall occur a stock dividend, stock split,        
combination of shares, reclassification or other similar event affecting    
such shares), and shall include any accrued but unpaid dividends.           

(ii) After payment shall have been made in full to the holders of       
Preferred Stock pursuant to Section 2(a)(i) hereof or funds necessary for   
such payment shall have been set aside by the Corporation in trust for the  
account of the holders of Preferred Stock to be available for such payment, 
the remaining assets of the Corporation shall be distributed ratably to the 
holders of Common Stock to the exclusion of the Preferred Stock.            

 (iii)If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of Preferred Stock of all amounts            
distributable to them under Section 2(a)(i) hereof, then the entire assets  
of the Corporation available for such distribution shall be distributed     
ratably among the holders of Preferred Stock in proportion to the full      
preferential amount each such holder is otherwise entitled to receive.      

(b)Treatment of Reorganizations, Consolidations, Mergers and Sales of       
Assets. A consolidation or merger of the Corporation with or into another       
unaffiliated corporation or a sale of all or substantially all of the assets    
of the Corporation, shall not be regarded as a liquidation, dissolution or      
winding up of the affairs of the Corporation for purposes of this Section 2,    
but shall result in conversion of the Preferred Stock into Common Stock as set  
forth in Section 3(c).                                                          

(c)Distributions Other Than Cash. The value of any distribution provided for
in this Section 2, or portion thereof, payable in property other than cash      
shall be the fair value (as determined by the Board of Directors in good        
faith) of such property at the time of such distribution.                       

SECTION 3.  
CONVERSION. 

The holders of Preferred Stock shall have conversion rights (the "Conversion
Rights") and the Preferred Stock shall be subject to conversion, as follows:    

(a)Right to Convert; Conversion Price. Each share of Preferred Stock shall  
be convertible, without the payment of any additional consideration by the      
holder thereof and at the option of the holder thereof, at any time after       
eighteen (18) months after the Original Issuance Date (as defined in Section    
3(d) below), at the office of the Corporation or any transfer agent for the     
Preferred Stock, into such whole number of fully paid and nonassessable shares  
of Common Stock as is determined by dividing $1,000 by the Conversion Price,    
determined as hereinafter provided, in effect at the time of conversion. The    
Conversion Price at which shares of Common Stock shall be deliverable upon      
conversion without the payment of any additional consideration by the holder    
of Preferred Stock (the "Conversion Price") shall initially be the highest      
average of closing bid prices per share of Common Stock on the principal        
market on which such Common Stock trades for any sixty (60) consecutive         
trading day period commencing with the Original Issuance Date and ending on     
the date which is eighteen (18) months from such date, but in no event shall    
such Conversion Price be less than $5.50 or greater than $7.50. Such initial    
Conversion Price shall be subject to adjustment, in order to adjust the number  
of shares of Common                                                             

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Stock into which Preferred Stock is convertible, as hereinafter provided. The   
right of conversion with respect to any shares of Preferred Stock which the     
Corporation redeems pursuant to Section 5(a) hereof shall terminate at the      
close of business on the Redemption Date (as defined in Section 5 of this       
Certificate of Designations), unless the Corporation shall default in the       
payment of the redemption price for such shares of Preferred Stock, in which    
case such termination shall occur upon payment of the redemption price of such  
shares.                                                                         

(b)Mechanics of Conversion; Dividends; Fractional Shares. Before any holder 
of Preferred Stock shall be entitled to convert the same into shares of Common  
Stock, such holder shall surrender the certificate or certificates therefor,    
duly endorsed, at the office of the Corporation or of any transfer agent for    
the Preferred Stock, and shall give written notice to the Corporation at such   
office that such holder elects to convert the same. At the time of each         
conversion of shares of Preferred Stock, the Corporation shall also issue       
shares of Common Stock in an amount equal to all dividends declared and unpaid  
on the shares of Preferred Stock surrendered for conversion to the date upon    
which such conversion is deemed to occur, valued at the Conversion Price. In    
lieu of any fractional shares of Common Stock to which the holder would         
otherwise be entitled, the Corporation shall pay cash equal to such fraction    
multiplied by the then effective Conversion Price. The Corporation shall, as    
soon as practicable thereafter, issue and deliver at such office to such        
holder of Preferred Stock, a certificate or certificates for the number of      
shares of Common Stock to which such holder shall be entitled as aforesaid,     
together with cash in lieu of any fraction of a share. Such conversion shall    
be deemed to have been made immediately prior to the close of business on the   
date of such surrender of the shares of Preferred Stock to be converted, and    
the person or persons entitled to receive the shares of Common Stock issuable   
upon conversion shall be treated for all purposes as the record holder or       
holders of such shares of Common Stock on such date.                            

(c)Automatic Conversion.                                                    

(i)Each share of Preferred Stock shall automatically be converted into  
shares of Common Stock at the then effective Conversion Price:              

(1)on the date which is seven (7) years after the Original Issuance 
Date; or                                                                

(2)immediately prior to the effective time of any merger, sale of   
assets, reorganization or like event in which the Corporation is not    
the surviving entity (if such event occurs prior to eighteen months     
from the Original Issuance Date, then the Conversion Price shall be     
equal to the fair value of the consideration to be received by the      
holder of a share of Common Stock, as determined in good faith by the   
Corporation's Board of Directors, but in no event greater than $7.50),  
or                                                                      

(3)upon the written election of the holders of not less than a      
majority in voting power of the then outstanding shares of Preferred    
Stock to require such mandatory conversion.                             

(ii)Upon the occurrence of an event specified in Section 3(c)(i) hereof,
all shares of Preferred Stock shall be converted automatically without any  
further action by any holder of such shares and whether or not the          
certificate(s) representing such shares are surrendered to the Corporation  
or the transfer agent for the Preferred Stock; provided, however, that the  
Corporation shall not be obligated to issue a certificate or certificates   
evidencing the shares of Common Stock issuable upon such conversion unless  
the certificate(s) evidencing such shares of Preferred Stock being          
converted are either delivered to the Corporation or the transfer agent for 
the Preferred Stock, or the holder notifies the Corporation or such         
transfer agent that such certificate or certificates have been lost,        
stolen, or destroyed and executes an agreement satisfactory to the          
Corporation to indemnify the Corporation from any loss incurred by it in    
connection therewith ("Indemnity Agreement"), except that such holder shall 
not be required to provide any indemnity bond. Upon the automatic           
conversion of Preferred Stock, each holder of Preferred Stock shall         
surrender the certificate(s) representing such holder's shares of Preferred 
Stock or the aforesaid Indemnity Agreement at the office of the Corporation 
or of the transfer agent for the Preferred Stock. Thereupon, there shall be 
issued and delivered to such holder, promptly at such office and in such    
holder's name as shown on such surrendered certificate(s), a certificate or 
certificates for the number of shares of Common Stock into which the shares 
of Preferred Stock surrendered were convertible on the date on which such   
automatic conversion occurred.                                              

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No fractional shares of Common Stock shall be issued upon the automatic     
conversion of Preferred Stock. In lieu of any fractional shares of Common   
Stock to which the holder would otherwise be entitled, the Corporation      
shall pay cash equal to such fraction multiplied by the then effective      
Conversion Price.                                                           

(d)Adjustment for Stock Splits and Combinations. If the Corporation shall at
any time or from time to time after the date on which shares of the Preferred   
Stock are first issued (the "Original Issuance Date") effect a subdivision of   
the outstanding Common Stock, the Conversion Price in effect immediately        
before that subdivision shall be proportionately decreased. If the Corporation  
shall at any time or from time to time after the Original Issuance Date         
combine the outstanding shares of Common Stock, the Conversion Price in effect  
immediately before the combination shall be proportionately increased. Any      
adjustment under this paragraph shall become effective at the close of          
business on the date the subdivision or combination becomes effective.          

(e)Adjustment for Certain Dividends and Distributions.                      

(1)In the event the Corporation at any time or from time to time after  
the Original Issuance Date shall make or issue, or fix a record date for    
the determination of holders of Common Stock entitled to receive a dividend 
or other distribution payable in additional shares of Common Stock, then    
and in each such event the Conversion Price then in effect shall be         
decreased as of the time of such issuance or, in the event such a record    
date shall have been fixed, as of the close of business on such record      
date, by multiplying the Conversion Price then in effect by a fraction:     

(A)the numerator of which shall be the total number of shares of    
Common Stock issued and outstanding immediately prior to the time of    
such issuance or the close of business on such record date, and         

(B)the denominator of which shall be the total number of shares of  
Common Stock issued and outstanding immediately prior to the time of    
such issuance or the close of business on such record date plus the     
number of shares of Common Stock issuable in payment of such dividend   
or distribution;                                                        

provided, however, if such record date shall have been fixed and such       
dividend is not fully paid or such distribution is not fully made on the    
date fixed therefor, the Conversion Price shall be recomputed accordingly   
as of the close of business on such record date and thereafter the          
Conversion Price shall be adjusted pursuant to this paragraph as of the     
time of actual payment of such dividends or distributions.                  

 (2)For the purposes of Section 3(e)(1) hereof, the total number of shares
of Common Stock deemed to be issued and outstanding shall include (i) all   
shares of Common Stock issuable on conversion of all shares of Preferred    
Stock outstanding and (ii) all shares of Common Stock issued and            
outstanding and entitled to receive such dividend.                          

(f)Adjustments for Other Dividends and Distributions. In the event the      
Corporation at any time or from time to time after the Original Issuance Date   
shall make or issue, or fix a record date for the determination of holders of   
Common Stock entitled to receive, a dividend or other distribution payable in   
securities of the Corporation other than shares of Common Stock, including a    
cash dividend, then and in each such event provision shall be made so that the  
holders of Preferred Stock shall receive upon conversion thereof in addition    
to the number of shares of Common Stock receivable thereupon, the amount of     
securities of the Corporation and/or cash that they would have received had     
their Preferred Stock been converted into Common Stock on the date of such      
event and had they thereafter, during the period from the date of such event    
to and including the conversion date, retained such securities receivable by    
them as aforesaid during such period, giving application to all adjustments     
called for herein during such period.                                           

(g)Adjustment for Reclassification, Exchange or Substitution. If the Common 
Stock issuable upon the conversion of the Preferred Stock shall be changed      
into the same or a different number of shares of any class or classes of        
stock, whether by capital reorganization, reclassification, or otherwise        
(other than a subdivision or                                                    

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combination of shares or stock dividend provided for above, or a                
reorganization, merger, consolidation, or sale of assets provided for in        
Section 3(c), then and in each such event the holder of each such share of      
Preferred Stock shall have the right thereafter to convert such share into the  
kind and amount of shares of stock and other securities and property            
receivable upon such reorganization, reclassification, or other change, by      
holders of the number of shares of Common Stock into which such shares of       
Preferred Stock might have been converted immediately prior to such             
reorganization, reclassification, or change, all subject to further adjustment  
as provided herein.                                                             

(h)[INTENTIONALLY OMITTED]                                                  

(i)Adjustment of Conversion Price Upon Issuance of Additional Shares of     
Common Stock.                                                                   

(1)Subject always to Section 3(i)(5), in the event that at any time or  
from time to time after the Original Issuance Date, through and including   
the date which ends eighteen (18) months after the Original Issuance Date,  
but not thereafter, the corporation shall issue any shares of Common Stock  
or securities convertible into or exercisable to purchase shares of Common  
Stock ("Additional Shares of Common Stock") excluding shares issued upon a  
stock split or combination as provided in Section 3(d) or as a dividend or  
distribution as provided in Sections 3(e) or (f)), without consideration or 
for a consideration per share less than the Conversion Price in effect on   
the date of, and immediately prior to, the issuance or deemed issuance of   
such Additional Shares of Common Stock, (which shall include the assumed    
conversion of all convertible securities and the assumed exercise of all    
convertible securities or rights to purchase shares of Common Stock in      
accordance with the terms of such convertible securities or rights to       
purchase Common Stock), then and in such event, the applicable Conversion   
Price then in effect shall be reduced, concurrently with such issue, to a   
price (calculated to the nearest cent) determined by multiplying such       
Conversion Price by a fraction:                                             

 (A)the numerator of which shall be (x) the number of shares of Common
Stock outstanding immediately prior to such issue plus (y) the number   
of shares of Common Stock which the aggregate consideration received or 
deemed to have been received by the corporation for the total number of 
Additional Shares of Common Stock so issued would purchase at the       
Conversion Price in effect on the date of, and immediately prior to,    
the issuance or deemed issuance of such Additional Shares of Common     
Stock, and                                                              

(B)the denominator of which shall be the number of shares of Common 
Stock outstanding immediately prior to such issue plus the number of    
such Additional Shares of Common Stock so issued or deemed to be        
issued.                                                                 

(2)For the purposes of Section 3(i) (1) hereof, all shares of Common    
Stock issuable upon conversion of shares of Preferred Stock outstanding     
immediately prior to any issue of Additional Shares of Common Stock, or any 
event with respect to which Additional Shares of Common Stock shall be      
deemed to be issued, shall be deemed to be outstanding; and immediately     
after any Additional Shares of Common Stock are deemed issued pursuant to   
Section 3(i)(l) such Additional Shares of Common Stock shall be deemed to   
be outstanding.                                                             

(3)Notwithstanding anything to the contrary contained herein, the       
applicable Conversion Price in effect at the time Additional Shares of      
Common Stock are issued or deemed to be issued shall not be reduced         
pursuant to Section 3(i)(1) hereof at such time if the amount of such       
reduction would be an amount less than $. 01, but any such amount shall be  
carried forward and reduction with respect thereto made at the time of and  
together with any subsequent reduction which, together with such amount and 
any other amount or amounts so carried forward, shall aggregate $.01 or     
more.                                                                       

(4)Determination of Consideration. For purposes of this Section 3(i) ,  
the consideration received by the Corporation for the issue of any          
Additional Shares of Common Stock shall be computed as follows:             

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(i)Cash and Property: Such consideration shall:                     

(A)insofar as it consists of cash, be computed at the aggregate 
amounts of cash received by the Corporation, excluding amounts paid 
or payable for accrued interest or accrued dividends;               

  (B)insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as determined  
in good faith by the Board of Directors; and                        

(C)in the event Additional Shares of Common Stock are issued    
together with other shares or securities or other assets of the     
Corporation for consideration which covers both, be the proportion  
of such consideration so received, computed as provided in clauses  
(A) and (B) above, as determined in good faith by the Board of      
Directors.                                                          

(ii)Options and Convertible Securities. The consideration per share 
received by the Corporation for Additional Shares of Common Stock       
deemed to have been issued pursuant to Section 3(i)(1) , relating to    
options, warrants or rights to purchase Common Stock, and convertible   
securities, shall be determined by dividing (W) the total amount, if    
any, received or receivable by the Corporation as consideration for the 
issue of such options or convertible securities, plus the minimum       
aggregate amount of additional consideration (as set forth in the       
instruments relating thereto, without regard to any provision contained 
therein for a subsequent adjustment of such consideration) payable to   
the Corporation upon the exercise of such options or the conversion or  
exchange of such convertible securities, or in the case of options for  
convertible securities, the exercise of such options for convertible    
securities and the conversion or exchange of such convertible           
securities, by (X) the maximum number of shares of Common Stock (as set 
forth in the instruments relating thereto, without regard to any        
provision contained therein for a subsequent adjustment of such number) 
issuable upon the exercise of such options or the conversion or         
exchange of such convertible securities.                                

(5)Notwithstanding any other provision of this Section 3(i), there shall
be no deemed issuance of Additional Shares of Common Stock upon (A)         
issuance of any shares of Preferred Stock as a dividend on the Preferred    
Stock, (B) conversion of any Preferred Stock, (C) exercise of any options   
or warrants issued and outstanding on the Original Issuance Date, (D) grant 
or exercise of any options to purchase Common Stock pursuant to the         
Corporation's Stock Option Plan as in effect on the Original Issuance Date  
or any subsequent amendment thereof which is approved by the Corporation's  
stockholders pursuant to Securities and Exchange Commission regulations, or 
(E) the sale for cash of no more than 3,333,334 shares of Common Stock for  
aggregate gross proceeds of no more than $10,000,000, at a gross per-share  
price of no less than $3.00. In the event that the gross per-share sale     
price of a share of Common Stock under Section 3(i)(5)(E) shall be less     
than $3.00, then the difference between $3.00 and the actual gross per-     
share sale price shall be subtracted from the Conversion Price utilized in  
the calculation set forth in Section 3(i)(1)(A)(y).                         

(j)Certificate as to Adjustments. Upon the occurrence of each adjustment or 
readjustment of the Conversion Price pursuant to this Section 3, the            
Corporation at its expense shall promptly compute such adjustment or            
readjustment in accordance with the terms hereof and furnish to each affected   
holder of Preferred Stock a certificate setting forth such adjustment or        
readjustment and showing in detail the facts upon which such adjustment or      
readjustment is based. The Corporation shall, upon the written request at any   
time of any affected holder of Preferred Stock, furnish or cause to be          
furnished to such holder a like certificate setting forth (i) such adjustments  
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)   
the number of shares of Common Stock and the amount, if any, of other property  
which at the time would be received upon the conversion of each share of        
Preferred Stock.                                                                

(k)Notices of Record Date. In the event of any taking by the Corporation of 
a record of the holders of any class of securities for the purpose of           
determining the holders thereof who are entitled to receive any dividend        
(other than a cash dividend which is the same as cash dividends paid in         
previous quarters) or other distribution,                                       

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the Corporation shall mail to each holder of Preferred Stock at least ten (10)  
days prior to such record date a notice specifying the date on which any such   
record is to be taken for the purpose of such dividend or distribution.         

(l)Common Stock Reserved. The Corporation shall reserve and keep available  
out of its authorized but unissued Common Stock such number of shares of        
Common Stock as shall from time to time be sufficient to effect the conversion  
of all Preferred Stock.                                                         

(m)Certain Taxes. The Corporation shall pay any issue or transfer taxes     
payable in connection with the conversion of any shares of Preferred Stock;     
provided, however, that the Corporation shall not be required to pay any tax    
that may be payable in respect of any transfer to a name other than that of     
the holder of such Preferred Stock.                                             

SECTION 4.  
VOTING RIGHTS.  

Except as otherwise required by law or by Section 7, the holders of         
Preferred Stock shall not have the right to vote on any matter submitted to a   
vote of the stockholders of the Corporation. With respect to all questions as   
to which, under law, stockholders are entitled to vote by classes, the holders  
of Preferred Stock shall vote together as a single class separately from the    
holders of Common Stock.                                                        

SECTION 5.  
NO REISSUANCE PREFERRED STOCK.  

No share or shares of Preferred Stock acquired by the Corporation by reason 
of redemption, purchase, conversion or otherwise shall be reissued, and all     
such shares shall be canceled, retired and eliminated from the shares which     
the Corporation shall be authorized to issue.                                   

SECTION 6.  
PROTECTIVE COVENANT.  

The Corporation shall not, without the affirmative vote or written consent  
of the holders of a majority of the then issued and outstanding shares of       
Preferred Stock, amend its Certificate of Incorporation to provide for the      
creation or issuance of any class or series of capital stock which shall rank   
pari passu or senior to the Preferred Stock in priority to receive the          
liquidation preference on the Preferred Stock.                                  

SECOND: That said determination of the designation and the relative powers, 
preferences, rights, qualifications, limitations and restrictions thereof,      
relating to the Series A Cumulative Convertible Preferred Stock, was duly made  
by the Board of Directors pursuant to the provisions of the Certificate of      
Incorporation, as amended, in accordance with the provisions of Section 151(a)  
of the General Corporation Law of the State of Delaware.                        

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by Richard Dunning, its President, and attested by Lowell S. Lifschultz, its    
Secretary, as of this    day of     , 1997.                                     

                               VIMRx PHARMACEUTICALS, INC.

       By:
                                           -----------------------------------
                         Name: Richard Dunning
                   Title:President

ATTEST:                                                                         

-------------------------------------                                           
Name: Lowell S. Lifschultz                                                      
Title:Secretary                                                                 

E-7 

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                                                                         ANNEX F

Opinion of Lazard Freres & Co. LLC

[To be provided by amendment] 

F-1 

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PROXY 
VIMRX PHARMACEUTICALS INC.

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 

  The undersigned hereby appoints DONALD G. DRAPKIN and RICHARD L. DUNNING and
each of them, proxies, each with the power of substitution, to vote the shares  
of the undersigned at the Special Meeting of Stockholders of VIMRx              
Pharmaceuticals Inc. (the "Company") on December 16, 1997, and any adjournments 
and  postponements thereof, upon all matters as may properly come before the    
Special Meeting.  Without otherwise limiting the foregoing general              
authorization, the proxies are instructed to vote as indicated herein.          

PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED 
ENVELOPE. 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1) and (2) LISTED BELOW,  
     ---
TO COME BEFORE THE SPECIAL MEETING:                                             

(1) To approve the acquisition by a newly-organized Company subsidiary of the   
 assets, Business and certain obligations of the Immunotherapy Division of
    the Biotech Division Group of Baxter Healthcare Corporation, as described in
the accompanying Proxy Statement.                                       

[ ] FOR     [ ] AGAINST  [ ] ABSTAIN                                    

(2) To approve the amendment to Article FOURTH of the Company's Amended and     
    Restated Certificate of Incorporation authorizing 1,000,000 shares of "blank
  check" preferred stock, $.001 par value, of which [100,000] shares will be
designated Class A Preferred Stock to effectuate the transactions       
 contemplated by the proposed acquisition as described in the accompanying
Proxy Statement.                                                        

[ ] FOR     [ ] AGAINST  [ ] ABSTAIN                                    

(3) Upon any and all other business that may come before the Special Meeting.   

Check here if you plan to attend the Special Meeting of Stockholders. [ ]       

THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE     
VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS (1) AND (2) UNLESS THE STOCKHOLDER
SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.               

SIGNATURE(S):___________________________________________________________________
_____________  DATE______________________________________ 1997                  
Note:  Executors, Administrators, Trustees, etc. should give full title.