<PAGE>
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 Number: 000-21589
TRIANGLE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 56-1930728
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 UNIVERSITY PLACE
4611 UNIVERSITY DRIVE
DURHAM, NORTH CAROLINA 27707
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (919) 493-5980
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
---- ----
As of July 31, 1997, there were 19,585,108 shares of Triangle
Pharmaceuticals, Inc. Common Stock outstanding.
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet -
December 31, 1996 and June 30, 1997................................ 3 - 4
Condensed Statement of Operations -
Three and Six Months Ended June 30, 1996 and 1997, and
Period From Inception (July 12, 1995) Through June 30, 1997........ 5
Condensed Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1997 and
Period From Inception (July 12, 1995) Through June 30, 1997........ 6
Condensed Statement of Stockholders' Equity -
Period From Inception (July 12, 1995) Through
December 31, 1995, 1996 and Six Months Ended June 30, 1997......... 7
Notes to Condensed Financial Statements.............................. 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................10 - 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities.............................................. 25
Item 4. Submission of Matters to a Vote of Security Holders................ 25 - 26
Item 6. Exhibits and Reports on Form 8-K.................................. 26 - 27
Signatures................................................................ 28
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $25,255,006 $50,111,941
Restricted deposits. . . . . . . . . . . . . . . . . 56,067 40,850
Investments. . . . . . . . . . . . . . . . . . . . . 17,226,221 24,335,822
Interest receivable. . . . . . . . . . . . . . . . . 272,716 278,194
Other receivables. . . . . . . . . . . . . . . . . . . 455,910 976,068
Prepaid expenses . . . . . . . . . . . . . . . . . . . 558,423 337,234
------------ -----------
Total current assets . . . . . . . . . . . . . . . 43,824,343 76,080,109
------------ -----------
Property, plant and equipment, net . . . . . . . . . . 832,049 998,452
Investments. . . . . . . . . . . . . . . . . . . . . . 10,719,917 --
Restricted deposits. . . . . . . . . . . . . . . . . . 118,933 97,899
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . $55,495,242 $77,176,460
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 1,584,348 $ 1,348,443
Accrued license fees . . . . . . . . . . . . . . . . . 150,000 500,000
Capital lease obligation-current . . . . . . . . . . . 102,006 113,425
Other accrued expenses . . . . . . . . . . . . . . . . 639,255 1,818,447
------------ ---------------
Total current liabilities. . . . . . . . . . . . . 2,475,609 3,780,315
Capital lease obligation-noncurrent. . . . . . . . . . 364,385 353,816
------------ ---------------
Total liabilities. . . . . . . . . . . . . . . . . 2,839,994 4,134,131
------------ ---------------
Commitments and contingencies (See notes 3 and 4) . . -- --
Stockholders' equity:
Common Stock, $0.001 par value; authorized
75,000,000 shares; issued and
outstanding 17,567,890 and 19,585,108 shares . . . 17,568 19,585
Warrants . . . . . . . . . . . . . . . . . . . . . . 151,873 200,103
Additional paid-in capital . . . . . . . . . . . . . 64,548,647 94,019,823
Accumulated deficit during development stage . . . . (11,884,166) (21,045,065)
Deferred compensation. . . . . . . . . . . . . . . . (178,674) (152,117)
------------ ---------------
Total stockholders' equity . . . . . . . . . . . . $ 52,655,248 73,042,329
------------ ---------------
Total liabilities and stockholders' equity . . . . $ 55,495,242 $ 77,176,460
------------ ---------------
------------ ---------------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, (JULY 12, 1995)
----------------------------- --------------------------- THROUGH
1996 1997 1996 1997 JUNE 30, 1997
-------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
License fees . . . . . . . . . . . . . . . $ 2,751,829 $ 500,000 $ 2,751,829 $ 500,000 $ 3,767,147
Development. . . . . . . . . . . . . . . . 1,132,247 3,944,063 1,342,591 6,693,479 11,660,211
General and administrative . . . . . . . . 873,340 1,944,110 1,490,156 3,464,610 8,027,466
------------ ----------- ----------- ----------- --------------
4,757,416 6,388,173 5,584,576 10,658,089 23,454,824
------------ ----------- ----------- ----------- --------------
Interest income. . . . . . . . . . . . . . . 53,620 771,326 85,158 1,497,190 2,409,759
------------ ----------- ----------- ----------- --------------
Net loss . . . . . . . . . . . . . . . . . . $(4,703,796) $(5,616,847) $(5,499,418) $(9,160,899) $ (21,045,065)
------------ ----------- ----------- ----------- --------------
------------ ----------- ----------- ----------- --------------
Net loss per share . . . . . . . . . . . . . -- $ (0.31) -- $ (0.51)
----------- ------------
----------- ------------
Pro forma net loss per share . . . . . . . . $ (0.33) -- $ (0.39) --
------------ -----------
------------ -----------
Shares used in computing pro forma
net loss per share and net loss per
share. . . . . . . . . . . . . . . . . . .. 14,277,498 18,068,624 14,277,498 17,825,678
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> PERIOD FROM
INCEPTION
SIX MONTHS ENDED JUNE 30, (JULY 12, 1995)
----------------------------- THROUGH
1996 1997 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $ (5,499,418) $ (9,160,899) $(21,045,065)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization. . . . . . . . . . . 9,320 109,689 210,381
Stock-based compensation: license fees . . . . . . 636,000 -- 636,000
Stock-based compensation: development. . . . . . 313,327 22,413 368,982
Stock-based compensation: general and
administrative. . . . . . . . . . . . . . . 72,230 66,274 297,796
Change in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . (204,790) (525,636) (1,254,262)
Prepaid expenses . . . . . . . . . . . . . . . . (69,657) 221,189 (337,234)
Accounts payable . . . . . . . . . . . . . . . . 310,057 (235,905) 1,348,443
Accrued license fees and other expenses. . . . . 564,342 1,516,657 2,236,121
----------- ----------- ------------
Net cash used by operating activities . . . . . . . (3,868,589) (7,986,218) (17,538,838)
----------- ----------- ------------
Cash flows from investing activities:
(Purchase) sale of restricted deposits. . . . . (175,000) 36,251 (138,749)
Purchase of investments. . . . . . . . . . . . . (11,305,549) (13,548,698) (46,816,623)
Proceeds from sale and maturity of investments. . -- 17,159,014 22,480,801
Purchase of property, plant and equipment. . . . (438,549) (217,293) (1,033,570)
----------- ----------- ------------
Net cash used by investing activities. . . . . . . . (11,919,098) 3,429,274 (25,508,141)
----------- ----------- ------------
Cash flows from financing activities:
Sale of stock, net of related issuance costs. . . 18,509,162 29,435,853 92,805,749
Sale of options. . . . . . . . . . . . . . . . . -- 35,000 35,000
Sale of warrants . . . . . . . . . . . . . . . . 130 -- 130
Proceeds from stock options exercised. . . . . . 22,426 975 26,063
Equipment financing. . . . . . . . . . . . . . . -- -- 354,416
Principal payments on capital lease obligation . -- (57,949) (62,438)
----------- -------------- -----------
Net cash provided by financing activities. . . . . . 18,531,718 29,413,879 93,158,920
----------- -------------- -----------
Net (decrease) increase in cash and cash equivalents. 2,744,031 24,856,935 50,111,941
Cash and cash equivalents at beginning of period. . . 3,081,586 25,255,006 --
----------- ----------- ------------
Cash and cash equivalents at end of period. . . . . . $ 5,825,617 $ 50,111,941 $ 50,111,941
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
6
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------ PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT WARRANTS SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- --------- -------- ------- -------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial sale of stock. . . . 933,334 $ 933 -- 1,175,000 $ 1,175 $ 709,642 -- -- $ 711,750
Additional sale of stock . .4,248,337 4,249 -- 1,495,000 1,495 3,137,355 -- -- 3,143,099
Stock-based compensation . . -- -- -- -- -- 12,000 -- $(11,750) 250
Net loss, July 12 through
December 31, 1995. . . . . -- -- -- -- -- -- $(967,583) -- $(967,583)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1995. 5,181,671 5,182 -- 2,670,000 2,670 3,858,997 (967,583) (11,750) 2,887,516
Sale of stock. . . . . . . .3,756,234 3,756 -- 4,942,652 4,943 59,506,348 -- -- 59,515,047
Sale of warrants . . . . . . -- -- $ 130 -- -- -- -- -- 130
Stock-based compensation . . -- -- 151,743 700,000 700 1,126,500 -- (141,181) 1,137,762
Stock options exercised. . . -- -- -- 317,333 317 56,802 -- (25,743) 31,376
Conversion of Preferred to
Common Stock. . . . . . .(8,937,905) (8,938) -- 8,937,905 8,938 -- -- -- --
Net loss . . . . . . . . . . -- -- -- -- -- -- (10,916,583) -- (10,916,583)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1996. . -- -- 151,873 17,567,890 17,568 64,548,647 (11,884,166) (178,674) 52,655,248
(UNAUDITED)
Sale of stock. . . . . . . . -- -- -- 2,004,218 2,004 29,433,849 -- -- 29,435,853
Sale of options. . . . . . . -- -- -- -- -- 35,000 -- -- 35,000
Sale of warrants . . . . . . -- -- -- -- -- -- -- -- --
Stock-based compensation . . -- -- 48,230 -- -- -- -- 23,901 72,131
Stock options exercised. . . -- -- -- 13,000 13 2,327 -- 2,656 4,996
Net loss . . . . . . . . . . -- -- -- -- -- -- (9,160,899) -- (9,160,899)
------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 . . . -- $ -- $ 200,103 19,585,108 $19,585 $94,019,823 $(21,045,065) $(152,117) $73,042,329
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
7
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and applicable
Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. It is presumed that users of
this interim financial information have read or have access to the audited
financial statements for the preceding fiscal year contained in Triangle
Pharmaceuticals, Inc. (the "Company") Annual Report on Form 10-K. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the full year.
2. NET LOSS PER SHARE
For the three and six month periods ended June 30, 1996, the weighted
average shares outstanding used in the calculation of net loss per share
includes the effect of the conversion of all of the Company's Preferred Stock
as if such conversion occurred as of July 12, 1995. Additionally, Common
Stock or equivalent shares from stock options and awards sold or issued at
prices below the Initial Public Offering ("IPO") price per share in the
twelve months preceding the initial filing of the Company's Registration
Statement on Form S-1 on September 11, 1996, have been included in the
calculations as if outstanding from July 12, 1995 through June 30, 1996
pursuant to the requirements of the Securities and Exchange Commission.
For the three and six month periods ended June 30, 1997, the weighted
average shares outstanding used in the calculation of net loss per share do
not include Common Stock equivalents because they have the effect of reducing
net loss per share. Fully diluted earnings per share were not materially
different from primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS 128 changes the computation of net income per share from the
method currently prescribed by Accounting Principles Board Opinion No. 15.
The Company intends to adopt SFAS 128 for periods ending after December 15,
1997 and to restate previously reported historical information at that time.
Adoption of SFAS 128 is not expected to materially affect the Company's
financial statements.
3. LICENSING AND OPTION AGREEMENTS
The Company's existing license agreements require future payments of up
to $28,250,000 contingent upon the achievement of certain development
milestones. Additionally, the Company will pay royalties based on a
percentage of net sales of each licensed product incorporating these drug
candidates. Most of the Company's license agreements require minimum royalty
payments after regulatory approval. Depending on the Company's success and
timing in obtaining regulatory approval, aggregate annual minimum royalties
could range from $2,000,000 (if only a single drug candidate is approved for
one indication) to $49,500,000 (if all drug candidates are approved for all
indications) under the Company's existing license agreements.
8
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
On June 17, 1997, the Company entered into a license agreement with
Mitsubishi Chemical Corporation ("Mitsubishi") relating to the anti-HIV drug
candidate, MKC-442. The agreement required an initial payment of $500,000
upon execution and requires future payments contingent upon the achievement
of certain development milestones. At Mitsubishi's option, certain of these
payments may be made in the form of the Company's capital stock. The Company
is entitled to a potential reimbursement from Mitsubishi, the total of which
cannot exceed $400,000, based upon the amount of certain development expenses
incurred by the Company. Additionally, the Company will pay royalties based
on a percentage of net sales. Mitsubishi has the right to terminate the
license agreement if the Company does not satisfy certain milestone
obligations or does not cure any material breach of the license agreement.
The termination of the license agreement would have a material adverse effect
on the Company.
4. Stockholders' Equity
On June 6, 1997, the Company closed a private placement of 2,000,000
newly issued shares of Common Stock pursuant to a Common Stock Purchase
Agreement dated June 6, 1997 (the "Agreement"). The total consideration
received by the Company for the shares was $30,000,000 in cash, or a price of
$15.00 per share. Net proceeds to the Company from the sale of the shares
were approximately $29,400,000. The shares are restricted and may not be
transferred or sold, except as permitted by the Agreement and pursuant to a
registration of the shares or an available exemption from registration. The
Company was introduced to the purchasers of the shares by George McFadden,
one of the Company's directors. Mr. McFadden received a finder's fee of
$500,000 in connection with the transaction.
On June 30, 1997 the Company signed an agreement to acquire Avid
Corporation ("Avid"), a private, antiviral pharmaceutical company. If the
acquisition is completed, Triangle will pay $1,250,000 cash and 400,000
shares of Triangle Common Stock, plus up to an additional 2,100,000 shares of
Triangle Common Stock contingent upon the attainment of certain development
milestones. Triangle currently expects the acquisition to be completed by
August 30, 1997. The closing of the acquisition is subject to conditions that
must be satisfied.
Avid's principal assets consist of worldwide license rights to a protease
inhibitor for the treatment of HIV infection (DMP-450), early preclinical
stage compounds for the treatment of Hepatitis B virus ("HBV") infection,
proprietary assays to screen drug candidates for the treatment of HBV and
assay technology for the potential use in screening drug candidates for the
treatment of Hepatitis C virus ("HCV") infection.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "--Risks and
Uncertainties." While this outlook represents management's current judgment
on the future direction of the business, such risks and uncertainties could
cause actual results to differ materially from any future performance
suggested below. The Company undertakes no obligation to release publicly
the results of any revisions to the statements contained in this report to
reflect events or circumstances arising after the date hereof.
The following should be read in conjunction with the Company's condensed
financial statements.
OVERVIEW
Triangle is a pharmaceutical company engaged in the development of new
drug candidates primarily in the antiviral area. Since its inception on July
12, 1995, the Company's operating activities have related primarily to
recruiting personnel, negotiating license and option arrangements for its
drug candidates, raising capital and developing the Company's drug
candidates. The Company has not received any revenues from the sale of
products, and does not expect any of its drug candidates to be commercially
available for at least the next several years. As of June 30, 1997, the
Company's accumulated deficit was approximately $21.0 million.
The Company's drug development programs will require substantial capital
expenditures, including expenditures for preclinical testing, chemical
synthetic scale-up, clinical trials of drug candidates and payments to the
Company's licensors. The Company has been unprofitable since its inception
and expects to incur substantial and increasing losses for at least the next
several years, due primarily to the expansion of its drug development
programs. The Company expects that losses will fluctuate from period to
period and that such fluctuations may be substantial. See "--Risks and
Uncertainties--History of Operating Losses; Accumulated Deficit; Uncertainty
of Future Profitability."
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of development must
be considered when evaluating the Company's prospects. To address these
risks, the Company must, among other things, successfully develop and
commercialize its drug candidates, secure all necessary proprietary rights,
respond to competitive developments and continue to attract, retain and
motivate qualified persons. There can be no assurance that the Company will
be successful in addressing these risks. See "--Risks and
Uncertainties--Development Stage Company; Uncertainty of Product Development."
The operating expenses of the Company will depend on several factors,
including the level of development expenses. Development expenses will depend
on the progress and results of the Company's drug development efforts, which
the Company cannot predict. Management may in some cases be able to control
the timing of development expenses in part by accelerating or decelerating
preclinical testing and clinical trial activities. As a result of these
factors, the Company believes that period to period comparisons in the future
are not necessarily meaningful and should not be relied upon as an indication
of future performance. Due to all of the foregoing factors, it is possible
that the Company's operating results will be below the expectations of market
analysts and investors. In such event, the prevailing market price of the
Common Stock would likely be materially adversely affected. See "--Risks and
Uncertainties--Volatility of Stock Price."
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The Company had total interest income of $771,326 for the three months
ended June 30, 1997, compared to $53,620 for the same period in 1996. The
increase in interest income is primarily due to an increase in investments
associated with financing activities. See "--Liquidity and Capital Resources."
10
<PAGE>
License fees totaled $500,000 for the three months ended June 30, 1997,
compared to $2,751,829 for the same period in 1996. The decrease is
primarily due to a decrease in the number of license agreements executed in
the three month period ended June 30, 1997, as compared to the same period in
1996. The $500,000 for the three month period ended June 30, 1997 relates to
the Company's execution of a license agreement with Mitsubishi Chemical
Corporation ("Mitsubishi") for the anti-HIV drug candidate, MKC-442.
Development expenses totaled $3,944,063 for the three months ended June
30, 1997, compared to $1,132,247 for the same period in 1996. Development
expenses for the three month period ended June 30, 1997 consisted primarily
of expenses for development work relating to drug synthesis, toxicology
studies, compensation expenses and preclinical testing of the Company's drug
candidates. During the same period the Company also recognized non-cash
charges of $11,112 relating to the amortization of deferred consulting
expenses. Development expenses were reduced by approximately $613,000
relating to the reimbursable development expenses by the licensor under the
agreement for one of the Company's drug candidates. Development expenses for
the three months ended June 30, 1996 consisted primarily of expenses related
to the preclinical testing of certain of the Company's drug candidates.
During the same period the Company also recognized non-cash charges of
$313,327 relating to the amortization of deferred consulting expenses. The
Company expects its development expenses to continue to increase
substantially in the future due to continued expansion of drug development
activities, including preclinical testing and clinical trials. In addition,
if the Company in-licenses or otherwise acquires rights to additional drug
candidates, development expenses would increase as a result. For example, if
the Company's acquisition of Avid Corporation is completed, the Company will
acquire rights to DMP-450, a protease inhibitor currently in phase Ib/IIa
clinical trials, and the Company's development expenses will increase
significantly.
General and administrative expenses totaled $1,944,110 for the three
months ended June 30, 1997, compared to $873,340 for the same period in 1996.
General and administrative expenses for the three months ended June 30, 1997,
consisted primarily of compensation expenses, rent expense and amounts paid
for outside professional services and included non-cash charges of $25,265
related to the amortization of deferred compensation expenses. The increase
in general and administrative expenses compared to the three months ended
June 30, 1996, is comprised primarily of increases in compensation expense,
rent expenses associated with office and laboratory facilities and increases
in professional fees due to the growth of the Company's operations. The
Company expects that its general and administrative expenses will increase in
future periods.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The Company had total interest income of $1,497,190 in the six months
ended June 30, 1997 compared to $85,158 for the same period in 1996. The
increase in interest income is primarily due to an increase in investments
associated with financing activities. See "Liquidity and Capital Resources."
License fees totaled $500,000 for the six months ended June 30, 1997 and
related to the execution of the license agreement with Mitsubishi for the
anti-HIV drug candidate, MKC-442. License fees totaled $2,751,829 during the
same period in 1996. The decrease is primarily due to a decrease in the
number of license agreements executed during the six month period ended June
30, 1997. Future license fees may also consist of milestone payments under
licensing arrangements, the amount of which could be substantial and the
timing of which will depend on a number of factors that the Company cannot
predict. These factors include, among others, the success of the Company's
drug development programs and the extent to which the Company in-licenses
additional drug candidates.
Development expenses totaled $6,693,479 for the six months ended June 30,
1997 compared to $1,342,591 for the same period in 1996. Development expenses
consisted primarily of expenses for development work relating to drug
synthesis, toxicology studies and compensation expenses. The Company also
recognized non-cash charges of $22,413 related to the amortization of
deferred consulting expenses. The increase in development expenses relate to
the advancement of the Company's drug candidates through their development
programs. Development expenses were reduced by approximately $966,000
relating to the reimbursable
11
<PAGE>
development expenses by the licensor under the agreement for one of the
Company's drug candidates. The Company expects its development expenses to
continue to increase substantially in the future due to continued expansion
of drug development activities, including preclinical testing and clinical
trials. In addition, if the Company in-licenses or otherwise acquires rights
to additional drug candidates, development expenses would increase as a
result. For example, if the Company's acquisition of Avid Corporation is
completed, the Company will acquire rights to DMP-450, a protease inhibitor
currently in phase Ib/IIa clinical trials, and the Company's development
expenses will increase significantly.
General and administrative expenses totaled $3,464,610 for the six months
ended June 30, 1997 compared to $1,490,156 for the same period in 1996.
General and administrative expenses for the six months ended June 30, 1997
consisted primarily of compensation expenses, rent expense and amounts paid
for outside professional services and included non-cash charges of $66,274
related to the amortization of deferred compensation expenses. The increase
in general and administrative expenses compared to the prior year is
comprised primarily of increases in compensation expense, rent expenses
associated with office and laboratory facilities and increases in
professional fees. The increase is due primarily to the growth of the
Company's operations. The Company expects that its general and
administrative expenses will increase in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception (July 12, 1995)
through June 30, 1997 primarily with the net proceeds received from private
placements of equity securities, which provided aggregate net proceeds of
approximately $51,700,000, and the Company's initial public offering, which
provided aggregate net proceeds to the Company totaling $42,153,664 before
deducting expenses of the offering of approximately $1,100,000.
The Company's private placements include the sale of 2,000,000 shares of
Common Stock pursuant to a Common Stock Purchase Agreement on June 6, 1997.
The total consideration received by the Company for the shares was
$30,000,000 in cash, or a price of $15.00 per share. Net proceeds to the
Company from the sale of the shares were approximately $29,400,000.
Through June 30, 1997, the Company received approximately $851,000 of an
aggregate of $1,798,000 as reimbursement of certain development expenses
under an agreement for one of its drug candidates.
At June 30, 1997, the Company's principal source of liquidity was
$50,111,941 in cash and cash equivalents and $24,335,822 in short term
investments which are "available for sale." At June 30, 1997, the Company
had utilized $529,679 of a secured equipment lease-line facility which
expired on August 9, 1997.
On June 17, 1997, the Company entered into a license agreement with
Mitsubishi Chemical Corporation ("Mitsubishi") relating to an anti-HIV drug
candidate. The agreement required an initial payment of $500,000 upon
execution, which was paid on July 15, 1997, and requires future payments
contingent upon the achievement of certain development milestones. At
Mitsubishi's option, certain of these payments may be made in the form of the
Company's capital stock. The Company is entitled to a potential reimbursement
from Mitsubishi, the total of which cannot exceed $400,000, based upon the
amount of certain development expenses incurred by the Company. Mitsubishi
has the right to terminate the license agreement if the Company does not
satisfy certain milestone obligations or does not cure any material breach of
the license agreement. The termination of the license agreement would have a
material adverse effect on the Company.
The Company expects that its capital requirements will increase
substantially in future periods as the Company's drug development programs
expand. The Company's future capital requirements will depend on many
factors, including the progress of the Company's drug development programs,
the magnitude of these programs, the scope and results of preclinical testing
and clinical trials, the cost, timing and outcome of regulatory reviews, the
costs under the license and/or option agreements relating to the Company's
drug candidates, administrative and legal expenses, the establishment of
capacity for sales and marketing functions, the establishment of
relationships with third parties for manufacturing and sales and marketing
functions, and other factors. Amounts payable by the Company in the future
under its existing license agreements are uncertain due to a number of
factors, including the
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progress of the Company's drug development programs, the Company's ability to
obtain approval to commercialize any drug candidate and the commercial
success of any approved drug. The Company's existing license agreements
require future payments of up to $28,250,000 contingent upon the achievement
of certain development milestones. Additionally, the Company will pay
royalties based on a percentage of net sales of each licensed product
incorporating these drug candidates. Most of the Company's license agreements
require minimum royalty payments after regulatory approval. Depending on the
Company's success and timing in obtaining regulatory approval, aggregate
annual minimum royalties could range from $2,000,000 (if only a single drug
candidate is approved for one indication) to $49,500,000 (if all drug
candidates are approved for all indications) under the Company's existing
license agreements.
The Company believes that its existing cash and investments will be
adequate to satisfy its anticipated capital requirements into 1998. The
Company expects that it will be required to raise substantial additional
funds through equity or debt financings, collaborative arrangements with
corporate partners or from other sources. There can be no assurance that
additional funding will be available on favorable terms from any of these
sources or at all. See "--Risks and Uncertainties--Future Capital Needs;
Uncertainty of Additional Funding."
RISKS AND UNCERTAINTIES
DEVELOPMENT STAGE COMPANY; UNCERTAINTY OF PRODUCT DEVELOPMENT
The Company was incorporated in July 1995 and accordingly has only a
limited operating history upon which an evaluation of the Company's business
and prospects can be based. In addition, the Company's drug candidates are
all in the early developmental stage and require significant, time consuming
and costly development, testing and regulatory clearances. The Company does
not expect any of its drug candidates to be commercially available for at
least the next several years. The successful development of any new drug,
including any of the Company's drug candidates, is highly uncertain and is
subject to a number of significant risks. These risks include, among others,
the possibility that any or all of the Company's drug candidates will be
found to be ineffective, toxic or otherwise fail to receive necessary
regulatory clearances; that the drug candidates will be uneconomical to
manufacture, market or will not achieve broad market acceptance; that third
parties will hold proprietary rights that will preclude the Company from
marketing the drug candidates; or that third parties will market equivalent
or superior products. The failure of the Company's drug development programs
to result in commercially viable products would have a material adverse
effect on the Company.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has incurred losses since its inception. As of June 30, 1997,
the Company's accumulated deficit was approximately $21.0 million. Losses
have resulted principally from costs incurred in the acquisition and
development of the Company's drug candidates and general and administrative
costs. These costs have exceeded the Company's revenues, which to date have
been generated primarily from interest income. The Company has not generated
any revenue to date from the sale of drugs and does not expect to do so for
at least the next several years. The Company expects to incur significant
additional operating losses over the next several years and expects losses to
increase as the Company's drug development efforts expand. The Company's
ability to achieve profitability will depend upon its ability to develop and
obtain regulatory approval for its drug candidates and to develop the
capacity (or establish relationships with third parties) to manufacture,
market and sell any drug candidates it successfully develops. There can be no
assurance that the Company will ever generate significant revenues or achieve
profitable operations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's drug development programs currently require and will in the
future require substantial capital expenditures, including expenditures for
preclinical testing, chemical synthetic scale up, clinical trials of drug
candidates and payments to the Company's licensors. The Company's future
capital requirements will depend on many factors, including the progress of
the Company's drug development programs, the magnitude of these
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programs, the scope and results of preclinical testing and clinical trials,
the cost, timing and outcome of regulatory reviews, the costs under the
license and/or option agreements relating to the Company's drug candidates,
administrative and legal expenses, the establishment of capacity for sales
and marketing functions, the establishment of relationships with third
parties for manufacturing and sales and marketing functions, and other
factors. The Company expects that its capital requirements will increase
significantly in the future.
The Company has incurred negative cash flow from operations since
inception and does not expect to generate positive cash flow to fund its
operations for at least the next several years. As a result, the Company
believes that substantial additional equity or debt financings will be
required to fund its operations. There can be no assurance that the Company
will be able to consummate any such financings at all or on favorable terms,
or that such financings will be adequate to meet the Company's capital
requirements. Any additional equity or convertible debt financings could
result in substantial dilution to the Company's stockholders. If adequate
funds are not available, the Company may be required to delay, reduce the
scope of or eliminate one or more of its drug development programs or attempt
to continue development by entering into arrangements with collaborative
partners or others that may require the Company to relinquish some or all of
its rights to certain technologies or drug candidates that the Company would
not otherwise desire to relinquish. In addition, from time to time, the
Company considers the acquisition of technologies and drug candidates that,
if completed, could increase the Company's capital requirements. The
Company's inability to fund its capital requirements would have a material
adverse effect on the Company.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
any of its drug candidates under development, the Company must demonstrate
through preclinical testing and clinical trials that each product is safe and
effective for use in each target indication. The results from preclinical
testing and early clinical trials may not be predictive of results that will
be obtained in pivotal clinical trials, and there can be no assurance that
the Company's clinical trials will demonstrate sufficient safety and
effectiveness to obtain required regulatory approvals or will result in
marketable products. A number of companies in the pharmaceutical industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. The administration of any drug candidate
developed by the Company may produce undesirable side effects in humans. The
occurrence of side effects could interrupt, delay or halt clinical trials of
such drug candidate and could ultimately prevent its approval by the United
States Food and Drug Administration ("FDA") or foreign regulatory authorities
for any and all targeted indications. The Company or the FDA may suspend or
terminate clinical trials at any time if it is believed that the trial
participants are being exposed to unacceptable health risks. There can be no
assurance that clinical trials will demonstrate that any drug candidate under
development by the Company is safe or effective.
The rate of completion of the Company's clinical trials will depend upon,
among other factors, obtaining adequate clinical supplies and the rate of
patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the
proximity of patients to clinical sites and the eligibility criteria for the
study. Delays in planned patient enrollment can result in increased costs or
delays or both, which could have a material adverse effect on the Company.
There can be no assurance that if clinical trials are successfully completed,
the Company will be able to submit a New Drug Application ("NDA") in a timely
manner or that any such application will be approved by the FDA. Any failure
of the Company to complete successfully its clinical trials and obtain
approvals of corresponding NDAs would have a material adverse effect on the
Company.
UNCERTAINTY OF PATENTS; DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY
RIGHTS
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its
drug candidates, defend patents once obtained, maintain trade secrets and
operate without infringing upon the patents and proprietary rights of others
and to obtain appropriate licenses to patents or proprietary rights held by
third parties, both in the United States and in foreign countries. The
Company has no patents in its own name and has only one patent application of
its own pending, but has obtained licenses to
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patents, patent applications and other proprietary rights from third parties
with respect to each of the Company's seven drug candidates.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for
which important legal principles are unresolved. There can be no assurance
that the Company or its licensors have or will develop or obtain the rights
to products or processes that are patentable, that patents will issue from
any of the pending applications or that claims allowed will be sufficient to
protect the technology licensed to the Company. In addition, no assurance can
be given that any patents issued to or licensed by the Company will not be
challenged, invalidated, infringed or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. The
Company's success will also depend in large part on the Company not breaching
the licenses pursuant to which the Company obtained its technology and drug
candidates.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents to technologies that cover or are similar to the
technologies licensed by the Company. The Company is aware of certain patent
applications previously filed by and patents already issued to others that
conflict with patents or patent applications licensed to the Company either
by claiming the same methods or compounds or by claiming methods or compounds
that could dominate those licensed to the Company. In addition, there can be
no assurance that the Company is aware of all patents or patent applications
that may materially affect the Company's ability to make, use or sell any
products. United States patent applications are confidential while pending in
the United States Patent and Trademark Office ("PTO"), and patent
applications filed in foreign countries are often first published six months
or more after filing. Any conflicts resulting from third party patent
applications and patents could significantly reduce the coverage of the
patents licensed to the Company and limit the ability of the Company or its
licensors to obtain meaningful patent protection. If patents are issued to
other companies that contain competitive or conflicting claims, the Company
may be required to obtain licenses to these patents or to develop or obtain
alternative technology. There can be no assurance that the Company will be
able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevented from
pursuing the development or commercialization of its drug candidates, which
would have a material adverse effect on the Company.
The Company is aware of significant risks regarding the patent rights
licensed by the Company relating to three of the seven compounds comprising
the Company's existing drug candidate portfolio. The Company may not be able
to commercialize FTC, DAPD or CS-92 for human immunodeficiency virus ("HIV")
and/or hepatitis B virus ("HBV") due to patent rights held by third parties
other than the Company's licensors. The Company is aware of numerous patent
applications and issued patents in the United States and numerous foreign
countries held by third parties other than the Company's licensors that
relate to these compounds and their use alone or with other compounds to
treat HIV and HBV. As a result, the positions of the Company and its
licensors with respect to the use of FTC, DAPD and CS-92 to treat HIV and/or
HBV are highly uncertain and involve numerous complex legal and factual
questions that are unknown or unresolved. If any of these questions is
resolved in a manner that is not favorable to the Company's licensors or the
Company, the Company would not have the right to commercialize FTC, DAPD
and/or CS-92 in the absence of a license from one or more third parties,
which may not be available on acceptable terms or at all. In addition, even
in the absence of an unfavorable resolution of any of these questions, the
Company may attempt to obtain licenses from one or more third parties in
order to reduce or eliminate the risks relating to some or all of these
matters. There can be no assurance that the Company will elect to obtain any
such licenses or that such licenses will be available on acceptable terms or
at all. The Company's inability to commercialize any of these compounds would
have a material adverse effect on the Company.
FTC
FTC belongs to the same general class of nucleosides as 3TC, which has
been approved in the United States by the FDA for use in combination with AZT
for the treatment of HIV and by similar, regulatory agencies in Europe for
use in combination with other nucleoside analogues for the treatment of HIV.
3TC is currently being sold by Glaxo Wellcome plc ("Glaxo") for the treatment
of HIV under a license agreement with BioChem Pharma Inc. ("BioChem Pharma").
The Company obtained its rights to purified forms of FTC under a license
from Emory University ("Emory"). In 1990 and 1991, Emory filed in the United
States and thereafter in numerous foreign
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countries patent applications with claims to composition of matter and
methods to treat HIV and HBV with FTC. Yale University ("Yale") filed patent
applications on FTC and its use to treat HBV in 1991 in the United States,
and subsequently licensed its rights under those patent applications to
Emory. The Company's license arrangement with Emory includes all rights under
the Yale patent applications.
HIV. Emory received a United States patent in 1993 covering a method to
treat HIV infection with FTC. BioChem Pharma filed a patent application in
the United States in 1989 and was issued a patent in 1991 covering a group of
nucleosides in the same general class as FTC, but which did not include FTC.
BioChem Pharma filed foreign patent applications in 1990 based upon its 1989
United States patent application, and in those foreign applications included
FTC among a large class of nucleosides. The foreign patent applications are
pending in a large number of countries, and have issued in a number of
countries with claims directed to FTC and its use to treat HIV. In addition,
BioChem Pharma filed a United States patent application in 1991 specifically
directed to a purified form of FTC that exhibits advantageous properties for
the treatment of HIV on which two patents have issued, one directed to the
purified form of FTC and another directed to a method for treating antiviral
diseases with the purified form of FTC. The PTO has recently declared an
interference between the latter BioChem Pharma patent and a patent
application filed by Emory. Emory has been named senior party to the
interference proceeding. There can be no assurance, however, that Emory will
prevail in the interference proceeding, or that the interference proceeding
will not delay the decision of the PTO regarding Emory's patent application.
BioChem Pharma has also filed patent applications in a large number of
foreign countries based upon its 1991 United States patent application, and
patents have issued in certain countries. BioChem Pharma may have additional
patent applications pending in the United States.
In the United States, the first to invent a subject matter is entitled to
patent protection on that invention. With respect to patent applications
filed prior to January 1, 1996, United States patent law provides that if a
party invented a technology outside the United States, then for purposes of
determining the first to invent the technology, that party is deemed to have
invented the technology on the earlier of the date it introduced the
invention in the United States or the date it filed its patent application.
In a registration statement filed with the United States Securities and
Exchange Commission, BioChem Pharma stated that since it conducts
substantially all of its research activities outside the United States, it is
at a disadvantage as to inventions made prior to January 1, 1996 with respect
to obtaining United States patents as compared to companies that maintain
research facilities in the United States. The Company does not know whether
Emory or BioChem Pharma was the first to invent the subject matter claimed in
their respective United States patent applications or patents, or whether
BioChem Pharma invented the technology disclosed in its patent applications
in the United States or introduced that technology in the United States
before the date of its patent applications. In foreign countries, the first
party to file a patent application on an invention, not the first to invent
the subject matter, is entitled to patent protection on that invention. While
the Company believes that Emory's patent applications that disclosed FTC as a
useful anti-HIV agent were filed in foreign countries before BioChem Pharma
filed its foreign patent applications on that subject matter, BioChem Pharma
has been issued patents in several foreign countries. Further, BioChem
Pharma has filed for patent protection on FTC and its uses in certain
countries in which Emory did not file for patent protection. There can be no
assurance that Emory will initiate or be successful in any foreign proceeding
attempting to revoke patents issued to BioChem Pharma or addressing the
relative rights of BioChem Pharma and Emory. BioChem Pharma has opposed
patent claims on FTC granted to Emory in Japan and Australia. Emory has
opposed patent claims on FTC granted to BioChem Pharma in Norway. There can
be no assurance that BioChem Pharma will not make additional challenges to
any Emory patents or patent applications, or that Emory will succeed in
defending any such challenges. There can be no assurance that the sale of FTC
by the Company for the treatment of HIV would not be held to infringe United
States and foreign patent rights of BioChem Pharma. Under the patent laws of
most countries, a product can be found to infringe a third party patent
either if the third party patent expressly covers the product or method of
treatment using the product, or in certain circumstances, if the third party
patent, while not expressly covering the product or method, covers subject
matter that is substantially equivalent in nature to the product or method.
If it is determined that the sale of FTC for the treatment of HIV infringes a
BioChem Pharma patent, the Company would not have the right to make, use or
sell FTC for the treatment of HIV in one or more countries in the absence of
a license from BioChem Pharma. There can be no assurance that the Company
could obtain a license from BioChem Pharma on acceptable terms or at all.
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HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent
applications in March and May 1991 in Great Britain on a method to treat HBV
with FTC. Burroughs Wellcome filed similar patent applications in other
countries, which the Company believes includes the United States. Glaxo
subsequently acquired Burroughs Wellcome's rights under those patent
applications. Those applications were filed in foreign countries prior to the
date Emory filed its patent application on the use of FTC to treat HBV, and
therefore, the foreign patent applications filed by Burroughs Wellcome have
priority over those filed by Emory. In July 1996, Emory instituted litigation
against Glaxo in the United States District Court to obtain ownership of the
patent applications filed by Burroughs Wellcome, alleging that Burroughs
Wellcome converted and misappropriated Emory's invention and property, and
that an Emory employee is the inventor or a co-inventor of the subject matter
covered by the Burroughs Wellcome patent applications. There can be no
assurance that Emory will succeed in its efforts to establish ownership
rights. If Emory fails to establish ownership rights, the Company could not
make, use or sell FTC for the treatment of HBV in countries in which patents
are issued to Glaxo without a license from Glaxo. If Emory establishes only
co-ownership rights (and not sole ownership) to these patents and patent
applications, laws in Europe, Korea and perhaps other countries could
prohibit Emory from licensing any co-owned patent rights without Glaxo's
consent. If the Company is required to obtain a license from Glaxo to sell
FTC for the treatment of HBV, there can be no assurance that the Company
would be able to obtain such a license on acceptable terms or at all.
BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat HBV with FTC. BioChem Pharma filed similar
patent applications in other countries, and in January 1996 was issued a
patent in the United States. Emory has informed the Company that Emory
intends to challenge BioChem Pharma's issued United States patent. There can
be no assurance that Emory will pursue or succeed in any such proceeding. The
Company cannot sell FTC for the treatment of HBV in the United States unless
the BioChem Pharma patent is held invalid by a United States court or
administrative body or unless the Company obtains a license from Biochem
Pharma. There can be no assurance that the Company would be able to obtain
such a license on acceptable terms or at all. In July 1991, BioChem Pharma
was issued a United States patent on the use of 3TC to treat HBV and has
corresponding applications pending or issued in foreign countries. If it is
determined that the use of FTC to treat HBV is not substantially different
from the use of 3TC to treat HBV, a court could hold that the use of FTC to
treat HBV infringes these BioChem Pharma 3TC patents.
In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes FTC. If the Company uses a manufacturing
method that is covered by patents issuing on any of these applications, the
Company would not be able to manufacture FTC without a license from BioChem
Pharma. There can be no assurance that the Company would be able to obtain
such a license on acceptable terms or at all.
DAPD
The Company obtained its rights to DAPD under a license from Emory and
University of Georgia Research Foundation, Inc. ("UGARF"). The DAPD
portfolio licensed to the Company consists of two issued United States
patents and several United States and foreign patent applications that cover
a method for the synthesis of DAPD and its use to treat HIV and HBV. Emory
and UGARF filed patent applications claiming these inventions in the United
States in 1990, 1992 and 1993, respectively. BioChem Pharma filed a patent
application in the United States in 1988 on a group of nucleosides in the
same general class as DAPD and their use to treat HIV, and has filed
corresponding patent applications in foreign countries. The PTO issued a
patent to BioChem Pharma in 1993 covering a class of nucleosides that
includes DAPD and its use to treat HIV. Corresponding patents have been
issued to BioChem Pharma in many foreign countries. Emory has filed an
opposition to BioChem Pharma's granted patent application in the European
Patent Office based, in part, upon Emory's assertion that BioChem Pharma's
patent does not disclose how to make DAPD, and Emory has informed the Company
that Emory intends to challenge BioChem Pharma's patents and patent
applications in other countries. Patent claims granted to Emory on a portion
of the DAPD technology by the Australian Patent Office have been opposed by
BioChem Pharma. There can be no assurance that a court or administrative body
would invalidate BioChem Pharma's patent claims or that a sale of DAPD by the
Company would not infringe BioChem Pharma's patents. If Emory, UGARF and the
Company do not challenge, or are not successful in any challenge to, BioChem
Pharma's
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issued patents or pending patent applications (or patents that may issue as a
result of such applications), the Company will not be able to manufacture,
use or sell DAPD in the United States and any foreign countries in which
BioChem Pharma receives a patent without a license from BioChem Pharma. There
can be no assurance that the Company would be able to obtain a license from
BioChem Pharma on acceptable terms or at all.
CS-92
The Company obtained its rights to CS-92 under a license from Emory and
UGARF. Emory and UGARF have obtained two United States patents that cover
CS-92 and its use to treat HIV, and have filed a European patent application
and a Japanese patent application with claims limited to the use of CS-92 as
a method for administering AZT, which includes the administration of CS-92 as
a precursor form of AZT, to treat HIV infection. Burroughs Wellcome filed an
application with the European Patent Office in September 1986 directed to a
broad group of nucleosides that includes CS-92, and their use to treat HIV
infection. Burroughs Wellcome subsequently filed similar applications in
other countries, and the Company believes Burroughs Wellcome filed a similar
patent application in the United States. Patents have been issued to
Burroughs Wellcome in certain countries based upon these patent applications.
Glaxo now has the rights to these patents and patent applications. There can
be no assurance that, if challenged, a court would uphold the Emory/UGARF
patents in light of the disclosures contained in the earlier filed Burroughs
Wellcome patent applications. In addition, CS-92 is metabolized to AZT in
cell lines IN VITRO, and based on that, the Company believes that it may
likewise be converted to AZT IN VIVO. A court could hold that United States
and foreign patents owned by Glaxo covering the use of AZT to treat HIV
infection would be infringed by the sale of CS-92 to treat HIV infection. If
the use of CS-92 is found to infringe the patents owned by Glaxo, then the
Company would not have the right to sell CS-92 in one or more countries
without a license from Glaxo. There can be no assurance that the Company
would be able to obtain a license from Glaxo on acceptable terms or at all.
Litigation, which could result in substantial cost to the Company, may
also be necessary to enforce any patents to which the Company has rights or
to determine the scope, validity and enforceability of other parties'
proprietary rights, which may affect the Company's drug candidates and
technology. United States patents carry a presumption of validity and
generally can be invalidated only through clear and convincing evidence. The
Company's licensors may also have to participate in interference proceedings
declared by the PTO to determine the priority of an invention, which could
result in substantial cost to the Company. As indicated above, one
interference has already been declared by the PTO in connection with the FTC
technology. There can be no assurance that the Company's licensed patents
would be held valid by a court or administrative body or that an alleged
infringer would be found to be infringing. Further, with respect to the drug
candidates licensed or optioned by the Company from Emory, UGARF and the
Regents of the University of California ("Regents"), Emory, UGARF and the
Regents are primarily responsible for any litigation, interference,
opposition or other action pertaining to patents or patent applications
related to the licensed technology and the Company is required to reimburse
them for the costs they incur in performing these activities. As a result,
the Company generally does not have the ability to institute or determine the
conduct of any such patent proceedings unless Emory, UGARF and/or the Regents
do not elect to institute or elect to abandon such proceedings. In cases
where Emory, UGARF and/or the Regents elect to institute and prosecute patent
proceedings, the Company's rights will be dependent in part upon the manner
in which Emory, UGARF and/or the Regents conduct the proceedings. Emory,
UGARF and/or the Regents could, in any of these proceedings they elect to
initiate and maintain, elect not to vigorously pursue or defend or to settle
such proceedings on terms that are not favorable to the Company. An adverse
outcome in any patent litigation or interference proceeding could subject the
Company to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company.
Moreover, the mere uncertainty resulting from the institution and
continuation of any technology related litigation or interference proceeding
could have a material adverse effect on the Company pending resolution of the
disputed matters.
The Company also relies on unpatented trade secrets and know how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can
be no assurance that these agreements will not be breached or terminated,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known or be independently
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discovered by competitors. The Company relies on certain technologies to
which it does not have exclusive rights or which may not be patentable or
proprietary and thus may be available to competitors. The Company has filed
an application for but has not obtained a trademark registration with respect
to its corporate name and its logo. Another company has filed an application
to obtain a trademark registration for the name "Triangle Coordinated Care,"
and the Company is aware that several other companies use trade names that
are similar to the Company's for their businesses. If the Company is not able
to obtain any licenses that may be necessary for the Company to use its
corporate name, it may be required to change its corporate name. The
Company's management personnel were previously employed by other
pharmaceutical companies. In many cases, these individuals are conducting
drug development activities for the Company in areas similar to those in
which they were involved prior to joining the Company. As a result, the
Company, as well as these individuals, could be subject to allegations of
violation of trade secrets and other similar claims.
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Human pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of pharmaceutical products. The process
of obtaining these approvals and the subsequent compliance with appropriate
United States and foreign statutes and regulations are time consuming and
require the expenditure of substantial resources. In addition, these
requirements and processes vary widely from country to country. The time
required for completing preclinical testing and clinical trials and obtaining
regulatory approvals is uncertain. The Company may decide to replace a drug
candidate in preclinical testing and/or clinical trials with a modified drug
candidate, thus extending the development period. In addition, the FDA or
similar foreign regulatory authorities may require additional clinical
trials, which could result in increased costs and significant development
delays. Delays or rejections may also be encountered based upon changes in
FDA policy during the period of product development and FDA review. Similar
delays or rejections may be encountered in other countries. The Company's
drug candidates may not qualify for accelerated development and/or approval
under FDA regulations and, even if some of the Company's drug candidates
qualify for accelerated development and/or approval, they may not be approved
for marketing sooner than would be historically expected or at all. There can
be no assurance that even after substantial time and expenditures, any of the
Company's drug candidates under development will receive marketing approval
in any country on a timely basis or at all. If the Company is unable to
demonstrate the safety and effectiveness of its drug candidates to the
satisfaction of the FDA or foreign regulatory authorities, the Company will
be unable to commercialize its drug candidates and would be materially and
adversely affected. Further, even if regulatory approval of a drug candidate
is obtained, the approval may entail limitations on the indicated uses for
which the drug candidate may be marketed. A marketed product, its
manufacturer and the manufacturer's facilities are subject to continual
review and periodic inspections, and subsequent discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspension of
regulatory approvals, refusal to approve pending applications, refusal to
permit exports from the United States, product recalls, seizure of products,
injunctions, operating restrictions and criminal prosecutions. Further, FDA
policy may change and additional government regulations may be established
that could prevent or delay regulatory approval of the Company's drug
candidates.
The effect of governmental regulation may be to delay the marketing of
new products for a considerable period of time or to prevent such marketing
altogether, to impose costly requirements on the Company's activities or to
provide a competitive advantage to other companies that compete with the
Company. Adverse clinical results by others could have a negative impact on
the regulatory process and timing with respect to the development and
approval of the Company's drug candidates. A delay in obtaining or failure to
obtain regulatory approvals could have a material adverse effect on the
Company. The extent and character of potentially adverse governmental
regulation that may arise from future legislation or administrative action
cannot be predicted.
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The Company is also subject to various federal, state and local laws and
regulations relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with its
development work.
INTENSE COMPETITION; RISK OF TECHNOLOGICAL CHANGE
The Company is engaged in segments of the pharmaceutical industry that
are highly competitive and rapidly changing. If successfully developed and
approved, the drug candidates that the Company is currently developing will
compete with numerous existing therapies. In addition, a number of companies
are pursuing the development of novel pharmaceuticals that target the same
diseases the Company is targeting. The Company believes that a significant
number of drugs are currently under development and will become available in
the future for the treatment of HIV. The Company anticipates that it will
face intense and increasing competition in the future as new products enter
the market and advanced technologies become available. There can be no
assurance that existing products or new products developed by the Company's
competitors will not be more effective, or more effectively marketed and
sold, than any that may be developed by the Company. Competitive products may
render the Company's licensed technology and products obsolete or
noncompetitive prior to the Company's recovery of development or
commercialization expenses incurred with respect to any such products. The
development by others of a cure or new treatment methods for the indications
for which the Company is developing drug candidates could render the
Company's drug candidates noncompetitive, obsolete or uneconomical. Many of
the Company's competitors have significantly greater financial, technical and
human resources than the Company and may be better equipped to develop,
manufacture and market products. In addition, many of these companies have
extensive experience in preclinical testing and clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. Many of these competitors also have products that
have been approved or are in late stage development and operate large, well
funded research and development programs. Smaller companies may also prove to
be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of
their inventions and are more actively seeking to commercialize the
technology they have developed.
If the Company's drug candidates are successfully developed and approved,
the Company will face competition based on the safety and effectiveness of
its products, the timing and scope of regulatory approvals, availability of
supply, marketing and sales capability, reimbursement coverage, price and
patent position. There can be no assurance that the Company's competitors
will not develop more effective or more affordable technology or products, or
achieve earlier patent protection, product development or product
commercialization than the Company. Accordingly, the Company's competitors
may succeed in commercializing products more rapidly or effectively than the
Company, which could have a material adverse effect on the Company.
RISKS RELATED TO LICENSE AND OPTION AGREEMENTS
The agreements pursuant to which the Company has in-licensed or obtained
an option to in-license its drug candidates permit the Company's licensors to
terminate the agreements under certain circumstances, such as the failure by
the Company to achieve certain development milestones or the occurrence of an
uncured material breach by the Company. The termination of any of these
agreements could have a material adverse effect on the Company. Upon
termination of the license agreements with Emory and UGARF, the Company is
required to grant to Emory and UGARF a non-exclusive, royalty free license to
all of the Company's interest in the licensed technology (including any
improvements to the technology developed by the Company). In addition, the
license and option agreements with Emory, UGARF and the Regents provide that
Emory, UGARF and the Regents are primarily responsible for any litigation,
interference, opposition or other action pertaining to the patents related to
the technology licensed to the Company, and the Company is required to
reimburse them for the costs they incur in performing these activities. The
Company believes that these costs as well as other costs under the license
and option agreements relating to the Company's drug candidates will be
substantial, and any inability or failure of the Company to pay these costs
with respect to any drug candidate could result in the termination of the
license or option agreement for such drug candidate.
20
<PAGE>
LACK OF MANUFACTURING CAPABILITIES
The Company does not have any manufacturing capacity and currently plans
to seek to establish relationships with third party manufacturers for the
manufacture of clinical trial material and the commercial production of any
products it may develop. There can be no assurance that the Company will be
able to establish relationships with third party manufacturers on
commercially acceptable terms or that third party manufacturers will be able
to manufacture products in commercial quantities under good manufacturing
practices mandated by the FDA on a cost effective basis. The Company's
dependence upon third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
commercialize products on a timely and competitive basis. Further, there can
be no assurance that manufacturing or quality control problems will not arise
in connection with the manufacture of the Company's products or that third
party manufacturers will be able to maintain the necessary governmental
licenses and approvals to continue manufacturing the Company's products. Any
failure to establish relationships with third parties for its manufacturing
requirements on commercially acceptable terms would have a material adverse
effect on the Company.
LACK OF SALES AND MARKETING CAPABILITIES
The Company currently has only one marketing employee and no sales
personnel. The Company will have to develop a sales force or rely on
marketing partners or other arrangements with third parties for the
marketing, distribution and sale of any products it develops. The Company
currently intends to market in the United States most of the drug candidates
that it successfully develops primarily through a direct sales force and
outside the United States through a combination of a direct sales force and
arrangements with third parties. There can be no assurance that the Company
will be able to establish marketing, distribution or sales capabilities or
make arrangements with third parties to perform those activities on terms
satisfactory to the Company or that any internal capabilities or third party
arrangements will be cost effective.
In addition, any third parties with which the Company establishes
marketing, distribution or sales arrangements may have significant control
over important aspects of the commercialization of the Company's products,
including market identification, marketing methods, pricing, composition of
sales force and promotional activities. There can be no assurance that the
Company will be able to control the amount and timing of resources that any
third party may devote to the Company's products or prevent any third party
from pursuing alternative technologies or products that could result in the
development of products that compete with the Company's products and the
withdrawal of support for the Company's programs.
DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT, MANUFACTURING AND
IN-LICENSING
The Company intends to engage third party contract research organizations
("CROs") to perform certain functions in connection with the development of
the Company's drug candidates and third parties to perform many aspects of
the manufacture of drug substance. The Company intends to design clinical
trials, but have CROs conduct the clinical trials. The Company will rely on
the CROs to perform many important aspects of clinical trials. As a result,
these aspects of the Company's drug development programs will be outside the
direct control of the Company. In addition, there can be no assurance that
the CROs or third parties will perform all of their obligations under
arrangements with the Company. In the event that the CROs or third parties do
not perform clinical trials or manufacture drug substance in a satisfactory
manner or breach their obligations to the Company, the commercialization of
any drug candidate may be delayed or precluded, which would have a material
adverse effect on the Company. The Company does not intend to engage in drug
discovery. The Company's strategy for obtaining additional drug candidates is
to utilize the relationships of its management team and Scientific Advisory
Board to identify compounds for in-licensing from companies, universities,
research institutions and other organizations. There can be no assurance that
the Company will succeed in in-licensing additional drug candidates on
acceptable terms or at all.
21
<PAGE>
NO ASSURANCE OF MARKET ACCEPTANCE
The Company's success will depend in substantial part on the extent to
which any product it develops achieves market acceptance. The degree of
market acceptance will depend upon a number of factors, including the receipt
and scope of regulatory approvals, the establishment and demonstration in the
medical community of the safety and effectiveness of the Company's products
and their potential advantages over existing treatment methods, and
reimbursement policies of government and third party payors. There can be no
assurance that physicians, patients, payors or the medical community in
general will accept or utilize any product that the Company may develop.
RISKS RELATING TO COMBINATION THERAPY
The Company's success will also depend in large part on the extent to
which combination therapy for the treatment of HIV in the United States and
Europe and for the treatment of HBV in developing areas of the world,
particularly Asia, achieves market acceptance. Present combination treatment
regimens for the treatment of HIV are expensive (published reports indicate
the cost per patient per year can exceed $13,000), and may increase as new
combinations are developed. These costs have resulted in a limitation of
reimbursement available from third party payors for the treatment of HIV
infection, and the Company expects that reimbursement pressures will continue
in the future. If combination therapy is accepted as a method to treat HBV,
treatment regimens are also likely to be expensive. The Company expects that
even the cost of monotherapy for HBV will be considered expensive in
developing countries. Any failure of combination therapy to achieve
significant market acceptance for the treatment of HIV or potentially HBV
could have a material adverse effect on the Company.
DEPENDENCE ON KEY EMPLOYEES
The Company is highly dependent on its senior management and scientific
staff, including Dr. David Barry, the Company's Chairman and Chief Executive
Officer. Except for Dr. Barry, the Company has not entered into employment
agreements with any of its personnel. The loss of the services of any member
of its senior management or scientific staff may significantly delay or
prevent the achievement of product development and other business objectives.
Retaining and attracting qualified personnel, consultants and advisors is
critical to the Company's success. In order to pursue its drug development
programs and marketing plans, the Company will be required to hire additional
qualified scientific and management personnel. Competition for qualified
individuals is intense and the Company faces competition from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to
attract and retain such individuals on acceptable terms or at all, and the
failure to do so would have a material adverse effect on the Company. In
addition, the Company relies on members of its Scientific Advisory Board to
assist the Company in formulating its drug development strategy. All of the
members of the Scientific Advisory Board are employed by other employers and
each such member may have commitments to or consulting or advisory contracts
with other entities that may limit his availability to the Company.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors
to contain or reduce the cost of health care through various means. A number
of legislative and regulatory proposals aimed at changing the health care
system have been proposed in recent years. In addition, an increasing
emphasis on managed care in the United States has and will continue to
increase the pressure on pharmaceutical pricing. While the Company cannot
predict whether legislative or regulatory proposals will be adopted or the
effect those proposals or managed care efforts may have on its business, the
announcement and/or adoption of such proposals or efforts could have a
material adverse effect on the Company. In the United States and elsewhere,
sales of prescription pharmaceuticals are dependent in part on the
availability of reimbursement to the consumer from third party payors, such
as government and private insurance plans that mandate predetermined
discounts from list prices. Third party payors are increasingly challenging
the prices charged for medical products and services. If the Company succeeds
in bringing one or more products to the
22
<PAGE>
market, there can be no assurance that these products will be considered cost
effective or that reimbursement to the consumer will be available or will be
sufficient to allow the Company to sell its products on a competitive basis.
ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS
The Company's business will expose it to potential product liability
risks that are inherent in the testing, manufacturing and marketing of
pharmaceutical products. There can be no assurance that product liability
claims will not be asserted against the Company. The Company currently has
only limited product liability insurance relating to potential claims arising
from its clinical trials. The Company intends to expand its insurance
coverage if and when the Company begins marketing commercial products. There
can be no assurance, however, that the Company will be able to obtain any
additional product liability insurance on commercially acceptable terms or
that the Company will be able to maintain its existing insurance and/or any
additional insurance it may obtain in the future at a reasonable cost or in
sufficient amounts to protect the Company against potential losses. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company.
HAZARDOUS MATERIALS
The Company's drug development programs involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its handling and disposing of such
materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages or fines that result and any
such liability could exceed the resources of the Company.
CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
STOCKHOLDERS
As of July 31, 1997 the Company's directors, executive officers and their
respective affiliates beneficially owned approximately 48% of the Company's
outstanding Common Stock. As a result, these stockholders are able to
exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company that may
be favored by other stockholders.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors
such as announcements of the results of clinical trials, developments with
respect to patents or proprietary rights, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
actual or anticipated variations in the Company's operating results due to a
number of factors including, among others, the level of development expenses,
changes in financial estimates by securities analysts, conditions and trends
in the pharmaceutical and other industries, adoption of new accounting
standards affecting the industry, general market conditions and other
factors. As a result, it is possible that the Company's operating results
will be below the expectations of market analysts and investors, which would
likely have a material adverse effect on the prevailing market price of the
Common Stock.
Sales of a substantial number of shares of Common Stock in the public
market could also adversely affect the market price of the Common Stock. In
addition, holders of approximately 12,600,000 shares of Common Stock
(including shares issuable upon the exercise of outstanding warrants) are
entitled to certain rights with respect to registration of such shares of
Common Stock for offer or sale to the public. Any such sales may have an
adverse effect on the Company's ability to raise needed capital through an
offering of its equity or convertible debt securities and may adversely
affect the prevailing market price of the Common Stock. Further, the
stock market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many
pharmaceutical and biotechnology companies and that often have been unrelated
or disproportionate to the operating performance of such companies. These
market fluctuations, as well as general economic, political and market
conditions such as recessions or international currency fluctuations, may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of the securities of companies in
the pharmaceutical and biotechnology industries, securities class action
litigation has often been instituted against those companies. Such
litigation, if instituted against the Company, could result in substantial
costs and a diversion of management attention and resources, which would have
a material adverse effect on the Company. The realization of any of the risks
described in these "Risks and Uncertainties" could have a dramatic and
adverse impact on the market price of the Common Stock.
23
<PAGE>
ANTITAKEOVER EFFECTS OF CHARTER, BYLAWS AND DELAWARE LAW
The Company's Second Restated Certificate of Incorporation (the
"Certificate") authorizes the Company's Board of Directors (the "Board") to
issue shares of undesignated preferred stock without stockholder approval on
such terms as the Board may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any such preferred stock that may be issued in the future.
Moreover, the issuance of preferred stock may make it more difficult for a
third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock of the Company. The Company's Restated Bylaws
(the "Bylaws") divide the Board into three classes of directors with each
class serving a three year term. These and other provisions of the
Certificate and the Bylaws, as well as certain provisions of Delaware law,
could delay or impede the removal of incumbent directors and could make more
difficult a merger, tender offer or proxy contest involving the Company, even
if such events could be beneficial to the interest of the stockholders. Such
provisions could limit the price that certain investors might be willing to
pay in the future for the Common Stock.
NO DIVIDENDS
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the
operation of its business.
24
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
c. Sales of Unregistered Securities
On June 6, 1997, the Company closed a private placement of 2,000,000
newly issued shares of Common Stock (the "Shares") pursuant to a Common Stock
Purchase Agreement dated June 6, 1997 (the "Purchase Agreement"). The
consideration received by the Company for the Shares was $30,000,000 in cash,
or a price of $15.00 per share. Net proceeds to the Company from the sale of
the Shares were approximately $29,400,000.
The Shares were offered and sold to two non-U.S. entities (together, the
"Regulation S Purchasers") and to one accredited investor (individually, the
"Regulation D Purchaser" and together with the Regulation S Purchasers, the
"Purchasers"). The Shares are restricted and may not be transferred or sold,
except as permitted by the Purchase Agreement and pursuant to a registration
of the Shares or an available exemption from registration.
The Company was introduced to the Purchasers by George McFadden, one of
the Company's directors. Mr. McFadden received a finder's fee of $500,000 in
connection with the transaction.
The offers and sales to the Regulation S Purchasers were made pursuant to
a claim of exemption under Regulation S promulgated by the Securities and
Exchange Commission (the "SEC") or, alternatively, under Section 4(2) of the
Securities Act of 1933, as amended (the "Act"). The sale of the Shares to
the Regulation S Purchasers was made in an "offshore transaction" (as defined
in Regulation S) and no "directed selling efforts" (as defined in Regulation
S) were made by the Company or any of its affiliates. Each of the Regulation
S Purchasers represented and warranted, among other things, that they were
not a "U.S. person" (as defined in Regulation S), that at the time the buy
orders for the Shares were originated they were located outside the United
States, and that neither the Regulation S Purchasers nor any of their
affiliates had engaged in any "directed selling efforts" (as defined in
Regulation S). Appropriate legends were affixed to the certificates for the
Shares. In addition, the Company did not use any general advertisement or
solicitation in connection with the offer or sale of the Shares to the
Regulation S Purchasers and each of the Regulation S Purchasers represented
and warranted that they were purchasing the shares for investment only and
not with a view to distribution.
The offer and sale to the Regulation D Purchaser was made pursuant to a
claim of exemption under Regulation D promulgated by the SEC or,
alternatively, under Section 4(2) of the Act. The Company did not use any
general advertisement or solicitation in connection with the offer or sale of
the Shares to the Regulation D Purchaser. The Regulation D Purchaser
represented and warranted, among other things, that it was purchasing the
Shares for investment only and not with a view to distribution and that it
was an "accredited investor" (as defined in Regulation D). Appropriate
legends were affixed to the certificate for the Shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The 1997 Annual Meeting of Stockholders of Triangle Pharmaceuticals,
Inc. (the "Meeting") was held on June 24, 1997. The holders of
14,039,115 of the 17,585,108 shares of the Company's Common Stock
outstanding on May 9, 1997, the record date for the Meeting
(approximately 80%), were present at the Meeting in person or by
proxy.
c. At the Meeting, the seven individuals listed below were duly
nominated and properly elected as Directors of the Company. Standish
M. Fleming and Karl Y. Hostetler were elected to serve until the
1998 annual meeting of stockholders or until their successors are
elected and have qualified. M. Nixon Ellis and Anthony B. Evnin
were elected to serve until the 1999 annual meeting of stockholders
or until their successors are elected and have qualified. David W.
Barry,
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<PAGE>
George McFadden and Peter McPartland were elected to serve
until the 2000 annual meeting of stockholders or until their
successors are elected and have qualified. The number of votes cast
for and withheld with respect to each nominee for office, as well as
broker non-votes are indicated below:
AGAINST/ BROKER
FOR WITHHELD NON-VOTES
---------- -------- ---------
David W. Barry 14,037,715 1,400 0
M. Nixon Ellis 14,037,715 1,400 0
Anthony B. Evnin 14,037,715 1,400 0
Standish M. Fleming 14,037,715 1,400 0
Karl Y. Hostetler 14,037,715 1,400 0
George McFadden 14,037,715 1,400 0
Peter McPartland 14,037,715 1,400 0
At the Meeting, a proposal to ratify the appointment of Price
Waterhouse LLP as the Company's independent auditors for fiscal 1997
was approved. The number of votes cast for, against and to abstain
on the proposal, as well as broker non-votes, are indicated below:
BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
---------- ------- ----------- ---------
14,037,967 348 800 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
*2.1 Agreement and Plan of Reorganization among the Company,
Project Z Corporation and Avid Corporation dated
June 30, 1997.
10.1 Common Stock Purchase Agreement among the Company and the
investors listed on Exhibit A thereto dated June 6, 1997.
10.2 First Amendment to Restated Investors' Rights Agreement
among the Company and certain stockholders' of the Company
dated June 6, 1997.
*10.3 License Agreement between the Company and Mitsubishi
Chemical Corporation dated June 17, 1997.
11.1 Computation of Net Loss Per Share and Pro Forma Net Loss
Per Share
- ---------------------
* Certain confidential portions of this Exhibit were omitted by
means of marking such, portions with an asterisk (the "Mark").
This Exhibit has been filed separately with the Secretary of
the Securities and Exchange Commission without the Mark
pursuant to the Company's Application Requesting Confidential
Treatment under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended.
26
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27.1 Financial Data Schedule
b. Reports on Form 8-K.
On June 18, 1997 the Company filed a Current Report on Form 8-K
dated June 6, 1997 describing its sale of 2,000,000 shares of
Common Stock under a private placement pursuant to the exemptions
from registration provided by Regulation S and Regulation D.
27
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRIANGLE PHARMACEUTICALS, INC.
Date: August 13, 1997 By: /s/ DAVID W. BARRY
-------------------------------
David W. Barry
Chairman and Chief Executive Officer
TRIANGLE PHARMACEUTICALS, INC.
Date: August 13, 1997 By: /s/ JAMES A. KLEIN, JR.
-------------------------------
James A. Klein, Jr.
Chief Financial Officer and Treasurer
28
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TRIANGLE PHARMACEUTICALS, INC.
PROJECT Z CORPORATION
AND
AVID CORPORATION
DATED AS OF JUNE 30, 1997
*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2 under
the 1934 Act.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation; Bylaws. . . . . . . . . . . . . . 2
1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . 2
1.6 Consideration to Be Issued. . . . . . . . . . . . . . . . . . . 3
1.7 Distribution of Merger Consideration. . . . . . . . . . . . . . 5
1.8 Effect on Company Capital Stock . . . . . . . . . . . . . . . . 9
1.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . 12
1.10 Surrender of Certificates . . . . . . . . . . . . . . . . . . . 13
1.11 No Further Ownership Rights in Company Common Stock . . . . . . 15
1.12 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . 15
1.13 Tax and Accounting Consequences . . . . . . . . . . . . . . . . 15
1.14 Taking of Necessary Action; Further Action. . . . . . . . . . . 15
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 16
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . 16
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . 16
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Company Financial Statements. . . . . . . . . . . . . . . . . . 18
2.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 19
2.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . 21
2.9 Restrictions on Business Activities . . . . . . . . . . . . . . 22
2.10 Title to Properties; Absence of Liens and Encumbrances. . . . . 23
2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 23
2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . 26
2.13 Interested Party Transactions . . . . . . . . . . . . . . . . . 28
2.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 28
2.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.17 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.18 Relationships With Suppliers and Licensors. . . . . . . . . . . 29
2.19 Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.20 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . 29
2.21 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . 30
2.22 Permits and Licenses; No Debarment. . . . . . . . . . . . . . . 31
2.23 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . 31
2.24 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
i
<PAGE>
2.25 Distribution of Merger Consideration. . . . . . . . . . . . . . 35
2.26 Representation Complete . . . . . . . . . . . . . . . . . . . . 36
2.27 Quality Biotech, Inc. . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . 36
3.1 Organization, Standing and Power. . . . . . . . . . . . . . . . 36
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 37
3.4 SEC Documents; Parent Financial Statements. . . . . . . . . . . 37
3.5 No Material Adverse Change. . . . . . . . . . . . . . . . . . . 38
3.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . 38
4.1 Conduct of Business of the Company. . . . . . . . . . . . . . . 38
4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 43
5.1 Sale and Registration of Shares; Stockholder Matters. . . . . . 43
5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . 45
5.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 45
5.4 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 45
5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.6 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . 46
5.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.8 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . 46
5.9 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . 46
5.10 Notification of Certain Matters . . . . . . . . . . . . . . . . 47
5.11 Certain Benefit Plans . . . . . . . . . . . . . . . . . . . . . 47
5.12 Voting Agreement. . . . . . . . . . . . . . . . . . . . . . . . 47
5.13 Additional Documents and Further Assurances . . . . . . . . . . 47
5.14 Nomination for Election to Parent Board of Directors. . . . . . 47
5.15 Nasdaq National Market Listing. . . . . . . . . . . . . . . . . 47
5.16 Company Auditors. . . . . . . . . . . . . . . . . . . . . . . . 47
5.17 Option to Obtain Rights to Lead Compound. . . . . . . . . . . . 48
5.18 Repayment of Lead Compound Debt . . . . . . . . . . . . . . . . 50
5.19 Bridge Debt, Severance Payments and Unpaid Company Liabilities. 51
ARTICLE VI CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . 52
6.1 Conditions to Obligations of Each Party to Effect the Merger. . 52
6.2 Additional Conditions to Obligations of the Company . . . . . . 52
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ii
<PAGE>
ARTICLE VII ESCROW
7.1 Escrow Period . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.2 Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . 64
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 65
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 66
9.1 Survival of Representations, Warranties and Agreements. . . . . 66
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.3 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 67
9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.5 Entire Agreement: Assignment. . . . . . . . . . . . . . . . . . 68
9.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.7 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 68
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . 69
9.10 Specific Performance. . . . . . . . . . . . . . . . . . . . . . 69
9.11 Corporate Transaction involving Parent. . . . . . . . . . . . . 69
iii
<PAGE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit 2.11(o) Form of Company Proprietary
Information/Confidentiality Agreement
Exhibit 5.1(b) Form of Stockholder Questionnaire
Exhibit 5.1(d) Form of Declaration of Registration Rights
Exhibit 5.12 Form of Company Stockholder Voting Agreement
Exhibit 5.17 Form of Technology Transfer Agreement
Exhibit 6.2(d) Form of Legal Opinion of Counsel to Parent
Exhibit 6.3(d) Form of Legal Opinion of Counsel to the Company
Exhibit 6.3(h) Form of Consulting and Non-Competition Agreement
iv
<PAGE>
INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
- -------- -----------
2.2(a) Stockholder List
2.2(b) Option and Warrant List
2.3 Subsidiaries
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(b) Registered Intellectual Property
2.11(c) Intellectual Property Proceedings
2.11(e) Title to Intellectual Property
2.11(h) Transfer of Intellectual Property
2.11(i) Intellectual Property Agreements
2.11(j) Limits on Post-Closing Use of Intellectual Property
2.11(k) Intellectual Property Indemnification
2.11(n) Infringement; Claims Against Intellectual Property
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.19 Trade Secrets
2.21 Brokers/Finders Fees; Expenses of Transaction
2.22 Permits and Licenses
2.23(b) Employee Benefit Plans and Employee Agreements
2.23(d) Employee Plan Compliance
2.23(g) Post Employment Obligations
2.23(h)(i) Effect of Transaction
2.23(h)(ii) Excess Parachute Payments
2.23(j) Labor
4.1 Lead Compound Expenses
4.1(n) Severance Agreements and Payments
5.12 Stockholders Signing Voting Agreements
6.2(c) Third Party Consents Required of Parent
6.3(c) Third Party Consents Required of the Company
6.3(h) Employees Signing Consulting and Non-Competition
Agreements
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of June 30, 1997 among Triangle Pharmaceuticals, Inc., a
Delaware corporation ("Parent"), Project Z Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and Avid Corporation, a
Pennsylvania corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") shall be converted into
the right to receive shares of voting Common Stock of Parent ("Parent Common
Stock").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the Pennsylvania Business Corporation Law ("Pennsylvania Law"), Merger Sub
shall be merged with and into the Company, the separate corporate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent.
<PAGE>
The Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite 1200, San Diego,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of the State of Delaware and the
Secretary of State of the Commonwealth of Pennsylvania (the "Merger Agreement"),
in accordance with the relevant provisions of applicable law (the time of
confirmation by the Secretary of State of the Commonwealth of Pennsylvania of
such filing, or such later time as may be set forth in this Agreement, being
referred to herein as the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law and
Pennsylvania Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Avid Corporation."
(b) Unless otherwise determined by Parent, the Bylaws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
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<PAGE>
1.6 CONSIDERATION TO BE ISSUED. The consideration to be issued by Parent
in the Merger (the "Merger Consideration") shall be the Cash Consideration (as
defined in Section 1.6(a) below) plus the Stock Consideration (as defined in
Section 1.6(b) below).
(a) CASH CONSIDERATION. The "Cash Consideration" shall be $1,250,000
less the amount of (i) the Severance Payments (as defined in Section 4.1(n)
below), (ii) the Bridge Debt (as defined in Section 4.1(m) below) and (iii) the
Unpaid Company Liabilities (as defined in Section 5.19 below). The portion of
the Cash Consideration, if any, remaining after deduction of all of the Third
Party Expenses (as defined in Section 5.5 below) of the Company (the "Cash
Distribution") and after Parent withholds the Assumed Option Amount (as defined
in Section 1.8(c) below) and the Assumed Warrant Amount (as defined in Section
1.8(d) below), shall be paid to the Exchange Agent (as defined in Section
1.10(a) below) within ten (10) business days after the Closing for distribution
pursuant to Section 1.10 below.
(b) STOCK CONSIDERATION. The "Stock Consideration" shall be the
number of shares of Parent Common Stock equal to the sum of (x) the First
Payment (as defined in Section 1.6(b)(i) below) plus (y) the Milestone Payments
(as defined in Section 1.6(b)(ii) below).
(i) FIRST PAYMENT. The "First Payment" shall be 400,000 shares
of Parent Common Stock which Parent shall deliver into an escrow account within
ten (10) business days after the Closing as set forth in Section 1.10(b) below.
(ii) MILESTONE PAYMENTS. The "Milestone Payments" are the number
of shares of Parent Common Stock, if any, that Parent is required to deliver to
the Exchange Agent pursuant to this Section 1.6(b)(ii).
(A) In the event that Parent, in its sole discretion, (x)
Initiates (as defined in Section 1.6(b)(iii) below) a Definitive Clinical Trial
(as defined in Section 1.6(b)(iii) below) with the Lead Compound (as defined in
Section 1.6(b)(iii) below), or (y) notifies the Securityholder Agent (as defined
in Section 7.2(g) below) in a writing that specifically references this Section
1.6(b)(ii)(A) of its election to continue the development of the Lead Compound
even if Parent has not Initiated a Definitive Clinical Trial with the Lead
Compound, Parent shall within seventy-five (75) days thereafter make available
to the Exchange Agent (as defined in Section 1.10(a) below) for distribution
pursuant to Section 1.10, 1,600,000 shares of Parent Common Stock.
(B) If neither of the conditions described in Section
1.6(b)(ii)(A) above is satisfied on or prior to eighteen (18) months after the
Closing Date and the Securityholder Agent elects not to exercise the Lead
Compound Option (as defined in Section 5.17 below) within the thirty (30) day
period set forth in Section 5.17 below, Parent shall within seventy-five (75)
days thereafter make available to the Exchange Agent for distribution pursuant
to Section 1.10, 100,000 shares of Parent Common Stock.
-3-
<PAGE>
(C) If one of the conditions described in Section
1.6(b)(ii)(A) above is satisfied and thereafter a New Drug Application
("NDA") is approved by the United States Food and Drug Administration ("FDA")
for the Lead Compound with a *** of the Freebase Form (as defined in Section
1.6(b)(iii) below), Parent shall within ten (10) business days thereafter
make available to the Exchange Agent for distribution pursuant to Section
1.10, 250,000 shares of Parent Common Stock.
(D) If one of the conditions described in Section
1.6(b)(ii)(A) above is satisfied and thereafter an NDA is approved by the FDA
for the Lead Compound *** (as defined in Section 1.6(b)(iii) below), Parent
shall within ten (10) business days thereafter make available to the Exchange
Agent for distribution pursuant to Section 1.10, 250,000 shares of Parent
Common Stock.
(E) If neither of the conditions described in Section
1.6(b)(ii)(A) above is satisfied and thereafter an NDA is approved by the FDA
for the Lead Hepatitis Compound (as defined in Section 1.6(b)(iii) below),
Parent shall within ten (10) business days thereafter make available to the
Exchange Agent for distribution pursuant to Section 1.10, 250,000 shares of
Parent Common Stock.
(iii) DEFINITIONS.
(A) "Definitive Clinical Trial" is a pivotal, well-controlled
Phase II clinical trial (x) to evaluate the effectiveness of the Lead Compound
in patients who are HIV positive and (y) to determine the side effects and risks
of treatment associated with the Lead Compound, which is intended by Parent to
be the pivotal clinical trial for approval by the FDA of an NDA for the Lead
Compound.
(B) "Freebase Form" is the chemical form of the Licensed
Compound ***.
(C) "Initiate" is the point during a clinical trial when drug
substance is administered to the first patient.
(D) "Lead Compound" is the compound denominated DMP-450
currently under development by the Company.
(E) ***
***
***
***
***
(F) "Lead Hepatitis Compound" is the compound denominated
AT-130 currently under development by the Company and any derivative or analog
-4-
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
thereof belonging to the same chemical class or similar enough in chemical
composition to be covered by the same composition of matter patent claim.
1.7 DISTRIBUTION OF MERGER CONSIDERATION. The Merger Consideration, when
distributed by the Exchange Agent pursuant to Section 1.10, shall be distributed
as follows:
(a) DISTRIBUTION OF CASH DISTRIBUTION. The Cash Distribution (other
than the portion of the Cash Distribution withheld by Parent for the Assumed
Option Amount and the Assumed Warrant Amount) shall be distributed ratably among
the holders of the Company Common Stock in proportion to the number of shares of
Company Common Stock held by each holder. The portion of the Cash Distribution
withheld by Parent for the Assumed Option Amount and the Assumed Warrant Amount
shall be delivered by Parent to the Exchange Agent at the same time that Parent
delivers shares of Parent Common Stock, if any, issued pursuant to Section
1.6(b)(ii)(A) or (B), and such portion of the Cash Distribution shall be
distributed, after the expiration of the Assumed Options and the Assumed
Warrants, among the holders of Assumed Options and Assumed Warrants who timely
and properly exercise their Assumed Options and Assumed Warrants so that such
holders receive the portion of the Cash Distribution that they would have
received had they exercised their Assumed Options and Assumed Warrants
immediately prior to the Effective Time. Any portion of the Cash Distribution
withheld by Parent for the Assumed Option Amount and the Assumed Warrant Amount
not required to be distributed pursuant to the preceding sentence shall be added
to and be distributed as part of the Designated Assets (as defined in Section
1.7(b) below). Notwithstanding anything to the contrary in this Agreement, in
no event shall any holder receiving a portion of the Cash Distribution
distributed pursuant to this Section 1.7(a) be required to pay any portion of
such Cash Distribution to any other holder of Company Common Stock or Company
Preferred Stock on account of the distribution arrangements described in Section
1.7(b) below.
(b) DISTRIBUTION OF DESIGNATED ASSETS.
(i) DESIGNATED ASSETS. The distribution arrangement described
in this Section 1.7(b) shall apply to the following (collectively, the
"Designated Assets"): (A) the Stock Consideration; (B) the cash, if any,
actually received by Parent on account of the exercise of Assumed Options and
Assumed Warrants; and (C) any portion of the Cash Distribution withheld by
Parent for the Assumed Option Amount and the Assumed Warrant Amount not required
to be distributed pursuant to Section 1.7(a) above.
(ii) DISTRIBUTION PROCEDURES. The Designated Assets shall be
distributed as follows:
(A) First, if the amount of the Cash Distribution is less than
$1,000,000, a portion of the First Payment shall be distributed ratably among
the holders of the Company Common Stock. The portion of the First Payment to be
distributed to the holders of Company Common Stock shall be a number of shares
with a dollar value
-5-
<PAGE>
equal to $1,000,000 minus the amount of the Cash Distribution, with the First
Payment shares to be valued pursuant to Section 1.7(e).
(B) Second, the remaining Designated Assets shall be
distributed ratably among the holders of the Company Series A Preferred Stock,
the Company Series B Preferred Stock and the Company Series C Preferred Stock
(collectively, "Company Preferred Stock"), until each such holder has
respectively received the full Series A Preference Amount, Series B Preference
Amount and Series C Preference Amount (each as defined in Section 1.7(f) below)
for all shares of Company Preferred Stock held by such holder. In the event
that the value of the Designated Assets available for distribution under this
Section 1.7(b)(ii)(B) is less than the amount that is required to satisfy in
full all of the Preference Amounts (as defined in Section 1.7(f) below), the
amount of the Designated Assets available for distribution under this Section
1.7(b)(ii)(B) shall be distributed ratably among the holders of the Company
Preferred Stock in proportion to the Preference Amount each holder would
otherwise be entitled to receive. All Stock Consideration distributed pursuant
to this Section 1.7(b)(ii)(B) shall be valued pursuant to Section 1.7(e).
(C) Third, any remaining Designated Assets shall be
distributed ratably among the holders of the Company Common Stock and the
Company Series C Preferred Stock in proportion to the number of shares of
Company Common Stock held by each holder (taking into account, for purposes of
calculating the amount deemed received by holders of Company Common Stock under
this Section 1.7(b)(ii)(C), the portion of the Cash Distribution, if any,
received at any time by the holders of the Company Common Stock as well as the
amount distributed to holders of the Company Common Stock pursuant to Section
1.7(b)(ii)(A)). The parties intend that the Designated Assets shall be
distributed under this Section 1.7(b)(ii)(C) so that each holder of Company
Common Stock and each holder of Company Series C Preferred Stock receives an
amount equal to the holder's pro rata portion (in proportion to the number of
shares of Company Common Stock held or deemed held by each holder) of the sum of
the Designated Assets distributed under this Section 1.7(b)(ii)(C) plus the
portion of the Cash Distribution received at any time by the holders of Company
Common Stock. For purposes of this Section 1.7(b)(ii)(C), each holder of the
Company Series C Preferred Stock will be deemed to hold the number of shares of
Company Common Stock that would have been issued to the holder had the holder
converted all of his or her Company Series C Preferred Stock into Company Common
Stock on the Revaluation Date (as defined in Section 1.7(b)(iii) below).
(iii) REVALUATION OF DESIGNATED ASSETS. Notwithstanding any
prior distribution of the Designated Assets, as of the date on which all
unexercised Assumed Options and Assumed Warrants expire (the "Revaluation Date")
and prior to release to any Former Company Stockholders (as defined in Section
5.17 below) of any portion of the Escrow Fund (as defined in Section 7.2(a)
below), the Designated Assets shall be redistributed among the Former Company
Stockholders in accordance with Section 1.7(b)(ii) based on the valuation of
such Designated Assets as of the Revaluation Date. Solely for purposes of the
redistribution of the Designated Assets as of the Revaluation
-6-
<PAGE>
Date contemplated by this Section 1.7(b)(iii), the shares of Parent Common Stock
included in such Designated Assets shall be valued at the average of the closing
prices of Parent Common Stock on the Nasdaq National Market for the five (5)
consecutive trading days ending five (5) trading days prior to the Revaluation
Date. No revaluation or redistribution of any of the Designated Assets shall
occur with respect to the Stock Consideration, if any, distributed by Parent
after the Revaluation Date. In no event, however, shall the aggregate value of
the Merger Consideration distributed to the holders of Company Preferred Stock
be less than the aggregate value of the Merger Consideration distributed to the
holders of the Company Common Stock and the holders of Assumed Options and
Assumed Warrants.
(c) TAX ALLOCATION OF MERGER CONSIDERATION. Solely in connection
with tax matters, the Merger Consideration will be allocated among the holders
of Company Common Stock and Company Preferred Stock consistent with the
distribution arrangements described in Section 1.7(a) and (b) above (making the
assumption that none of the First Payment is paid to Parent pursuant to Article
VII).
(d) CERTIFICATES OF SECURITYHOLDER AGENT; RELEASE.
(i) CERTIFICATES. Not later than fifteen (15) days prior to
the date that any of the Merger Consideration is to be delivered by Parent to
the Exchange Agent pursuant to Section 1.10(b) for distribution to the Former
Company Stockholders, the Securityholder Agent shall deliver to Parent a
certificate (each, an "Agent Certificate") identifying each of the Former
Company Stockholders and the portion of such Merger Consideration, if any, that
each such Former Company Stockholder is entitled to receive pursuant to Section
1.7(a) and (b) above. Parent shall be entitled to rely without investigation on
the information set forth in each Agent Certificate in delivering the Merger
Consideration to the Exchange Agent for distribution pursuant to Section
1.10(b). Notwithstanding anything to the contrary in this Agreement, Parent
shall not be obligated to deliver any portion of the Merger Consideration to the
Exchange Agent unless and until the Securityholder Agent shall have delivered an
Agent Certificate to Parent with respect to such portion of the Merger
Consideration as required by this Section 1.7(d)(i).
(ii) RELEASE. The Company, for itself, each of its
Subsidiaries, all Former Company Stockholders and each of their respective
officers, directors, stockholders, partners, agents, administrators,
representatives, affiliates, predecessors in interest, successors and assigns,
hereby unconditionally and forever releases and discharges Parent, each of its
subsidiaries (including the Surviving Corporation), and each of their respective
officers, directors, stockholders, partners, agents, administrators,
representatives, affiliates, predecessors in interest, successors and assigns
(the "Released Parties") of and from any and all claims, causes of action,
liabilities, obligations, costs and expenses of every kind and nature
whatsoever, at law or in equity, whether contractual, common law, statutory,
federal, state or otherwise, known or unknown, suspected or unsuspected, direct
or derivative, which now exists or may exist at any time in the future based
upon or relating in any manner to the distribution of the Merger
-7-
<PAGE>
Consideration pursuant to Section 1.7 or any dispute with respect to the
interpretation of the manner in which the Merger Consideration is to be
distributed pursuant to Section 1.7. This release shall not apply to Parent's
obligation to deliver the Merger Consideration to the Exchange Agent pursuant to
Section 1.10(b) in accordance with the information contained in the Agent
Certificates.
(e) VALUATION OF STOCK CONSIDERATION; SHARE NUMBERS. For purposes of
determining the value of the shares of Parent Common Stock distributed pursuant
to Section 1.7(b) (other than Section 1.7(b)(iii)), Parent Common Stock
distributed by the Exchange Agent shall be valued at the average of the closing
prices of Parent Common Stock on the Nasdaq National Market for the five (5)
consecutive trading days ending five (5) trading days prior to the date the
Parent Common Stock is delivered by Parent to the Exchange Agent. All
references to numbers of shares of Parent Common Stock in this Agreement shall
be automatically adjusted to reflect any stock splits, stock dividends, stock
combinations, reverse splits or similar changes in Parent Common Stock between
the date of this Agreement and the dates shares of Parent Common Stock are
issued pursuant to the Merger.
(f) DEFINITIONS OF PREFERENCE AMOUNTS.
(i) SERIES A PREFERENCE AMOUNT. The "Series A Preference
Amount" shall mean an amount per share for each share of the Company's Series A
Preferred Stock outstanding immediately prior to the Effective Time equal to the
greater of (A) the sum of $0.75 plus (1) all accrued and unpaid dividends on
such share, whether or not earned or declared, immediately prior to the
Effective Time, and (2) an amount equal to the amount of dividends that would
have accrued on such share from the Effective Time through the Revaluation Date
if the Merger had not occurred and such share had remained outstanding through
the Revaluation Date, and (B) the amount that would have been payable to the
holder of such share had such share and all other shares of the Company's Series
A Preferred Stock and Series B Preferred Stock been converted into Company
Common Stock on the Revaluation Date. The Company's estimate of the Series A
Preference Amount as of the Effective Time pursuant to subclause (A) above is
set forth on Schedule 2.2(a).
(ii) SERIES B PREFERENCE AMOUNT. The "Series B Preference
Amount" shall mean an amount per share for each share of the Company's Series B
Preferred Stock outstanding immediately prior to the Effective Time equal to the
greater of (A) the sum of $1.50 plus (1) all accrued and unpaid dividends on
such share, whether or not earned or declared, immediately prior to the
Effective Time, and (2) an amount equal to the amount of dividends that would
have accrued on such share from the Effective Time through the Revaluation Date
if the Merger had not occurred and such share had remained outstanding through
the Revaluation Date, and (B) the amount that would have been payable to the
holder of such share had such share and all other shares of the Company's Series
A Preferred Stock and Series B Preferred Stock been converted into Company
Common Stock on the Revaluation Date. The Company's estimate of the
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Series B Preference Amount as of the Effective Time pursuant to subclause (A)
above is set forth on Schedule 2.2(a).
(iii) SERIES C PREFERENCE AMOUNT. The "Series C Preference
Amount" shall mean an amount per share for each share of the Company's Series C
Preferred Stock outstanding immediately prior to the Effective Time equal to the
sum of $1.75 plus (A) all accrued and unpaid dividends on such share, whether or
not earned or declared, immediately prior to the Effective Time, and (B) an
amount equal to the amount of dividends that would have accrued on such share
from the Effective Time through the Revaluation Date if the Merger had not
occurred and such share had remained outstanding through the Revaluation Date.
The Company's estimate of the Series C Preference Amount as of the Effective
Time is set forth on Schedule 2.2(a).
(iv) PREFERENCE AMOUNTS. The "Preference Amounts" shall mean
collectively the Series A Preference Amount, the Series B Preference Amount and
the Series C Preference Amount.
(g) TREATMENT OF HOLDERS OF ASSUMED OPTIONS AND ASSUMED WARRANTS.
For purposes of all distributions to the holders of the Company Common Stock
pursuant to this Section 1.7, the holder of each Assumed Option and the holder
of each Assumed Warrant that is timely and properly exercised after the Closing
shall be treated as, and shall be entitled to receive the portion of the Merger
Consideration that such holder would have received had such portion of the
Assumed Option or Assumed Warrant been exercised immediately prior to the
Effective Time and the holder been, the holder of the number of shares of the
Company Common Stock that would have been issued immediately prior to the
Effective Time upon exercise of the portion of the Assumed Option or Assumed
Warrant that is timely and properly exercised by such holder. For example, the
holder of an Assumed Option that represented the right to purchase 100 shares of
the Company Common Stock immediately prior to the Closing shall, in the event
the Assumed Option is timely and properly exercised after the Closing, be
treated as, and shall be entitled to receive the portion of the Merger
Consideration that such holder would have received had such holder been, the
holder of 100 shares of the Company Common Stock immediately prior to the
Closing.
1.8 EFFECT ON COMPANY CAPITAL STOCK.
(a) CONVERSION OF COMPANY CAPITAL STOCK. Each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Capital Stock to be canceled pursuant to
Section 1.8(b) and any Dissenting Shares (as defined and to the extent provided
in Section 1.9(a)) shall be canceled and extinguished and be converted
automatically into the right to receive that portion of the Merger Consideration
set forth in Section 1.7, upon surrender of the certificate representing such
share of Company Capital Stock in the manner provided in Section 1.10.
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(b) CANCELLATION OF COMPANY-OWNED STOCK. Each share of Company
Capital Stock owned by the Company or any direct or indirect wholly-owned
subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) STOCK OPTIONS.
(i) OPTIONS ASSUMED. At the Effective Time, each option to
purchase Company Common Stock listed on Schedule 2.2(b) issued under the
Company's 1992 Incentive Stock Option and Non-Qualified Stock Option Plan, the
Company's 1993 Incentive Stock Option and Non-Qualified Stock Option Plan and/or
the Company's 1995 Incentive Stock Option and Non-Qualified Stock Option Plan,
each as amended through the date hereof (the "Option Plans"), or otherwise,
whose holder executes the amendment required by Section 6.3(m) below prior to
the Effective Time (each an "Assumed Option"), shall be assumed by Parent in
accordance with the provisions described below.
(A) At the Effective Time, each Assumed Option shall be, in
connection with the Merger, assumed by Parent. Each Assumed Option so assumed
by Parent under this Agreement shall be amended prior to the Effective Time to
provide that from and after the Effective Time such Assumed Option (1) may be
exercised through a cashless exercise procedure (to the extent that the Assumed
Option does not already permit the holder thereof to do so) and may be exercised
notwithstanding the failure of the holder thereof to enter or remain in the
employ of Parent or the Company following the Merger, (2) may not be exercised
at any time prior to the earlier of (a) eighteen (18) months after the Closing
Date and (b) the date, if any, of the written notice from the Securityholder
Agent addressed to the last known domicile address of the holder of such Assumed
Option informing such holder that one of the conditions described in Section
1.6(b)(ii)(A) above has been satisfied (the earlier of such dates being the
"Option Exercise Date"), (3) may not be exercised at any time after 5:00 p.m.
eastern standard time on the date that is forty-five (45) days after the Option
Exercise Date, and (4) represents only the right to receive upon exercise the
portion of the Merger Consideration issuable to such holder pursuant to Section
1.7 above. Except as so amended, each Assumed Option shall continue to have,
and be subject to, the same terms and conditions set forth in the Option Plan
under which it was issued and/or as provided in the respective option agreements
governing such Assumed Option immediately prior to the Effective Time. Parent
shall reserve from the Cash Distribution the amount, if any, that the holders of
the Assumed Options would have received had all of the Assumed Options and all
of the Assumed Warrants been exercised in full immediately prior to the
Effective Time (assuming that the exercise price was paid in cash). The portion
of the Cash Distribution reserved by Parent for issuance upon exercise of the
Assumed Options is referred to as the "Assumed Option Amount."
(B) Within ten (10) business days after the Closing Date,
Parent will issue to each holder of an Assumed Option a document evidencing the
foregoing assumption of such Assumed Option.
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(ii) OPTIONS NOT ASSUMED. Prior to the Effective Time, the
Company and its Board of Directors shall take all actions necessary to
accelerate and terminate each option to purchase Company Common Stock listed on
Schedule 2.2(b), whether issued under one of the Option Plans or otherwise,
whose holder does not execute the amendment required by Section 6.3(m) below
prior to the Effective Time (the "Terminated Options").
(d) WARRANTS.
(i) WARRANTS ASSUMED. At the Effective Time, each warrant to
purchase Company Common Stock outstanding immediately prior to the Effective
Time whose holder executes the amendment required by Section 6.3(m) below prior
to the Effective Time (each, an "Assumed Warrant") shall be assumed by Parent in
accordance with the provisions described below.
(A) At the Effective Time, each Assumed Warrant shall be, in
connection with the Merger, assumed by Parent. Each Assumed Warrant so assumed
by Parent under this Agreement shall be amended prior to the Effective Time to
provide that from and after the Effective Time such Warrant (1) may be exercised
through a cashless exercise procedure (to the extent that the Assumed Warrant
does not already permit the holder thereof to do so), (2) may not be exercised
at any time prior to the earlier of (a) eighteen (18) months after the Closing
Date and (b) the date, if any, of the written notice from the Securityholder
Agent addressed to the last known domicile address of the holder of such Assumed
Warrant informing such holder that one of the conditions described in Section
1.6(b)(ii)(A) above has been satisfied (the earlier of such dates being the
"Warrant Exercise Date"), (3) may not be exercised at any time after 5:00 p.m.
eastern standard time on the date that is forty-five (45) days after the Warrant
Exercise Date, and (4) represents only the right to receive upon exercise the
portion of the Merger Consideration issuable to such holder pursuant to Section
1.7 above. Except as so amended (and as the warrants issued by the Company to
Dominion Ventures, Inc. may be further amended as contemplated by Section 6.3(s)
below prior to the Effective Time), each Assumed Warrant shall continue to have,
and be subject to, the same terms and conditions as provided in the respective
Assumed Warrant agreement immediately prior to the Effective Time. Parent shall
reserve from the Cash Distribution the amount, if any, that the holders of the
Assumed Warrants would have received had all of the Assumed Warrants and all of
the Assumed Options been exercised in full immediately prior to the Effective
Time (assuming that the exercise price was paid in cash). The portion of the
Cash Distribution reserved by Parent for issuance upon exercise of the Assumed
Warrants is referred to as the "Assumed Warrant Amount."
(B) Within ten (10) business days after the Closing Date,
Parent will issue to each holder of an Assumed Warrant a document evidencing the
foregoing assumption of such Assumed Warrant.
(ii) WARRANTS NOT ASSUMED. Prior to the Effective Time, the
Company and its Board of Directors shall use their best efforts to cause each
holder of a
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warrant to purchase Company Capital Stock outstanding at any time prior to the
Effective Time to execute the amendment required by Section 6.3(m) below or to
exercise the warrant in full prior to the Effective Time.
(e) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares of Common
Stock of the Merger Sub shall, as of the Effective Time, evidence ownership of
such shares of Common Stock of the Surviving Corporation.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company Capital
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive, without any interest,
from Parent an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average of the closing
prices of Parent Common Stock on the Nasdaq National Market for the five (5)
consecutive trading days ending five (5) trading days prior to the date the
Parent Common Stock from which the holder would, but for this Section 1.8(f),
otherwise be entitled to a fraction of a share is delivered by Parent to the
Exchange Agent.
1.9 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
Pennsylvania Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("Dissenting Shares")
shall not be converted into or represent a right to receive the portion of the
Merger Consideration otherwise issuable with respect to such shares pursuant to
Section 1.7, but the holder thereof shall only be entitled to such rights as are
granted by Pennsylvania Law.
(b) Notwithstanding the provisions of Section 1.9(a), if any holder
of shares of Company Capital Stock who demands appraisal of such shares under
Pennsylvania Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the later of the Effective
Time and the occurrence of such event, such holder's shares shall automatically
be converted into and represent only the right to receive the portion of the
Merger Consideration issuable with respect to such shares pursuant to Section
1.7, without interest thereon, upon surrender of the certificate representing
such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such
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demands, and any other instruments served pursuant to Pennsylvania Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Pennsylvania Law. The Company shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demands for
appraisal of Company Capital Stock or offer to settle or settle any such
demands.
1.10 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
designate, subject to the consent of the Company, which will not be unreasonably
withheld or delayed, a bank or trust company with assets of not less than $500
million to act as exchange agent (the "Exchange Agent").
(b) PARENT TO PROVIDE CASH AND COMMON STOCK. Parent shall make
available to the Exchange Agent (i) the Cash Distribution (other than the
portion of the Cash Distribution reserved for the Assumed Option Amount and the
Assumed Warrant Amount) within ten (10) business days after the Closing and (ii)
the aggregate number of shares of Parent Common Stock issuable pursuant to
Section 1.6(b) at the times set forth in Section 1.6(b); provided that, on
behalf of the holders of Company Capital Stock, Parent shall deposit the First
Payment into an escrow account within ten (10) business days after the Closing.
The portion of the Escrow Amount contributed on behalf of each holder of Company
Capital Stock shall be in proportion to the aggregate number of shares of Parent
Common Stock which such holder would otherwise be entitled to receive from the
First Payment pursuant to Section 1.7 by virtue of such holder's ownership of
outstanding shares of Company Capital Stock, and assuming for the purposes of
such allocation that the holders of all Assumed Options and the holders of all
Assumed Warrants are the holders of the number of shares of the Company Common
Stock that would have been issued had all of the Assumed Options and all of the
Assumed Warrants been exercised in full immediately prior to the Effective Time
(assuming that the exercise price was paid in cash).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock and which
shares were converted into the right to receive the portion of the Merger
Consideration issuable with respect to such shares pursuant to Section 1.7, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in
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exchange therefor the portion of the Merger Consideration issuable pursuant to
Section 1.7 (less the First Payment to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VII below) as and when the Exchange Agent
receives the Merger Consideration with respect to the shares of Company Capital
Stock represented by such Certificate, and the Certificate so surrendered shall
forthwith be canceled. Subject to and in accordance with the provisions of
Article VII hereof, Parent shall cause to be distributed to the Escrow Agent (as
defined in Article VII) a certificate or certificates representing the number of
shares of Parent Common Stock equal to the First Payment, which certificate
shall be registered in the name of the Escrow Agent. Such shares shall be
beneficially owned by the holders on whose behalf such shares were deposited in
the Escrow Fund and shall be available to compensate Parent as provided in
Article VII. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented shares of Company Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the right to receive in accordance with
Section 1.8(a) the portion of the Merger Consideration issuable pursuant to
Section 1.7 (less the Escrow Amount to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VII below) as and when the Exchange Agent
receives the Merger Consideration with respect to the shares of Company Capital
Stock represented by such Certificate.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions with respect to Parent Common Stock declared or made
after the date such shares are to be distributed to the holders of the Company
Capital Stock and with a record date after such date will be paid to the holder
of any unsurrendered Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the date such shares
are to be distributed to the holders of the Company Capital Stock theretofore
payable with respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.10, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock
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for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 1.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock, if any, as may be required
to be delivered in exchange therefor pursuant to Section 1.7; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.13 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall be accounted for as a purchase, NOT a pooling of
interests. It is also intended by the Company that the Merger shall constitute
a reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"). Each party agrees to report the Merger as a
reorganization within the meaning of Section 368 of the Code unless (i) there is
a final determination following an audit that the Merger does not qualify for
such reporting or (ii) such party's tax advisors conclude after consultation
with the other party's tax advisors that there is not substantial authority for
such reporting.
1.14 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants, on behalf of itself and each of
its subsidiaries ("Subsidiaries"), to Parent and Merger Sub, subject to such
exceptions as are specifically disclosed in the disclosure letter (referencing
the appropriate schedule or section number) supplied by the Company to Parent
(the "Company Schedules") and dated as of the date hereof, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania. The Company has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have, or would reasonably be expected to have, a material adverse effect
on the business, assets (including intangible assets), financial condition,
results of operations, liabilities or prospects of the Company (hereinafter
referred to as a "Material Adverse Effect"). The Company has delivered a true
and correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, and 17,000,000 shares of Preferred Stock, of
which 2,000,000 shares are designated as Series A Preferred Stock, 3,000,000
shares are designated as Series B Preferred Stock and 8,000,000 shares are
designated as Series C Preferred Stock. As of the date hereof, there are
7,202,543 shares of Common Stock outstanding, 1,683,921 shares of Series A
Preferred Stock outstanding, 2,953,698 shares of Series B Preferred Stock
outstanding and 3,694,289 shares of Series C Preferred Stock outstanding. The
Company Capital Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a). The Series A Preference
Amount, the Series B Preference Amount and the Series C Preference Amount and
the number of shares of the Company Common Stock issuable immediately prior to
the Effective Time upon conversion of one share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock are each set forth on
Schedule 2.2(a). All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it is
bound.
(b) The Company has reserved 2,706,790 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plans, of which
1,473,385 shares are subject to outstanding, unexercised options, 1,233,405
shares remain available for future grant and 103,210 shares have been issued
pursuant to the exercise of options
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issued under the Option Plans. The Company has not granted any options to
purchase any capital stock of the Company outside the Option Plans and has
reserved 850,262 shares of Common Stock for issuance upon exercise of all of the
outstanding warrants to purchase any Company Capital Stock (the "Warrants").
Schedule 2.2(b) sets forth for each outstanding option to purchase any Company
Capital Stock, all of which have been issued pursuant to the Option Plans
(collectively, "Options"), and each outstanding Warrant, the name of the holder
of such Option or Warrant, the last known domicile address of such holder, the
number of shares of Common Stock subject to such Option or Warrant, the exercise
price of such Option or Warrant and the vesting schedule for all such Options
and all such Warrants. The exercisability of all Options will be accelerated
and all Options, to the extent not exercisable as of the date hereof, will
become exercisable by reason of the transactions contemplated by this Agreement.
Except for the Options and Warrants described in Schedule 2.2(b), there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. The holders of
all Options and the holders of all Warrants have been or will be given, or shall
have properly waived, any required notice prior to the Merger, and all such
rights will be terminated at or prior to the Effective Time. All Terminated
Options will accelerate and terminate immediately prior to the Effective Time
and none of the Warrants will entitle its holder to purchase any capital stock
of the Company as of the Effective Time. As a result of the Merger, Parent will
be the record and sole beneficial owner of all capital stock of the Company and
rights to acquire or receive such capital stock.
2.3 SUBSIDIARIES. Schedule 2.3 sets forth the name and respective
jurisdiction of incorporation or organization of all Subsidiaries. Except as
set forth in Schedule 2.3, each Subsidiary of the Company is wholly-owned by the
Company. Each Company Subsidiary is a corporation or other entity duly
incorporated or otherwise organized, validly existing in good standing (or local
law equivalent) under the laws of its jurisdiction of organization. Each of the
Company's Subsidiaries has the corporate power and authority to own and lease
the properties and assets it now owns and leases and to carry on its business as
and where such properties and assets are now owned or leased and such business
is now conducted. The Company has heretofore delivered to Parent true, correct
and complete copies of the Articles of Incorporation, Bylaws, or equivalent
governing instruments, each as amended to the date hereof, for each such
Subsidiary. Each of the Company's Subsidiaries is duly licensed or qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions in which the failure to be so licensed or qualified and in good
standing would have a Material Adverse Effect.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions
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contemplated hereby. The vote required of the Company's stockholders to duly
approve the Merger and this Agreement is (i) a majority of all issued and
outstanding Company Capital Stock, and (ii) 66 2/3% of each series of Company
Preferred Stock voting separately. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to the approval of the Merger and this Agreement by the Company's
stockholders. The Company's Board of Directors has unanimously approved the
Merger and this Agreement. This Agreement has been duly executed and delivered
by the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. Except as set forth on Schedule 2.4,
subject only to the approval of the Merger and this Agreement by the Company's
stockholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Articles of Incorporation or Bylaws of the Company or any Subsidiary or (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets or any Subsidiary or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
country, local or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
Conflict) is required by or with respect to the Company or any Subsidiary in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Delaware Secretary of State and the Pennsylvania Secretary of
State, (ii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS.
(a) Schedule 2.5 sets forth (i) the Company's audited balance sheet
as of December 31, 1996 (the "Balance Sheet"), and the related audited
statements of operations and cash flows for the twelve-month period then ended,
and (ii) the Company's unaudited balance sheet as of May 31, 1997 and the
related unaudited statements of operations and cash flows for the five-month
period then ended (collectively, the "Company Financials"). The Company
Financials are correct in all material respects and have been prepared in
accordance with generally accepted
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accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other, except that the unaudited
Company Financials do not contain all footnotes required by GAAP. The Company
Financials present fairly the financial condition and operating results of the
Company and the Subsidiary as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which adjustments will not be
material in amount or significance.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6,
neither the Company nor any Subsidiary has any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate, has not been reflected in the unaudited
Company Financials as of May 31, 1997. The Surviving Corporation will not have
any liability for any Third Party Expenses of the Company after the Closing.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of
the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company or any Subsidiary except in the
ordinary course of business as conducted on the date of the Balance Sheet and
consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company or any Subsidiary;
(c) capital expenditure or unsatisfied commitment by the Company or
any Subsidiary, either individually exceeding $10,000 or in the aggregate
exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company or any Subsidiary (whether or not by covered
by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) resignation or termination of any key officers or employees of
the Company or any Subsidiary and the Company, to the best of its knowledge,
does not know of the impending resignation or termination of employment of any
such officer or employee;
(g) revaluation by the Company or any Subsidiary of any of its
assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company or any Subsidiary,
or any
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direct or indirect redemption, purchase or other acquisition by the Company or
any Subsidiary of any Company Capital Stock or the capital stock of any
Subsidiary;
(i) sale, lease, license or other disposition of any of the assets or
properties of the Company or any Subsidiary, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(j) amendment or termination of any material contract, agreement or
license to which the Company or any Subsidiary is a party or by which it is
bound;
(k) loan by the Company or any Subsidiary to any person or entity,
incurring by the Company or any Subsidiary of any indebtedness, guaranteeing by
the Company or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Company or any Subsidiary or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(l) waiver or release of any right or claim of the Company or any
Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary;
(m) commencement or notice or threat of commencement of any lawsuit
or proceeding against or investigation of the Company or its affairs or any
Subsidiary or its affairs;
(n) notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company or any Subsidiary of any third party's intellectual
property rights;
(o) issuance or sale by the Company or any Subsidiary of any of its
shares of capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(p) change in pricing or royalties set or charged by the Company or
any Subsidiary to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Company Intellectual Property Rights to the
Company or any Subsidiary;
(q) event or condition of any character that has had or could be
reasonably expected to have a Material Adverse Effect on the Company or any
Subsidiary; or
(r) negotiation or agreement by the Company or any Subsidiary or any
officer or employee thereof to do any of the things described in the preceding
clauses (a) through (q) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
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2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes" means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company and each Subsidiary as of the Effective Time
will have prepared and filed all required federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attributable to the Company or its operations or
each Subsidiary or its operations, such Returns are true and correct as to all
material items and have been completed in accordance with applicable law and no
Taxes will be owing after the Closing for any period covered by any of the
Returns.
(ii) The Company and each Subsidiary as of the Effective Time:
(A) will have paid or accrued all Taxes it is required to pay or accrue and (B)
will have withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Neither the Company nor any Subsidiary has been delinquent
in the payment of any Tax nor is there any Tax deficiency outstanding, proposed
or assessed against the Company or any Subsidiary, nor has the Company or any
Subsidiary executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company
or any Subsidiary is currently in progress, nor has the Company or any
Subsidiary been notified of any request for such an audit or other examination.
(v) Neither the Company nor any Subsidiary has any liabilities
for unpaid federal, state, local and foreign Taxes which have not been accrued
or reserved against in accordance with GAAP on the balance sheet, whether
asserted or unasserted, contingent or otherwise, and the Company has no
knowledge of any basis of the assertion of any such liability attributable to
the Company, its assets or operations or any Subsidiary, its assets or
operations.
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(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns for all periods since
the date of the Company's and each Subsidiary's incorporation.
(vii) There are (and as of immediately following the Effective
Time there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("Liens") on the assets of the Company or any
Subsidiary relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or any
Subsidiary.
(ix) None of the Company's nor any Subsidiary's assets are
treated as "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
(x) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company or any
Subsidiary that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(xi) Neither the Company nor any Subsidiary has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or any
Subsidiary.
(xii) Neither the Company nor any Subsidiary is a party to a tax
sharing or allocation agreement nor does the Company or any Subsidiary owe any
amount under any such agreement.
(xiii) Neither the Company nor any Subsidiary is, nor has been at
any time, a "United States real property holding corporation" within the meaning
of Section 897(c)(2) of the Code.
(xiv) The Company's and each Subsidiary's tax basis in its
assets for purposes of determining its future amortization, depreciation and
other federal income tax deductions is accurately reflected on the Company's tax
books and records.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or any Subsidiary is a party or otherwise binding upon the
Company or any Subsidiary which has or reasonably could be expected to have the
effect of prohibiting or impairing any business practice of the Company or any
Subsidiary, any acquisition of property (tangible or intangible) by the Company
or any Subsidiary or the conduct of business by the Company or any Subsidiary.
Without limiting the foregoing, neither the Company
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nor any Subsidiary has entered into any agreement under which the Company or
Subsidiary is restricted from selling, licensing or otherwise distributing any
of its products or drug candidates to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Neither the Company nor any Subsidiary owns any real property,
nor have they ever owned any real property. Schedule 2.10(a) sets forth a list
of all real property currently, or at any time in the past, leased by the
Company or any Subsidiary, the name of the lessor, the date of the lease and
each amendment thereto and, with respect to any current lease, the aggregate
annual rental and/or other fees payable under any such lease. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company and each Subsidiary has good and valid title to, or,
in the case of leased properties and assets, valid leasehold interests in, all
of its tangible properties and assets, real, personal and mixed, used or held
for use in its business, free and clear of any Liens (as defined in Section
2.8(b)(vii)), except as reflected in the Company Financials or in Schedule
2.10(b) and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "INTELLECTUAL PROPERTY" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, drug candidates, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names, logos,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all databases
and data collections and all rights therein throughout the world; and (vii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
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(ii) "COMPANY INTELLECTUAL PROPERTY" shall mean any
Intellectual Property that is owned by, or exclusively licensed to, the Company
or any Subsidiary.
(iii) "REGISTERED INTELLECTUAL PROPERTY" means all United
States, international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks, applications
to register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and applications
for copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
(b) Schedule 2.11(b) lists all of the Registered Intellectual
Property owned by, or filed in the name of, the Company or any Subsidiary (the
"Company Registered Intellectual Property").
(c) Schedule 2.11(c) lists all proceedings or actions before any
court, tribunal (including the United States Patent and Trademark Office ("PTO")
or equivalent authority anywhere in the world) related to any Company
Intellectual Property. Except as set forth in Schedule 2.11(c), no Company
Intellectual Property or product or service of the Company or any Subsidiary is
subject to any proceeding or outstanding decree, order, judgment, agreement, or
stipulation restricting in any manner the use, transfer, or licensing thereof by
the Company or any Subsidiary, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(d) Each item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(e) Except as set forth in Schedule 2.11(e): (i) the Company and each
Subsidiary owns and has good and exclusive title to each item of Intellectual
Property used in connection with the operation or conduct of its business,
including all Company Registered Intellectual Property listed on Schedule
2.11(b), free and clear of any lien or encumbrance; and (ii) the Company and
each Subsidiary is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of its business, including the sale of
any products or drug candidates or the provision of any services by it.
(f) The Company and each Subsidiary owns exclusively, and has good
title to, all drug candidates and all copyrighted works that are its products or
which it otherwise purports to own.
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(g) To the extent that any work, invention, or material has been
developed or created by a third party for the Company or any Subsidiary, the
Company and each Subsidiary has a written agreement with such third party with
respect thereto and the Company and each Subsidiary thereby has obtained
ownership of, and is the exclusive owner of, or has a valid license to use, all
Intellectual Property in such work, material or invention by operation of law or
by valid assignment.
(h) Except as set forth in Schedule 2.11(h), neither the Company nor
any Subsidiary has transferred ownership of, or granted any exclusive license
with respect to, any Intellectual Property that is or was Company Intellectual
Property, to any third party.
(i) Schedule 2.11(i) lists all contracts, licenses and agreements to
which the Company or any Subsidiary is a party that are currently in effect (i)
with respect to Company Intellectual Property licensed or offered to any third
party; or (ii) pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company or the Subsidiary.
(j) The contracts, licenses and agreements listed on Schedule 2.11(i)
are in full force and effect. The consummation of the transactions contemplated
by this Agreement will neither violate nor result in the breach, modification,
cancellation, termination, or suspension of such contracts, licenses and
agreements. The Company and each Subsidiary is in compliance with, and has not
breached any term any of such contracts, licenses and agreements and, to the
knowledge of the Company and each Subsidiary, all other parties to such
contracts, licenses and agreements are in compliance with, and have not breached
any term of, such contracts, licenses and agreements. To the knowledge of the
Company and each Subsidiary, except as set forth in Schedule 2.11(j), following
the Closing Date, the Surviving Corporation will be permitted to exercise all of
the Company's and each Subsidiary's rights under the contracts, licenses and
agreements listed on Schedule 2.11(i) to the same extent the Company and the
Subsidiary would have been able to had the transactions contemplated by this
Agreement not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
or the Subsidiary would otherwise be required to pay.
(k) Schedule 2.11(k) lists all contracts, licenses and agreements
between the Company or any Subsidiary and any third party wherein or whereby the
Company or any Subsidiary has agreed to, or assumed, any obligation or duty to
warrant, indemnify, hold harmless or otherwise assume or incur any obligation or
liability with respect to the infringement or misappropriation by the Company or
any Subsidiary or such third party of the Intellectual Property of any third
party.
(l) The operation of the business of the Company and each Subsidiary
as such businesses currently are conducted, including the Company's and each
Subsidiary's design, development, manufacture, marketing and sale of the
products, drug candidates or services (including products and drug candidates
currently under
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development), has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party or constitute unfair competition or
trade practices under the laws of any jurisdiction.
(m) The Company and each Subsidiary (including each of their
officers, directors and, to the best of the Company's knowledge, employees) has
not received notice from any third party that the operation of its business or
any act, product, drug candidate or service of the Company or any Subsidiary,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(n) Except as set forth in Schedule 2.11(n), to the knowledge of the
Company and each Subsidiary, (i) no Person has or is infringing or
misappropriating any Company Intellectual Property and (ii) there have been, and
are, no claims asserted against the Company or any Subsidiary or against any
customer of the Company or any Subsidiary, related to any product, drug
candidate or service of the Company or any Subsidiary.
(o) The Company and each Subsidiary has taken reasonable steps to
protect its rights in its confidential information and trade secrets or any
trade secrets or confidential information of third parties provided to the
Company or any Subsidiary, and, without limiting the foregoing, the Company and
each Subsidiary has and enforces a policy requiring each employee and contractor
with access to Company Intellectual Property to execute a proprietary
information/confidentiality agreement substantially in the Company's or the
Subsidiary's standard form and all current and former employees and contractors
of the Company and each Subsidiary have executed such an agreement. EXHIBIT
2.11(o) is the Company's and each Subsidiary's standard form of proprietary
information/confidentiality agreement for employees and contractors.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), neither the Company nor any Subsidiary has, or is a party to
or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company or any Subsidiary;
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(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any agreement, contract or commitment under which it has
limited or restricted its right to compete with any person in any respect;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company or any Subsidiary to engage in any
line of business or to compete with any person;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's or any Subsidiary's business;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to in
clause (viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials involving $10,000 or more;
(xiv) any distribution, joint marketing or development
agreement;
(xv) any assignment, license or other agreement with respect to
any form of intangible property; or,
(xvi) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, all of which are noted in Schedule 2.12(b), neither the Company
nor any Subsidiary has breached, violated or defaulted under, or received notice
that it has breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract or commitment required to be set forth on
Schedule 2.12(a) or Schedule 2.11(i) (any such
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agreement, contract or commitment, a "Contract"). Each Contract is in full
force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not
subject to any default thereunder of which the Company or any Subsidiary has
knowledge by any party obligated to the Company or any Subsidiary pursuant
thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13,
no officer, director or, to the best of the Company's knowledge, stockholder of
the Company or any Subsidiary (nor any ancestor, sibling, descendant or spouse
of any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services, drug candidates or products that the Company or
any Subsidiary furnishes or sells or proposes to furnish or sell, (ii) an
economic interest in any entity that purchases from or sells or furnishes to,
the Company or any Subsidiary, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Schedule 2.12(a) or Schedule
2.11(i); provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any entity" for purposes of this Section 2.13.
2.14 COMPLIANCE WITH LAWS. The Company and each Subsidiary has complied in
all respects with, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation, the failure to comply with which would have a Material Adverse
Effect.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or threatened against the Company or
any Subsidiary, its properties or any of its officers or directors, in their
respective capacities as such. Except as set forth in Schedule 2.15, there is
no investigation pending or threatened against the Company or any Subsidiary,
its properties or any of its officers or directors by or before any governmental
entity. Schedule 2.15 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages, claims or other remedy
requested. No governmental entity has at any time challenged or questioned the
legal right of the Company or any Subsidiary to conduct its business in the
present manner or style thereof.
2.16 INSURANCE. Schedule 2.16 lists all insurance policies maintained by
the Company or any Subsidiary, which policies are valid and enforceable, and
there is no claim by the Company or any Subsidiary pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies have been paid and the Company and each Subsidiary is
otherwise in material compliance with the terms of such policies (or other
policies and bonds providing substantially similar insurance coverage). Neither
the Company nor any Subsidiary has any knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
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2.17 MINUTE BOOKS. The minute books of the Company and each Subsidiary
made available to counsel for Parent are the only minute books of the Company
and each Subsidiary and contain a reasonably accurate summary of all meetings of
directors (or committees thereof) and stockholders or actions by written consent
since the time of incorporation of the Company and each Subsidiary. The Company
and each Subsidiary is in full compliance with all of the terms and provisions
of its Articles of Incorporation and Bylaws.
2.18 RELATIONSHIPS WITH SUPPLIERS AND LICENSORS. No current supplier to
the Company or any Subsidiary has notified it of an intention to terminate or
substantially alter its existing business relationship with the Company or the
Subsidiary nor has any licensor under a license agreement with the Company or
any Subsidiary notified the Company or the Subsidiary of an intention to
terminate or substantially alter the Company's or the Subsidiary's rights under
such license.
2.19 TRADE SECRETS. The Company and each Subsidiary has taken reasonable
security measures to protect the confidentiality of its trade secrets. All
current and past employees or consultants of the Company and each Subsidiary,
who, either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed such trade secrets, or who have or had access to
information disclosing such trade secrets, have entered into confidentiality and
non-disclosure agreements with the Company (the "Trade Secret Agreements"). Any
exception which has been taken to the Trade Secrets Agreements (for example an
employee or consultant excluding a prior invention) is described in Schedule
2.19, including the exception taken and the employee taking such exception. To
the knowledge of the Company and each Subsidiary, neither the Company or any
Subsidiary, nor any employees or consultants of the Company or any Subsidiary,
have caused any of the Company's or any Subsidiary's trade secrets to become
part of the public knowledge or literature, nor has the Company or any
Subsidiary, or any of the employees or consultants of the Company or any
Subsidiary, permitted any such trade secrets to be used, divulged or
appropriated for the benefit of persons to the material detriment of the Company
or any Subsidiary.
2.20 ENVIRONMENTAL MATTERS.
(a) Neither the Company nor any Subsidiary is in violation of any
Federal, state or local Environmental Law (as defined below), which violation
could reasonably be expected to result in a material liability to the Company or
any Subsidiary or its properties and assets. Neither the Company, any
Subsidiary nor, to the knowledge of the Company, and Subsidiary and the Company
Stockholders, any third party has used, released, discharged, generated,
manufactured, produced, stored, or disposed of in, on, under or about its owned
or leased property or other assets, or transported thereto or therefrom, any
Hazardous Materials (as defined below) in a manner that could reasonably be
expected to subject the Company or any Subsidiary to a material liability under
any Environmental Law; there are no underground tanks, whether operative or
temporarily or permanently closed, located on its owned or leased property or
other assets; there are no polychlorinated biphenyls ("PCBs") or items
containing PCBs used,
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stored or present at, on or, to the knowledge of the Company and each
Subsidiary, near its owned or leased property or assets; and there is or has
been no condition, circumstance, action, activity or event that could reasonably
be expected to form the basis of any violation of, or material liability to the
Company or any Subsidiary under, any local, state or Federal Environmental Law.
(b) There is no proceeding, investigation or inquiry by any local,
state or Federal governmental authority or any non-governmental third party with
respect to the presence or release of such Hazardous Materials in, on, from or
to the Company's or any Subsidiary's owned or leased property and, to the
knowledge of the Company and each Subsidiary, no such proceedings are threatened
or contemplated by any such governmental authorities or non-governmental third
parties.
(c) For purposes of this Agreement, (i) "Environmental Law" means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Sections 9601, ET SEQ.) ("CERCLA"); the Federal Clean
Water Act (33 U.S.C. Section 1251, ET SEQ.); the Federal Clean Air Act
(42 U.S.C. Section 7401); Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 ET SEQ.); Toxic Substances Control Act (15 U.S.C. Section
2601 ET SEQ.); Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET
SEQ.) ("RCRA"); and Emergency Planning and Community Right to Know Act
(42 U.S.C. Section 11001 ET SEQ.), together with applicable state and local laws
of similar substance, and (ii) "Hazardous Materials" shall mean substances
defined as "hazardous substances," "hazardous materials," or "toxic substances"
in CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801,
ET SEQ.) and RCRA; those substances defined as "hazardous waste," "hazardous
materials" or "regulated substances" by RCRD; those substances designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317); those substances regulated as a hazardous
chemical substance or mixture or as an imminently hazardous chemical substance
or mixture pursuant to Section 6 or 7 of the Toxic Substances Control Act
(15 U.S.C. Sections 2605, 2606); those substances defined as a pesticide
pursuant to Section 136(u) of the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136(u)); those substances defined as hazardous
waste constituents in 40 CFR 260.10, specifically including Appendix VII and
VIII of Subpart D of 40 CFR 261; and those substances defined by the Atomic
Energy Act of 1954, as amended (42 U.S.C. Sections 3011, ET SEQ., as amended) as
a source, special nuclear or by-product material; and in the regulations adopted
and publications promulgated pursuant to said laws.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth
on Schedule 2.21, neither the Company nor any Subsidiary has incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby. Schedule 2.21 sets forth the principal
terms and conditions of any agreement, written or oral, with respect to such
fees. Schedule 2.21 sets forth the Company's current reasonable estimate of all
Third Party Expenses (as defined in Section 5.4) expected to be incurred by the
Company and any Subsidiary in connection with the negotiation and
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effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby.
2.22 PERMITS AND LICENSES; NO DEBARMENT.
(a) Schedule 2.22 contains a complete and correct copy of (i) each
pending application or registration for governmental approval and each
governmental approval held by the Company or any Subsidiary to develop,
manufacture, test (including, without limitation, preclinical tests and clinical
trials), import, export, store, market and sell the Company's or any
Subsidiary's products or drug candidates, and (ii) the most recent report by or
on behalf of the FDA or any other governmental body involving or relating to any
facility inspection of the Company's or any Subsidiary's facilities. Except as
set forth in Schedule 2.22, (i) the Company and each Subsidiary possesses such
governmental approvals from all governmental bodies including, without
limitation, all FDA approvals, necessary to permit the operation of its business
in the manner as the same is currently conducted, and to operate, own or occupy
its properties, (ii) there have been no product recalls, field corrective
activity, medical device reports, warning letters or administrative actions by
the FDA or any other governmental body, and (iii) to the best of the Company's
and each Subsidiary's knowledge (aa) there is no administrative action pending
or threatened for the revocation of any such governmental approval and (bb)
assuming the obtaining of the authorizations, consents, approvals and other
actions listed in Schedule 2.22, no governmental approval by any governmental
body having jurisdiction over the operation of the Company's or any Subsidiary's
businesses, whether in whole or in part, will be revoked, or become ineffective
or subject to revocation, as a consequence of the transactions contemplated by
this Agreement.
(b) Neither the Company nor any of its Subsidiaries (i) has been
debarred or received notice of action or threat of action with respect to its
debarment under the provisions of the Generic Drug Enforcement Act of 1992, 21
U.S.C. Section 335(a) and (b), or (ii) has used in any capacity the services of
any individual, corporation, partnership or association which has been debarred
under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C.
Section 335(a) and (b).
2.23 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 2.23(a)(i) below (which definition shall apply only to this
Section 2.23), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company or any Subsidiary within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
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(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan"
within the meaning of Section 3(3) of ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Subsidiary or any Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which the Company or any Subsidiary or any Affiliate has
or may have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former or retired
employee, officer, or director of the Company or any Subsidiary or any
Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expiration, visas,
work permit or similar agreement or contract between the Company or any
Subsidiary or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company and Subsidiary
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 2.23(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with a
schedule of all liabilities, whether or not accrued, under each such Company
Employee Plan or Employee Agreement. Neither the Company nor any Subsidiary has
any plan or commitment, whether legally binding or not, to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent required by law or to conform any
such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports
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(Series 5500 and all schedules thereto), if any, required under ERISA or the
Code in connection with each Company Employee Plan or related trust; (iv) if the
Company Employee Plan is funded, the most recent annual and periodic accounting
of Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company or any Subsidiary; and
(viii) all registration statements and prospectuses prepared in connection with
each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on
Schedule 2.23(d), (i) the Company and each Subsidiary has performed in all
material respects all obligations required to be performed by it under each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in all materials respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Employee Plan; (iii) there are
no actions, suits or claims pending, or, to the best of the Company's and each
Subsidiary's knowledge, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to the Company or any Subsidiary, Parent or any of its
Affiliates (other than ordinary administration expenses typically incurred in a
termination event); (v) there are no inquiries or proceedings pending or, to the
best of the Company's and each Subsidiary's knowledge, threatened by the IRS or
DOL with respect to any Company Employee Plan; (vi) neither the Company nor any
Subsidiary is subject to any penalty or tax with respect to any Company Employee
Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code; and
(vii) all contributions, including any top heavy contributions, required to be
made by the Company or any ERISA affiliate to any Company Employee Plan have
been made or shall be made on or before the Closing Date.
(e) PENSION PLANS. Neither the Company nor any Subsidiary currently
maintains, sponsors, participates in or contributes to, nor has it ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 4.12 of the Code.
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(f) MULTIEMPLOYER PLANS. At no time has the Company or any
Subsidiary contributed to or been requested to contribute to any Multiemployer
Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 2.23(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, including
continuation health care coverage under Section 4980B of the Code, and the
Company and each Subsidiary has never represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment.
(h) EFFECT OF TRANSACTION.
(i) Except as set forth on Schedule 2.23(h)(i), the execution
of this Agreement and the consummation of the transactions contemplated hereby
will not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Company Employee Plan, Employee Agreement,
trust or loan that will or may result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) Except as set forth on Schedule 2.23(h)(ii), no payment or
benefit which will or may be made by the Company, any Subsidiary or Parent or
any of their respective Affiliates with respect to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. The Company and each Subsidiary (i) is in
compliance in all material respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice).
(j) LABOR. No work stoppage or labor strike against the Company or
any Subsidiary is pending or, to the best knowledge of the Company and each
Subsidiary, threatened. Except as set forth in Schedule 2.23(j), neither the
Company or any Subsidiary is involved in or, to the knowledge of the Company and
each Subsidiary, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of
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unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in liability to the
Company or any Subsidiary. Neither the Company nor any Subsidiary has engaged
in any unfair labor practices within the meaning of the National Labor Relations
Act which would, individually or in the aggregate, directly or indirectly result
in a liability to the Company or any Subsidiary. Except as set forth in
Schedule 2.23(j), neither the Company nor any Subsidiary is presently, nor has
it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company or any Subsidiary.
2.24 EMPLOYEES. To the best of the Company's and each Subsidiary's
knowledge, no employees of the Company or any Subsidiary (i) are in violation of
any term of any employment contract, patent disclosure agreement, non-
competition agreement, or any restrictive covenant to a former employer relating
to the right of any such employee to be employed by the Company because of the
nature of the business conducted or presently proposed to be conducted by the
Company or the Subsidiary or to the use of trade secrets or proprietary
information of others and (ii) have given notice to the Company or any
Subsidiary, nor is the Company or any Subsidiary otherwise aware, that any such
employee intends to terminate his or her employment with the Company or any
Subsidiary. The employment of all of the Company's employees shall have been
terminated effective no later than immediately prior to the Effective Time, and
as of the Effective Time none of the Company's employees shall have any claim
arising out of the relationship of employment, the termination of employment, or
any matter arising out of the employee's relationship with the Company or the
transactions contemplated by this Agreement, other than any rights the employee
may have (x) to receive a portion of the Merger Consideration as a holder of any
Company Capital Stock or an Assumed Option, (y) to receive the distribution of
such employee's vested interest in the Avid Corporation Savings Retirement Plan,
or (z) to receive the portion of the Severance Payments (as defined in Section
4.1(n) below) to which the employee may be entitled.
2.25 DISTRIBUTION OF MERGER CONSIDERATION. The Merger Consideration, when
distributed in accordance with Sections 1.7 and 1.8, shall be distributed to the
holders of Company Capital Stock in accordance with the provisions of the
Company's Articles of Incorporation in effect immediately prior to the Effective
Time and any other document or agreement among the Company and such holders
related to the distribution of the Merger Consideration. No holder of Company
Capital Stock shall have any claims against Parent in connection with the
distribution of the Merger Consideration pursuant to Sections 1.7 and 1.8 (other
than for the failure to distribute the Merger Consideration to the Exchange
Agent in accordance with the information contained in the Agent Certificates).
For purposes of this Section 2.25, the holders of the Company Capital Stock
shall include each holder of an Assumed Option and each holder of an Assumed
Warrant that timely and properly exercises the Assumed Option or the Assumed
Warrant after the Closing.
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2.26 REPRESENTATION COMPLETE. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading. The Company has disclosed to Parent all facts that
are known to the Company to be material (individually or in the aggregate) to
the business, assets, liabilities, financial condition, prospects or operations
of the Company and each Subsidiary.
2.27 QUALITY BIOTECH, INC. The Company has completed the sale of all of
its interest in the capital stock of Quality Biotech, Inc. ("QBI") and owns no
interest in any capital stock of QBI. Neither the Company nor any Subsidiary is
subject to, nor will the Company or any Subsidiary at any time prior to the
Closing be subject to, and Parent and the Surviving Corporation will not at any
time after the Closing be subject to, any liability, indebtedness, obligation,
expense or claim of any type, whether accrued, absolute, contingent, matured,
unmatured or other, arising from or related to the Company's ownership of QBI or
the operation or conduct of QBI's business at any time. Since January 1, 1997,
neither the Company nor any Subsidiary has transferred any of its assets
(whether real or personal, tangible or intangible) to QBI, nor has the Company
or any Subsidiary assumed any liability, indebtedness, obligation or expense of
QBI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and
Merger Sub has the corporate power to own, operate and lease its properties and
to carry on its business as now being conducted and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
Parent and Merger Sub as a whole.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed
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and delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth on Schedule 3.2, the execution and delivery of
this Agreement by the Parent does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of
the Parent or (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Parent or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, country, local or foreign governmental
authority, instrumentality, agency or commission or any third party (so as not
to trigger any Conflict) is required by or with respect to the Parent in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Delaware Secretary of State and the Pennsylvania Secretary of
State, (ii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 3.2.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 75,000,000 shares of
Common Stock, of which 17,585,108 shares were issued and outstanding as of March
31, 1997, and 5,000,000 shares of Preferred Stock, none of which is issued or
outstanding. The authorized capital stock of Merger Sub consists of 100 shares
of Common Stock, all of which, as of the date hereof, are issued and outstanding
and are held by Parent. All such shares have been duly authorized, and all such
issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid and
nonassessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") for all periods since November 1, 1996, all in the form so
filed (all the foregoing being
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collectively referred to as the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently filed with the SEC. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "Parent Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and present fairly the consolidated financial position of Parent at the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There has been no change in Parent accounting policies
except as described in the notes to the Parent Financial Statements.
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q, Parent has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets
(including intellectual property assets) or business of Parent; (b) any
amendment or change in the Certificate of Incorporation or Bylaws of Parent; or
(c) any damage to, destruction or loss of any assets of Parent (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion against Parent, which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present
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officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of its business, and any
material event involving or adversely affecting the Company or its business.
Parent acknowledges that the Company is not able to pay the expenses related to
the development of the Lead Compound, the Company's good faith estimate of which
are listed on Schedule 4.1 (the "Lead Compound Expenses"), that are, or will
become prior to the Effective Time, due and payable. Parent agrees that the
failure of the Company to pay such Lead Compound Expenses when due in the
amounts set forth on Schedule 4.1, or in any amount in excess of the amounts set
forth on Schedule 4.1 that is approved by Parent (which approval may be given or
withheld in Parent's sole discretion) in a writing specifically referencing this
Section 4.1, will not constitute a breach of the Company's obligations under
this Section 4.1 or any other provision of this Agreement. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior written
consent of Parent:
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business;
(b) Transfer to any person or entity any rights to any Company
Intellectual Property Rights;
(c) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or similar rights of any
type or scope with respect to any products or drug candidates of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(e) Amend or otherwise modify (or agree to do so), or violate the
terms of, any of the agreements set forth or described in Schedule 2.11(i);
(f) Commence any litigation or any dispute resolution process;
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or reclassify any Company Capital Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Company Capital Stock, or repurchase, redeem
or otherwise acquire, directly or indirectly, any shares of Company Capital
Stock (or options, warrants or other rights exercisable therefor);
(h) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Options or Warrants, issue,
grant, deliver
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or sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of Company Capital Stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(i) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(k) Fail in any material respect to comply with any laws, ordinances,
regulations or other governmental restrictions applicable to the Company;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(m) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others, except (i) indebtedness incurred for the payment
of the Lead Compound Expenses, the terms of which Parent has approved (which
approval may be given or withheld in Parent's sole discretion), in an aggregate
amount not to exceed $400,000, unless the excess amount is approved by Parent
(which approval may be given or withheld in Parent's sole discretion) in a
writing specifically referencing this Section 4.1(m) ("Lead Compound Debt"), and
(ii) indebtedness incurred for the payment of other expenses of the Company,
which if any of the terms of the indebtedness may have application after the
Closing Parent has approved (which approval may be given or withheld in Parent's
sole discretion), in an aggregate amount not to exceed $450,000, unless the
excess amount is approved by Parent (which approval may be given or withheld in
Parent's sole discretion) in a writing specifically referencing this Section
4.1(m) ("Bridge Debt");
(n) Grant any severance or termination pay to any director, officer,
employee or consultant, except (i) payments made pursuant to standard written
agreements outstanding on the date hereof (which agreements are disclosed on
Schedule 4.1(n)) or (ii) other payments approved by the Company's Board of
Directors prior to the date hereof that are disclosed on Schedule 4.1(n)), that
are paid pursuant to an ERISA qualified severance plan, and that will not in the
aggregate, when added to the aggregate amount of the Bridge Debt, all Third
Party Expenses of the Company, and all Unpaid Company Liabilities, exceed
$1,250,000 (the "Severance Payments");
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(o) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees;
(p) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000, in
any one case or $25,000, in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements;
(r) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(t) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(u) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(v) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(w) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof;
(x) Perform any development work on or with the Lead Compound other
than as expressly contemplated in the most current development plans for the
Lead Compound previously provided to Parent;
(y) Fail to inform Parent immediately and in any event within 48
hours of any and all material activities or developments related to the Lead
Compound, including, but not limited to, providing to Parent (i) copies of all
written correspondence and the details of all oral communications from the FDA,
(ii) copies of all written correspondence, study reports or other written
materials received from any contract research organization performing services
for or on behalf of the Company related to the
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Lead Compound or from any manufacturers manufacturing any of the Lead Compound
for or on behalf of the Company, and (iii) notice of any adverse event related
to the Lead Compound, any delay in the preclinical tests or clinical trial of
the Lead Compound, or any delay, difficulty or other problem in the manufacture
or supply of the Lead Compound to be used in the preclinical tests or clinical
trial of the Lead Compound;
(z) Fail to give Parent a reasonable opportunity (i) to review, prior
to delivery, all written correspondence from the Company to the FDA or to any
contract research organization, manufacturer or supplier and related to the Lead
Compound or to the preclinical tests or clinical trial of the Lead Compound or
(ii) to participate with the Company in any oral communications with the FDA
initiated by the Company;
(aa) Incur Lead Compound Expenses and Lead Compound Debt in the
aggregate (including all amounts incurred prior to the date of this Agreement)
in excess of $1,000,000, unless the excess amount is approved by Parent (which
approval may be given or withheld in Parent's sole discretion) in a writing
specifically referencing this Section 4.1(aa); or
(ab) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (aa) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section
8.1 hereof, the Company will not (nor will the Company permit any of the
Company's officers, directors, stockholders, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Parent and its designees: (a) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of the Company or any of its Subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity
interest in the Company or any of its Subsidiaries; (b) provide information
with respect to it to any person, other than Parent, relating to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by
any such person with regard to, any possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or
any equity interest in the Company or any of its Subsidiaries; (c) enter into
an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its or their
capital stock or assets or any equity interest in the Company or any of its
Subsidiaries; or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of
its Subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or
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their capital stock or assets or any equity interest in the Company or any of
its Subsidiaries by any person, other than by Parent. The Company shall
immediately cease and cause to be terminated any such contacts or
negotiations with third parties relating to any such transaction or proposed
transaction. Except as contemplated by this Agreement (including, without
limitation, the disclosure to the Company's stockholders contemplated by
Section 5.1(c) below), disclosure by the Company of the terms hereof (other
than the prohibition of this section) shall be deemed to be a violation of
this Section 4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SALE AND REGISTRATION OF SHARES; STOCKHOLDER MATTERS.
(a) SALE OF SHARES. The parties hereto acknowledge and agree that
the that shares of Parent Common Stock issuable to the stockholders pursuant to
Sections 1.6 and 1.7 hereof, shall constitute "restricted securities" within the
meaning of the Securities Act. The certificates for shares of Parent Common
Stock to be issued in the Merger shall bear appropriate legends to identify such
privately placed shares as being restricted under the Securities Act and to
comply with applicable state securities laws. It is acknowledged and understood
that Parent is relying upon the written representations made by each stockholder
in the Stockholder Questionnaire in determining the availability of exemptions
from the registration and qualification provisions of applicable securities laws
for the issuance of the Parent Common Stock in the Merger.
(b) STOCKHOLDER QUESTIONNAIRE. The Company will use reasonable
efforts to cause each stockholder of the Company to execute and deliver to
Parent a Stockholder Questionnaire in the form attached hereto as EXHIBIT 5.1(b)
(the "Stockholder Questionnaire").
(c) COMPANY STOCKHOLDER APPROVAL. As promptly as practicable after
the execution of this Agreement the Company shall submit this Agreement and the
transactions contemplated hereby to its stockholders for approval and adoption
as provided by Pennsylvania Law and its Articles of Incorporation and Bylaws.
The Company shall use its best efforts to solicit and obtain the written consent
of its stockholders to approve the Merger and this Agreement and to enable the
Closing to occur as promptly as practicable. In connection with such
stockholder approval as soon as practicable after the execution of this
Agreement, the Company shall prepare, with the cooperation of Parent, an
Information Statement for purposes of soliciting such written consent of the
stockholders. The Information Statement shall also constitute a disclosure
document for the offer and sale of the shares of Parent Common Stock to be
received by the holders of the Company Capital Stock in the Merger. The Company
shall use its best efforts, with the cooperation of Parent, to cause such
Information
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Statement to be distributed to the Company's stockholders no later than July 22,
1997. Parent and the Company shall each use its best efforts to cause the
Information Statement to comply with applicable federal and state securities
laws requirements, including, without limitation, the requirements of Regulation
D (including Rule 502(b)) under the Securities Act. The Company shall not be
required to investigate the information provided by Parent and shall be entitled
to rely on the accuracy and completeness thereof in determining whether the
Information Statement complies with applicable federal and state securities laws
requirements. Each of Parent and the Company agrees to provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. Each of the parties hereto will promptly advise the
other parties in writing if at any time prior to the Effective Time either the
Company or Parent shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Information Statement in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The Information Statement shall
contain the unanimous recommendation of the Board of Directors of the Company
that the Company stockholders approve the Merger and this Agreement and the
transactions contemplated hereby and the conclusion of the Board of Directors
that the terms and conditions of the Merger are fair and reasonable to the
stockholders of the Company. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Information Statement any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been approved by Parent prior to
such inclusion.
(d) REGISTRATION STATEMENT ON FORM S-3. If one of the conditions
described in Section 1.6(b)(ii)(A) above is satisfied, Parent shall use its
reasonable efforts to file a Registration Statement on Form S-3 with the SEC
covering the resale of the shares of Parent Common Stock issued in the Merger.
Such registration, including Parent's obligation to file such Registration
Statement on Form S-3, shall be subject to the terms and conditions set forth in
the Declaration of Registration Rights attached hereto as EXHIBIT 5.1(d).
(e) LOCK-UP OF PARENT COMMON STOCK. If one of the conditions
described in Section 1.6(b)(ii)(A) above is satisfied, all shares of Parent
Common Stock issued in the Merger shall be subject to lock-up for a period of up
to 90 days as specified by Parent and an underwriter of Parent Common Stock or
other securities of Parent following the effective date of a registration
statement of Parent filed under the Securities Act in connection with an
underwritten offering to the public of Parent Common Stock or other securities
of Parent, and each holder of any Company Capital Stock that receives any shares
of Parent Common Stock in the Merger shall not, to the extent requested by
Parent and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to
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purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any Parent Common Stock received by such holder in the
Merger at any time during such period except pursuant to such registration
statement; provided, however, that the foregoing lock-up restriction shall not
apply to any offering unless in connection with the offering all executive
officers and directors of the Company enter into similar agreements and all
other holders of five percent (5%) or more of the outstanding Parent Common
Stock are subject to or obligated to enter into similar agreements. In order to
enforce the foregoing lock-up restriction, the Company may impose stop-transfer
instructions with respect to the Parent Common Stock issued in the Merger until
the end of such period. The lock-up restriction set forth in this Section shall
terminate on the fourth anniversary of the Closing Date.
(f) ADDITIONAL ASSURANCES. At the request of Parent, the Company
shall use its best efforts to cause the Company's stockholders to execute and
deliver to Parent such instruments and do and perform such acts and things as
may be necessary or desirable for complying with all applicable securities laws
and state corporate law.
5.2 ACCESS TO INFORMATION. Each party shall afford the others and their
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request,
subject, in the case of Parent, to reasonable limits on access to its technical
and other non-public information. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall affect or be deemed to modify
any representation or warranty contained herein or, except as provided by
Section 6.3(n), the conditions of the parties to consummate the Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees that such
information or knowledge obtained in any investigation pursuant to Section 5.2,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby shall constitute
"Information" as defined in the Confidentiality Agreement between Parent and the
Company dated February 18, 1997 (the "Confidentiality Agreement"), and shall be
subject to all of the restrictions applicable to Information, including without
limitation the restrictions on disclosure and use, contained in the
Confidentiality Agreement.
5.4 INTELLECTUAL PROPERTY. Parent and Company each agree that prior to
the Merger, any and all intellectual property, including trade secrets, created
or developed by either party shall remain the exclusive property of the party
who created or developed such property, notwithstanding the sharing of
information prior to the Merger.
5.5 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting, investment banking,
broker and finder fees and expenses and all other fees and expenses of third
parties (collectively, "Third Party
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Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that at the Closing an amount equal
to the amount of all of the Third Party Expenses of the Company shall be
deducted from the Cash Consideration and paid to the attorneys, accountants,
financial advisors, investment bankers, brokers and other third parties retained
by the Company. The Company shall submit to Parent no later than five (5)
business days prior to the Closing a final schedule of all of its Third Party
Expenses and shall cause all parties with any claims against the Company for any
Third Party Expenses to submit a final invoice to the Company (with a copy of
the invoice to Parent) for all fees and expenses no later than two (2) business
days prior to the Closing Date. Nothing in this Section 5.5 is intended to
enlarge, expand or otherwise alter any obligation of the Company to any
attorneys, accountants, financial advisors, investment bankers, brokers and
other third parties retained by the Company.
5.6 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Effective Time no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by the Company unless approved by
the Parent prior to release, provided that such approval shall not be
unreasonably withheld.
5.7 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of and benefits to the
Company thereunder.
5.8 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.9 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided, however, that Parent shall not be required to agree to
any divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or any business, assets or property of
Parent or its subsidiaries or affiliates or the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
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5.10 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
to Parent of (i) the occurrence or non-occurrence of any event, the occurrence
or non-occurrence of which is likely to cause any representation or warranty of
the Company contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Time and (ii) any failure of the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.10 shall not limit or otherwise affect any remedies available to
Parent.
5.11 CERTAIN BENEFIT PLANS. Parent shall take such reasonable actions as
are necessary to allow eligible employees of the Company that are hired by
Parent as of the Effective Time to participate in the benefit programs of Parent
as soon as practicable after the Effective Time.
5.12 VOTING AGREEMENT. The Company shall deliver or cause to be delivered
to Parent, concurrently with the execution of this Agreement, from each person
listed on Schedule 5.12, an executed Voting Agreement in the form attached
hereto as EXHIBIT 5.12 (the "Voting Agreements"), agreeing, among other things,
to vote in favor of the Merger and against any competing proposals.
5.13 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions and contemplated hereby.
5.14 NOMINATION FOR ELECTION TO PARENT BOARD OF DIRECTORS. If one of the
conditions described in Section 1.6(b)(ii)(A) above is satisfied, Parent shall
use good faith efforts to cause its Board of Directors to nominate an individual
designated in writing by the Securityholder Agent, which individual must also be
acceptable to the Chairman of Parent's Board of Directors and must have
significant prior pharmaceutical experience, for election to serve in the class
of Parent's Board of Directors having at the time the longest available term in
accordance with the provisions of Parent's Bylaws at the first meeting of
Parent's Board of Directors after the Securityholder Agent and the Chairman of
Parent's Board of Directors have agreed upon the identity of the individual.
5.15 NASDAQ NATIONAL MARKET LISTING. Parent shall cause the shares of
Parent Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger, to be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.
5.16 COMPANY AUDITORS. The Company will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC regulations and (ii) the
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review of the Company's audit work papers for up to the past three years,
including the examination of selected interim financial statements and data.
5.17 OPTION TO OBTAIN RIGHTS TO LEAD COMPOUND. In the event that neither
of the conditions described in Section 1.6(b)(ii)(A) is satisfied on or prior to
the date that is eighteen (18) months after the Closing Date, the Securityholder
Agent shall have the option ("Lead Compound Option"), subject to the conditions
and on the terms described below, to acquire on behalf of each holder of any
Company Capital Stock outstanding immediately prior to the Effective Time and
each holder of an Assumed Option or an Assumed Warrant that is timely and
properly exercised after the Closing (together, the "Former Company
Stockholders") pursuant to the Technology Transfer Agreement in the form
attached hereto as EXHIBIT 5.17 (the "Technology Transfer Agreement"): (i) all
of Parent's and the Company's rights in the Lead Compound, in all improvements
solely and exclusively of, and enhancements solely and exclusively to, the Lead
Compound (the "Lead Compound Improvements") and in all documents and data
created solely and exclusively in connection with the development of the Lead
Compound (the "Lead Compound Information") (and in both the case of Lead
Compound Improvements and Lead Compound Information, not in any way related to
any of the other compounds, technologies or assets of Parent or the Company),
and (ii) one copy of all documents that contain any data regarding clinical
trials of the Lead Compound in combination with other drugs or drug candidates,
redacted to exclude therefrom any other information contained therein (together
with the Lead Compound Information, the "Lead Compound Documents"). In the
event the Securityholder Agent delivers written notice to Parent of his or her
election to exercise the Lead Compound Option within thirty (30) calendar days
after the date of the Parent Notice (as defined in Section 5.17(a) below),
Parent shall thereafter, subject to and in compliance with good medical and
clinical trial practices, promptly and permanently cease, and shall cause the
Company to cease, all development and use of the Lead Compound, the Lead
Compound Improvements and the Lead Compound Documents (collectively, the "Lead
Compound Rights").
(a) OPTION PROCEDURES. The Lead Compound Option shall be exercisable
solely by the Securityholder Agent on behalf of all of the Former Company
Stockholders. Parent will (i) deliver written notice (the "Parent Notice") to
the Securityholder Agent promptly after it has determined that neither of the
conditions described in Section 1.6(b)(ii)(A) has been satisfied and (ii) permit
the Securityholder Agent and up to two (2) consultants designated by the
Securityholder Agent to review the Lead Compound Information and the Lead
Compound Documents, provided that the Securityholder Agent and the consultants
execute a confidentiality agreement in a form reasonably acceptable to Parent
prior to initiating such review. To exercise the Lead Compound Option, the
Securityholder Agent must deliver to Parent written notice (the "Agent Notice")
of his or her election on behalf of all of the Former Company Stockholders to
exercise the Lead Compound Option within thirty (30) calendar days after the
date of the Parent Notice. Parent shall, promptly after receipt of the Agent
Notice, use its reasonable efforts to obtain the consent of the party from whom
the rights to the Lead Compound have been licensed (the "Licensing Party") to
the transfer of all of Parent's and the Company's rights in the Lead Compound
Rights to the
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Securityholder Agent or his or her designee, free and clear of all liens and
security interests created by Parent or, after the Effective Time, the Company.
Parent shall not, however, be required to pay any consideration to the Licensing
Party or to utilize any extraordinary efforts to obtain the Licensing Party's
consent to the transfer. In the event that within sixty (60) days of the date
of the Agent Notice (A) the Licensing Party for any reason will not consent to
the transfer or (B) the Securityholder Agent has not delivered to Parent a power
of attorney in the form approved by Parent executed by each Former Company
Stockholder, which power of attorney shall be in full force and effect and shall
appoint the Securityholder Agent as the attorney-in-fact for such Former Company
Stockholder to take all actions on behalf of such Former Company Stockholder
that the Securityholder Agent deems necessary or desirable in connection with
the Merger, and shall release Parent from all claims related to actions taken in
reliance on certificates or instructions of the Securityholder Agent, the Lead
Compound Option shall terminate and Parent shall be under no obligation (X) to
continue to attempt to obtain the Licensing Party's consent or (Y) to transfer
its and the Company's rights to the Lead Compound Rights to the Securityholder
Agent. In the event that the Licensing Party delivers to Parent its consent to
the transfer and the Securityholder Agent delivers to Parent the powers of
attorney within sixty (60) days of the date of the Agent Notice, Parent, the
Company and the Securityholder Agent shall promptly execute the Technology
Transfer Agreement.
(b) ACKNOWLEDGMENT. The Company, for itself and all Former Company
Stockholders, hereby acknowledges and agrees that:
(i) Parent currently does not have any obligation to the
Company or any Former Company Stockholder, and after the Effective Time neither
Parent nor the Company will at any time have any obligation to any Former
Company Stockholder, regarding the development of the Lead Compound;
(ii) Parent currently does not have any liability or other
obligation to the Company or any Former Company Stockholder, and after the
Effective Time neither Parent nor the Company will at any time have any
liability or other obligation to any Former Company Stockholder, for any actions
it takes or omits to take with respect to the Lead Compound;
(iii) Neither the Company nor any of the Former Company
Stockholders has any claim or cause of action of any kind against Parent, and
none of the Former Company Stockholders will at any time after the Effective
Time have any claim or cause of action of any kind against Parent or the
Company, related to the Lead Compound;
(iv) The Lead Compound Option, in the event that it becomes
exercisable by the Securityholder Agent, will represent only the option to
acquire all of Parent's and the Company's rights in the Lead Compound Rights
pursuant to the Technology Transfer Agreement and subject to the terms and
conditions described in this Section 5.17;
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(v) In the event the Lead Compound Option is exercised by the
Securityholder Agent, all rights to the Lead Compound Rights will be transferred
by Parent and the Company "as is and where is, with all faults" and without any
representations or warranties of any kind, express or implied (including,
without limitation, the implied warranty of merchantability, the implied
warranty of fitness for a particular purpose and any warranty of
noninfringement), other than that all rights to the Lead Compound are
transferred free and clear of all liens and security interests created by Parent
or, after the Effective Time, the Company.
(vi) The Securityholder Agent has significant knowledge
regarding the Lead Compound Rights and the risks associated with the development
of the Lead Compound and, at the time the Lead Compound Option is exercised,
will be fully aware of and able to evaluate the risks of the transaction.
(c) RELEASE. The Company, for itself, each of its Subsidiaries, all
Former Company Stockholders and each of their respective officers, directors,
stockholders, partners, agents, administrators, representatives, affiliates,
predecessors in interest, successors and assigns, hereby unconditionally and
forever releases and discharges Parent, each of its subsidiaries (including the
Surviving Corporation), and each of their respective officers, directors,
stockholders, partners, agents, administrators, representatives, affiliates,
predecessors in interest, successors and assigns (the "Released Parties") of and
from any and all claims, causes of action, liabilities, obligations, costs and
expenses of every kind and nature whatsoever, at law or in equity, whether
contractual, common law, statutory, federal, state or otherwise, known or
unknown, suspected or unsuspected, direct or derivative, which now exists or may
exist at any time in the future based upon, related to or arising from any
actions or failures to act by any of the Released Parties with respect to the
Lead Compound Rights at any time, whether before or after the Effective Time,
other than (i) the failure of Parent to perform its express obligations under
this Section 5.17 and (ii) in the event the Lead Compound Option is exercised
and the Technology Transfer Agreement is executed, a breach of the
representation and warranty contained in Section 1.2 of the Technology Transfer
Agreement or the covenant contained in Section 1.4 of the Technology Transfer
Agreement.
5.18 REPAYMENT OF LEAD COMPOUND DEBT. In the event the Merger is
consummated, Parent agrees to cause the Company to pay within two (2) business
days after the Closing, without interest, the amount of any Lead Compound Debt
incurred by the Company in accordance with the provisions of Section 4.1(m)
above, subject to Parent's receipt prior to the Closing of documentation
reasonably acceptable to Parent evidencing (i) the loan of the Lead Compound
Debt to the Company, (ii) the payment of the Lead Compound Expenses with the
proceeds of the Lead Compound Debt and (iii) the Company's receipt of the goods
or services therefor, and provided that Parent shall not be obligated to cause
the Company to pay any amount pursuant to this Section 5.18 for any Lead
Compound Debt that, together with the amount of all unpaid Lead Compound
Expenses as of the Effective Time, exceeds the amount of the Lead Compound
Expenses listed in Schedule 4.1, unless the excess amount is approved by
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Parent (which approval may be given or withheld in Parent's sole discretion) in
a writing specifically referencing this Section 5.18.
5.19 BRIDGE DEBT, SEVERANCE PAYMENTS AND UNPAID COMPANY LIABILITIES. In
the event the Merger is consummated, Parent agrees to cause the Company to pay
(i) the amount of any Bridge Debt incurred by the Company in accordance with the
provisions of Section 4.1(m) above, which payment will be made at the Closing,
and (ii) the Severance Payments, which payments will be made at the Closing as
directed in writing by the Securityholder Agent, except any portion of the
Severance Payments in excess of six (6) months base salary for any of the
individuals who are to receive such Severance Payments (the "Reserve Severance
Amount"). The Reserve Severance Amount shall be withheld by Parent and shall be
available to satisfy, at the discretion of and as directed by the Securityholder
Agent, any of the Unpaid Company Liabilities (as defined below) within the sixty
(60) day period following the Closing Date. Within five (5) business days after
the expiration of such sixty (60) day period, Parent shall cause the Company to
pay the remaining portion of the Reserve Severance Amount, if any, to the
individuals from whom such Reserve Severance Amount was withheld in proportion
to their relative base salaries (which amounts will be set forth in a writing
from the Securityholder Agent to Parent at the end of such sixty (60) day
period). Parent shall have no liability to such individuals for the payment of
the Severance Payments provided that it causes the Company to pay the Severance
Payments in accordance with the instructions of the Securityholder Agent.
Parent's obligation pursuant to this Section 5.19 to cause the Company to pay
the Bridge Debt at the Closing is subject to Parent's receipt prior to the
Closing of documentation reasonably acceptable to Parent evidencing (A) the loan
of the Bridge Debt to the Company, (B) the payment with the proceeds of the
Bridge Debt of liabilities of the Company incurred in the ordinary course of
business consistent with past practices, and (C) the Company's receipt of the
goods or services for which such liabilities were incurred. In addition, Parent
shall have no obligation under this Section 5.19 to cause the Company to pay any
Severance Payments to the extent that the aggregate amount of the Severance
Payments, when added to the Third Party Expenses of the Company, the Bridge Debt
and the Unpaid Company Liabilities (as defined below), exceeds $1,250,000. As
used in this Agreement, "Unpaid Company Liabilities" means all liabilities,
obligations and indebtedness of the Company (whether accrued, absolute,
contingent, matured, unmatured or other) that both (x) were incurred by the
Company or arise out of or relate to the operation of the Company's business at
or prior to the Closing and (y) are not disputed in good faith by the Company as
set forth in the Company Schedules, other than the Bridge Debt, the Severance
Payments, the Third Party Expenses of the Company, and the Assumed Liabilities
(as defined in Section 7.2(a) below).
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
(b) GOVERNMENT APPROVALS. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) NASDAQ LISTING. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq National Market, subject to official
notice of issuance.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company.
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a material adverse
effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the
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Effective Time, and the Company shall have received a certificate to such effect
signed by a duly authorized officer of Parent.
(c) THIRD PARTY CONSENTS. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents, approvals and
waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal opinion
from Brobeck, Phleger & Harrison, LLP, counsel to Parent, in substantially the
form attached hereto as EXHIBIT 6.2(d).
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on the Company or Parent; and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be preformed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by the chief executive officer of the Company.
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Parent shall have received a legal opinion from
Peabody & Arnold, special counsel to the Company, in substantially the form
attached hereto as EXHIBIT 6.3(d), which opinion may, with respect to matters of
Pennsylvania law, be given in reliance upon an opinion of Drinker, Biddle &
Raeth, counsel to the Company, in a form acceptable to Parent.
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(e) STOCKHOLDER QUESTIONNAIRE. Each of the Company's stockholders
shall have delivered to Parent an executed Stockholder Questionnaire which shall
be in full force and effect, or the Company shall have provided Parent with
evidence satisfactory to Parent in its sole discretion as to the status of each
of the Company's stockholders that has not delivered to Parent an executed
Stockholder Questionnaire as "accredited" as defined in Regulation D.
(f) PURCHASER REPRESENTATIVE. There shall be a Purchaser
Representative, as defined in Regulation D under the Securities Act, reasonably
satisfactory to Parent representing each of the stockholders of the Company who
are not "accredited" as defined in Regulation D, and such Purchaser
Representative shall have executed documentation reasonably satisfactory to
Parent.
(g) POWER OF ATTORNEY. Holders of not less than 95% of the aggregate
number of shares of Company Capital Stock outstanding immediately prior to the
Effective Time shall have delivered to the Securityholder Agent an executed
power of attorney in the form approved by Parent which shall be in full force
and effect appointing the Securityholder Agent as the attorney in fact for the
stockholder to take all actions on behalf of the stockholder that the
Securityholder Agent deems necessary or desirable in connection with the Merger
and releasing Parent from all claims related to actions taken in reliance on
certificates or instructions of the Securityholder Agent, and copies of each
executed power of attorney shall have been delivered to Parent.
(h) CONSULTING AND NON-COMPETITION AGREEMENTS. Each of the persons
listed on Schedule 6.3(h) shall have executed and delivered to Parent, a
Consulting and Non-Competition Agreement in substantially the form of EXHIBIT
6.3(h) and all of the Consulting and Non-Competition Agreements shall be in full
force and effect.
(i) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
liabilities, financial condition or results of operations of the Company since
the date of the Balance Sheet.
(j) SALE OF QUALITY BIOTECH, INC. The Company shall own no interest
in any capital stock of QBI.
(k) AMENDMENT OF LICENSE AGREEMENT. The Company shall have obtained
an amendment to the license agreement for the Lead Compound executed by the
Licensing Party in the form previously delivered to the Company by Parent.
(l) ACCELERATION AND TERMINATION OF TERMINATED OPTIONS. All of the
Terminated Options shall have been accelerated and terminated.
(m) AMENDMENT OF ASSUMED OPTIONS AND WARRANTS. The Company and each
holder of an Assumed Option and each holder of a Warrant shall have executed an
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amendment modifying the terms of the Assumed Option and the Warrant in a form
acceptable to Parent.
(n) TERMINATION OF RETIREMENT PLAN. The Avid Corporation Savings
Retirement Plan shall have been terminated.
(o) RESIGNATION OF DIRECTORS AND OFFICERS. The directors and
officers of the Company in office immediately prior to the Effective Time shall
have resigned as directors and officers of the Surviving Corporation effective
immediately following the Effective Time.
(p) DISSENTERS' RIGHTS. Holders of more than 2% of the outstanding
shares of the Company Capital Stock shall not have exercised, nor shall they
have any continued right to exercise, appraisal, dissenters' or similar rights
under applicable law with respect to their shares by virtue of the Merger.
(q) EMPLOYEE RELEASES. (i) Each person employed by the Company at
any time since June 1, 1997, shall have executed a general release and waiver in
a form acceptable to Parent of all claims arising out of the relationship of
employment, the termination of employment, or any matter arising out of the
employee's relationship with the Company or the transactions contemplated by
this Agreement, other than any rights the employee may have (x) to receive a
portion of the Merger Consideration as a holder of any Company Capital Stock or
an Assumed Option, (y) to receive the distribution of such employee's vested
interest in the Avid Corporation Savings Retirement Plan, or (z) to receive the
portion of the Severance Payments to which the employee may be entitled, (ii)
any period during which the employee is entitled under federal or state law to
revoke the release and waiver shall have expired, and (iii) each originally
executed release and waiver shall have been delivered to Parent.
(r) DUE DILIGENCE INVESTIGATION OF LEAD COMPOUND. Parent shall have
completed its due diligence investigation of the Lead Compound to Parent's
satisfaction, provided that no information or knowledge obtained in such
investigation shall affect or be deemed to modify any representation or warranty
of the Company contained herein.
(s) AMENDMENT TO DOMINION WARRANTS. The Company and Dominion
Ventures, Inc. shall have executed an amendment modifying the terms of the
Warrants held by Dominion Ventures, Inc. in a form acceptable to Parent.
(t) AMOUNT OF CERTAIN COMPANY LIABILITIES. The amount of the Bridge
Debt, the Unpaid Company Liabilities, the Third Party Expenses of the Company
and the Severance Payments shall not exceed in the aggregate $1,250,000
immediately prior to the Effective Time.
(u) ARTICLES OF INCORPORATION. The Company's Board of Directors and
stockholders shall have approved an amendment to the Company's Articles of
Incorporation (i) so that the distribution of the Merger Consideration in the
manner set
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forth in Section 1.7 shall be in compliance with the provisions of the Articles
of Incorporation and (ii) providing for such other changes as may be reasonably
requested by Parent in connection with the Merger, and such amendment shall be
in full force and effect prior to the Effective Time.
(v) TERMINATION OF RIGHTS AGREEMENT. The Company and the other
parties to the Registration Rights Agreement dated November 11, 1996, shall have
terminated such Agreement prior to the Effective Time.
(w) AMENDMENT TO MITANI AGREEMENT. The Company and Mitani & Co.,
Inc., shall have amended the Engagement Agreement dated April 15, 1996, as
amended on April 30, 1997, so that Mitani & Co., Inc. shall have no right to
acquire any capital stock of the Company or any options, warrants, conversion
privileges or other rights to purchase or acquire any capital stock of the
Company at any time from and after the Effective Time.
ARTICLE VII
ESCROW
7.1 ESCROW PERIOD. Subject to the following requirements, the Escrow Fund
shall be in existence immediately following the Closing Date and terminate at
5:00 p.m., North Carolina time, on the second anniversary of the Closing Date
(the "Escrow Period"), provided that the Escrow Period shall not terminate with
respect to such amount (or some portion thereof), that together with the
aggregate amount remaining in the Escrow Fund is necessary in the reasonable
judgment of Parent, subject to the objection of the Securityholder Agent (as
defined in Section 7.2(g) below) and the subsequent arbitration of the matter in
the manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period specified in any Officer's Certificate delivered to the Escrow
Agent (as defined in Section 7.2(a) below) prior to termination of such Escrow
Period.
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. As of the Effective Time, the Company's
stockholders will be deemed to have received and deposited with the Escrow Agent
400,000 shares of Parent Common Stock (plus any additional shares as may be
issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time) (the "Escrow Amount") without any act of any
stockholder. Within ten (10) days after the Closing Date, the Escrow Amount,
without any act of any stockholder, will be deposited with an institution
acceptable to Parent and the Securityholder Agent as escrow agent (the "Escrow
Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth herein and at Parent's cost and expense. The
portion of the Escrow Amount contributed on behalf of
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each stockholder of the Company shall be in proportion to the aggregate Parent
Common Stock which such holder would otherwise be entitled to receive under
Section 1.7. The Escrow Fund shall be available to compensate Parent and its
affiliates for any claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
"Losses") incurred by Parent, its officers, directors, or affiliates (including
the Surviving Corporation) directly or indirectly as a result of (i) any
inaccuracy or breach of a representation or warranty of the Company contained in
Article II herein (as modified by the Company Schedules), (ii) any failure by
the Company to perform or comply with any covenant contained herein, including
but not limited to Section 2.23 of this Agreement, (iii) any Taxes owing by the
Company or any Subsidiary, whether before or after the Closing, as a result of
the activities of the Company or the Subsidiary prior to the Closing, (iv) any
claim by any holder of Company Capital Stock that it did not receive the portion
of the Merger Consideration to which it was entitled, (v) the Company's
ownership of QBI or the operation or conduct of QBI's business, (vi) any unpaid
Third Party Expenses of the Company, (vii) any claim by any person employed by
the Company prior to the Effective Time arising out of the relationship of
employment, the termination of employment, or any matter arising out of the
person's relationship with the Company or the transactions contemplated by this
Agreement, other than any rights the person may have (A) to receive a portion of
the Merger Consideration as a holder of any Company Capital Stock or an Assumed
Option, (B) to receive the distribution of such person's vested interest in the
Avid Corporation Savings Retirement Plan, or (C) to receive the portion of the
Severance Payments to which the person may be entitled, or (vii) any liability
or obligation of any type, whether accrued, absolute, contingent, matured,
unmatured or other, incurred by the Company or arising out of or relating to the
operation of the Company's business at or prior to the Effective Time, excluding
(A) all liabilities and obligations that are specified in the Company Schedules
and both (1) first become due and payable after the Closing and (2) for which
the goods, services or other consideration to be received by the Company in
connection therewith are to be provided to the Company after the Closing, and
(B) the Lead Compound Expenses (such excluded liabilities and obligations, the
"Assumed Liabilities"). Parent and the Company each acknowledge that such
Losses, if any, would relate to the unresolved contingencies existing at the
Effective Time, which, if resolved at the Effective Time would have led to a
reduction in the aggregate Merger consideration. Nothing herein shall limit the
liability of the Company for any such breach of any representation, warranty or
covenant if the Merger does not close.
(b) DISTRIBUTIONS OF ESCROW AMOUNT.
(i) In the event that neither of the conditions described in
Section 1.6(b)(ii)(A) is satisfied on or prior to the date that is eighteen (18)
months after the Closing Date, Parent and the Securityholder Agent shall deliver
written notice to the Escrow Agent certifying that neither of such conditions
has been satisfied. The Escrow Agent shall within seventy-five (75) days
thereafter deliver to the stockholders of the Company the portion of the Escrow
Fund, if any, in excess of 200,000 shares of Parent
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Common Stock. Deliveries of Escrow Amounts to the stockholders of the Company
pursuant to this Section 7.2(b)(i) shall be made based on their interest in such
Escrow Amounts as of the Revaluation Date as certified by the Securityholder
Agent in an Agent Certificate delivered to Parent and the Escrow Agent no later
than fifteen (15) days prior to the date of the distribution from the Escrow
Fund. The Escrow Agent shall not be obligated to deliver any Escrow Amounts to
the stockholders of the Company pursuant to this Section 7.2(b)(i) unless and
until the Securityholder Agent shall have delivered an Agent Certificate to
Parent and the Escrow Agent with respect to such Escrow Amounts as required by
this Section 7.2(b)(i).
(ii) As soon as all claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of the Escrow
Period have been resolved and after the termination of the Escrow Period, the
Escrow Agent shall deliver to the stockholders of the Company the remaining
portion of the Escrow Fund not required to satisfy such claims. Deliveries of
Escrow Amounts to the stockholders of the Company pursuant to this Section
7.2(b)(ii) shall be made based on their interest in such Escrow Amounts as of
the date of distribution from the Escrow Fund as certified by the Securityholder
Agent in an Agent Certificate delivered to Parent and the Escrow Agent no later
than fifteen (15) days prior to the date of the distribution from the Escrow
Fund. The Escrow Agent shall not be obligated to deliver any Escrow Amounts to
the stockholders of the Company pursuant to this Section 7.2(b)(ii) unless and
until the Securityholder Agent shall have delivered an Agent Certificate to
Parent and the Escrow Agent with respect to such Escrow Amounts as required by
this Section 7.2(b)(ii).
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with respect to
the shares of Parent Common Stock contributed to the Escrow Fund by such
stockholder (and any voting securities added to the Escrow Fund in respect of
such shares of Parent Common Stock).
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(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Parent (an "Officer Certificate"): (A) stating that Parent has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue Losses, and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued, or
the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(f) hereof,
deliver to Parent out of the Escrow Fund, as promptly as practicable following
expiration of the 30-day period specified in Section 7.2(e) or after the Escrow
Agent shall have received written authorization from the Securityholder Agent to
make such delivery if such authorization is given prior to the end of the 30-day
period, shares of Parent Common Stock held in the Escrow Fund in an amount equal
to such Losses.
(ii) For purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the average of the closing prices of Parent Common Stock on the Nasdaq National
Market for the five (5) consecutive trading days ending five (5) trading days
prior to the Closing Date. Parent and the Securityholder Agent (as defined
below) shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to the
Escrow Agent.
(e) OBJECTIONS OF CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and Parent shall certify to the Escrow
Agent that such duplicate copy has been so delivered. For a period of thirty
(30) days after such delivery, the Escrow Agent shall make no delivery to Parent
of any shares of Parent Common Stock held in the Escrow Fund pursuant to Section
7.2(d) hereof unless the Escrow Agent shall have received written authorization
from the Securityholder Agent to make such delivery. After the expiration of
such thirty (30) day period, the Escrow Agent shall make delivery of shares of
Parent Common Stock from the Escrow Fund in accordance with Section 7.2(d)
hereof, provided that no such payment or delivery may be made if the
Securityholder Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both
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parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute shares of Parent Common
Stock form the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(f) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
New York, New York under the rules then in effect of the American Arbitration
Association. For purposes of this Section 7.2(f)(iii), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Parent shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award Parent less than the sum of one-half
(1/2) of the disputed amount plus any amounts not in dispute; otherwise, the
stockholders of the Company as represented by the Securityholder Agent shall be
deemed to be the Non-Prevailing Party. The disputed amount shall equal the
difference between the amount claimed or offered in settlement by Parent and the
amount claimed or offered in settlement by the Securityholder Agent prior to the
initiation of the arbitration. The Non-Prevailing Party to an arbitration shall
pay its own expenses, the fees of each arbitrator, the administrative costs of
the arbitration and the expenses, including without limitation, the reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
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(g) SECURITY AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any stockholder, Forrest H. Anthony,
Marcia T. Bates and Alan G. Walton shall be appointed as agents and attorneys-
in-fact (collectively, the "Securityholder Agent") for each stockholder of the
Company (except such stockholders, if any, as shall have perfected their
appraisal or dissenters' rights under Pennsylvania Law), for and on behalf of
stockholders of the Company, to give and receive notices and communication, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Securityholder Agent for the accomplishment of the foregoing. Such agency may
be changed by the stockholders of the Company from time to time upon not less
than thirty (30) days prior written notice to Parent; provided that none of the
Securityholder Agent may be removed unless holders of two-thirds in interest of
the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of the Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notice or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the stockholders of the Company. The Securityholder Agent shall,
and are hereby authorized to, act by majority approval as to any matter, even if
there are less than three (3) individuals acting as Securityholder Agent at the
time the action is taken.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgement. The stockholders of the Company on
whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally indemnify the Securityholder Agent and hold the Securityholder Agent
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Securityholder Agent and arising out of or in
connection with the acceptance or administration of the Securityholder Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Securityholder Agent as being
the decision, act, consent or instruction of each and every such stockholder of
the Company. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
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(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at the stockholders' expense, to participate in any defense
of such claim. Parent shall have the right in its sole discretion to settle any
such claim; provided, however, that except with the consent of the
Securityholder Agent, no settlement of any such claim with third-party claimants
shall alone be determinative of the amount of any claims against the Escrow
Fund. In the event that the Securityholder Agent has consented to any such
settlement, the Securityholder Agent shall have no power or authority to object
under any provision of this Article VII to the amount of any claim by Parent
against the Escrow Fund with respect to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instruction reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court of law, notwithstanding
any notices, warning or other communications form any party or any other person
to the contrary. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
justification.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross
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negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement or affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in the Escrow Fund except all cost, expenses, charges
and reasonable attorneys' fees incurred by the Escrow Agent due to the
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold the Escrow Agent harmless
against all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, and disbursements that may be
imposed on Escrow Agent or incurred by Escrow Agent in connection with the
performance of his or her duties under this Agreement, including but not limited
to any litigation arising from this Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
North Carolina. The successor escrow agent shall execute and
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deliver an instrument accepting such appointment and it shall, without further
acts, be vested with all the estates, properties, rights, powers, and duties of
the predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Eastern Daylight Savings Time) on August 29, 1997
(provided that the right to terminate this Agreement under this clause 8.1(b)(i)
shall not be available to pay any party whose willful failure to fulfill any
obligation hereunder has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any governmental entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of all or any portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold separate
all or a portion of the business or assets of the Company or Parent as a result
of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of representation,
warranty, covenant
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or agreement contained in this Agreement on the part of the Company and (i) such
breach has not been cured within five (5) business days after written notice to
the Company (provided that, no cure period shall be required for a breach which
by its nature cannot be cured), and (ii) as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not
then be satisfied;
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Parent or Merger Sub and (i) such breach has not been cured within. five (5)
business days after written notice to Parent (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and (ii) as
a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as
the case may be, would not then be satisfied.
When action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officer, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further, that provisions of Sections 5.3 and 5.4 and
Article VII of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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ARTICLE IX
GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except to the extent that survival is
necessary to effectuate the intent of such provisions) terminate on the second
anniversary of the Closing Date.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Triangle Pharmaceuticals, Inc.
4 University Place, 4611 University Drive
Durham, North Carolina 27707
Attention: Chris A. Rallis, Esq., Vice President, Business
Development, General Counsel and Secretary
Telephone No: (919) 493-5980
Facsimile No: (919) 493-5925
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: John A. Denniston, Esq.
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
(b) if to the Company, to:
Avid Corporation
1667 David Street
Camden, New Jersey 08104
Attention: Richard Driansky, Esq, Executive Vice President
Telephone No: (609) 966-2870
Facsimile No: (609) 966-0364
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with a copy to:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: William E. Kelly, Esq.
Telephone No: (617) 951-2005
Facsimile No: (617) 951-2125
(c) if to the Securityholder Agent:
Forrest H. Anthony
1426 Farview Road
Villanova, PA 19085
Telephone No.: (610) 525-0280
Facsimile No.: (610) 525-0280
Marcia T. Bates
BancBoston Ventures
175 Federal Street, 10th Floor
Boston, MA 02110
Telephone No.: (617) 434-1951
Facsimile No.: (617) 434-1153
Alan G. Walton
Oxford Bioscience Partners
315 Post Road West
Westport CT 06880
Telephone No.: (203) 341-3300
Facsimile No.: (203) 341-3309
with a copy to:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: William E. Kelly, Esq.
Telephone No: (617) 951-2005
Facsimile No: (617) 951-2125
9.3 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference
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purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. Executed counterparts delivered by
facsimile transmission shall have the same force and effect as originally
executed counterparts delivered personally.
9.5 ENTIRE AGREEMENT: ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto, the Confidentiality Agreement and the documents and instruments
and other agreements among the parties hereto referenced herein: (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Merger Sub may assign their
respective rights and delegate their respective obligations hereunder to their
respective affiliates.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonable
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement (except, to the extent applicable,
Section 1.3), shall be governed by and construed in accordance with the laws of
the State of Delaware regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof. Each of the parties hereto
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
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9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.11 CORPORATE TRANSACTION INVOLVING PARENT. If after the Effective Time
Parent is acquired by merger (including by reverse triangular merger), or is a
party to a consolidation, or liquidates, all references to "Parent Common Stock"
in this Agreement shall thereafter mean, on a per-share basis, the amount of
cash, securities and/or other property received by Parent stockholders for their
(pre-transaction) Parent Common Stock in such transaction.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Securityholder
Agent (but only as to Articles VII and IX for Securityholder Agent) have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
TRIANGLE PHARMACEUTICALS, INC. AVID CORPORATION
By: /s/ M. Nixon Ellis By: /s/ Forrest H. Anthony
-------------------------------- -------------------------------------
M. Nixon Ellis, President Forrest H. Anthony, President
and Chief Operating Officer and Chief Executive Officer
SECURITYHOLDER AGENT: PROJECT Z CORPORATION
/s/ Forrest H. Anthony By: /s/ M. Nixon Ellis
- ----------------------------------- -------------------------------------
Forrest H. Anthony M. Nixon Ellis, President
/s/ Alan G. Walton
- -----------------------------------
Alan G. Walton
/s/ Marcia T. Bates
- -----------------------------------
Marcia T. Bates
<PAGE>
---------------------------------------------------------------
TRIANGLE PHARMACEUTICALS, INC.
COMMON STOCK PURCHASE AGREEMENT
June 6, 1997
---------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1 Authorization and Sale of Common Stock............................ 1
1.1 Authorization..................................................... 1
1.2 Sale of Common.................................................... 1
Section 2 Closing Date; Delivery............................................ 1
2.1 Closing Date...................................................... 1
2.2 Delivery.......................................................... 1
Section 3 Representations and Warranties of the Company..................... 2
3.1 Organization and Standing......................................... 2
3.2 Corporate Power; Authorization.................................... 2
3.3 Issuance and Delivery of the Shares............................... 2
3.4 SEC Documents; Financial Statements............................... 2
3.5 Governmental Consents............................................. 3
3.6 No Material Adverse Change........................................ 3
3.7 Authorized Capital Stock.......................................... 3
3.8 No Dividends...................................................... 3
3.9 Litigation........................................................ 4
3.10 Real Property Holding Corporation................................. 4
3.11 Regulation S Representations...................................... 4
3.12 Amendment to Rights Agreement..................................... 4
Section 4 Representations, Warranties and Covenants of the Purchasers....... 5
4.1 Authorization..................................................... 5
4.2 Independent Investment Decision................................... 5
4.3 Investment Intent................................................. 5
4.4 Registration or Exemption Requirements............................ 5
4.5 Regulation S Representations...................................... 6
4.6 No Legal, Tax or Investment Advice................................ 7
4.7 Legends........................................................... 7
4.8 HSR Filings....................................................... 8
Section 5 Conditions to Closing of Purchasers............................... 8
5.1 Representations and Warranties.................................... 8
5.2 Covenants......................................................... 8
5.3 Qualifications.................................................... 8
5.4 Amendment to Rights Agreement..................................... 8
Section 6 Conditions to Closing of Company.................................. 8
6.1 Representations and Warranties.................................... 9
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TABLE OF CONTENTS
(CONTINUED)
PAGE
6.2 Covenants......................................................... 9
6.3 Qualifications.................................................... 9
6.4 Amendment to Rights Agreement..................................... 9
Section 7 Affirmative Covenants of the Company.............................. 9
7.1 Financial Information............................................. 9
7.2 Registration Requirements......................................... 9
7.3 Indemnification and Contribution.................................. 12
7.4 Nomination for Election to Company Board of Directors............. 14
7.5 Public Statements................................................. 14
Section 8 Miscellaneous..................................................... 15
8.1 Waivers and Amendments............................................ 15
8.2 Placement Agent's Fee............................................. 15
8.3 Governing Law..................................................... 15
8.4 Survival.......................................................... 15
8.5 Successors and Assigns............................................ 15
8.6 Entire Agreement.................................................. 15
8.7 Notices, etc...................................................... 15
8.8 Severability of this Agreement.................................... 16
8.9 Counterparts...................................................... 16
8.10 Further Assurances................................................ 16
8.11 Expenses.......................................................... 16
8.12 Currency.......................................................... 16
8.13 Attorneys' Fees................................................... 17
Exhibit A -- Schedule of Purchasers
Exhibit B -- Form of First Amendment to Restated Investors' Rights Agreement
Exhibit C -- Form of Registration Statement Questionnaire
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<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
June 6, 1997, by and among Triangle Pharmaceuticals, Inc., a Delaware
corporation (the "Company") with its principal office at 4 University Place,
4611 University Drive, Durham, North Carolina, 27707, (919) 493-5925 (fax), and
the entities listed on the Schedule of Investors attached hereto as EXHIBIT A
(the "Purchasers"). Unless otherwise defined herein, capitalized terms used
herein and not defined herein shall have the meanings given to them in
Regulation S ("Regulation S") under the Securities Act of 1933, as amended (the
"Securities Act").
Section 1
AUTHORIZATION AND SALE OF COMMON STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance
of 2,000,000 shares of its Common Stock pursuant to this Agreement (the
"Shares").
1.2 SALE OF COMMON. Subject to the terms and conditions of this
Agreement, the Company agrees to issue and sell to each Purchaser and each
Purchaser severally agrees to purchase from the Company the number of Shares set
forth opposite each Purchaser's name on EXHIBIT A for $15.00 per share. The
Company shall be responsible for any transfer or stamp taxes in respect of
issuing the Shares.
Section 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held at the offices of Brobeck, Phleger &
Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019 at 2:00 p.m.
Eastern Daylight Savings Time on June 6, 1997, or at such other time and place
upon which the Company and the Purchasers purchasing the majority of the Shares
shall agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a certificate, registered in the Purchaser's name as shown on
EXHIBIT A, representing the number of Shares to be purchased by the Purchaser.
Such delivery shall be against payment of the purchase price therefor by check
or wire transfer to the Company in the amount set forth on EXHIBIT A. It is
agreed among all parties that the issuance and sale of the Shares to the
Purchasers shall occur as one simultaneous transaction at the Closing.
<PAGE>
Section 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as of the
Closing as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing as a domestic corporation under the laws of
said state.
3.2 CORPORATE POWER; AUTHORIZATION. The Company has all requisite
legal and corporate power and has taken all requisite corporate action to
execute and deliver this Agreement, to sell and issue the Shares and to carry
out and perform all of its obligations under this Agreement. This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and (ii) as limited by equitable
principles generally. The execution and delivery of this Agreement does not,
and the performance of this Agreement and the compliance with the provisions
hereof and the issuance, sale and delivery of the Shares by the Company will
not, materially conflict with, or result in a material breach or violation of
the terms, conditions or provisions of, or constitute a material default under,
or result in the creation or imposition of any material lien pursuant to the
terms of, the Certificate of Incorporation or Bylaws of the Company or any
statute, law, rule or regulation or any state or federal order, judgment or
decree or any indenture, mortgage, lease or other material agreement or
instrument to which the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SHARES. The Shares, when issued and
paid for in accordance with the provisions of this Agreement, will be validly
issued and outstanding, fully paid and nonassessable. The issuance and delivery
of the Shares is not subject to preemptive or any other similar rights of the
stockholders of the Company or any liens or encumbrances.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Each report or proxy
statement delivered to the Purchasers is a true and complete copy of such
document as filed by the Company with the Securities and Exchange Commission
(the "SEC"). The Company has delivered to each Purchaser its Annual Report on
Form 10-K for the year ended December 31, 1996 (the "1996 10-K") and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the "March
10-Q"). The Company has filed in a timely manner all documents that the Company
was required to file with the SEC under Sections 13, 14(a) and 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), since its
initial public offering. As of their respective filing dates, all documents
filed by the Company with the SEC (the "SEC Documents") complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as
2.
<PAGE>
applicable. None of the SEC Documents as of their respective dates contained
any untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents (the
"Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the consolidated financial position of the Company and any
subsidiaries at the dates thereof and the consolidated results of their
operations and consolidated cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal, recurring adjustments).
3.5 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement except for (a) such filings as have been made
prior to the Closing, except that any notices of sale required to be filed with
the SEC under Regulation D of the Securities Act, or such post-closing filings
as may be required under applicable state securities laws, which will be timely
filed within the applicable periods therefor, and (b) the filing of the Nasdaq
National Market Notification Form with the Nasdaq National Market.
3.6 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein
or as disclosed to the Purchasers in writing prior to the Closing, since
March 31, 1997, there have not been any changes in the assets, liabilities,
financial condition, business prospects or operations of the Company from that
reflected in the March 10-Q and the Financial Statements except changes in the
ordinary course of business which have not been, either individually or in the
aggregate, materially adverse.
3.7 AUTHORIZED CAPITAL STOCK. The authorized capital stock of the
Company consists of (i) 75,000,000 shares of Common Stock, of which 17,585,108
shares are outstanding, and (ii) 5,000,000 shares of Preferred Stock, none of
which is outstanding. Except as set forth in the March 10-Q or the 1996 10-K or
as disclosed to the Purchasers in writing prior to the Closing, and except for
the grant of options to purchase a total of 15,500 shares of Common Stock
granted on May 1, 1997, there are no outstanding options, warrants or other
securities exercisable for, or convertible into, or commitments to issue
securities exercisable for or convertible into, capital stock of the Company, or
other commitments to issue any capital stock of the Company.
3.8 NO DIVIDENDS. The Company has not declared or paid any
dividends, or authorized or made any distribution or established any record date
for the issuance of any dividend or other distribution upon or with respect to
any class or series of its capital stock and will not do any of the foregoing
until after Purchasers have been listed as record holders of the Shares
purchased at the Closing.
3.
<PAGE>
3.9 LITIGATION. Except as disclosed in the SEC Documents, there are
no actions, suits, proceedings or investigations pending or, to the best of the
Company's knowledge, threatened against the Company or any of its properties
before or by any court or arbitrator or any governmental body, agency or
official in which there is a reasonable likelihood (in the judgment of the
Company) of an adverse decision that (a) could have a material adverse effect on
the Company's properties or assets or the business of the Company as presently
conducted or proposed to be conducted or (b) could impair the ability of the
Company to perform in any material respect its obligations under this Agreement.
3.10 REAL PROPERTY HOLDING CORPORATION. The Company is not and will
not voluntarily become a real property holding corporation within the meaning of
Internal Revenue Code Section 897(c)(2) and any regulations promulgated
thereunder.
3.11 REGULATION S REPRESENTATIONS.
(a) Neither the Company nor any of its affiliates (within the meaning
of Rule 144 under the Securities Act) nor any person acting on its or their
behalf has engaged or will engage in any Directed Selling Efforts in connection
with the offer and sale of the Shares.
(b) The Company is a Reporting Issuer within the meaning of
Regulation S.
(c) The Company has not offered the Shares to any persons other than
the Purchasers.
(d) The offer and sale of the Shares to the Purchasers are not part
of a plan or scheme on the part of the Company, any of its affiliates (within
the meaning of Rule 144 under the Securities Act) or any person acting on its or
their behalf to evade the registration provisions of the Securities Act.
3.12 AMENDMENT TO RIGHTS AGREEMENT. The First Amendment to Restated
Investors' Rights Agreement (the "Rights Amendment") in the form attached hereto
as EXHIBIT B. has been executed by the persons and entities that are required to
effectively amend the Restated Investors' Rights Agreement dated June 11, 1996
among the Company and the persons listed in SCHEDULE A attached thereto (the
"Rights Agreement"), and the Rights Amendment constitutes a legal, valid and
binding obligation of the Company.
4.
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Section 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company
as of the Closing Date, and agrees in favor of the Company, as follows, except
that Duquesne Fund, L.P. ("Duquesne") does not make any of the representations
or warranties contained in Section 4.5(a), (b) or (f):
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company
that: (i) Purchaser has been duly formed and is validly existing in good
standing under the laws of the jurisdiction of its formation; (ii) Purchaser has
all requisite legal and corporate or other power and capacity and has taken all
requisite corporate or other action to execute and deliver this Agreement, to
purchase the Shares to be purchased by it and to carry out and perform all of
its obligations under this Agreement; and (iii) this Agreement constitutes the
legal, valid and binding obligation of the Purchaser, enforceable in accordance
with its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, or similar laws relating to or affecting the enforcement of
creditors' rights generally and (b) as limited by equitable principles
generally.
4.2 INDEPENDENT INVESTMENT DECISION. Purchaser understands that no
United States federal or state agency has passed on, reviewed or made any
recommendation or endorsement of the Shares. In making the decision to purchase
the Shares in accordance with this Agreement, Purchaser has relied solely upon
independent investigations made by it and not upon any representations made by
the Company other than those made pursuant to this Agreement.
4.3 INVESTMENT INTENT. Purchaser is purchasing the Shares for its
own account, for investment purposes only, and not with a view to a distribution
thereof. Purchaser further understands that its acquisition of the Shares has
not been registered under the Securities Act or registered or qualified under
any state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein. Duquesne is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under the
Securities Act, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares to be made by it hereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further
acknowledges and understands that the Shares have not been registered under the
Securities Act and may not be resold or otherwise transferred except in a
transaction registered under the Securities Act or unless an exemption from such
registration is available.
5.
<PAGE>
4.5 REGULATION S REPRESENTATIONS.
(a) Purchaser is not a U.S. Person and is not acquiring the Shares
for the account or benefit of any U.S. Person, and Purchaser is not an affiliate
(within the meaning of Rule 144 under the Securities Act) of the Company.
(b) At the time the buy orders for the Shares were originated,
Purchaser was located outside the United States.
(c) Neither Purchaser nor any of its affiliates nor anyone acting on
its or their behalf has engaged or will engage in any Directed Selling Efforts
in connection with the offer and sale of the Shares.
(d) Purchaser:
(i) will not, prior to the later of the end of the Restricted
Period and November 1, 1997, offer or sell any of the Shares (or create or
maintain any derivative position equivalent thereto) in reliance on Regulation S
and will only offer or sell any of the Shares (or create or maintain any
derivative position equivalent thereto) during such period pursuant to
registration under the Securities Act or pursuant to an available exemption from
registration other than Regulation S and, in any case, in accordance with
applicable state securities laws and the provisions of this Agreement; and
(ii) will, after November 1, 1997, offer or sell the Shares (or
create or maintain any derivative position equivalent thereto) only in
accordance with the provisions of Regulation S, pursuant to registration under
the Securities Act, or pursuant to an available exemption from registration and,
in any case, in accordance with applicable state securities laws and the
provisions of this Agreement. Purchaser further agrees that unless the transfer
is pursuant to a registration under the Securities Act, prior to the transfer
(A) Purchaser will notify the Company of the proposed transfer and will furnish
the Company with a detailed statement of the circumstances surrounding the
proposed transfer, and (B) if reasonably requested by the Company, Purchaser
will furnish the Company with an opinion of counsel, reasonably satisfactory to
the Company and its counsel, that such transfer will not require registration of
the Shares under the Securities Act. Purchaser agrees to provide an opinion of
counsel for all transfers pursuant to Regulation S.
(e) Neither Purchaser's offer to buy the Shares nor Purchaser's
acquisition of the Shares is part of a plan or scheme on the part of Purchaser,
any of its affiliates or any person acting on its or their behalf to evade the
registration requirements of the Securities Act.
(f) Purchaser's offer to buy the Shares constituted, and Purchaser's
acquisition of the Shares will constitute, an Offshore Transaction.
6.
<PAGE>
(g) In addition to, and without in any way limiting, the other
restrictions contained in this Agreement, during any Restricted Period
applicable to the Shares, neither Purchaser nor any of its affiliates nor any
person acting on its or their behalf will engage in any Directed Selling Efforts
with respect to such Shares.
4.6 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Shares constitutes legal, tax or
investment advice. Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Shares.
4.7 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Shares shall be endorsed with the legends set
forth in Sections 4.7(a) and (b) below (other than the Shares purchased by
Duquesne, which shall be endorsed with the legends set forth in Sections 4.7(b)
and (c) below), and the Purchaser covenants that, except to the extent such
restrictions are waived by the Company, the Purchaser shall not transfer the
shares represented by any such certificate without complying with the
restrictions on transfer described in the legends endorsed on such certificate:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND HAVE BEEN SOLD IN RELIANCE ON THE EXEMPTION FROM REGISTRATION PROVIDED BY
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"). PRIOR TO NOVEMBER 1,
1997, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION OTHER THAN REGULATION S.
AFTER NOVEMBER 1, 1997, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT,
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION."
(b) "THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A CERTAIN COMMON STOCK PURCHASE AGREEMENT, AS AMENDED FROM
TIME TO TIME. THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
(c) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER THE SECURITIES
ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE SECURITIES ACT
7.
<PAGE>
OR ANOTHER AVAILABLE EXEMPTION THEREFROM, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(d) Any other legend required by law.
4.8 HSR FILINGS. No filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is or will be required by any of the
Purchasers in connection with the acquisition of the Shares by the Purchasers.
Section 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase the Shares at the Closing is,
at the option of such Purchaser, subject to the fulfillment or waiver (in its
sole discretion) on or before the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 COVENANTS. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required as of the Closing in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective as of the Closing.
5.4 AMENDMENT TO RIGHTS AGREEMENT. The Company and the persons whose
signatures are required to effectively amend the Rights Agreement shall have
executed the First Amendment to Restated Investors' Rights Agreement in the form
attached hereto as EXHIBIT B.
Section 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
8.
<PAGE>
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers contained in Section 4 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
6.2 COVENANTS. The Purchasers shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by the Purchasers on or before the
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required as of the Closing in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective as of the Closing.
6.4 AMENDMENT TO RIGHTS AGREEMENT. The Purchasers and the persons
whose signatures are required to effectively amend the Rights Agreement shall
have executed the First Amendment to Restated Investors' Rights Agreement in the
form attached hereto as EXHIBIT B.
Section 7
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1 FINANCIAL INFORMATION. The Company will mail the following
reports to each Purchaser until such Purchaser transfers, assigns or sells the
Shares purchased by such Purchaser pursuant to this Agreement:
(a) Within one hundred (100) days after the end of each fiscal year,
a copy of its Annual Report on Form 10-K.
(b) Within fifty-five (55) days after the end of the first, second
and third quarterly accounting periods of each fiscal year of the Company, a
copy of its Quarterly Report on Form 10-Q.
(c) Within ten (10) days after the Company files any Current Report
on Form 8-K with the SEC, such Current Report on Form 8-K.
7.2 REGISTRATION REQUIREMENTS.
(a) As soon as practicable after the Company becomes eligible to file
a registration statement on Form S-3 registering the resale of the Shares, or,
in the event that the Company is not eligible to file a registration statement
on Form S-3 registering the
9.
<PAGE>
resale of the Shares by November 1, 1997, then on a subsequent date as soon as
practicable after the Purchasers holding more than fifty percent (50%) of the
Shares then outstanding may request in writing, the Company shall prepare and
file a registration statement with the SEC under the Securities Act to register
the resale of the Shares (and the additional 789,500 shares of the Company's
Common Stock held by the Purchasers as of the date hereof) by the Purchasers
(the "Registration Statement") and use its best efforts to cause such
registration statement to be declared effective. All Purchasers shall deliver
to the Company an executed copy of the Registration Statement Questionnaire in
the form attached hereto as EXHIBIT C as a condition precedent to the Company's
obligation to file the Registration Statement with the SEC and in any event
within ten (10) days of the Company's request therefor. Each Purchaser will
promptly notify the Company of any changes in the information set forth in the
Registration Statement regarding such Purchaser or such Purchaser's "Plan of
Distribution."
(b) The Company shall pay all Registration Expenses (as defined
below) in connection with any registration, qualification or compliance
hereunder, and each Purchaser shall pay all Selling Expenses (as defined below)
and other expenses that are not Registration Expenses relating to the Shares
resold by such Purchaser. "Registration Expenses" shall mean all expenses,
except for Selling Expenses, incurred by the Company in complying with the
registration provisions herein described, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration. "Selling Expenses" shall mean all selling commissions,
underwriting discounts and stock transfer taxes applicable to the Shares and all
fees and disbursements of counsel for any Purchaser.
(c) In the case of the registration effected by the Company pursuant
to these registration provisions, the Company will use its best efforts to:
(i) keep such registration effective until the earliest of (A) nineteen (19)
months after the initial effective date of the Registration Statement, which
date shall be extended by the period (not to exceed five (5) months) equal to
the period, if any, that the Purchasers are unable to sell any Shares as a
result of any withdrawal of the Registration Statement by the Company pursuant
to Section 7.2(f) below (other than a withdrawal in response to any Notice of
Sale (as defined in Section 7.2(f) below) that indicates any Purchaser desires
to sell no more than 50,000 Shares)(the "Effective Period"), and (B) such date
as all of the Shares have been resold in transactions in which the Purchasers
have not assigned their benefits and obligations under Section 7 in accordance
with the provisions of Section 8.5 below; (ii) prepare and file with the SEC
such amendments and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement; (iii) furnish such number of
prospectuses and other documents incident thereto, including any amendment of or
supplement to the prospectus, as a Purchaser from time to time may reasonably
request; (iv) cause all Shares registered as described herein to be listed on
each securities exchange and quoted on each quotation service on which similar
securities issued by the Company are
10.
<PAGE>
then listed or quoted; (v) provide a transfer agent and registrar for all Shares
registered pursuant to the Registration Statement and a CUSIP number for all
such Shares; and (vi) file the documents required of the Company and otherwise
use its best efforts to maintain requisite blue sky clearance in (A) all
jurisdictions in which any of the Shares are originally sold and (B) all other
states specified in writing by a Purchaser, provided as to clause (B), however,
that the Company shall not be required to qualify to do business or to file a
general consent to service of process in any state in which it is not now so
qualified or has not so consented.
(d) The Company shall furnish to each Purchaser upon request a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary in order to facilitate the public sale or other
disposition of all or any of the Shares held by the Purchaser.
(e) With a view to making available to the Purchasers the benefits of
Rule 144 promulgated under the Securities Act ("Rule 144") and any other rule or
regulation of the SEC that may at any time permit a Purchaser to sell Shares to
the public without registration or pursuant to the Registration Statement, the
Company covenants and agrees to: (i) make and keep public information
available, as those terms are understood and defined in Rule 144, until the
earlier of (A) the end of the Effective Period or (B) such date as all of the
Shares have been resold in transactions in which the Purchasers have not
assigned their benefits and obligations under Section 7 in accordance with the
provisions of Section 8.5 below; (ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
Exchange Act; and (iii) furnish to any Purchaser upon request, as long as the
Purchaser owns any Shares, (A) a written statement by the Company that it has
complied with the reporting requirements of the Securities Act and the Exchange
Act, (B) a copy of the most recent annual or quarterly report of the Company,
and (C) such other information as may be reasonably requested in order to avail
any Purchaser of any rule or regulation of the SEC that permits the selling of
any such Shares without registration or pursuant to the Registration Statement.
(f) In the event any Purchaser desires to sell the Purchaser's Shares
pursuant to the Registration Statement, the Purchaser shall give the Company
three (3) business days' notice (which notice, if given orally, will be
confirmed in writing within 24 hours) of its desire to sell in reliance on such
Registration Statement including an estimate of whether its desire is to sell
more than 50,000 Shares (the "Notice of Sale"). The Company may refuse to
permit a Purchaser to resell any Shares pursuant to the Registration Statement;
provided, however, that in order to exercise this right, the Company must
deliver a certificate in writing to the Purchaser within three (3) business days
following the Company's receipt of the Notice of Sale to the effect that
withdrawal of such Registration Statement is necessary because a sale pursuant
to the Registration Statement in its then-current form could constitute a
violation of the federal securities laws. In such an event, the Company shall
use its best efforts to amend the Registration Statement if necessary as soon as
practicable and in any event within sixty (60) days after the Company's receipt
of the Notice of Sale, and shall notify the Purchasers promptly after it has
determined that such
11.
<PAGE>
sale has become permissible under the federal securities laws. Notwithstanding
the foregoing, the Company shall not under any circumstances be entitled to
exercise its right to refuse to permit the resale of any Shares pursuant to the
Registration Statement more than two (2) times in any twelve (12) month period,
except that the Company's exercise of its right to refuse to permit the resale
of any Shares pursuant to the Registration Statement in response to any Notice
of Sale that indicates the Purchaser desires to sell no more than 50,000 Shares
shall not count toward its limit of two (2) refusals in any twelve (12) month
period. The period during which such Registration Statement may be withdrawn
shall not exceed sixty (60) days. Each Purchaser hereby covenants and agrees
that it will not sell any Shares pursuant to the Registration Statement during
the periods the Registration Statement is withdrawn as set forth in this
Section 7.2(f).
7.3 INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Purchaser
and its affiliates (within the meaning of Rule 144 under the Securities Act)
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which they may become subject (under the
Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, (x) any untrue statement of a material fact contained in the
Registration Statement, on the effective date thereof, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (y) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (z) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, or any rule or regulation promulgated
under the Securities Act or the Exchange Act, or arise out of any failure by the
Company to fulfill any undertaking included in the Registration Statement, and
the Company will, as incurred, reimburse such Purchaser for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such loss, claim, damage or liability (or action or proceeding in respect
thereof); provided, however, that the Company shall not be liable in any such
case to the extent that such loss, claim, damage or liability (or action or
proceeding in respect thereof) arises out of, or is based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Purchaser specifically for use in preparation of the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the failure of such Purchaser to
comply with the covenants and agreements contained in Section 7.3 hereof, or
(iii) any untrue statement in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser prior to the pertinent sale or
sales by the Purchaser.
(b) Each Purchaser, severally and not jointly, agrees to indemnify
and hold harmless the Company and its affiliates (within the meaning of Rule 144
under the Securities Act) from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the Company
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions
12.
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or proceedings in respect thereof) arise out of, or are based upon (i) an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Purchaser specifically for use in preparation of the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, provided, however, that no Purchaser
shall be liable in any such case for any untrue statement included in any
Prospectus which statement has been corrected, in writing, by such Purchaser and
delivered to the Company before the sale from which such loss occurred, (ii) the
failure of such Purchaser to comply with the covenants and agreements contained
in Section 7.3 hereof, or (iii) any untrue statement in any Prospectus that is
corrected in any subsequent Prospectus that was delivered to the Purchaser prior
to the pertinent sale or sales by the Purchaser, and each Purchaser, severally
and not jointly, will, as incurred, reimburse the Company for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such loss, claim, damage or liability (or action or proceeding in respect
thereof); provided, however, that no Purchaser shall be liable for any amount in
excess of the amount by which the net amount received by the Purchaser from the
sale of the Shares to which such loss relates exceeds the amount of any damages
which such Purchaser has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; provided,
however, that if there exists or shall exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the indemnified person for
the same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person shall be
entitled to retain its own counsel at the expense of such indemnifying person.
(d) If the indemnification provided for in this Section 7.3 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Purchasers
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages
13.
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or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a Purchaser on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Purchasers agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation (even if
the Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), no Purchaser
shall be required to contribute any amount in excess of the amount by which the
net amount received by the Purchaser from the sale of the Shares to which such
loss relates exceeds the amount of any damages which such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Purchasers' obligations in this subsection
(d) to contribute are several in proportion to their respective sales of Shares
to which such loss relates and not joint.
(e) The obligations of the Company and the Purchasers under this
Section 7.3 shall be in addition to any liability which the Company and the
respective Purchasers may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls the Company or any
Purchaser within the meaning of the Act.
7.4 NOMINATION FOR ELECTION TO COMPANY BOARD OF DIRECTORS. Upon the
request of the record holders of more than fifty percent (50%) of the Shares
then outstanding and held by Purchasers (the "Majority Holders"), the Company
shall use its best efforts to cause its Board of Directors to nominate and elect
or have elected after June 24, 1997, an individual designated in writing by the
Majority Holders, which individual must also be acceptable to the Chairman of
the Company's Board of Directors, to serve on the Company's Board of Directors;
provided, however, that the Company's obligation pursuant to this Section 7.4
shall terminate on the earlier of (i) the second anniversary of the Closing Date
and (ii) the date when the aggregate number of shares of the Company's Common
Stock held by the Purchasers is less than ten percent (10%) of the total number
of outstanding shares of the Company's Common Stock.
7.5 PUBLIC STATEMENTS. Neither the Company nor the Purchasers shall
use the name of the other in any press release or filing with the SEC (excluding
Schedule 13Ds and Forms 3, 4 and 5) without the prior approval of the other
party, which approval may not be unreasonably withheld or delayed; PROVIDED,
HOWEVER, that to the extent such prior
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approval is impracticable, the party issuing the press release or making the
filing with the SEC shall provide a copy of such press release or SEC filing to
the other party as promptly as practicable thereafter; and PROVIDED, FURTHER,
that if the other party does not approve such press release or SEC filing, the
party issuing the press release or making the filing with the SEC may still use
the name of the other party in any press release or SEC filing without the prior
written approval of the other party, if the party issuing the press release or
making the filing with the SEC is advised by counsel that such disclosure is
required to comply with applicable law.
Section 8
MISCELLANEOUS
8.1 WAIVERS AND AMENDMENTS. With the exception of Section 7 hereof,
the terms of this Agreement may be waived or amended with the written consent of
the Company and each Purchaser. With respect to Section 7 hereof, with the
written consent of the Company and the record holders of more than fifty percent
(50%) of the Shares then outstanding and held by Purchasers, the terms of
Section 7 of this Agreement may be waived or amended and any such amendment or
waiver shall be binding upon the Company and all holders of Shares.
8.2 PLACEMENT AGENT'S FEE. Each Purchaser acknowledges that the
Company intends to pay to George McFadden or an entity designated by him a fee
of $500,000 in respect of the sale of the Shares. Each of the parties hereto
hereby represents that, on the basis of any actions and agreements by it, there
are no other brokers or finders entitled to compensation in connection with the
sale of the Shares to the Purchasers.
8.3 GOVERNING LAW. This Agreement shall be governed in all respects
by and construed in accordance with the laws of the State of Delaware without
any regard to conflicts of laws principles.
8.4 SURVIVAL. The representations, warranties, covenants and
agreements made in this Agreement shall survive any investigation made by the
Company or the Purchasers and the Closing.
8.5 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement. Notwithstanding the foregoing,
no Purchaser shall assign this Agreement without the prior written consent of
the Company, which consent may be withheld by the Company in its sole discretion
for any or no reason; provided, that the benefits and obligations of any
Purchaser under Section 7 may be transferred by a Purchaser without the prior
written consent of the Company to any person that acquires at least 51% of the
Shares acquired by such Purchaser at the Closing, so long as the transferee
agrees in writing to be bound by the provisions of Section 7 to the same extent
as the Purchaser from whom it acquired the Shares.
15.
<PAGE>
8.6 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
8.7 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be in writing and may be delivered in
person, by facsimile, overnight delivery service or registered or certified
United States mail, addressed to the Company or the Purchasers, as the case may
be, at their respective addresses set forth at the beginning of this Agreement
or on EXHIBIT A, and in the case of all notices and other communications to the
Purchasers, a copy will be delivered to Soros Fund Management LLC, 888 Seventh
Avenue, Suite 3300, New York, New York 10106, Attn: Sean Warren, (212) 541-7751
(fax), or at such other address as the Company or the Purchasers shall have
furnished to the other party in writing. All notices and other communications
shall be effective upon the earlier of actual receipt thereof by the person to
whom notice is directed or (i) in the case of notices and communications sent by
personal delivery or facsimile, one business day after such notice or
communication arrives at the applicable address or was successfully sent to the
applicable facsimile number, (ii) in the case of notices and communications sent
by overnight delivery service, at noon (local time) on the second business day
following the day such notice or communication was sent, and (iii) in the case
of notices and communications sent by United States mail, seven days after such
notice or communication shall have been deposited in the United States mail.
8.8 SEVERABILITY OF THIS AGREEMENT. If any provision of this
Agreement shall be judicially determined to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.10 FURTHER ASSURANCES. Each party to this Agreement shall use its
best efforts to cause the Closing to occur and shall do and perform or cause to
be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
the other party hereto may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EXPENSES. The Company shall bear its own expenses incurred on
its behalf with respect to the execution of this Agreement and the Closing of
the transactions contemplated hereby, including fees of its legal counsel, and
will, promptly after receipt of an invoice therefor, reimburse the reasonable
fees and costs of one special counsel for the Purchasers up to a maximum amount
of $15,000.
8.12 CURRENCY. All references to "dollars" or "$" in this Agreement
shall be deemed to refer to United States dollars.
16.
<PAGE>
8.13 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
TRIANGLE PHARMACEUTICALS, INC.,
a Delaware corporation
By:
--------------------------------------
Title:
--------------------------------------
"PURCHASERS"
QUANTUM PARTNERS LDC, a Cayman Islands limited
duration company
By:
--------------------------------------
Title:
--------------------------------------
QUANTUM INDUSTRIAL PARTNERS LDC, a Cayman Islands
limited duration company
By:
--------------------------------------
Title:
--------------------------------------
DUQUESNE FUND, L.P.
By: Duquesne Capital Management, L.L.C., its
investment advisor
By:
-----------------------------------
Gerald Kerner, Managing Director
17.
<PAGE>
Exhibit A
SCHEDULE OF PURCHASERS
Aggregate
Purchaser Purchase Price Shares
- --------- -------------- ------
Quantum Partners LDC $3,000,000 200,000
c/o Curacao Corporation N.V.
Kaya Flamboyan 9, Willemstad, Curacao
Netherlands Antilles
Quantum Industrial Partners LDC $15,000,000 1,000,000
c/o Curacao Corporation N.V.
Kaya Flamboyan 9, Willemstad, Curacao
Netherlands Antilles
Duquesne Fund, L.P. $12,000,000 800,000
c/o Duquesne Capital Management, L.L.C.
888 Seventh Avenue, Suite 3300
New York, New York 10106
Attn: Gerald Kerner
TOTALS $30,000,000 2,000,000
----------- ---------
----------- ---------
<PAGE>
Exhibit B
FORM OF FIRST AMENDMENT TO
RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Exhibit C
TRIANGLE PHARMACEUTICALS, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information regarding the Purchaser.
1. Please state your organization's name exactly as it should appear
in the Registration Statement:
2. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the Prospectus included in the
Registration Statement?
Yes No
If yes, please indicate the nature of any such relationships below:
<PAGE>
FIRST AMENDMENT TO RESTATED INVESTORS' RIGHTS AGREEMENT
This First Amendment to Restated Investors' Rights Agreement (the
"Amendment") is made as of this 6th day of June, 1997, by and among Triangle
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), the investors
executing this Amendment on the signature pages hereto under the heading "The
Investors," and the investors executing this Amendment on the signature pages
hereto under the heading "The New Investors" (the "Soros Funds"), and amends
certain portions of the Restated Investors' Rights Agreement dated June 11, 1996
(the "Agreement"), among the Company and the individuals and entities listed on
SCHEDULE A to the Agreement (the "Existing Investors"). Capitalized terms not
otherwise defined herein will have the meanings given to them in the Agreement.
RECITALS
WHEREAS, the Company desires to sell and issue to the Soros Funds, and
the Soros Funds desire to purchase from the Company, 2,000,000 shares of the
Company's Common Stock (the "Shares") pursuant to the Common Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement"), the form
of which is attached hereto as EXHIBIT A.
WHEREAS, the Existing Investors desire for the Soros Funds to purchase
the Shares and, as a condition thereof and to induce such investment, the
Existing Investors are willing to enter into this Amendment to permit the Soros
Funds to become parties to certain sections of the Agreement, as amended by this
Amendment (the "Amended Agreement").
WHEREAS, the Existing Investors are holders of a sufficient number of
Registrable Securities to effectively amend the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENTS TO AGREEMENT. The Agreement is hereby amended as
follows:
1.1 SECTION 1.1(f). Section 1.1(f) is hereby amended and
restated in its entirety to read as follows:
"(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, (ii)
the Common Stock issuable or issued upon conversion of the Series B
Preferred Stock, (iii) the 2,000,000 shares of Common Stock purchased by
the Soros Funds on June 6, 1997 (the "Soros Shares"), and
<PAGE>
(iv) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of the shares referenced in (i), (ii) or (iii) above;
excluding in all cases, however, any Registrable Securities sold by a
person or entity in a transaction in which its rights under this Section 1
are not assigned; and PROVIDED, HOWEVER, that notwithstanding anything
herein to the contrary, the Soros Shares and any shares of Common Stock
referenced in (iv) above that are issued in respect of any Soros Shares
shall not be "Registrable Securities" for purposes of Sections 1.2, 1.6,
1.11, 1.12 or 1.14."
1.2 SECTION 1.1(g). Section 1.1(g) is hereby amended and
restated in its entirety to read as follows:
"(g) The number of shares of "Registrable Securities then
outstanding" means the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities for
purposes of the Section of this Agreement pursuant to which such
calculation is made."
1.3 SECTION 1.1(i). A new section 1.1(i) is hereby added to the
Agreement as follows:
"(i) The term "Soros Funds" shall mean the entities that acquired
the Soros Shares pursuant to a certain Common Stock Purchase Agreement
dated as of June 6, 1997."
1.4 SECTION 3.7. Section 3.7 is hereby amended and restated in
its entirety to read as follows:
"3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding for
purposes of the Section of the Agreement to which the amendment or waiver
relates. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities,
and the Company."
1.5 SCHEDULE A. SCHEDULE A to the Agreement is hereby amended
and restated in its entirety with SCHEDULE A attached to this Amendment.
-2-
<PAGE>
2. CONSENT AND WAIVER. Each Existing Investor, on behalf of itself and
all of the other Existing Investors under the Agreement, hereby (a) consents to
(i) adding the Soros Funds as parties to the Amended Agreement, (ii) granting
the registration rights to the Soros Funds as set forth in the Amended Agreement
and (iii) granting the registration rights to the Soros Funds as set forth in
the Stock Purchase Agreement, and (b) waives any rights the Existing Investors
may have under the Agreement or otherwise to cause the Company to register any
of the Investors' Registrable Securities as part of the registration of the
resale of the Soros Shares in accordance with the provisions of the Stock
Purchase Agreement.
3. EFFECT OF AMENDMENT; CONFLICTS. Except as specifically amended by
this Amendment, the Agreement shall continue in full force and effect. In the
event of any conflict between the terms of the Agreement and the terms of this
Amendment, the terms of this Amendment shall govern and control.
4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which will be deemed an original, and all of which
together shall constitute one instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, this Amendment is hereby executed as of the date first
above written.
THE COMPANY:
, a Delaware corporation
--------------------------
By:
------------------------------------------
Its:
-----------------------------------------
THE NEW INVESTORS:
---------------------------------------------
(INVESTOR NAME)
By:
------------------------------------------
Its:
-----------------------------------------
THE INVESTORS:
---------------------------------------------
(INVESTOR NAME)
By:
------------------------------------------
Its:
-----------------------------------------
[SIGNATURE PAGE TO FIRST AMENDMENT TO
RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
Dr. David Barry
Dr. Dennis Carson
Chung K. Chu
John R. Cook
Dr. M. Nixon Ellis
Forward Ventures II, L.P.
Forward Ventures Vanguard Fund
Dr. Phillip Furman
Dr. Karl Y. and Margaretha Hostetler,
Trustees of The Hostetler Family Trust
UTD March 18, 1992
Carolyn Jenkins
James Klein
Dr. Sandra Lehrman
Dennis Liotta
Alexander B. McFadden deceased,
Mellon Bank N.A., Alexander Cushing
& George McFadden U/W
Carol McFadden
George McFadden
George & Lesley Taylor McFadden
Trustees, U/A DTD 9/22/71 F/B/O
Elizabeth Cutting McFadden Trust
GS Triangle Holdings
John H. McFadden
Whilelmina Joseph McFadden 1995 Trust Dtd.
Nov. 6th, 1995, between George McFadden as
Donor and David R. Hamilton as Trustee
McFadden Brothers
Chris A. Rallis
Dr. Douglas and Eva Richman,
Co-Trustees of the Richman
Family Trust dated June 2, 1983
Raymond Schinazi
Schroder Venture Managers Limited
Jeff Sollender
Soros Funds (as defined above)
Lesley Taylor
UMB as Trustee for Brobeck, Phleger & Harrison
Retirement Savings Trust FBO John A. Denniston
Venrock Associates
Venrock Associates II, L.P.
The Wellcome Trust Limited as trustee of
The Wellcome Trust
SCHEDULE A-1
<PAGE>
EXHIBIT A
FORM OF COMMON STOCK PURCHASE AGREEMENT
EXHIBIT A-1
<PAGE>
LICENSE AGREEMENT
BETWEEN
MITSUBISHI CHEMICAL CORPORATION
AND
TRIANGLE PHARMACEUTICALS, INC.
*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2 under
the 1934 Act.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. LICENSES AND MANUFACTURING . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3. ROYALTIES AND MILESTONE PAYMENTS . . . . . . . . . . . . . . . . 11
ARTICLE 4. REPORTS AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 5. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 6. DEVELOPMENT PROGRAM. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 7. PATENT PROSECUTION . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 8. INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 9. WARRANTIES AND INDEMNIFICATION . . . . . . . . . . . . . . . . . 32
ARTICLE 10. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 11. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 12. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 13. TRANSFER OF KNOW-HOW; TECHNICAL ASSISTANCE. . . . . . . . . . . 40
ARTICLE 14. REGISTRATION OF LICENSE . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE
COMPETITION AND PATENT TERM RESTORATION ACT. . . . . . . . . . 43
ARTICLE 16. DISPUTE RESOLUTION AND ARBITRATION. . . . . . . . . . . . . . . 44
ARTICLE 17. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>
THIS LICENSE AGREEMENT is made and entered into as of this 17th day of June
1997, by and between MITSUBISHI CHEMICAL CORPORATION, with its principal offices
at 5-2 Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan (hereinafter referred to as
"Mitsubishi"), and TRIANGLE PHARMACEUTICALS, INC., with principal offices
located at 4 University Place, 4611 University Drive, Durham, NC 27707
(hereinafter referred to as "Triangle").
WITNESSETH:
WHEREAS, Mitsubishi and Triangle have entered into an Option Agreement,
dated as of December 20, 1995 (the "Option Agreement"), pursuant to which
Triangle was granted an option to obtain an exclusive license under certain of
Mitsubishi's intellectual property rights relating to the Compound (as
hereinafter defined); and
WHEREAS, Triangle has exercised the option in accordance with the terms and
conditions specified in the Option Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following terms as used herein, when written with an initial capital
letter, shall have the meaning ascribed to them below:
1.1 "Affiliate" shall mean any corporation or non-corporate business
entity which controls, is controlled by, or is under common control with a party
to this Agreement. A corporation or non-corporate business entity shall be
regarded as in control of another corporation if it owns, or directly or
indirectly controls, at least fifty (50%) percent of the voting stock of the
other corporation, or
(a) in the absence of the ownership of at least fifty
1
<PAGE>
(50%) percent of the voting stock of a corporation or (b) in the case of a
non-corporate business entity, or non-profit corporation, if it possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation or non-corporate business entity, as
applicable.
1.2 "Agreement" or "License Agreement" shall mean this Agreement,
including all Appendices attached to this Agreement.
1.3 "Bulk Drug Substance" shall mean the Compound in bulk form which, if
appropriately formulated and finished, would constitute Finished Drug Product .
1.4 "Compound" shall mean the compound known as MKC-442, with the chemical
name 6-Benzyl-(ethoxy methyl)-5-isopropyl uracil including any salts and
esters thereof.
1.5 "Development Program" shall mean the research and development program
described in Article 6 of this Agreement.
1.6 "Direct Manufacturing Cost" shall mean Triangle's or its Affiliate's
or sublicensee's, as applicable, direct costs of manufacturing Bulk Drug
Substance including labor, materials, utilities, depreciation, allocated
manufacturing overhead and other manufacturing expenses applied by Triangle ,
its Affiliate or sublicensee and conforming to generally accepted accounting
principles in the country of manufacture, the details of which shall be as
determined in good faith by Triangle. In the event Triangle, its Affiliates or
sublicensees purchase Bulk Drug Substance from an independent third party, the
Direct Manufacturing Cost for any quantities so purchased shall be the
acquisition cost on an F.O.B. formulating site basis (including custom duties)
from such third party plus, in the case of any quantities so purchased from any
of Mitsubishi's subcontractors identified in Section 13.3, any brokers' fees
paid, directly or indirectly, by Triangle in connection with such purchase.
2
<PAGE>
1.7 "Dollars" shall mean United States dollars.
1.8 "Effective Date" shall mean the date first written above.
1.9 "FDA" shall mean the United States Food and Drug Administration or
successor entity.
1.10 "Finished Drug Product" shall mean Bulk Drug Substance formulated into
a final dosage form appropriate for human use.
1.11 "IND" shall mean an Investigational New Drug Application or its
domestic or foreign equivalent.
1.12 "Indemnitees" shall mean (a) in the case of the indemnity set forth in
Subsection 9.4(a), Mitsubishi, and its Affiliates and their directors, officers
and employees; (b) in the case of the indemnity set forth in Subsection 9.4(b),
Triangle, its Affiliates and sublicensees, and their directors, officers and
employees; and (c) in the case of the Indemnitees referenced in Section 9.5, the
parties identified in Subsections 1.12(a) and 1.12(b) above.
1.13 "Joint Inventions" shall mean any inventions related to the
Compounds or the Licensed Products whether patented or not, which are jointly
made during the period beginning on the Effective Date and ending *** after
termination or expiration of this Agreement pursuant to Article 11 by at
least one (1) Mitsubishi employee or person contractually required to assign
or license patent rights covering such inventions to Mitsubishi and at least
one (1) Triangle employee or person contractually required to assign or
license patent rights covering such inventions to Triangle.
1.14 "Joint Know-How" shall mean all inventions, discoveries, trade
secrets, information, data, formulas, procedures and results which are useful
for development, registration, manufacturing, using or selling of the Compounds
or the Licensed Products
3
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
which are developed jointly by at least one (1) Mitsubishi employee or person
contractually required to assign or license such data and know-how to
Mitsubishi and at least one (1) Triangle employee or person contractually
required to assign or license such data or know-how to Triangle, during the
period beginning on the Effective Date and ending *** after termination or
expiration of this Agreement pursuant to Article 11. All Joint Know-How
shall be owned jointly by the parties hereto. Triangle shall have the
exclusive right to use such Joint Know-How in the Territory, unless the
license granted pursuant to Section 2.1 is terminated in a given country or
countries of the Territory by Mitsubishi pursuant to Section 6.3 or 11.2 or
by Triangle pursuant to Section 11.3, in which case, Mitsubishi shall have a
non-exclusive right to use the Joint Know-How in such country or countries.
Mitsubishi shall have the exclusive right to use such Joint Know-How outside
the Territory.
1.15 "Licensed Product(s)" shall mean any Compound or any pharmaceutical
product containing the Compound as an active ingredient, alone or in combination
with other active ingredients.
1.16 "Major Market Country" shall mean Germany, France, the United Kingdom
or the United States of America.
1.17 "Mitsubishi Know-How" shall mean all inventions, discoveries, trade
secrets, information (including all information relating to subcontractors),
experience, data, formulas, procedures and results which are useful for
development and registration of the Compounds or the Licensed Products and the
development, registration, manufacturing, using or selling of the Licensed
Products which are rightfully held by Mitsubishi as of the Effective Date, or
which are not Joint Know-How or Joint Inventions and are developed or acquired
by Mitsubishi during the period beginning on the Effective Date and ending upon
termination or
4
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
expiration of this Agreement pursuant to Article 11 including, but not limited
to, all manufacturing know-how of (a) Mitsubishi and (b) to the extent
Mitsubishi has the right to disclose to and license third parties, its
subcontractors which supply Bulk Drug Substance pursuant to Section 2.5.
1.18 "Mitsubishi Patents" shall mean all patents and patent applications in
the Territory owned or controlled by Mitsubishi or under which Mitsubishi has a
right to practice with the right to extend such right to practice to Triangle
(including, but not limited to, all patents and patent applications of
Mitsubishi's subcontractors which supply Bulk Drug Substance pursuant to Section
2.5 to the extent Mitsubishi has the right so to extend such right to practice),
which contain claims the rights to which are useful for the development,
registration, manufacturing, using or selling of the Compounds and Licensed
Products which are filed prior to or during the term of this Agreement in the
United States or any foreign jurisdiction, including any addition, continuation,
continuation-in-part or division thereof or any substitute application therefor;
any patent issued with respect to such patent application, any reissue,
extension or patent term extension of any such patent, and any confirmation
patent or registration patent or patent of addition based on any such patent;
and any other United States and foreign patent or inventor's certificate with
regard thereto. Mitsubishi Patents shall include but not be limited to those
listed in Appendix A attached hereto.
1.19 "NDA" shall mean a New Drug Application or its domestic or foreign
equivalent.
1.20 "Net Sales" of Licensed Products which contain as their active
ingredients only the Compound shall mean the gross sales price of such Licensed
Products billed by Triangle, its Affiliates or sublicensees to independent
customers less (a) normal and customary trade,
5
<PAGE>
quantity and cash discounts, all rebates, sales, use, or other similar taxes,
and all transportation, insurance and handling charges; and (b) all credits and
allowances to such independent customers on account of returns or retroactive
price reductions in lieu of returns, whether during the specific royalty period
or not.
1.21 "Net Sales" of Licensed Products which contain as their active
ingredients both the Compound and other compounds (a "Combination Product")
shall mean the gross sales price of such Combination Product billed by Triangle,
its Affiliates or sublicensees to independent customers, less all the
allowances, adjustments, reductions, discounts, taxes, duties, rebates or other
items referred to in Section 1.20 multiplied by a fraction, the numerator of
which shall be the average invoice price per gram of Compound contained in the
most comparable stock keeping unit of any product having the Compound as the
sole active ingredient during the applicable royalty period in the applicable
country of the Territory, when such comparable product is sold for the same
indication as such Combination Product and the denominator of which shall be the
average invoice price per gram of the Compound sold alone as described
immediately above plus the average invoice price(s) per gram of the other active
ingredient(s) contained in such Combination Product in such country during the
applicable royalty period when such active ingredients are sold alone for the
same indication as such Combination Product. If there is no average invoice
price per gram in a given country for one or more of the active ingredients
comprising a Combination Product, the parties shall discuss in good faith and
agree separately on the Net Sales with respect to such Combination Product,
taking into account the medical effects and general prices of all of the active
ingredients contained therein.
6
<PAGE>
1.22 "Registration" shall mean, in relation to any Licensed Product, such
approvals by the regulatory authorities in a given country (including pricing
approvals) as may be legally required before such Licensed Product may be
commercialized or sold in such country.
1.23 "Territory" shall mean the entire world, excluding Japan.
1.24 "Triangle Know-How" shall mean all inventions, discoveries, trade
secrets, information, experience, data, formulas, procedures and results arising
solely out of the Development Program or the manufacture, use or sale of the
Licensed Product which are useful for development, registration, manufacturing,
using or selling of the Compounds or the Licensed Products which are rightfully
held by Triangle as of the Effective Date, or which are not Joint Know-How or
Joint Inventions and are developed or acquired by Triangle during the period
beginning on the Effective Date and ending upon termination or expiration of
this Agreement pursuant to Article 11.
1.25 "Triangle Patents" shall mean all patents and patent applications
owned or controlled by Triangle or under which Triangle has a right to practice
with the right to extend such right to practice to Mitsubishi which contain
claims the rights to which are necessary for the development, registration,
manufacturing, using or selling of the Compounds or the Licensed Products,
including any addition, continuation, continuation-in-part or division thereof
or any substitute application therefor; any patent issued with respect to such
patent application, any reissue, extension or patent term extension of any such
patent, and any confirmation patent or registration patent or patent of addition
based on any such patent; and any other United States and foreign patent or
inventor's certificate with regard thereto.
1.26 "Valid Claim" shall mean (a) an issued claim of any unexpired patent
included among the Mitsubishi Patents, or (b) a pending claim of any pending
patent application
7
<PAGE>
included among the Mitsubishi Patents, which has not been held unenforceable,
unpatentable or invalid by a decision of a court or governmental body of
competent jurisdiction, unappealable or unappealed within the time allowed for
appeal, which has not been rendered unenforceable through disclaimer or
otherwise or which has not been lost through an interference proceeding.
ARTICLE 2. LICENSES AND MANUFACTURING
2.1 LICENSE UNDER MITSUBISHI PATENTS AND KNOW-HOW.
Mitsubishi hereby grants Triangle the exclusive right and license to
practice the Mitsubishi Patents and the Mitsubishi Know-How to make, have made,
use, import, offer for sale, sell and have sold Licensed Products (including,
but not limited to, Bulk Drug Substance to be used in the formulation of
Finished Drug Product) in the Territory during the term of this Agreement.
2.2 EXTENSION TO AFFILIATES. Triangle shall have the right to extend its
rights under the license granted in Section 2.1 to one or more of its
Affiliates, provided, that Triangle (a) gives Mitsubishi advance notice of such
extension, (b) retains control over that portion of the Development Program
which such Affiliate is performing and (c) remains responsible for such
Affiliate's compliance with all obligations under this Agreement which apply to
such Affiliate.
2.3 SUBLICENSES. Triangle may grant sublicenses to non-Affiliate third
parties upon Mitsubishi's prior written approval (which approval shall not be
unreasonably withheld or delayed). In the event Mitsubishi does not respond
to a request for approval to sublicense within *** after receiving such
request from Triangle, which request must contain information regarding the
prospective sublicensee, its business activities, the scope and outline of
the sublicense and the portion of the Territory to which the sublicense will
apply, such
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request shall be deemed to be approved. Triangle shall provide Mitsubishi
with complete copies of all sublicense agreements within *** of their
execution. Triangle shall remain responsible to Mitsubishi for the
performance of any Triangle sublicensee under this Agreement.
2.4 LICENSE UNDER TRIANGLE PATENTS AND KNOW-HOW. Triangle hereby grants
Mitsubishi a non-exclusive right and license to practice the Triangle Patents
and Triangle Know-How to make, have made, use, import, offer for sale, sell and
have sold Licensed Products, with a right to sublicense, outside the Territory
and, in the event Triangle's license granted under Section 2.1 is terminated in
a given country of the Territory (other than by expiration or by Triangle
pursuant to Section 11.2 of this Agreement), in such country from and after the
date of termination. The license granted pursuant to this Section 2.4 shall be
royalty free in countries outside the Territory and subject to Section 11.4. In
the event the license granted pursuant to this Section 2.4 becomes effective in
any country of the Territory because Triangle's license is terminated in such
country, Mitsubishi shall be obligated to pay Triangle reasonable royalties and
other compensation for the license to Triangle Patents in such country.
Triangle and Mitsubishi shall negotiate in good faith in an effort to reach an
agreement on such royalties or other compensation. If they fail to reach
agreement, the matter shall be resolved in accordance with Article 16.
2.5 SUPPLY OF BULK DRUG SUBSTANCE.
(a) Mitsubishi agrees to supply Triangle with those quantities of
Bulk Drug Substance necessary for Triangle to perform the Development Program
free of charge, not to exceed ***. Such obligation shall include all
preclinical studies and Phase I, II and III clinical trials under the
Development Program. In the event
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Triangle requires quantities of Bulk Drug Substance in excess of the quantity
specified above in order to perform the Development Program and demonstrates the
need for such additional quantities to the reasonable satisfaction of
Mitsubishi, Mitsubishi agrees to give due consideration to Triangle's request
for such additional quantities; provided, however, that the cost of such
additional quantities shall be divided equally between Mitsubishi and Triangle.
(b) The delivery schedule for all Bulk Drug Substance shall be
determined from time to time by mutual agreement of the parties. All Bulk Drug
Substance supplied pursuant to this Section 2.6 shall (i) be manufactured in
accordance with Current Good Manufacturing Practices as promulgated by the FDA,
(ii) be suitable for use in formulating Finished Drug Product, and (iii) meet
specifications, determined in accordance with applicable analytical methodology,
to be mutually agreed upon in good faith by the parties hereto as promptly as
practicable after the Effective Date. In the event of any failure by Mitsubishi
in supplying the Bulk Drug Substance conforming to such requirements,
Mitsubishi's sole obligation to Triangle shall be promptly to replace the
defective quantities with conforming Bulk Drug Substance. In no event will
Mitsubishi be liable to Triangle for any damage or losses on account of such
failure.
(c) During the Development Program, Mitsubishi shall also provide
Triangle, free of charge, with those quantities of (i) analytical reference
materials and (ii) all impurities and degradation products to the extent they
are available to Mitsubishi which are measured when performing the analytical
methodology for the Bulk Drug Substance and the Licensed Product and which are
required by Triangle to conduct the analytical work necessary to obtain
Registration of the Licensed Product in each country of the Territory.
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(d) Mitsubishi shall allow, and shall cause its subcontractors to
allow, Triangle employees and/or consultants and FDA and other regulatory
personnel to perform any quality assurance audits of Mitsubishi's and its
subcontractors' manufacturing facilities that may be required of Triangle by any
governmental authority or reasonably requested by Triangle.
(e) Mitsubishi hereby certifies that it has not been debarred under
the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. Section
335a (a) and (b). In the event that during the term of this Agreement,
Mitsubishi becomes debarred or receives notice of an action or threat of an
action with respect to its debarment, Mitsubishi shall notify Triangle
immediately. Mitsubishi hereby certifies that it has not and will not use in
any capacity the services of any individual, corporation, partnership or
association which has been debarred under 21 U.S.C. Section 335a (a) or (b) in
connection with the performance of services hereunder. In the event that
Mitsubishi becomes aware of the debarment or threatened debarment of any
individual, corporation, partnership or association (the "Debarred Entity")
providing services to Mitsubishi which directly or indirectly relate to
activities under this Agreement, Mitsubishi shall notify Triangle immediately.
Upon Triangle's request, Mitsubishi agrees to cease using the services of the
Debarred Entity.
ARTICLE 3. ROYALTIES AND MILESTONE PAYMENTS
3.1 LICENSE FEE. As partial consideration for entering into this
Agreement, Triangle agrees to pay Mitsubishi a license fee of Five Hundred
Thousand Dollars ($500,000), payable within thirty (30) days after the Effective
Date; provided, however, that Triangle shall
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be entitled to offset (a) *** percent (***%) of the out-of-pocket costs
incurred by it in engaging the Authorized CRO (as defined in the Option
Agreement) to perform Development Work (as defined in the Option Agreement)
in excess of the *** reimbursed to Triangle by Mitsubishi pursuant to the
Option Agreement and (b) all of the out-of-pocket costs incurred by Triangle
in engaging contract toxicology laboratories to perform toxicology studies
relating to the Licensed Product required by relevant governmental agencies;
provided, further that the offset described in Subsection 3.1(a) shall not
exceed *** and the sum of the offsets described in Subsections 3.1(a) and
3.1(b) shall not exceed ***. Triangle shall submit an invoice to Mitsubishi
within thirty (30) days after payment of the license fee which sets forth the
offsets to which Triangle is entitled. Mitsubishi agrees to pay Triangle the
amount of such offsets within thirty (30) days after Triangle submits its
invoice.
3.2 MILESTONE PAYMENTS.
(a) Triangle shall pay Mitsubishi a milestone payment ("Milestone
Payment") in the amount specified below no later than thirty (30) days after the
occurrence of the corresponding event designated below (except as otherwise
specified in Subsection 3.2(b)) in the event Mitsubishi exercises the option set
forth therein):
Event Milestone Payment
----- -----------------
(i) ***
*** $ ***
(ii) ***
$ ***
-----------
TOTAL MILESTONE PAYMENTS $ ***
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(b) Mitsubishi may, at its discretion and subject to the
provisions of this Subsection 3.2(b), elect to replace the Milestone Payment
payable under clause (i) of Subsection 3.2(a) with the following two
Milestone Payments, payable within *** after the occurrence of the
corresponding events designated below:
Event Milestone Payment
----- -----------------
(i) *** $ ***
*** ***
(ii) *** $ ***
*** ***
***
***
***
***
Triangle shall notify Mitsubishi upon NDA filing in the first Major Market
Country for the first Licensed Product. Thereafter, Mitsubishi shall have
*** to elect to exercise the option set forth in this Subsection 3.2(b). In
the event Mitsubishi elects not to exercise such option or fails to notify
Triangle of its election within such *** period, the option shall expire and
the provisions of Subsection 3.2(a) shall apply.
(c) As used in Subsection 3.2(b), Triangle "Common Stock" shall mean
the common stock, $0.001 par value, of Triangle. All Triangle Common Stock
which is issued pursuant to Subsection 3.2(b) shall be issued directly to
Mitsubishi by Triangle as restricted securities pursuant to an investment intent
letter in form and substance acceptable to Triangle. The fair market value of
the Triangle Common Stock shall be deemed to equal the closing selling price per
share for Triangle Common Stock on the Nasdaq National Market on the date
Mitsubishi exercises its option in the case of clause (i) of Subsection 3.2(b)
and such closing selling price per share on the date of Registration in the case
of clause (ii) of
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Subsection 3.2(b). If there is no closing selling price on the date in
question, then the closing selling price shall be the closing selling price on
the last preceding date for which such quotation exists.
3.3 EARNED ROYALTIES; DURATION AND REDUCTION.
(a) Triangle shall pay Mitsubishi a royalty equal to *** percent
(***%) (the "Initial Royalty Rate") of the Net Sales of Licensed Products
sold in the Territory by Triangle and its Affiliates and sublicensees for the
periods and subject to the reductions set forth in this Agreement.
(b) Royalties shall be paid in respect of Licensed Products in a
given country for a period of *** after commercial introduction of
Licensed Products in such country. On the later of the expiration of (i) ***
after commercial introduction of a Licensed Product in a given
country and (ii) the last to expire of any Valid Claim covering such Licensed
Product in such country, the Initial Royalty Rate applicable to Net Sales of
such Licensed Product in such country shall be reduced by *** percent
(***%). In addition, if at any time during such *** period, a third
party or third parties commence selling a therapeutic product in a country of
the Territory and (i) such product contains any Compound ("unlicensed unit
sales") and is sold and/or used for the same indication as that of the Licensed
Product and (ii) such unlicensed unit sales for any royalty period amount to
*** percent (***%) or more of Triangle's unit sales of such Licensed Product
in such country in such royalty period, determined in accordance with Subsection
3.3(c) below, then Triangle's royalty obligation in such country with respect to
such Licensed Product shall be reduced by *** percent (***%) of the royalty
otherwise payable commencing with the royalty period next succeeding the royalty
period in which such *** percent (***%)
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threshold was initially exceeded and shall resume with the royalty period
next succeeding the first royalty period in which such *** percent (***%)
threshold is no longer exceeded. In no event shall the cumulative effect of
the two reductions set forth in this Subsection 3.3(b) result in a royalty
rate of less than *** percent (***%) of the Initial Royalty Rate for any
Licensed Product.
(c) For purposes of this Section 3.3, (i) "unlicensed unit sales"
and "Triangle unit sales" shall be deemed to mean the grams of Compound
contained in the third party product (irrespective of dosage form) or the
Licensed Product (irrespective of dosage form), respectively, as reflected on
the label of each such unit; and (ii) unlicensed unit sales shall be
determined by the sales reports of *** or any successor to *** or any other
independent marketing auditing firm selected by Triangle or its sublicensees
and reasonably acceptable to Mitsubishi. If Triangle is entitled to a
royalty reduction based on unlicensed unit sales pursuant to Subsection 3.3
(b) for any royalty period, it or its sublicensees shall submit the sales
report of *** or such other independent firm, as applicable, for the relevant
royalty period to Mitsubishi, together with Triangle's or its sublicensees'
sales report for the relevant royalty period. Such sales reports for each
royalty period in which Triangle is entitled to such royalty reduction shall
be submitted with the royalty report for such royalty period submitted
pursuant to Section 4.1.
3.4 ANNUAL MINIMUM ROYALTIES.
(a) During the term of this Agreement for as long as royalty
obligations exist in the United States, Triangle shall use its reasonable
efforts to market and sell the Licensed Product in the Territory consistent with
those efforts used by it in marketing and
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selling other comparable HIV products, giving due consideration to relevant
market factors in each country. In the event that, during the second full
calendar year following the year during which the first FDA Registration is
granted for a Licensed Product and each calendar year thereafter for so long as
royalty obligations exist in the U.S., Triangle's total annual royalty payments
to Mitsubishi pursuant to Section 3.3 above are less than the annual minimum
payment set forth opposite such year below (the "Annual Minimum"), Triangle
shall make a payment to Mitsubishi together with the report for the fourth
quarter of such year required in Section 4.1 of this Agreement equal to the
difference between such Annual Minimum and the royalties paid to Mitsubishi for
the preceding year pursuant to Section 3.3 above:
Calendar Year Annual Minimum
------------- --------------
*** . . . . . . . . . . . . . . . . . . $ ***
*** . . . . . . . . . . . . . . . . . . $ ***
*** . . . . . . . . . . . . . . . . . . $ ***
*** . . . . . . . . . . . . . . . . . . $ ***
3.5 ACCRUAL OF ROYALTIES. No royalty shall be payable on a Licensed
Product made, sold, or used for tests or development purposes, including those
described in Subsection 2.5 (a), or distributed as samples. No royalties shall
be payable on sales among Triangle, its Affiliates and sublicensees, but
royalties shall be payable on subsequent sales by Triangle, its Affiliates or
sublicensees to a third party. No multiple royalty shall be payable because the
manufacture, use, offer for sale, sale or import of a Licensed Product is
covered by more than one Valid Claim or at least one Valid Claim and Mitsubishi
Know-How.
3.6 THIRD PARTY ROYALTIES. If Triangle, its Affiliates or sublicensees
determine after consultation with Mitsubishi, but at Triangle's sole discretion,
that it or they are required to pay royalties and other amounts to any third
party because the manufacture, use, offer for sale,
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importation, or sale of a Licensed Product infringes any patent or other
intellectual property rights of such third party in a given country ("Third
Party Royalties"), Triangle, its Affiliates or sublicensees may deduct the Third
Party Royalties from earned royalties thereafter due to Mitsubishi on the Net
Sales of such Licensed Product in such country and any Milestone Payments
thereafter due to Mitsubishi. In no event shall the royalties due on such Net
Sales of such Licensed Product in such country or any Milestone Payment on
account of any reduction pursuant to this Section 3.6 be thereby reduced by more
than *** percent (***%) of the amount which would have been otherwise payable.
3.7 COMPULSORY LICENSES. Should a compulsory license be granted to any
third party in any country of the Territory to make, have made, use, import,
offer for sale or sell Licensed Products, the royalty rate payable hereunder for
sales of the Licensed Products by Triangle in such country shall be adjusted to
match any lower royalty rate granted to the third party for such country.
3.8 REDUCTION IN ROYALTY DUE TO COST OF BULK DRUG SUBSTANCE. In the
event that, for any Triangle fiscal quarter, the Direct Manufacturing Cost
exceeds *** percent (***%) of Net Sales of Licensed Products, the Initial
Royalty Rate shall be reduced by *** percent (***%) of the amount by which
the Direct Manufacturing Cost exceeds *** percent (***%) but does not exceed
*** percent (***%) of Net Sales of Licensed Products. The Direct
Manufacturing Cost shall be determined within *** after the close of each
Triangle fiscal quarter with respect to such Triangle fiscal quarter. In the
event that a deduction is computed to be due Triangle for such Triangle
fiscal quarter, Triangle shall be entitled to deduct such amount from the
royalties shown as due Mitsubishi in the quarterly report due Mitsubishi with
respect to such Triangle fiscal quarter. Any provision of this Agreement to
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the contrary notwithstanding, all reductions in royalties prescribed in other
sections of this Article 3 and any limitations applicable to such reductions
shall be calculated after taking into effect the reduction prescribed in this
Section 3.8.
ARTICLE 4. REPORTS AND ACCOUNTING
4.1 ROYALTY REPORTS AND RECORDS.
(a) During the term of this Agreement commencing with commercial
introduction of the first Licensed Product, Triangle shall furnish, or cause to
be furnished to Mitsubishi, written reports governing each of Triangle's,
Triangle's Affiliates' and Triangle's sublicensees' fiscal quarters showing:
(i) the gross sales of all Licensed Products sold by Triangle, its
Affiliates and sublicensees, during the reporting period, together with the
calculations of Net Sales in accordance with Sections 1.20 and 1.21; and
(ii) the royalties payable in Dollars, which shall have accrued
hereunder in respect to such Sales; and
(iii) the exchange rates used, if any, in determining the amount of
Dollars; and
(iv) any withholding taxes required to be made from such royalties.
(b) With respect to sales of the Licensed Product invoiced in
Dollars, the gross sales, Net Sales, and royalties payable shall be expressed in
Dollars. With respect to sales of the Licensed Product invoiced in a currency
other than Dollars, the gross sales, Net Sales, and royalties payable shall be
expressed in the domestic currency of the party making the sale together with
the Dollar equivalent of the royalty payable, calculated using the simple
average of the exchange rates published in the WALL STREET JOURNAL on the last
day of each
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month during the reporting period. If any Triangle Affiliate or sublicensee
makes any sales invoiced in a currency other than its domestic currency, the
gross sales and Net Sales shall be converted to its domestic currency in
accordance with the Affiliate's or sublicensee's normal accounting practices.
Triangle or its Affiliate or sublicensee making any royalty payment shall
furnish to Mitsubishi appropriate evidence of payment of any tax or other amount
deducted from any royalty payment.
(c) Reports shall be made on a quarterly basis. Quarterly reports
shall be due within sixty (60) days of the close of every Triangle fiscal
quarter. Triangle shall keep accurate records in sufficient detail to enable
royalties and other payments payable hereunder to be determined. Triangle shall
be responsible for all royalties and late payments that are due to Mitsubishi
that have not been paid by Triangle's Affiliates and sublicensees. Triangle's
Affiliates and sublicensees shall have, and shall be notified by Triangle that
they have, the option of making any royalty payment directly to Mitsubishi.
4.2 RIGHT TO AUDIT. Mitsubishi shall have the right, upon prior notice to
Triangle, not more than once in each Triangle fiscal year nor more than once in
respect of any fiscal year, through an independent certified public accountant
selected by Mitsubishi and acceptable to Triangle, which acceptance shall not be
unreasonably refused, to have access during normal business hours to those
records of Triangle as may be reasonably necessary to verify the accuracy of the
royalty reports required to be furnished by Triangle pursuant to Section 4.1 of
the Agreement. Such records shall include those relating to the Direct
Manufacturing Cost for any Triangle fiscal quarter in which Triangle makes a
deduction pursuant to Section 3.8. Triangle shall include in any sublicenses
granted pursuant to this Agreement a provision requiring the sublicensee to keep
and maintain records of sales made pursuant to such
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sublicense and to grant access to such records by Mitsubishi's independent
certified public accountant. If such independent certified public accountant's
report shows any underpayment of royalties by Triangle its Affiliates or
sublicensees, within thirty (30) days after Triangle's receipt of such report,
Triangle shall remit or shall cause its sublicensees to remit to Mitsubishi:
(a) the amount of such underpayment; and
(b) if such underpayment exceeds *** (***%) percent of the total
royalties owed for the fiscal year then being reviewed, the reasonably
necessary fees and expenses of such independent certified public accountant
performing the audit. Otherwise, Mitsubishi's accountant's fees and expenses
shall be borne by Mitsubishi. Any overpayment of royalties shall be fully
creditable against future royalties payable in any subsequent royalty
periods. Upon the expiration of *** following the end of any fiscal year,
the calculation of royalties payable with respect to such fiscal year shall
be binding and conclusive on Mitsubishi and Triangle, unless an audit for
such fiscal year is initiated before expiration of such ***.
4.3 CONFIDENTIALITY OF RECORDS. All information subject to review under
this Article 4 shall be confidential. Except where provided by law, Mitsubishi
and its accountant shall retain all such information in confidence.
ARTICLE 5. PAYMENTS
5.1 PAYMENTS AND DUE DATES. Except as otherwise provided herein,
royalties and sublicense and other fees payable to Mitsubishi as a result of
activities occurring during the period covered by each royalty report provided
for under Article 4 of this Agreement shall be due and payable on the date such
royalty report is due. Payments of royalties in whole or in
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part may be made in advance of such due date. All payments shall be made by
wire transfer to an account of Mitsubishi designated by Mitsubishi from time
to time; provided, however, that in the event that Mitsubishi fails to
designate such account, Triangle or its Affiliates and sublicensees may remit
payment to Mitsubishi to the address applicable for the receipt of notices
hereunder; provided, further, that any notice by Mitsubishi of such account
or change in such account, shall not be effective until *** after receipt
thereof by Triangle.
5.2 CURRENCY RESTRICTIONS. Except as hereinafter provided in this Section
5.2, all royalties shall be paid in Dollars. If, at any time, legal
restrictions prevent the prompt remittance of part of or all royalties with
respect to any country in the Territory where Licensed Products are sold,
Triangle or its sublicensee shall have the right and option to make such
payments by depositing the amount thereof in local currency to Mitsubishi's
accounts in a bank or depository in such country.
5.3 OVERDUE PAYMENTS. In the event any payment due hereunder is not made
when due, the payment shall accrue interest (beginning on the date such payment
is due) calculated at the rate of *** percent (***%) per month and such payment
when made shall be accompanied by all interest so accrued.
ARTICLE 6. DEVELOPMENT PROGRAM
6.1 DEVELOPMENT PROGRAM. Subject to Mitsubishi's timely performance of
its obligations hereunder, and in complete fulfillment of Triangle's development
obligations hereunder and any such obligations implied by law, Triangle will
undertake, or will cause its Affiliates and sublicensees to undertake, the
development activities described in this Article 6. Triangle shall, at its
expense, use its best efforts to conduct a development program (the "Development
Program") in the Major Market Countries relating to the use of the Licensed
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Product and to seek Registration for the Licensed Product in the Major Market
Countries. A description of the studies expected to be conducted as part of the
Development Program is set forth on Appendix B, attached hereto and made a part
hereof. It is understood that such description represents the types of studies
presently anticipated and that Appendix B shall be subject to modification by
mutual agreement of the parties based on Triangle's reasonable proposal or as
otherwise necessary or useful for purposes of obtaining Registration for a
Licensed Product in a given country; provided, however, that Mitsubishi shall
not unreasonably withhold or delay its agreement to such modifications. The
Development Program shall be mutually discussed by the parties hereto and shall
take into consideration studies and experiments carried out, or to be carried
out by, Mitsubishi and its other licensees outside the Territory, but the
activities comprising the Development Program shall be determined at Triangle's
sole discretion. Anything in this Agreement to the contrary notwithstanding,
Triangle shall be entitled to exercise prudent and justifiable business judgment
in meeting its best efforts obligations hereunder. For purposes of this Article
6, "best efforts" shall mean that Triangle shall use reasonable efforts
consistent with those used by it in its development projects with other
compounds in its development portfolio deemed to have comparable commercial
potential.
6.2 FULFILLMENT. Subject to the foregoing provisions of this Article 6,
Triangle's best efforts obligations set forth in this Article 6 shall be deemed
to have been satisfied if Triangle:
(a) files in at least one Major Market Country what it reasonably
believes to be a complete NDA for a Licensed Product with the appropriate
regulatory agency within such *** after the Effective Date;
provided, however, said ***
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period shall be subject to up to *** extensions of *** each at Triangle's
election by payment to Mitsubishi of a sum of *** for each such *** extension;
(b) files in the remaining Major Market Countries what it
reasonably believes to be a complete NDA for a Licensed Product with the
appropriate regulatory agency within *** after the Effective Date; provided,
however, that said *** period shall be subject to up to *** extensions of ***
each at Triangle's election by payment to Mitsubishi of a sum of *** for each
such *** extension;
(c) receives Registration for such Licensed Product in each Major
Market Country within *** after filing an NDA in such country; and
(d) commercially introduces, or causes its Affiliates or
sublicensees to commercially introduce, such Licensed Product in each Major
Market Country of the Territory within *** after Registration of such
Licensed Product in such Major Market Country, if otherwise commercially
feasible. Extension payments under Subsections 6.2(a) and 6.2(b) shall be
made within the first *** of each such extension period.
6.3 MITSUBISHI REMEDIES.
(a) In the event Triangle fails to meet any diligence requirements
set forth in Subsection 6.2(a), 6.2(b) or 6.2(c) in respect of all Major Market
Countries, and does not demonstrate to Mitsubishi's reasonable satisfaction
that, despite Triangle's efforts, the failure to meet the diligence requirement
was delayed due to reasons beyond Triangle's reasonable control, Mitsubishi
shall have the option, as its sole and exclusive remedy, to terminate the
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Agreement in the entire Territory, except that, to the extent Triangle has met
the diligence requirements in a given Major Market Country, Mitsubishi shall not
be entitled to terminate this Agreement in such Major Market Country. The
remedy set forth in this Section 6.3 shall be Mitsubishi's sole and exclusive
remedy.
(b) Prior to exercising any rights under this Section 6.3,
Mitsubishi shall give Triangle *** notice and shall meet with Triangle, at
Triangle's request and expense, during such *** period, to discuss any
disagreements about whether Triangle has complied with the applicable
diligence requirements of this Article 6. Upon expiration of such ***
period, Mitsubishi shall have the right in its sole discretion to proceed
with the exercise of all rights and remedies provided for herein unless the
applicable diligence requirement is fulfilled during such *** period.
(c) Upon termination by Mitsubishi of this Agreement in a country of
the Territory pursuant to this Section 6.3, the provisions of Section 11.4 shall
apply in respect of such country
6.4 DEVELOPMENT NON-MAJOR MARKET COUNTRIES. No later than Triangle's
filing of an NDA for a Licensed Product in the last Major Market Country,
Triangle shall directly, or through or in collaboration with Affiliates and
sublicensees, commence its best efforts:
(a) to obtain Registration for a Licensed Product in such other
countries of the Territory as Triangle deems appropriate; and
(b) upon Registration of a Licensed Product in a particular country
proceed with due diligence to market such Licensed Product in such country.
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In the event Triangle has not filed an NDA in any Non-Major Market Country
within *** of the Effective Date or, having done so, has not obtained a
Registration for a Licensed Product in such country within *** from the
Effective Date, upon Mitsubishi's request, the parties shall meet and attempt
to agree on appropriate Registration activities which should occur in such
country. The remedy set forth in this Section 6.4 shall be Mitsubishi's sole
and exclusive remedy.
6.5 PUBLICATIONS. Each party reserves the right to publish or publicly
present the results of its own development activities in respect of the Licensed
Products (the "Results"). The party proposing to publish or publicly present
the Results (the "publishing party") will, however, submit a draft of any
proposed manuscript, abstract or speech to the other party (the "non-publishing
party") for comments at least fifteen (15) days prior to submission for
publication or oral presentation. The non-publishing party shall notify the
publishing party in writing within fifteen (15) days of receipt of such draft
whether such draft contains Information (as hereinafter defined) of the non-
publishing party which it considers to be confidential under the provisions of
Article 10 hereof, or information that if published would have an adverse effect
on a patent application for which the non-publishing party has primary patent
prosecution responsibility pursuant to Article 7 of this Agreement. In the
latter case, the non-publishing party shall have the right to request a delay
and the publishing party shall delay such publication for a period not exceeding
***. In any such notification,
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the non-publishing party shall indicate with specificity its suggestions
regarding the manner and degree to which the publishing party may disclose such
information. The publishing party shall have the final authority to determine
the scope and content of any publication, provided that such authority shall be
exercised with reasonable regard for the interests of the non-publishing party,
except that no publication will contain any Information disclosed by the non-
publishing party to the publishing party without the non-publishing party's
prior written permission. Each party shall cause its Affiliates, licensees or
sublicensees, as the case may be, to comply with the requirements of this
Section 6.5 with respect to any of their proposed publications.
6.6 PROGRESS REPORTS. Each party (the "reporting party") shall, no
less frequently than once every *** until a Licensed Product has been
Registered, provide the other party (the "reviewing party") with a written
report summarizing all activities of the reporting party, its Affiliates and
licensees or sublicensees, as the case may be, related to the development of
Licensed Products. The reviewing party may comment on the progress of the
reporting party's development activities when reviewing such progress reports
and the reporting party shall give due consideration to such comments, it
being understood that Triangle shall make ultimate decisions in respect of
the Development Program and Mitsubishi shall make ultimate decisions in
respect of the development of the Licensed Products outside the Territory.
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ARTICLE 7. PATENT PROSECUTION
7.1 TITLE TO INVENTIONS. Each party shall have and retain sole title in
inventions, whether or not patentable, made by it or on its behalf (as by its
employees or agents) in the course of work performed under this Agreement.
7.2 MITSUBISHI INVENTIONS. Mitsubishi shall, in consultation with
Triangle, file such patent applications regarding any of Mitsubishi's sole
inventions which are useful for the development, registration, manufacture, use
or sale of the Compounds or Licensed Products in the Territory, and thereafter
shall diligently and in the exercise of its discretion in a manner reasonably
consistent with the goals and expectations of the parties, giving due and
reasonable consideration to Triangle's position, prosecute and maintain in force
the resulting Mitsubishi Patents all at the expense of Mitsubishi. Mitsubishi
shall enable Triangle to directly contact and confer with Mitsubishi's patent
attorney, at Triangle's expense, with respect to the prosecution of any patent
applications constituting part of the Mitsubishi Patents and shall use its
reasonable efforts to amend, correct or refile any patent or patent application
included in the Mitsubishi Patents to include claims reasonably requested by
Triangle. The territorial scope of such filings shall be the subject of
specific discussion between the parties, but shall include all Major Market
Countries and all other countries reasonably requested by Triangle to the extent
not already applied for as of the Effective Date. If for any reason Mitsubishi
declines to file a patent application or, having filed, declines to prosecute or
maintain any of the Mitsubishi Patents within the Territory, Triangle may so
file, prosecute or maintain in Mitsubishi's name and at Triangle's expense in
such country, in which event, Mitsubishi shall at Triangle's request and
expense, provide all reasonable assistance; provided, however, that Triangle
shall be entitled to credit the out-of-pocket expenses so incurred against
earned royalties due hereunder with respect
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to Licensed Products sold in such country.
7.3 TRIANGLE INVENTIONS. Triangle shall, in consultation with
Mitsubishi, file such patent applications regarding any of Triangle's sole
inventions which are useful for the development, registration, manufacture, use
or sale of the Compounds or Licensed Products, and thereafter shall diligently
and in the exercise of its discretion in a manner reasonably consistent with the
goals and expectations of the parties hereunder, giving due and reasonable
consideration to Mitsubishi's position, prosecute and maintain in force the
resulting Triangle Patents all at Triangle's expense. Triangle shall enable
Mitsubishi to directly contact and confer with Triangle's patent counsel, at
Mitsubishi's expense, with respect to the prosecution of any patent applications
constituting part of the Triangle Patents and shall use its reasonable efforts
to amend, correct or refile any patent or patent application included in the
Triangle Patents to include claims reasonably requested by Mitsubishi. The
territorial scope of such filings shall be the subject of specific discussion
between the parties but shall include all Major Market Countries and all other
countries reasonably requested by Mitsubishi. If for any reason Triangle
declines to file a patent application or, having filed, declines to prosecute or
maintain any of the Triangle Patents in any country, Mitsubishi may so file,
prosecute or maintain in Triangle's name and at Mitsubishi's expense in such
country, in which event, Triangle shall at Mitsubishi's request and expense,
provide all reasonable assistance.
7.4 JOINT INVENTIONS. With respect to Joint Inventions (a) all patent
applications and patents with respect thereto shall be jointly owned by
Mitsubishi; (b) Triangle and its sublicensees and assigns shall be free to use
such patents including the Territory and Mitsubishi and its licensees shall be
free to use such patents outside the Territory, without payment of royalty or
accounting therefor; (c) each party agrees to consult with the other party and
to give
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due and reasonable consideration to the other party's position in determining
the territorial scope of patent filings within the Territory (in the case of
Triangle) and outside the Territory (in the case of Mitsubishi), and the
prosecution and maintenance in force, of resulting patent rights based on
Joint Inventions; and (d) Triangle shall have the initial responsibility to
file any patent application and prosecute and maintain any resulting patent
rights on Joint Inventions, in which event Mitsubishi shall, at Triangle's
request, provide all reasonable assistance and shall promptly reimburse
Triangle *** percent (***%) of the out-of-pocket expenses so incurred to
Triangle.
7.5 FURTHER OBLIGATIONS.
(a) Except as otherwise provided in Articles 8 and 15, each party's
responsibilities for patent prosecution activities pursuant to this Article 7
shall also include all other EX PARTE and INTER PARTES activities relating to
the relevant patent applications and patents, including all interference,
opposition and observation proceedings before any patent offices and litigation
pertaining to the validity, enforceability, allowability or subsistence of such
patent applications and patents. Each party agrees to give due consideration to
the other party's position with respect to any such patent prosecution
activities (which term, as used herein, shall include without limitation, any
INTER PARTES activities of the type described in the first sentence of this
subsection 7.5 (a)). In the event a party fails to initiate or pursue any
patent prosecution activities for which it is responsible, or having commenced
such patent prosecution activities, declines to pursue such patent prosecution
activities, the other party may initiate, pursue or assume such patent
prosecution activities, at its expense; provided, however, that in the case of
Triangle's initiation, pursuit or assumption of patent prosecution activities in
respect of Mitsubishi Patents in a given country, Triangle shall be able to
credit the out-of-pocket expenses so incurred against earned royalties due
hereunder with respect to Licensed Products sold in such
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country.
(b) In conducting its patent prosecution activities under this
Agreement, each party may use patent attorneys selected by it in its own
discretion. In addition to the other obligations set forth in this Article
7, each party undertakes to keep the other party throughout the term of this
Agreement regularly informed of the status and progress of the patent
prosecution activities it undertakes under this Agreement including, but not
limited to, supplying the other, upon reasonable request, with all
correspondence with the United States, Japan or European patent office
counterparts with respect to the United States, Japan and European patents
and patent applications. To the extent that a party has not previously done
so, or promptly upon request by the other party in order to assist such other
party in connection with any of its activities or the exercise of any of its
rights pursuant to Articles 7 and 8, such party shall provide the other party
with such additional relevant documentation which such other party may
reasonably request relating to such patent applications and patents in the
Mitsubishi Patents or Triangle Patents, as applicable, including but not
limited to, copies thereof and access to laboratory notebooks, other
supporting data and relevant employees. If a party decides to abandon or
allow to lapse any patent application or patent or not to initiate or any
other patent prosecution activity for which it has patent prosecution
responsibility pursuant to this Article 7, it shall give the other party
notice thereof in a sufficiently timely manner so as to enable such other
party to determine whether to assume patent prosecution activity in
connection therewith. Each party shall use its best efforts to give such
notice at least *** before any abandonment, lapse or any other relevant
deadline.
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ARTICLE 8. INFRINGEMENT
8.1 THIRD PARTY INFRINGEMENT. If Triangle or Mitsubishi becomes aware of
any activity that it believes represents a substantial infringement of a Valid
Claim, the party obtaining such knowledge shall promptly advise the other of all
relevant facts and circumstances pertaining to the potential infringement.
Mitsubishi shall have the right to enforce any rights within the Mitsubishi
Patents against such infringement, at its own expense. Triangle shall have the
right to enforce any rights within the Triangle Patents and patents relating to
Joint Inventions, at its expense.
8.2 TRIANGLE'S RIGHT TO PURSUE THIRD PARTY INFRINGERS. If Mitsubishi
shall fail, within *** after receiving notice from Triangle of a
potential infringement of the Mitsubishi Patents or after providing Triangle
with notice of such infringement, either (a) to terminate such infringement or
(b) to institute an action to prevent continuation thereof and, thereafter, to
prosecute such action diligently, or if Mitsubishi notifies Triangle that it
does not plan to terminate the infringement of the of the Mitsubishi Patents or
institute such action, then Triangle shall have the right to do so. Mitsubishi
shall cooperate with Triangle in such effort, including being joined as a party
to such action if necessary. Any damage award or settlement payments made to
Mitsubishi in connection with any action filed by it relating to infringement of
the Mitsubishi Patents, after first reimbursing Mitsubishi for its expenses,
shall be equally divided by the parties. In the event Triangle institutes any
action relating to infringement of the Mitsubishi Patents, Triangle may deposit
up to *** percent (***%) of any royalties and Milestone Payments which are
otherwise payable to Mitsubishi during the pendency of any such infringement
action in an interest-bearing escrow account (bearing interest at rates
comparable to other Triangle deposits of immediately available funds). Triangle
shall, upon
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the final resolution or settlement of such infringement action, provide
Mitsubishi with an accounting of the total royalty payments and Milestone
Payments escrowed (and interest thereon) and Triangle's expenses incurred in
such infringement action. Triangle shall be entitled to offset any expenses
which Triangle fails to recoup from any damage award or settlement payments
arising from such infringement action against such escrowed royalties and
Milestone Payments. Any escrowed payments (and interest thereon) in excess
of Triangle's unrecouped expenses shall be immediately paid to Mitsubishi.
Any damage award or settlement payments made to Triangle in excess of
Triangle's expenses in connection with any infringement action it initiates
relating to the Mitsubishi Patents shall be divided as follows: *** percent
(***%) to Mitsubishi and *** percent (***%) to Triangle. Any damage award or
settlement payments made to Triangle in connection with any action relating
to infringement of the patents relating to Joint Inventions, after first
reimbursing Triangle for its expenses, shall be equally divided by the
parties. Any damage award or settlement payments made to Triangle in
connection with any action relating to infringement of the Triangle Patents
shall be retained by Triangle.
ARTICLE 9. WARRANTIES AND INDEMNIFICATION
9.1 WARRANTIES OF MITSUBISHI.
(a) Mitsubishi represents and warrants that: (i) Mitsubishi has
disclosed to Triangle all potential patent rights in the control of third
parties known to Mitsubishi which may be needed to commercialize any Licensed
Products ; and (ii) Appendix A is a complete and accurate list of all patents
and patent applications included in the Mitsubishi Patents as of the date
hereof. Mitsubishi will, from time to time during the term of this Agreement,
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promptly provide Triangle, upon request, with an updated version of Appendix A.
(b) Mitsubishi further represents and warrants that it is the
exclusive owner of all right, title and interest in the patents and patent
applications identified in Appendix A.
9.2 WARRANTIES OF EACH PARTY. Each party hereto represents to the other
that it is free to enter into this Agreement and to carry out all of the
provisions hereof, including, in the case of Mitsubishi, its grant to Triangle
of the license described in Section 2.1.
9.3 NO LIABILITY FOR CONSEQUENTIAL DAMAGES AND LIMITATION OF LIABILITY.
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATED TO THE SUBJECT MATTER OF THIS
AGREEMENT.
9.4 INDEMNIFICATION.
(a) Subject to compliance by the Indemnitees with their obligations
set forth in Section 9.5, Triangle shall defend, indemnify, and hold harmless
the Indemnitees, from and against any and all claims, demands, losses,
liabilities, expenses, and damages including investigative costs, court costs
and reasonable attorneys' fees (collectively, the "Liabilities") which
Indemnitees may suffer, pay, or incur as a result of or in connection with, (i)
any and all personal injury (including death) and property damage caused or
contributed to, in whole or in part, by manufacture, testing, design, use, sale,
or labeling of any Licensed Products by Triangle or Triangle's Affiliates or
sublicensees, excluding any Liabilities arising as a result of Mitsubishi's or
its subcontractor's negligence, intentional misconduct or breach of contract in
supplying Bulk Drug Substance and (ii) any material breach by Triangle of its
representations, warranties and covenants contained in this Agreement.
Triangle's obligations under this Article shall survive the expiration or
termination of this Agreement for any reason.
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(b) Subject to compliance by the Indemnitees with their obligations
set forth in Section 9.5, Mitsubishi shall indemnify and hold the Indemnitees
harmless from and against any and all Liabilities which Indemnitees may suffer,
pay or incur as a result of or in connection with any material breach by
Mitsubishi of any of its representations, warranties and covenants set forth in
this Agreement. Mitsubishi's obligations under this Article shall survive
expiration or termination of this Agreement for any reason.
9.5 INDEMNIFICATION PROCEDURES. Any Indemnitee which intends to claim
indemnification under this Article shall promptly notify the other party (the
"Indemnitor") in writing of any matter in respect of which the Indemnitee or any
of its employees intend to claim such indemnification. The Indemnitee shall
permit, and shall cause its employees to permit, the Indemnitor, at its
discretion, to settle any such matter and agrees to the complete control of such
defense or settlement by the Indemnitor; provided, however, that such settlement
does not adversely affect the Indemnitee's rights hereunder or impose any
material obligations on the Indemnitee in addition to those set forth herein in
order for it to exercise such rights. No such matter shall be settled without
the prior written consent of the Indemnitor and the Indemnitor shall not be
responsible for any legal fees or other costs incurred other than as provided
herein. The Indemnitee and its employees shall cooperate fully with the
Indemnitor and its legal representatives in the investigation and defense of any
matter covered by the applicable indemnification. The Indemnitee shall have the
right, but not the obligation, to be represented by counsel of its own selection
and expense.
ARTICLE 10. CONFIDENTIALITY
10.1 TREATMENT OF CONFIDENTIAL INFORMATION. Except as otherwise provided
hereunder, during the term of this Agreement and for a period of five (5) years
thereafter:
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(a) Triangle and its Affiliates and sublicensees shall retain in
confidence and use only for purposes of this Agreement, any written information
and data supplied by or on behalf of Mitsubishi under this Agreement and the
Option Agreement; and
(b) Mitsubishi shall retain in confidence and use only for purposes
of this Agreement any written information and data supplied by or on behalf of
Triangle to Mitsubishi under this Agreement and the Option Agreement.
For purposes of this Agreement, all such information and data which a party
is obligated to retain in confidence shall be called "Information."
10.2 RIGHT TO DISCLOSE. To the extent that it is reasonably necessary to
fulfill its obligations or exercise its rights under this Agreement, or any
rights which survive termination or expiration hereof, each party may disclose
Information to its Affiliates, sublicensees, consultants, outside contractors,
actual or prospective investors, and clinical investigators on condition that
such entities or persons agree:
(a) to keep the Information confidential for at least a period of
five (5) years from the date of disclosure and to the same extent as each party
is required to keep the Information confidential; and
(b) to use the Information only for those purposes for which the
disclosing party is authorized to use the Information.
Each party or its Affiliates or sublicensees, as applicable, may disclose
Information to the government or other regulatory authorities to the extent that
such disclosure (i) is necessary for the prosecution and enforcement of patents,
or authorizations to conduct preclinical or clinical trials to commercially
market Licensed Products, provided such party is then otherwise entitled to
engage in such activities in accordance with the provisions of this Agreement,
or (ii)
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is legally required.
10.3 RELEASE FROM RESTRICTIONS. The obligation not to disclose or use
Information shall not apply to any part of such Information that:
(a) is or becomes patented (but the existence of a patent shall only
permit disclosure and not, unless otherwise provided hereunder, use), published
or otherwise part of the public domain, other than by unauthorized acts of the
party obligated not to disclose such Information (for purposes of this Article
10 the "receiving party") or its Affiliates or sublicensees in contravention of
this Agreement; or
(b) is disclosed to the receiving party or its Affiliates or
sublicensees by a third party provided that such Information was not obtained by
such third party directly or indirectly from the other party to this Agreement;
or
(c) prior to disclosure under the Option Agreement or this Agreement,
as the case may be, was already in the possession of the receiving party, its
Affiliates or sublicensees, provided that such Information was not obtained
directly or indirectly from the other party to this Agreement; or
(d) results from research and development by the receiving party or
its Affiliates or sublicensees, independent of disclosures from the other party
of this Agreement, provided that the persons developing such information have
not had exposure to the information received from the other party to this
Agreement; or
(e) is required by law to be disclosed by the receiving party,
provided that in the case of disclosure in connection with any litigation, the
receiving party uses reasonable efforts to notify the other party immediately
upon learning of such requirement in order to give the other party reasonable
opportunity to oppose such requirement; or
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(f) Triangle and Mitsubishi agree in writing may be disclosed.
ARTICLE 11. TERM AND TERMINATION
11.1 TERM. Unless sooner terminated as otherwise provided in this
Agreement, the term of this Agreement shall commence on the Effective Date and
shall continue in full force and effect until the expiration of Triangle's
obligations to pay royalties hereunder.
11.2 TERMINATION BY DEFAULT. If either party defaults in the
performance of, or fails to be in compliance with, any material agreement,
condition or covenant of this Agreement, the non-defaulting party may
terminate this Agreement with respect to the defaulting party if such default
or noncompliance shall not have been remedied, or reasonable steps shall not
have been initiated to remedy the same, within *** after receipt by the
defaulting party of a written notice thereof from the non- defaulting party.
11.3 TERMINATION BY TRIANGLE. Triangle shall have the right to
terminate this Agreement in the entire Territory or one or more countries of
the Territory (without affecting this Agreement in the remaining countries of
the Territory), by giving Mitsubishi *** prior written notice thereof.
Triangle shall base any decision to terminate pursuant to this Section 11.3
on the determination that the scientific, regulatory and/or commercial
profile of the Licensed Product in the country or countries in question does
not justify continued development or marketing of the Licensed Product using
the same standard Triangle would use in assessing whether to continue the
development or marketing of its other HIV products having a comparable
scientific, regulatory and commercial profiles.
11.4 OBLIGATIONS UPON TERMINATION. If this Agreement is terminated as a
result of Triangle's breach pursuant to Section 11.2, or is terminated in whole
or in part by Mitsubishi in accordance with Section 6.3 or by Triangle in
accordance with Section 11.3, then: (a) in
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the case of termination in the entire Territory, Triangle shall use its best
efforts to return, or at Mitsubishi's direction, destroy, all data, writings and
other documents and tangible materials supplied to Triangle by Mitsubishi; and
(b) with respect to those countries with respect to which termination occurs,
Triangle shall provide Mitsubishi with full and complete copies of all toxicity,
efficacy, and other data generated by Triangle or Triangle's Affiliates, and
sublicensees, in the course of Triangle's efforts to develop Licensed Products
or to obtain governmental approval for the sale of Licensed Products, including
but not limited to any IND, NDA or other documents filed with any government
agency in such countries. Mitsubishi shall be authorized to cross-reference any
such IND, NDA or other regulatory filings made by Triangle, its Affiliates and
sublicensees in the countries in which termination occurs were permitted by law.
Mitsubishi shall be entitled to provide information pertaining to the Triangle
Patents, Triangle Know-How and Joint Know-How to any third party with a bona
fide interest in licensing such technology in the countries in which termination
occurs. Such data shall be provided on a confidential basis; provided, however,
that if such third party concludes a license with Mitsubishi, such third party
shall be free to use such data for all purposes, including to obtain government
approvals to sell any product containing any Compound in such countries.
11.5 EFFECT OF TERMINATION. In the event of any expiration or termination
pursuant to this Article 11, neither party shall have any remaining rights or
obligations under this Agreement other than as provided below:
(a) Mitsubishi will have the right to receive all payments accrued
prior to the effective date of termination;
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(b) termination or expiration of this Agreement for any reason shall
have no effect on the parties' obligations under Articles 8, 9 and 10 or their
respective rights in Joint Know-How set forth in Section 1.14;
(c) termination of this Agreement pursuant to Section 11.2 shall
have no effect on the non-defaulting party's rights under Sections 2.1, 2.2,
2.3, 2.4 and 7.4;
(d) upon expiration of Triangle's royalty obligations under this
Agreement in a given country, Triangle shall have a perpetual, fully paid-up
license to use Mitsubishi's Know-How in such country;
(e) termination of this Agreement by Mitsubishi pursuant to Section
6.3 or 11.2 or by Triangle pursuant to Section 11.3, shall have no effect on the
rights and obligations of the parties under Section 11.4; and
(f) the parties' shall retain any other remedies for breach of this
Agreement they may otherwise have.
ARTICLE 12. ASSIGNMENT
Neither party shall assign this Agreement or any part thereof without the
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. Each party may, however, without consent,
assign or sell its rights under this Agreement to an Affiliate subject, in the
case of Triangle, to the provisions of Section 2.2 of this Agreement. Any
permitted assignee shall assume all obligations of its assignor under this
Agreement. No assignment shall relieve any party of responsibility for the
performance of any accrued obligation which such party has under this Agreement.
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ARTICLE 13. TRANSFER OF KNOW-HOW; TECHNICAL ASSISTANCE
13.1 TRANSFER BY MITSUBISHI. Within sixty (60) days following the
Effective Date and as far as it has not previously done so, Mitsubishi shall
supply Triangle with all Mitsubishi Know-How to the extent it is available to
Mitsubishi. With respect to any Mitsubishi Know-How developed by Mitsubishi
during the term of this Agreement, such disclosure will be made at least on a
quarterly basis or sooner, if practicable.
13.2 TECHNICAL ASSISTANCE.
(a) In addition to the specific obligations of Mitsubishi set forth
in Article 2, Mitsubishi shall, upon request by Triangle, provide Triangle with
reasonable cooperation and assistance, consistent with the other provisions
hereof, in connection with the development, use or manufacture of the Licensed
Products. Such assistance may include, but is not limited to, development of
the formulations of the Licensed Products; procurement of supplies and raw
materials; initial developmental and production batch manufacturing runs;
process, specification and analytical methodology design and improvement; and,
in general, such other assistance as may contribute to the efficient application
by Triangle of the Mitsubishi Know-How. In this regard, Mitsubishi agrees to
make appropriate employees of Mitsubishi reasonably available to assist
Triangle, and Mitsubishi agrees to provide appropriate Triangle personnel with
access during normal business hours to the appropriate personnel and operations
of Mitsubishi for such periods of time as may be reasonable in order to
familiarize Triangle personnel with the Mitsubishi Know-How as applied by
Mitsubishi. At Triangle's request, such assistance shall be furnished at
Triangle's or its subcontractors' or sublicensees' facilities in the Territory,
subject to a mutually agreed upon schedule. Such technical assistance shall
include but not be limited to the follow:
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(i) Mitsubishi shall: (A) provide Triangle with access to any and
all Drug Master File(s) or counterparts thereof in other countries of the
Territory ("DMF") of Mitsubishi relating to the manufacture of Bulk Drug
Substance existing as of the Effective Date; (B) provide Triangle with letters
of authorization to the FDA and other applicable government authorities in other
countries of the Territory to refer to Mitsubishi's DMF's; and (C) reasonably
cooperate with Triangle in obtaining access to and letters of authorization to
refer to the DMF's of Mitsubishi's subcontractors which are, or will be,
supplying any Bulk Drug Substance during the Development Program; and
(ii) Within thirty (30) days after the Effective Date, Mitsubishi
shall provide Triangle promptly after the Effective Date with copies of all
documentation in Mitsubishi's possession, including all correspondence
between Mitsubishi and its subcontractors, regarding the manufacture of the
Bulk Drug Substance which would be necessary or useful to assist Triangle in
the commercial production of Bulk Drug Substance or to support Registration
of the Licensed Products.
(b) During the period prior to the first anniversary of the Effective
Date, (i) Mitsubishi shall provide up to *** of such technical assistance at
Mitsubishi's sole expense and (ii) subsequent to such *** of technical
assistance, Mitsubishi shall provide such additional technical assistance as
may be reasonably requested by Triangle, provided, that all reasonable
out-of-pocket travel costs and expenses incurred by Mitsubishi in rendering
technical assistance pursuant to this Section 13.2 in excess of such ***
shall be reimbursed to Mitsubishi by Triangle and, in addition, Triangle will
pay Mitsubishi a consultancy fee in an amount to be negotiated by the parties
hereto in good faith (but not to exceed the consultancy fee, if any, then
being charged by
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Mitsubishi to third parties) for each consultancy day in excess of *** spent
by personnel of Mitsubishi in rendering technical assistance to Triangle.
Technical assistance furnished pursuant to this Section 13.2 shall continue
only until the first anniversary of the Effective Date of this Agreement.
13.3 MITSUBISHI SUBCONTRACTORS. Triangle agrees to give due
consideration to those Mitsubishi subcontractors which are or will be
supplying Bulk Drug Substance during the Development Program when making the
determination of the subcontractors which will supply Bulk Drug Substance to
Triangle for commercial purposes. As of the Effective Date, Mitsubishi
subcontractors are ***, a *** corporation, ***, a *** corporation and ***, a
*** corporation. In the event Triangle selects subcontractors other than a
Mitsubishi subcontractors, it will provide Mitsubishi with notice thereof and
specify the reasons therefor.
13.4 REASONABLE EFFORTS RELATING TO MANUFACTURING COST. The parties
hereto recognize their mutual interest in keeping the manufacturing cost of the
Bulk Drug Substance as low as reasonably possible. Accordingly, Mitsubishi
shall provide Triangle with technical assistance pursuant to Section 13.2 in a
timely manner and Triangle shall use its reasonable efforts to reduce such
manufacturing cost to the extent reasonably practicable, giving due
consideration to pharmaceutical industry quality standards relating to human
drug products.
13.5 TRANSFER BY TRIANGLE. With respect to any Triangle Know-How
developed by Triangle during the term of this Agreement, Triangle shall supply
Mitsubishi with such Triangle Know-How on at least a quarterly basis or sooner,
if practicable.
13.6 LANGUAGE OF DISCLOSURES. All disclosures pursuant to this Agreement
will be in English.
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ARTICLE 14. REGISTRATION OF LICENSE
Triangle, at its expense, may register the license granted under this
Agreement in any country of the Territory where the use, sale or manufacture of
a Licensed Product in such country would be covered by a Valid Claim. Upon
request by Triangle, Mitsubishi agrees promptly to execute any "short form"
licenses submitted to it by Triangle in order to effect the foregoing
registration in such country.
ARTICLE 15. NOTIFICATION AND AUTHORIZATION UNDER DRUG PRICE
COMPETITION AND PATENT TERM RESTORATION ACT
15.1 NOTICES RELATING TO THE ACT. Mitsubishi shall use its best
efforts to notify Triangle of (a) the issuance of each U.S. patent included
among the Mitsubishi Patents, giving the date of issue and patent number for
each such patent; and (b) each notice pertaining to any patent included among
the Mitsubishi Patents which Mitsubishi receives as patent owner pursuant to
the Drug Price Competition and Patent Term Restoration Act of 1984
(hereinafter the "Act"), including but not necessarily limited to notices
pursuant to Sections 101 and 103 of the Act from persons who have filed an
abbreviated NDA ("ANDA") or a "paper" NDA. Such notices shall be given
promptly, but in any event within *** of Mitsubishi's notice of each such
patent's date of issue or receipt of each such notice pursuant to the Act,
whichever is applicable.
15.2 AUTHORIZATION RELATING TO PATENT TERM EXTENSION. Mitsubishi hereby
authorizes Triangle (a) to include in any NDA for a Licensed Product, as
Triangle may deem appropriate under the Act, a list of patents included among
the Mitsubishi Patents that relate to such Licensed Product and such other
information as Triangle in its reasonable discretion believes is appropriate to
be filed pursuant to the Act; (b) to commence suit for any infringement of the
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Mitsubishi Patents under Section 271(e) (2) of Title 35 of the United States
Code occasioned by the submission by a third party of an IND or a paper NDA for
a Licensed Product pursuant to Sections 101 or 103 of the Act; and (c) subject
to Mitsubishi's consent (which consent will not be unreasonably withheld or
delayed), to exercise any rights that may be exercisable by Mitsubishi as patent
owner under the Act to apply for an extension of the term of any patent included
among the Mitsubishi Patents. In the event that applicable law in any other
country of the Territory hereafter provides for the extension of the term of any
patent included among the Mitsubishi Patents in such country, upon request by
Triangle, Mitsubishi shall use its best efforts to obtain such extension or, in
lieu thereof, shall authorize Triangle or, if requested by Triangle or its
sublicensees to apply for such extension, in consultation with Mitsubishi.
Mitsubishi agrees to cooperate with Triangle or its sublicensees, as applicable,
in the exercise of the authorization granted herein or which may be granted
pursuant to this Section 15.2 and will execute such documents and take such
additional action as Triangle may reasonably request in connection therewith,
including, if necessary, permitting itself to be joined as a proper party in any
suit for infringement brought by Triangle under subsection (b) above. Triangle
and Mitsubishi shall share equally the costs and expenses, including but not
limited to attorneys' fees of any suit for infringement brought by Triangle
under subsection (b) above.
ARTICLE 16. DISPUTE RESOLUTION AND ARBITRATION
16.1 INITIAL RESOLUTION. In the case of any disputes between the parties
arising from this Agreement, and in case this Agreement does not provide a
solution for how to resolve such disputes, the parties shall discuss and
negotiate in good faith a solution acceptable to both parties and in the spirit
of this Agreement. If after negotiating in good faith pursuant to the foregoing
sentence, the parties fail to reach agreement, then the President of the
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Pharmaceuticals and Diagnostics Company of Mitsubishi and the Chief Executive
Officer or Chief Operating Officer of Triangle shall discuss in good faith an
appropriate resolution to the dispute. If these executives fail, after good
faith discussions, to reach an amicable agreement then the parties shall submit
to binding arbitration pursuant to Section 16.2.
16.2 ARBITRATION.
(a) Any claim, dispute or controversy arising out of or in
connection with or relating to this Agreement, including, without limitation,
disputes with respect to the rights and obligations of the parties following
termination) not settled by the procedures set forth in Section 16.1 above or
the breach or alleged breach of a material provision of this Agreement shall be
adjudicated by arbitration in accordance with the UNCITRAL Arbitration Rules
then in effect. The appointing authority shall be the London Court of
Arbitration. In such event, either party may initiate arbitration by notice to
the other party as required the UNCITRAL Arbitration Rules. There will be three
arbitrators, one selected by Mitsubishi, and one selected by Triangle. The
third arbitrator will be selected by the first two arbitrators and will be of a
different nationality than the first two arbitrators and the parties. The third
arbitrator will serve as presiding arbitrator of the tribunal. Any arbitration
shall be governed by the following rules:
(b) The forum shall be in ***, the language for proceedings shall
be in ***, and the applicable substantive law shall be the law prevailing
in the ***.
(c) A hearing shall commence no later than ninety (90) days after
initial notice by one party to the other requesting arbitration, and shall
continue from day to day thereafter until completed unless adjourned by mutual
consent. The arbitration panel shall
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<PAGE>
render its decision in writing within thirty (30) days following conclusion of
hearings.
(d) Any arbitration proceeding may proceed in the absence of any
party if thirty (30) days notice has been given to that party. A decision
agreed on by at least two of the arbitrators shall be the decision of the
arbitration panel. Each party shall bear its own costs and attorneys' fees.
Costs of the arbitration panel shall be shared equally by the parties.
ARTICLE 17. GENERAL PROVISIONS
17.1 EXPORT CONTROLS. Mitsubishi acknowledges that Triangle is subject to
United States laws and regulations controlling the export of technical data,
biological materials, chemical compositions and other commodities and that
Triangle's obligations under this Agreement are contingent upon compliance with
applicable United States export laws and regulations. The transfer of technical
data, biological materials, chemical compositions and commodities may require a
license from the cognizant agency of the United States government or written
assurances by Mitsubishi that Mitsubishi shall not export data or commodities to
certain foreign countries without the prior approval of certain United States
agencies, or as otherwise prescribed by applicable law or regulation. Triangle
neither represents that an export license shall not be required nor that, if
required, such export license shall issue.
17.2 LEGAL COMPLIANCE. Each party shall comply with all laws and
regulations relating to the performance of its obligation or the exercise of its
rights hereunder.
17.3 INDEPENDENT CONTRACTORS. It is understood and agreed that the
parties hereto are independent contractors and are engaged in the operation of
their own respective businesses, and neither party hereto is to be considered
the agent of the other party for any purpose whatsoever, and neither party shall
have any authority to enter into any contracts or assume any obligations for the
other party nor make any warranties or representations on behalf of that
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other party.
17.4 PATENT MARKING. Triangle shall mark Licensed Products sold in the
United States with United States patent numbers. Licensed Products manufactured
or sold in other countries shall be marked in compliance with the intellectual
property laws in force in such countries. The foregoing obligations shall be
subject to size and space limitations.
17.5 PUBLICITY. The parties agree to issue mutual press releases
concerning their entry into this Agreement, with the content of such releases to
be approved (which consent shall not be unreasonably withheld or delayed) in
advance by the parties. In all other respects, except as required by law,
neither party shall use the name of the other party in any publicity release
without the prior written permission of such other party, which shall not be
unreasonably withheld. The other party shall have a reasonable opportunity to
review and comment on any such proposed publicity release. Except as required
by law, neither party shall publicly disclose the terms of this Agreement or
issue any publicity release with regard thereto unless expressly authorized to
do so by the other party which authorization shall be agreed upon.
17.6 GOVERNING LAW. This Agreement and all amendments, modifications,
alterations, or supplements hereto, and the rights of the parties hereunder,
shall be construed under and governed by the laws of the ***, exclusive of
its conflicts of laws principles.
17.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between Mitsubishi and Triangle with respect to the subject matter hereof and
shall not be modified, amended or terminated, except as herein provided or
except by another agreement in writing executed by the parties hereto. Upon the
Effective Date, the Option Agreement shall terminate.
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17.8 SEVERABILITY. All rights and restrictions contained herein may be
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement,
not essential to the commercial purpose of this Agreement, shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining provisions or portions thereof
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions, or portions thereof, shall remain in full force
and effect. To the extent legally permissible, any illegal, invalid or
unenforceable provision of this Agreement shall be replaced by a valid provision
which shall implement the commercial purpose of the illegal, invalid, or
unenforceable provision. In the event that any provision essential to the
commercial purpose of this Agreement is held to be illegal, invalid or
unenforceable and cannot be replaced by a valid provision which will implement
the commercial purpose of this Agreement, this Agreement and the rights granted
herein shall terminate.
17.9 FORCE MAJEURE.
(a) Any delays in, or failure of performance of any party to this
Agreement, shall not constitute a default hereunder, or give rise to any claim
for damages, if and to the extent caused by occurrences beyond the control of
the party affected, including, but not limited to, acts of God, strikes or other
concerted acts of workmen, civil disturbances, fires, floods, explosions, riots,
war, rebellion, sabotage, acts of governmental authority or failure of
governmental authority to issue licenses or approvals which may be required
("Force Majeure").
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(b) The party asserting the Force Majeure shall promptly notify the
other party of the event constituting Force Majeure and of all relevant details
of the occurrence and where appropriate an estimate of how long such Force
Majeure event shall continue.
(c) If such Force Majeure event continues thereafter and in any
event, the parties shall consult with each other in order to find a fair
solution and shall use all reasonable endeavors to minimize the consequences of
such Force Majeure.
17.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.11 NOTICES. All notices, statements, and reports required to be given
under this Agreement shall be in writing and shall be deemed to have been given
upon delivery in person or, when deposited (a) in the mail in the country of
residence of the party giving the notice, registered or certified postage
prepaid or (b) with a professional courier service (e.g. FedEx or UPS), and
addressed as follows:
To Mitsubishi: Mitsubishi Chemical Corporation
2-24, Higashishinagawa 2-chome,
Shinagawa-ku, Tokyo 140, Japan
Attn: General Manager, International Operations Department
Pharmaceuticals and Diagnostics Company
Fax: 3-5463-0705
To Triangle: Triangle Pharmaceuticals, Inc.
4 University Place, 4611 University Drive
Durham, NC 27707, U.S.A.
Attn: Chris A. Rallis, Vice President Business Development,
Secretary and General Counsel
Fax: (919) 493-5925
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Any party hereto may change the address to which notices to such party are to be
sent by giving notice to the other party at the address and in the manner
provided above. Any notice may be given, in addition to the manner set forth
above, by telex, facsimile or cable, provided that the party giving such notice
obtains acknowledgment by telex, facsimile or cable that such notice has been
received by the party to be notified. Notices made in this manner shall be
deemed to have been given when such acknowledgment has been transmitted.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, Mitsubishi and Triangle have caused this Agreement to
be signed by their duly authorized representatives, under seal, as of the day
and year indicated above.
MITSUBISHI CHEMICAL CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: Managing Director
-------------------------------------
TRIANGLE PHARMACEUTICALS, INC.
By: /s/ M. Nixon Ellis
-----------------------------------------
Title: President and Chief Operating Officer
-------------------------------------
[SIGNATURE PAGE FOR MITSUBISHI LICENSE AGREEMENT]
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APPENDIX A
MKC-442 Patent Applications and Patents
1) SUBSTANCE AND USE
United States
- --------------------------------------------------------------------------------
Docket No. Country Serial No. Filed Patent No. Grant Date
- --------------------------------------------------------------------------------
U.S.A. 222,071 3/9/93 5,461,060 24/10/95
- --------------------------------------------------------------------------------
Continuation of Ser. No. ***, ***
Foreign
- --------------------------------------------------------------------------------
Docket No. Country Serial No. Filed Patent No. Grant Date
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
Australia 63262-90 26/9/90 642906 24/2/94
- --------------------------------------------------------------------------------
S. Africa 90-7701 26/9/90 90-7701 31/7/91
- --------------------------------------------------------------------------------
Hungary 6019-90 24/9/90 205917 28/7/92
- --------------------------------------------------------------------------------
Designated States in ***: ***
***
***
***
***
***
***
***
***
***
***
***
***
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Confidential Treatment and filed separately with the Commission.
<PAGE>
2) COMBINATION WITH NUCLEOAIDE ANALOGUE
United States
- --------------------------------------------------------------------------------
Docket No. Country Serial No. Filed Patent No. Grant Date
- --------------------------------------------------------------------------------
U.S.A. 253,274 2/6/94 5,604,209 18/2/97
- --------------------------------------------------------------------------------
Foreign
- --------------------------------------------------------------------------------
Docket No. Country Serial No. Filed Patent No. Grant Date
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
*** *** ***
- --------------------------------------------------------------------------------
Designated States in ***: ***
***
***
***
***
***
***
***
***
***
***
***
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Confidential Treatment and filed separately with the Commission.
<PAGE>
APPENDIX B
Description of Studies under the Development Program.
NONCLINICAL
***
***
***
***
***
***
***
***
CLINICAL
***
***
***
***
***
***
***
***
***
***
***
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<PAGE>
EXHIBIT 11.1
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 (1) JUNE 30, 1996 (1) JUNE 30, 1997 (2) JUNE 30, 1997 (2)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Historical weighted average
shares........................ 18,068,624 17,825,678
Pro forma historical
weighted average shares
outstanding................... 4,097,333 4,097,333 -- --
Series A preferred stock,
convertible to Common Stock
at consummation of the
initial public offering........ 5,231,671 5,231,671 -- --
Series B preferred stock,
convertible to Common Stock
at consummation of the
initial public offering....... 3,706,234 3,706,234 -- --
Common stock equivalents for
preferred stock warrants
outstanding.................. 146,000 146,000 -- --
Common stock equivalents for
options outstanding........... 1,096,260 1,096,260 -- --
------------ ----------- ----------- ------------
Shares used in computing pro
forma net loss per share...... 14,277,498 14,277,498 18,068,624 17,825,678
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Net Loss....................... ($4,703,796) ($5,499,418) ($5,616,847) ($9,160,899)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Pro forma net loss per share ... ($ 0.33) ($ 0.39) ($ 0.31) ($ 0.51)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
(1) Weighted average common stock outstanding during the period including
all common stock issued at prices below the public offering price
during the twelve month period preceding the offering as if it was
outstanding at inception (July 12, 1995). Issuance of convertible
preferred stock, preferred stock warrants and common stock options at
prices below the public offering price during the twelve month period
preceding the offering have been included as common stock equivalent
as if they had been issued as common stock as of July 12, 1995.
(2) The weighted average shares outstanding used in the calculation of net
loss per share do not include common stock equivalents because they
have the effect of reducing net loss per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN IT'S ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 50,111,941
<SECURITIES> 24,335,822
<RECEIVABLES> 1,254,262
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,080,109
<PP&E> 1,208,833
<DEPRECIATION> 210,381
<TOTAL-ASSETS> 77,176,460
<CURRENT-LIABILITIES> 3,780,315
<BONDS> 0
0
0
<COMMON> 19,585
<OTHER-SE> 73,022,744
<TOTAL-LIABILITY-AND-EQUITY> 77,176,460
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,658,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,160,899)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,160,899)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,160,899)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
