SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1998
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, 27707
4611 University Drive, (zip code)
Durham, North Carolina
(Address of principal executive offices)
Registrant's telephone number, including area code: (919) 493-5980
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1999, was approximately $250 million. For the
purposes of this calculation, shares owned by officers, directors and 10%
stockholders known to the registrant have been excluded. Such exclusion is not
intended, nor shall it be deemed, to be an admission that such persons are
affiliates of the registrant.
The number of shares of the registrant's Common Stock outstanding as of
January 31, 1999, was 28,901,255. The number of shares of the registrant's
Series A Preferred Stock outstanding as of January 31, 1999, was 170,000.
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Documents Incorporated by Reference
Portions of Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference as provided
in Part III of this Annual Report on Form 10-K.
TRIANGLE PHARMACEUTICALS(TM), the Triangle logo, COACTINON(TM) and
COVIRACIL(TM) are trademarks of the Registrant. This Annual Report also includes
names and trademarks of companies other than the Registrant.
PART I
Item 1. Business
This Annual Report on Form 10-K 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 our 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. We undertake no
obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after the
date hereof. See "--Risks and Uncertainties" and "--Risks and
Uncertainties--Special Note Regarding Forward-Looking Statements". References in
this Annual Report on Form 10-K to "Triangle," "we," "our," "us" and the
"Company" are to Triangle Pharmaceuticals, Inc. and our wholly-owned subsidiary,
Avid Corporation, a Pennsylvania corporation.
Overview
We develop new drug candidates primarily in the antiviral area, with a
particular focus on therapies for HIV, including AIDS, and the hepatitis B virus
("HBV"). We have an existing portfolio of six licensed drug candidates and one
drug candidate for which we have an option to acquire a license. Five of these
drug candidates are currently under active development. Members of our senior
management team, prior to joining Triangle, played instrumental roles in
developing several leading antiviral therapies. Our goal is to capitalize on our
management team's expertise, as well as on advances in virology and immunology,
to identify, develop and commercialize new drug candidates that can be used
alone or in combination (coactively) to treat serious diseases.
Treating HIV infection with coactive therapy has shown significant
clinical benefits, including reduced virus levels and increased patient
longevity. Triangle was founded based in part on our belief that the prolonged
use of coactive therapy will generate demand for new anti-HIV drugs with
favorable resistance, compliance and/or tolerance profiles. We believe the use
of anti-HIV drugs will increase because:
o the use of multiple drugs by individual patients on coactive therapy
will continue to increase,
o previously untreated patients will seek medical care as the benefits
of coactive therapy become more widely understood, and
o the number of patients and the duration of drug therapy will
increase as patient mortality continues to decrease.
We believe that HBV, like HIV, due to its complexity and demonstrated
ability to develop resistance, may be more effectively and safely treated with
coactive therapy. Additionally, we believe there is a significant need to
develop drugs for the treatment of cancer since many current cancer treatments
provide limited clinical benefits.
We are actively developing the following drug candidates which we believe
have the greatest potential to become valuable tools in the coactive treatment
of serious diseases:
Drug Candidates to Treat HIV
Coactinon(TM) (emivirine), formerly known as MKC-442. A nucleoside
analogue which functions as a non-nucleoside reverse transcriptase
inhibitor, Coactinon interferes with the early stages of HIV
replication and readily penetrates the central nervous system in
animals, which is an important reservoir of HIV infection in humans.
In Phase I/II studies, Coactinon has produced clinically significant
antiviral responses and has generally been well tolerated. We are
currently conducting pivotal studies in Europe, Africa, and the
United States with Coactinon in coactive regimens in HIV-infected
patients to demonstrate its safety and efficacy as measured by
decreases in viral load.
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DMP-450. A protease inhibitor, DMP-450 has demonstrated potent in
vitro activity against HIV and was generally well tolerated in a
Phase I study. The United States Food and Drug Administration
("FDA") placed DMP-450 on clinical hold in October 1997 because of
electrocardiographic abnormalities experienced by some animals
exposed to extremely high doses of the drug. After discussions with
the FDA, in January 1998 we initiated a Phase I pharmacokinetic
study of DMP-450 in the United States, which we have completed. At
approximately the same time, we initiated a Phase I safety and
tolerance study in Europe to determine whether we could observe any
electrocardiographic abnormalities in humans (when steady-state
blood levels of DMP-450 are reached (i.e., 3 days)) with doses at or
above those planned in efficacy studies. We have completed this
Phase I study and did not observe any such abnormalities. We plan to
initiate Phase I/II combination studies outside the United States in
the first half of 1999. The initiation of potential efficacy studies
in the United States awaits the outcome of further discussions with
the FDA, where DMP-450 remains on partial clinical hold.
Drug Candidate to Treat HBV
L-FMAU. A nucleoside analogue, L-FMAU has demonstrated potent
activity against a hepatitis virus in naturally infected woodchucks
(a disease state closely resembling that of HBV in humans), both
during the course of treatment and for a period of up to 50 weeks
following treatment. We initiated preclinical studies with L-FMAU
during 1998.
Drug Candidates to Treat HIV and HBV
Coviracil(TM) (emtricitabine), formerly known as FTC. A nucleoside
analogue, Coviracil has been shown to be a potent inhibitor of both
HIV and HBV replication in laboratory studies. Against HIV,
preclinical studies have demonstrated that Coviracil is consistently
more potent than 3TC (lamivudine), a member of the same nucleoside
series as Coviracil. Currently, we are conducting Phase II/III
studies with Coviracil for the treatment of HIV and Phase I/II dose
ranging studies for the treatment of HBV. Against HBV, emtricitabine
has demonstrated activity as potent as 3TC in laboratory studies as
well as in studies with the woodchuck hepatitis model.
DAPD. A purine dioxolane nucleoside, we believe DAPD is the only
drug candidate in its nucleoside series that is currently being
developed for the treatment of viral diseases. We believe DAPD may
offer advantages over other currently marketed nucleosides in the
treatment of HIV because of its unique structure and pharmacological
properties. Against HBV, DAPD has demonstrated activity as potent as
3TC in laboratory studies as well as in studies with the woodchuck
hepatitis model. We are conducting Phase I/II studies with DAPD for
the treatment of HIV and plan to initiate clinical studies with DAPD
for the treatment of HBV during 1999.
The FDA has notified us that two of our drug candidates, Coactinon and
Coviracil for the treatment of HIV, qualify for designation as "fast track"
products under provisions of the Food and Drug Administration Modernization Act
of 1997. The fast track provisions are designed to expedite the review of new
drugs intended to treat serious or life-threatening conditions and essentially
codified the criteria previously established by the FDA for accelerated
approval. We believe that certain of our other drug candidates may also meet the
fast track criteria. We may be able to commercialize our drug candidates which
meet these criteria in a shorter time period than has historically been required
for drugs that do not meet the criteria for expedited review. We cannot assure
you, however, that any of our drug candidates will qualify or continue to
qualify for expedited review or be approved in a time period that is shorter
than other drugs that do not qualify for this review. See "--Government
Regulation."
We do not intend to engage in basic drug discovery, thereby avoiding much
of the significant investment of time and capital that is generally required
before a compound is identified and brought to clinical trials. We intend to use
our expertise to perform internally what we believe are the most critical
aspects of the drug development process, such as the design of clinical trials
and the optimization of drug synthesis. We out-source many aspects of our
clinical trials and the manufacture of drug substance to carefully selected
third parties.
Although we currently have no sales force, we believe that the high
concentration of major prescribers of anti-HIV and anti-HBV therapies in the
United States will enable us to promote most drug candidates that we
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successfully develop to these prescribers through a small, direct sales force.
Outside of the United States, we currently intend to promote any drug candidates
that we successfully develop primarily through arrangements or collaborations
with third parties. As part of the ordinary course of our business, we consider
arrangements or collaborations with third parties to market and/or sell products
we develop both within and outside of the United States. We may not, however,
enter into any such arrangements or collaborations on satisfactory terms and any
such arrangements or collaborations we enter into may not be successful.
We have not generated any revenue from sales of our drug products and,
therefore, are a development stage company. We do not expect to generate any
revenue before the year 2000. As of December 31, 1998, the Company's accumulated
deficit was $116.8 million. We may never achieve profitable operations or
generate positive cash flow.
Triangle was incorporated in Delaware in July 1995. Our principal
executive offices are located at 4 University Place, 4611 University Drive,
Durham, North Carolina 27707, and our telephone number is (919) 493-5980.
Strategy
Our goal is to create a portfolio of commercialized drugs primarily for
antiviral treatments. We intend to achieve this goal through the following
strategies:
Focus on Viral Diseases. The expertise of our management team lies in
identifying, developing and commercializing drugs for the treatment of viral
diseases. We are targeting the viral disease markets because we believe the
significant unmet medical need and the rapid pace of scientific advances
occurring in the treatment of these diseases give these significant markets
attractive growth potential. We also believe that the relatively high
concentration of prescribers that treat HIV and HBV will enable us to promote
most drug candidates through a small, specialized direct sales force.
Apply Selective Criteria to Drug Candidates. When we evaluate drug
candidates for our product development programs, we seek to in-license drug
candidates for which favorable preclinical, and where possible, clinical data
already exist. We intend to use our expertise to identify drug candidates that
we judge to have attractive preclinical profiles. In addition, we prefer, where
practical, to in-license drug candidates that have either undergone some testing
in humans (e.g., Coviracil and DMP-450) or share characteristics with drugs that
are currently approved for use in humans. We intend to apply these selection
standards where feasible in evaluating potential drug candidates for
in-licensing.
Leverage Relationships. As a result of our instrumental roles in the
identification, clinical development and commercialization of antiviral and
anticancer therapies, our management team and Scientific Advisory Board have
extensive contacts in academia and industry. These contacts were instrumental in
the acquisition of our existing drug candidates, and we believe they will be
valuable in our efforts to develop and to commercialize existing and future drug
candidates.
Develop Drugs for Use in Coactive Therapy. Coactive therapy is an
increasingly accepted method to treat viral diseases such as HIV infection. We
seek to identify and develop drug candidates for use in coactive therapy that
have resistance, compliance and/or tolerance profiles that are complementary to
the profiles of existing drugs. In addition, in contrast to the competitive
marketing of single drug regimens, we believe that any drug we develop as part
of a coactive regimen will benefit from the promotional efforts of the marketers
of the other drugs in the regimen.
Focus on Small Molecule Drugs. Our management team is well known for its
successful development of and expertise in small molecule drugs, and nucleosides
in particular. Small molecule drugs have several advantages over large molecule
drugs such as proteins, polypeptides and polynucleotides. For example, small
molecule drugs are often simpler to scale-up and manufacture than large molecule
drugs, and are more likely to be orally bioavailable (taken by mouth) which is a
significant advantage in treating long-term chronic illnesses where patients
prefer not to be subjected to injections over extended periods of time.
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Strategically Out-Source Routine Aspects of Drug Development. Our strategy
is to remain focused on drug development. Much of the drug development process
consists of routine elements that may be out-sourced to high quality, high
capacity contractors. Accordingly, we intend to focus our corporate resources on
the aspects of drug development that require particular expertise. For example,
we intend to concentrate on the design of clinical trials and the optimization
of drug synthesis, and to out-source many aspects of the conduct of clinical
trials and the manufacture of drug substance. We believe this strategy enables
us to respond rapidly to certain changing events, such as clinical trial results
and the availability of funds, by increasing or decreasing expenditures on
particular drug development projects or by shifting our emphasis among projects.
Product Development Programs
We are focused on the development of drugs for the treatment of viral
diseases to take advantage of the opportunities presented by the increasing use
of coactive therapy. We believe that coactive therapy is now recognized as the
most effective available method to treat HIV and AIDS, and is being used widely
in the United States and Western Europe. We also believe that HBV, due to its
complexity and demonstrated ability to develop resistance to therapeutic agents,
may also be more effectively treated with coactive therapy.
We perform a variety of tests when evaluating a drug candidate that are
designed to evaluate the potential activity, resistance profile and toxicity of
the drug candidate. For example, anti-HIV drug candidates are tested in our
laboratories against both laboratory and clinical strains of HIV in several cell
lines, individually and in combination with other compounds. Additionally, we
use carefully selected third parties to perform other resistance and toxicity
tests.
TRIANGLE'S PORTFOLIO OF DRUG CANDIDATES
================================================================================
Drug Candidates Indication Status(1),(2) Territory(3)
================================================================================
Coactinon(TM) HIV Pivotal Phase Worldwide, except
(emivirine), II/III Japan
formerly known as
MKC-442
- --------------------------------------------------------------------------------
Coviracil(TM) HIV Pivotal Phase Worldwide
(emtricitabine), II/III
formerly known as FTC HBV Phase I/II Worldwide
- --------------------------------------------------------------------------------
DMP-450 HIV Phase I(4) Worldwide
- --------------------------------------------------------------------------------
DAPD HIV Phase I/II Worldwide
HBV Preclinical Worldwide
- --------------------------------------------------------------------------------
L-FMAU HBV Preclinical Worldwide, except
Korea
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2-CdAP Psoriasis Phase I/II(5) Worldwide
- --------------------------------------------------------------------------------
Alanosine Brain, Lung and Pilot Phase II(5) Worldwide
other Cancers
- --------------------------------------------------------------------------------
(1) Neither the FDA nor any foreign regulatory agencies have approved our drug
candidates for commercial sale.
(2) "Preclinical" means that we are testing a drug candidate for safety and
potency in animal or laboratory models. "Phase I" means that we are
testing a drug candidate for preliminary indications of safety and
tolerance in a limited number of patients or volunteers. "Phase I/II"
means that we are testing a drug candidate for safety, tolerance and
preliminary indications of efficacy in a limited number of patients.
"Phase II" means that we are testing a drug candidate for safety, efficacy
and, in some cases, optimal dosage in a limited number of patients. "Phase
II/III" means that we are testing a drug candidate for safety and efficacy
in an expanded number of patients at geographically dispersed clinical
sites. "Pivotal" means that we are conducting expanded clinical studies
intended to support a submission for regulatory approval of a drug
candidate. "Pilot" means that we are conducting a clinical trial with a
small number of patients. See "--Government Regulation."
(3) Indicates the geographic territory in which we have licensed, or have an
option to acquire a license to, the right to commercialize the particular
product. We have licensed all drug candidates except alanosine, for which
we have acquired an option to obtain a license. Our ability to
commercialize products in each country in the licensed territory may be
limited by proprietary rights of third parties other than our licensors.
See "--Risks and Uncertainties -- Uncertainty of Patents; Dependence on
Patents, Licenses and Proprietary Rights."
(4) We plan to initiate Phase I/II combination studies outside the United
States in the first half of 1999. The initiation of potential efficacy
studies in the United States awaits the outcome of further discussions
with the FDA, where DMP-450 remains on partial clinical hold. See "--Viral
Disease Program--HIV--Development Status--DMP-450."
(5) We have decided to limit the current support of 2-CdAP and alanosine to
focus financial and human resources on those drug candidates which we
believe have the greatest potential. Should circumstances change, we may
invest in the further development of these two drug candidates in the
future.
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Viral Disease Program
HIV
Background. The World Health Organization estimates that through 1998,
33.4 million people worldwide were living with HIV or AIDS. It is generally
believed that, in the absence of therapeutic intervention, the vast majority of
individuals infected with HIV will ultimately develop AIDS which has a mortality
rate approaching 100%.
Experts believe a key factor in how quickly a person infected with HIV
develops AIDS is the amount of HIV in the body at any one time (the "viral load"
or "viral burden"). The failure of vaccines and other immunotherapy to control
the virus has led current researchers to focus on halting HIV replication and
reducing viral load by blocking one or both of two key enzymes required for
viral replication.
The first enzyme, reverse transcriptase, is active early in the
replication cycle and allows the virus, which is made of RNA, to transform to
its DNA form necessary for continued replication. This enzyme can be inhibited
by two general classes of drugs defined both by their structure as well as their
mechanism of action. The first general class, nucleoside analogue reverse
transcriptase inhibitors such as AZT, ddI, ddC, d4T and 3TC, bears a strong
chemical resemblance to the natural building blocks (nucleotides) of DNA and
interferes with the function of the enzyme by displacing the natural nucleotides
used by the enzyme. The second general class, non-nucleoside reverse
transcriptase inhibitors such as nevirapine, delavirdine and efavirenz, is
composed of an extremely diverse group of chemicals that act by attaching to the
reverse transcriptase enzyme and modifying it so that it functions less
efficiently. The second enzyme, protease, is required to permit full virus
maturation. Inhibitors of this enzyme are represented by drugs such as
saquinavir, ritonavir, indinavir and nelfinavir.
The genetic material responsible for the production of both enzymes is
extremely prone to mutations that can produce resistance to drugs targeted at
these enzymes. If antiviral therapy does not halt all viral replication, then
mutant strains of virus continue to replicate. Depending upon the particular
mutations that occur, these virus strains may be resistant to only one of the
drugs used in therapy or may be resistant to some or all of the drugs in the
same chemical or functional class. This latter phenomenon is known as
cross-resistance.
Initially, HIV was treated only with AZT, a nucleoside analogue reverse
transcriptase inhibitor, which was first introduced in 1987. Three other
nucleoside analogues--ddI, ddC and d4T--were introduced to the market in the
early 1990's. These drugs, when used alone, provided only short-term clinical
benefit, were sometimes toxic and were often considered expensive relative to
their clinical benefits. As a result, the use of anti-HIV therapy was limited
and market penetration was low (less than 25% of the infected population in the
United States).
More recently, clinical research in HIV has been facilitated by the
introduction in the mid-1990's of tests that can reliably determine the viral
load in the blood at any given time. As a result, it is now possible to rapidly
evaluate potential therapeutic agents and combinations of agents and to
determine accurately the potency and resistance profiles of these agents. This
has led to the accelerated development of a number of new therapeutic agents and
their use in coactive therapy. The use of coactive therapy, including
combinations of protease inhibitors or non-nucleoside reverse transcriptase
inhibitors with two nucleoside analogue reverse transcriptase inhibitors, has
demonstrated significant therapeutic benefit, sometimes rendering the virus
undetectable in the blood of certain patients for over two years to date.
Additional combinations may be possible as new therapeutic agents are developed.
In spite of these significant advances, numerous challenges remain in the
treatment of HIV. In the absence of a cure, the disease is life long. Although
coactive therapy has demonstrated the ability to markedly slow resistance
development, resistant mutants are already being identified to the drugs
currently used during the course of coactive therapy studies, and
cross-resistance among many agents, including protease inhibitors, is being
increasingly recognized. Present coactive treatments are also often complex and
expensive (published reports indicate the cost per patient per year can exceed
$13,000). Adverse reactions to many of the drugs used in coactive therapy are
common and may limit compliance or even preclude use in some patients. Even
brief instances of non-compliance can reduce or eliminate the ability of the
combination therapy to suppress the virus, and may thus accelerate the
development of resistance. We believe that these challenges present an
opportunity to develop additional drugs that have attractive safety,
pharmacokinetic and/or resistance profiles.
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Development Status. We have a portfolio of four drug candidates for the
treatment of HIV: Coactinon, Coviracil, DMP-450, and DAPD. Triangle's HIV
portfolio includes at least one drug candidate in each of the three classes of
drugs currently approved for the treatment of HIV. Three are reverse
transcriptase inhibitors, although one of these (Coactinon) functions as a
non-nucleoside reverse transcriptase inhibitor, and one (DMP-450) is a protease
inhibitor.
Coactinon (emivirine), formerly known as MKC-442. We are currently
conducting pivotal Phase II/III clinical trials in Europe, Africa, and the
United States with Coactinon in coactive regimens in HIV-infected patients to
demonstrate safety and efficacy as measured by viral load. We intend to use
these trials as part of the basis of regulatory filings in the United States and
other countries. We have licensed from Mitsubishi Chemical Corporation
("Mitsubishi") rights to Coactinon worldwide, except in Japan, for the treatment
of HIV.
Although Coactinon is a nucleoside analogue, it functions as a
non-nucleoside reverse transcriptase inhibitor. Preclinical tests suggest that
Coactinon may possess characteristics that address several of the therapeutic
challenges of HIV. When tested in cell culture assay systems against wild-type
(drug-sensitive) strains of HIV known to be resistant to established
non-nucleoside reverse transcriptase inhibitors, Coactinon retained much of its
ability to inhibit HIV replication. In these studies, Coactinon displayed
greater potency than nevirapine against wild-type strains of HIV. Preclinical
studies of Coactinon in two-drug combinations with AZT and ddI and in two-drug
and three-drug combinations with certain nucleoside analogue reverse
transcriptase inhibitors and protease inhibitors suggest that Coactinon may work
well in coactive therapy.
Studies in animals suggest a favorable safety and pharmacokinetic profile
for Coactinon. Animal pharmacokinetic analyses showed good oral bioavailability
and excellent penetration into the central nervous system, a significant site of
HIV replication in humans that is poorly penetrated by many currently marketed
anti-HIV drugs. In rats, for example, the concentration of Coactinon in the
brain was 100% of that seen in the plasma.
We conducted a Phase I study to evaluate the pharmacokinetics and
tolerance of single escalating doses of Coactinon in HIV-infected volunteers.
Our study indicated the compound was generally well tolerated, with only a few
participants experiencing minor adverse effects at the higher dose levels. In
the groups receiving higher doses, concentrations of the drug in the plasma
reached levels much higher than the levels required to suppress 90% of the virus
in culture.
We have also released preliminary data from a Phase I/II double-blind,
placebo-controlled trial designed to evaluate the safety and efficacy of
repeated multiple oral doses of Coactinon in HIV-infected patients. A total of
49 patients were treated with Coactinon for up to two months. Doses ranging from
100 mg to 1000 mg twice a day were given to groups of six to eight patients at
each dosage level. At a dose of 750 mg twice a day, the viral load was reduced
by an average of 96% in all patients after one week. This reduction was mostly
sustained at two weeks whereafter it was followed by a gradual increase in viral
load from the nadir towards baseline levels. In the trial, Coactinon was
generally well tolerated, and the most frequently observed adverse events were
transient headache, rash, nausea/vomiting, and diarrhea. A single point mutation
at position 103 of the reverse transcriptase that may be associated with
resistance was found in the virus obtained from some patients.
Pharmacokinetic drug interaction studies with protease inhibitors and
other agents are currently ongoing under an Investigational New Drug Application
("IND"). We are currently conducting pivotal Phase II/III clinical trials of
Coactinon in coactive regimens at a dose of 750 mg twice a day in Europe,
Africa, and the United States.
Coviracil (emtricitabine), formerly known as FTC. We are currently
conducting Phase II/III clinical trials with Coviracil for the treatment of HIV.
We have licensed worldwide rights to Coviracil for the treatment of HIV and HBV
from Emory University ("Emory").
Coviracil is a member of the same nucleoside series as 3TC. In laboratory
studies, Coviracil consistently has displayed greater potency than 3TC against
HIV and is a potent antiviral agent against HIV strains obtained from a
geographically diverse set of HIV-infected patients. Laboratory studies have
also shown that Coviracil shares cross-resistance patterns with 3TC. In some
cases, the most common resistance mutation to these two agents also reverses
resistance of HIV to AZT.
Studies in animals have demonstrated that Coviracil was cleared rapidly
from the bloodstream over all doses studied, had good oral bioavailability and
was well tolerated. Mild anemia in mice was seen only at extremely high doses
(3000 mg/kg/day).
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A Phase I single dose study evaluated the pharmacokinetics and tolerance
of Coviracil in 12 HIV-infected volunteers. The volunteers received six single
oral doses of Coviracil at six day intervals ranging from 100 mg to 1200 mg.
Coviracil was well tolerated by all subjects in the dose range studied.
Coviracil was absorbed rapidly into the blood stream following oral
administration and was excreted primarily through the kidneys. While food intake
slightly decreased the rate of absorption, it did not affect the overall oral
bioavailability. The absorption, metabolism and excretion of Coviracil were
generally consistent among the subjects.
In a Phase I/II monotherapy study in 41 HIV-infected patients, doses
ranging from 25 mg twice a day to 200 mg twice a day were given for 2 weeks. (A
brief duration of monotherapy exposure was selected to limit the development of
patient resistance, but allows a preliminary assessment of drug candidate
tolerance and efficacy.) At each dose regimen containing doses of 200 mg/day or
more, a 98% (1.75 log(10)) or greater viral suppression was observed. A single,
once-a-day, 200 mg dose reduced the viral load by an average of 99% (1.92
log(10)). The drug was generally well tolerated, with the most frequently
observed adverse experiences being headache, nausea/vomiting, and diarrhea.
In an additional monotherapy study used to determine the optimum dose of
Coviracil, 80 patients were randomized to receive one of three doses of
Coviracil (25 mg, 100 mg, or 200 mg) once-a-day or the standard dose of
lamivudine (150 mg twice-a-day). Patients were treated for 10 days and followed
for an additional two days after the completion of dosing. All regimens were
active, but the dose of 200 mg of Coviracil exhibited superior antiviral
suppression. This effect was determined by a number of variables including
calculations of absolute changes in viral load, average area under the curve
minus baseline, and the slope of viral RNA decay. Of those receiving 200 mg of
Coviracil, at the end of therapy 58% (11/19) had either a 2 log(10) drop in
viral load or a reduction in virus below the level of detection and, of these,
21% (4/19) had both. Even two days after the completion of this short course of
therapy, the absolute decrease in viral load in this cohort was 1.63 log(10)
(43-fold decrease).
DMP-450. DMP-450 is currently in Phase I pharmacokinetic and tolerance
studies in Europe. We obtained worldwide license rights to DMP-450 through the
acquisition of Avid Corporation ("Avid") in 1997. See "--License and Other
Material Agreements --The DuPont Pharmaceuticals Company and Avid Corporation."
DMP-450 is a potent, selective inhibitor of the HIV-1 protease that
belongs to a novel chemical class, the cyclic ureas. In preclinical laboratory
tests, DMP-450 showed a dose-dependent inhibition of HIV replication in three
different cell types and reduced the yield of virus by more than 99.9% at
concentrations as low as 0.5 uM. Resistance to the compound is conferred
by the 82 or 84 mutation, consistent with mutations observed with several other
protease inhibitors. DMP-450 is synergistic with a number of antiretrovirals in
laboratory studies. Long-term toxicology studies have been completed in rats and
dogs.
Data from a Phase I study conducted by The DuPont Pharmaceuticals Company
("DuPont"), formerly The DuPont Merck Pharmaceutical Company, showed that
DMP-450 was generally well tolerated following single oral doses that ranged
from 60 mg to 1250 mg in normal, healthy male volunteers for up to four days. A
Phase I/II trial, initiated by Avid and ongoing at the time of its acquisition,
was put on clinical hold by the FDA in October 1997 because of the FDA's
concerns regarding toxicity and electrocardiographic abnormalities observed in
some animals exposed to extremely high doses of DMP-450. The patients in the
Phase I/II study were administered oral doses that ranged from 500 mg to 750 mg
three times a day and experienced no significant adverse reactions. After
discussions with the FDA, we initiated a Phase I pharmacokinetic study for
DMP-450 in the United States and a Phase I safety and tolerance study in Europe
in January 1998. The Phase I safety and tolerance study was designed to
determine whether any electrocardiographic abnormalities could be observed in
humans (when steady-state blood levels of DMP-450 are reached (i.e., 3 days))
with doses at or above those planned to be used in efficacy studies. Both
studies have been completed and no electrocardiographic abnormalities were
observed in the Phase I safety and tolerance study. We plan to initiate Phase
I/II combination studies outside the United States in the first half of 1999.
The initiation of potential efficacy studies in the United States awaits the
outcome of further discussions with the FDA as DMP-450 remains on partial
clinical hold.
DAPD. We have initiated Phase I/II clinical trials with DAPD for the
treatment of HIV. We also plan to initiate clinical studies for the treatment of
HBV during 1999. We have licensed worldwide rights to DAPD for the treatment of
HIV and HBV from Emory and the University of Georgia Research Foundation, Inc.
("UGARF").
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We believe that DAPD is currently the only member of its nucleoside series
which is in development for the treatment of viral diseases, and may offer
advantages over currently marketed nucleosides from other series because of its
unique structural and pharmacological properties. DAPD is synergistic with a
number of antivirals in laboratory studies. HIV strains that are resistant to
AZT, 3TC or Coviracil are not cross-resistant to DAPD. Studies in animals have
demonstrated the majority of DAPD is rapidly converted to dioxolane guanosine
("DXG"), the active anti-HIV agent. Preliminary analyses of these
pharmacokinetic studies indicate that DXG serum concentrations decline with a
terminal half-life ranging from approximately two to eight hours. The analysis
of several urine samples from this study indicate the presence of DXG with no
other metabolites detected.
HBV
Background. Hepatitis B is the causative agent of both the acute and
chronic forms of HBV, a liver disease that is a major cause of illness and death
throughout the world. Hepatitis B can lead to cirrhosis and cancer of the liver.
In the United States, approximately 300,000 people become acutely infected each
year and approximately one million people currently are chronic HBV carriers. Of
these, as many as 5,000 die each year as a result of the consequences of this
liver damage. Worldwide, over 300 million people are chronically infected.
Presently, there are over 120 million carriers of HBV in Asia, of whom
one-fourth may develop serious illnesses such as cirrhosis and liver cancer. Of
these, between 1.0 million and 2.0 million die each year.
Vaccines are currently available that can prevent the transmission of HBV;
however, these vaccines have no efficacy in those already infected. Alpha
interferon (a commercially available drug approved for the treatment of HBV) is
administered by injection, is not always successful in controlling the virus and
is associated with significant side-effects, the most common being severe
"flu-like" symptoms. While other compounds have some activity in the treatment
of HBV infection, we believe additional drugs will be necessary to effectively
treat the disease. For example, 3TC has shown good tolerance and effective
suppression of HBV replication during the course of treatment. However, virus
replication can return during prolonged therapy. Studies of more prolonged
therapy are in progress, and antiviral resistance has been observed with certain
patients.
We believe that HBV, like HIV, may be treated more effectively with
coactive therapy. Therefore, even if other drugs are approved for the treatment
of HBV, we believe there will still be a need for additional safe and effective
oral therapies for chronic HBV that can be used in coactive therapies.
Development Status. We are developing three compounds for the treatment of
HBV, two of which, Coviracil and DAPD, are also being developed for the
treatment of HIV.
Emtricitabine, formerly known as FTC. We are currently conducting Phase
I/II clinical trials with emtricitabine for the treatment of HBV. Some of the
development activities we plan to undertake with Coviracil for the treatment of
HIV will also be used in the development of emtricitabine for the treatment of
HBV. See "--HIV--Development Status--Coviracil (emtricitabine), formerly known
as FTC."
Emtricitabine has been shown to be a potent inhibitor of HBV replication
in laboratory studies, and is synergistic in laboratory studies in combination
with several types of interferons approved for the treatment of HBV. The
anti-hepatitis activity of emtricitabine has been demonstrated in a chimeric
mouse model and against woodchuck hepatitis virus in naturally infected
woodchucks. The hepatitis infection of the woodchuck results in a disease state
closely resembling that found in humans infected with HBV. In the woodchuck
model at doses above 3 mg/kg, all treated animals had significantly reduced
levels of woodchuck hepatitis virus DNA in their blood. One week after treatment
was stopped, woodchuck hepatitis virus levels returned to pretreatment levels,
as is seen with 3TC.
We have released preliminary data from 17 HBV-infected patients in an
ongoing Phase I/II study which suggests that emtricitabine has potent antiviral
activity against HBV in humans. Patients in the study were given emtricitabine
at doses ranging from 25 mg once-a-day to 200 mg once-a-day. The median
reduction in viral load during the first 14-days of treatment with emtricitabine
was 1.9 log(10) at 25 mg once-a-day in 8 patients and 2.8 log(10) (99.8%) at 200
mg once-a-day in 9 patients.
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L-FMAU. We are currently conducting six and 12 month toxicology studies
with L-FMAU. We have licensed worldwide rights to L-FMAU, except in Korea, from
Bukwang Pharm. Ind. Co., Ltd. ("Bukwang") for all human antiviral applications.
L-FMAU is a pyrimidine nucleoside analogue that has been shown to be a
potent inhibitor of HBV replication in laboratory studies. The EC(50) value (the
effective concentration of drug required to inhibit virus growth by 50%) ranges
from 0.02 uM to 0.15 uM with a mean of 0.08 uM. Pharmacokinetic studies with
L-FMAU have been performed in adult woodchucks and in rats. The bioavailability
of L-FMAU in rats was 59% to 64%. At a 25 mg/kg dose of L-FMAU given to
woodchucks, oral bioavailability ranged from 19% to 29%. The pharmacokinetics of
L-FMAU in these animal studies were independent of dose over a range of 10 mg/kg
to 50 mg/kg.
In laboratory studies, the efficacy of L-FMAU has been demonstrated in
woodchucks chronically infected with woodchuck hepatitis virus who were treated
at varying doses for four weeks. Within seven days of initial treatment, a
greater than 1000-fold reduction in serum woodchuck hepatitis virus DNA was
observed, and at all but the lowest doses, the woodchuck hepatitis virus DNA
became undetectable shortly thereafter in the majority of the animals. In a
study where L-FMAU was given at a dose of 10 mg/kg for 12 weeks, the virus did
not return in the majority of animals for prolonged periods after the cessation
of dosing. Molecular evidence of viral infection in the liver could no longer be
detected between four and 12 weeks after treatment and remained undetectable for
the entire 36-week post-treatment observation period.
DAPD. We currently intend to initiate Phase I/II studies with DAPD for the
treatment of HBV in 1999. Some of the development activities we plan to
undertake with DAPD for the treatment of HIV will also be used in the
development of DAPD for the treatment of HBV. See "--HIV--Development
Status--DAPD."
In laboratory studies, DAPD has been shown to be a potent inhibitor of HBV
replication. In the woodchuck model, DAPD was found to be as active as 3TC in
reducing serum levels of circulating viral DNA when administered for 12 weeks.
License and Other Material Agreements
We have licensed Coactinon from Mitsubishi, L-FMAU from Bukwang, Coviracil
from Emory, DAPD from Emory and UGARF, and 2-CdAP from Dr. Karl Hostetler and
Dr. Dennis Carson. We acquired license rights to DMP-450 through our acquisition
of Avid. Avid licensed DMP-450 from DuPont. We have entered into an option
agreement with The Regents of the University of California (the "Regents") with
respect to the acquisition of certain license rights to alanosine. See "--Risks
and Uncertainties--Risks Related to License and Option Agreements."
Mitsubishi Chemical Corporation
In December 1995, we entered into an option agreement with Mitsubishi
pursuant to which Mitsubishi granted us an option to obtain an exclusive license
to Coactinon. We exercised this option and, in June 1997, entered into a license
agreement with Mitsubishi pursuant to which we received an exclusive license to
all of Mitsubishi's rights to Coactinon for use in the HIV field. The license
includes all countries of the world except Japan. As consideration for the
exclusive license, we paid a license initiation fee and agreed to make certain
milestone and royalty payments, including minimum annual royalty payments to
Mitsubishi. We are also required to meet certain milestone obligations and
conduct certain development work with respect to Coactinon. Under the license
agreement, we have agreed to perform preclinical testing and clinical trials
with Coactinon. Mitsubishi is primarily responsible for prosecuting all patents
related to the emivirine technology at its own expense. We are obligated to
indemnify Mitsubishi against any claims or losses incurred as a result of our
breach of the license agreement or our manufacture, testing, design, use, sale
and labeling of products utilizing the emivirine technology. Mitsubishi has the
right to terminate the license if we do not satisfy certain milestone
obligations or if we do not cure any material breach of the license agreement.
The termination of the license agreement would adversely affect our business.
Bukwang Pharm. Ind. Co., Ltd.
In February 1998, we entered into a license agreement with Bukwang
pursuant to which we received an exclusive license to all of Bukwang's rights to
L-FMAU for use in the HBV field as well as all other human antiviral
applications. Bukwang obtained its rights to L-FMAU through an exclusive license
from Yale University ("Yale") and UGARF. Our license includes all countries of
the world except Korea. As consideration for the exclusive license of
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the L-FMAU technology, we paid a license initiation fee and agreed to pay
development and sales milestones. We also agreed to pay a royalty on the net
sales of any licensed products. Beginning the third year after the first FDA
registration is granted for an FDA-approved product incorporating the L-FMAU
technology, we will be required to pay an annual minimum royalty. Under the
license agreement, Yale and UGARF are primarily responsible for prosecuting all
patents related to the L-FMAU technology which they licensed to Bukwang, at our
expense.
We are primarily responsible for prosecuting all patents related to any
L-FMAU technology that may be acquired by Bukwang or us at our own expense. In
addition, Yale and UGARF have the first right to pursue any actions against
third parties for infringement of the L-FMAU technology, either jointly with us
(with expenses shared equally) or, if not jointly with us, solely at their
expense. Upon the conclusion of any such infringement action brought solely by
us, we are entitled to offset unrecovered expenses incurred in connection with
the infringement action against a percentage of the aggregate milestone payments
and royalties owed to Bukwang during the time the infringement action is
pending. We are obligated to indemnify Bukwang against any claims or losses
incurred as a result of our breach of the license agreement or our manufacture,
testing, design, use, sale and labeling of products utilizing the L-FMAU
technology. Bukwang has the right to terminate the license agreement in the
event we do not achieve certain milestone obligations or upon an uncured breach
of the agreement by us. In the event of such termination, we will grant Bukwang
certain nonexclusive, royalty free license rights in all intellectual property
under our control relating to the L-FMAU technology necessary for marketing
products which contain L-FMAU. The termination of the license agreement could
adversely affect our business.
The DuPont Pharmaceuticals Company and Avid Corporation
We completed our acquisition of Avid on August 28, 1997, pursuant to the
terms of a merger agreement among Triangle, a wholly-owned subsidiary of
Triangle and Avid. Avid's principal assets consist of worldwide license rights
to DMP-450 for use in the HIV field and proprietary assays to screen compounds
for the treatment of HBV. Avid acquired its rights to the DMP-450 technology in
December 1996 through an exclusive license from DuPont. Pursuant to the license
agreement, we are required to make certain milestone and royalty payments and to
pay license preservation fees to DuPont, beginning in 1998, in the event other
payments do not equal certain annual amounts. Under the license agreement,
DuPont is primarily responsible for prosecuting all patents related to the
DMP-450 technology. We are required to reimburse DuPont for the patent
prosecution costs it incurs after the date of the license agreement, other than
any litigation expenses incurred by DuPont. In certain circumstances, we have
the right to pursue any actions against third parties for infringement of the
DMP-450 technology at our expense. In addition, we are obligated to indemnify
DuPont against any claims or losses incurred as a result of our production,
manufacture, use, sale, lease, consumption, or advertisement of products
utilizing the DMP-450 technology. DuPont may terminate the license agreement
upon an uncured breach of the agreement by us. The termination of the license
agreement could adversely affect our business.
Pursuant to the terms of the merger agreement, we issued 400,000 shares of
common stock in exchange for all outstanding capital stock of Avid. We also
agreed to issue up to 2,100,000 additional shares of common stock upon the
achievement of certain milestones relating to DMP-450. Pursuant to the merger
agreement, the issuance of 1,600,000 of these shares was contingent upon
Triangle's initiating pivotal Phase II clinical trials with DMP-450 before
February 28, 1999 (the "DMP Milestone Date"), or electing on or before the DMP
Milestone Date to continue the development of DMP-450 even if such clinical
trials had not been initiated. Representatives of the former Avid stockholders
have agreed to extend the DMP Milestone Date until February 28, 2000, in
exchange for Triangle's issuance of 100,000 of the 1,600,000 contingent shares
in 1999. The issuance of the remaining 500,000 of the 2,100,000 shares is
contingent upon the attainment of other development milestones with DMP-450. In
connection with the acquisition, we also assumed operating and other liabilities
of Avid totaling approximately $1.3 million and certain development liabilities
totaling approximately $1.0 million.
Emory University and University of Georgia Research Foundation, Inc.
Coviracil. In April 1996, we entered into a license agreement with Emory
pursuant to which we received an exclusive worldwide license to all of Emory's
rights to purified forms of Coviracil for use in the HIV and the HBV fields. As
consideration for the exclusive license of the emtricitabine technology, we
issued 500,000 shares of common stock and agreed to pay certain license fees,
all of which have been paid to Emory. In addition, we agreed to make certain
milestone and royalty payments to Emory. Beginning the third year after the
first FDA registration is granted for an anti-HIV product incorporating the
emtricitabine technology in the United States and the third year after the first
registration is granted for an anti-HBV product incorporating the emtricitabine
technology in certain
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major market countries, we will be required to pay Emory minimum annual
royalties for the HIV and HBV indications, respectively. Under the license
agreement, Emory is primarily responsible for prosecuting all patents related to
the emtricitabine technology. We agreed to reimburse Emory for the patent
prosecution costs it incurs after December 1996. We have the right to pursue any
actions against third parties for infringement of the emtricitabine technology
at our expense. Upon the conclusion of any such infringement action, we are
entitled to offset unrecovered expenses incurred in connection with the
infringement action against a percentage of the aggregate milestone payments and
royalties owed to Emory during the time the infringement action was pending. In
addition, we are obligated to defend, indemnify and hold harmless Emory and
certain of its representatives against any claims or losses incurred as a result
of our manufacturing, testing, design, use and sale of products utilizing the
emtricitabine technology. Emory has the right to terminate the license agreement
or to convert the exclusive license to a nonexclusive license in the event we do
not satisfy certain milestone obligations. Emory may also terminate the license
agreement upon an uncured breach of the agreement by us. In the event of such
termination or conversion, we will grant Emory certain nonexclusive,
royalty-free license rights in all intellectual property under our control
relating to the emtricitabine technology necessary for the marketing of products
incorporating the emtricitabine technology. The termination of the license
agreement or the conversion from an exclusive to a nonexclusive agreement would
adversely affect our business.
DAPD. In March 1996, we entered into a license agreement with Emory and
UGARF pursuant to which we received an exclusive worldwide license to all of
Emory's and UGARF's rights to a series of nucleoside analogues including DAPD
and DXG (i.e., the active anti-HIV agent) for use in the HIV and HBV fields. As
consideration for the exclusive license of the DAPD technology, we issued an
aggregate of 150,000 shares of common stock to Emory and UGARF. In addition, we
are agreed to make certain milestone and royalty payments to Emory and UGARF. We
are required to pay license maintenance fees beginning in March 1999 in the
event certain development milestones have not been achieved. Beginning the third
year after the first FDA registration is granted for an FDA-approved product
incorporating the DAPD technology, we will be required to pay Emory and UGARF a
minimum annual royalty. Under the license agreement, Emory and UGARF are
primarily responsible for prosecuting all patents related to the DAPD
technology. We agreed to reimburse Emory and UGARF for the patent prosecution
costs they incur after the date of the license agreement. We have the right to
pursue any actions against third parties for infringement of the DAPD technology
at our expense. Upon the conclusion of any such infringement action, we are
entitled to offset unrecovered expenses incurred in connection with the
infringement action against a percentage of the aggregate milestone payments and
royalties owed to Emory and UGARF during the time the infringement action was
pending. In addition, we are obligated to defend, indemnify and hold harmless
Emory, UGARF and certain of their representatives against any claims or losses
incurred as a result of our manufacturing, testing, design, use and sale of
products utilizing the DAPD technology. Emory and UGARF have the right to
terminate the license agreement or to convert the exclusive license to a
nonexclusive license in the event we do not satisfy certain milestone
obligations. Emory and UGARF may also terminate the license agreement upon an
uncured breach of the agreement by us. In the event of such termination or
conversion, we will grant Emory and UGARF certain nonexclusive, royalty-free
license rights in all intellectual property under our control relating to the
DAPD technology necessary for the marketing of products incorporating the DAPD
technology. The termination of the license agreement or the conversion from an
exclusive to a nonexclusive agreement could adversely affect our business.
Patents and Proprietary Rights
Our success will depend on our ability and the ability of our licensors to
obtain and maintain patents and proprietary rights for our drug candidates and
to avoid infringing the proprietary rights of others, both in the United States
and in foreign countries. We have no patents in our own name and we have only
five patent applications of our own pending (one of which is a joint application
with co-inventors from another institution). We have, however, licensed or we
have an option to license patents, patent applications and other proprietary
rights from third parties for each of our drug candidates. If we breach our
licenses, we may lose rights to important technology and drug candidates.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have in-licensed. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our
products or processes may infringe the patent rights of others.
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Several pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents that
cover our technologies or technologies similar to ours. Others have filed patent
applications and received patents that conflict with patents or patent
applications we have in-licensed, either by claiming the same methods or
compounds or by claiming methods or compounds that could dominate those licensed
to us. In addition, we may not be aware of all patents or patent applications
that may impact our ability to make, use or sell any of our drug candidates. For
example, United States patent applications are confidential while pending in the
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 our patents and limit our ability to obtain
meaningful patent protection. If other companies obtain patents with conflicting
claims, we may be required to obtain licenses to these patents or to develop or
obtain alternative technology. We may not be able to obtain any such license on
acceptable terms or at all. Any failure to obtain such licenses could delay or
prevent us from pursuing the development or commercialization of our drug
candidates, which would adversely affect our business.
There are significant risks regarding the patent rights of two of our
in-licensed drug candidates. We may not be able to commercialize Coviracil or
DAPD for HIV and/or HBV due to patent rights held by third parties other than
our licensors. Third parties have filed numerous patent applications and have
received numerous issued patents in the United States and many foreign countries
that relate to these drug candidates and their use alone or coactively to treat
HIV and HBV. As a result, our patent position regarding the use of Coviracil and
DAPD to treat HIV and/or HBV is highly uncertain and involves 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 us, we would not have
the right to commercialize Coviracil and/or DAPD 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 if any of these questions is favorably resolved, we
may still attempt to obtain licenses from one or more third parties to reduce or
eliminate the risks relating to some or all of these matters. Such licenses may
not be available on acceptable terms or at all. Our inability to commercialize
either of these drug candidates could adversely affect our business.
With respect to any of our drug candidates, litigation, opposition and
interference proceedings, including the currently pending proceedings, could
result in substantial costs to us. We expect the costs of the currently pending
proceedings to increase significantly during the next several years. We
anticipate that additional litigation and/or proceedings will be necessary or
may be initiated to enforce any patents we own or in-license, or to determine
the scope, validity and enforceability of other parties' proprietary rights and
the priority of an invention. Any of these activities could result in
substantial costs and/or delays to us. The outcome of any of these proceedings
may significantly affect our drug candidates and technology. United States
patents carry a presumption of validity and generally can be invalidated only
through clear and convincing evidence. The PTO has already declared two
interferences in connection with the emtricitabine technology. We cannot assure
you that a court or administrative body would hold our in-licensed patents valid
or would find an alleged infringer to be infringing. Further, the license and
option agreements with Emory, UGARF, the Regents, DuPont, and Mitsubishi provide
that each of these licensors is primarily responsible for any patent prosecution
activities, such as litigation, interference, opposition or other actions, for
the technology licensed to us. These agreements also provide that in general we
are required to reimburse these licensors for the costs they incur in performing
these activities. Similarly, Yale and UGARF, the licensors of L-FMAU to Bukwang,
are primarily responsible for patent prosecution activities with respect to
L-FMAU at our expense. As a result, we generally do not have the ability to
institute or determine the conduct of any such patent proceedings unless our
licensors elect not to institute or to abandon such proceedings. If our
licensors elect to institute and prosecute patent proceedings, our rights will
depend in part upon the manner in which these licensors conduct the proceedings.
In any proceedings they elect to initiate and maintain, these licensors may not
vigorously pursue or defend or may decide to settle such proceedings on terms
that are unfavorable to us. An adverse outcome of these proceedings could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to cease using such technology,
any of which could adversely affect our business. Moreover, the mere uncertainty
resulting from the initiation and continuation of any technology related
litigation or interference proceeding could adversely affect our business
pending resolution of the disputed matters.
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We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. Our trade secrets may also be independently discovered by competitors.
We rely on certain technologies to which we do not have exclusive rights or
which may not be patentable or proprietary and thus may be available to
competitors. We have filed an application for, but have not obtained, a
trademark registration for our corporate name and our logo. Several other
companies use trade names that are similar to our name for their businesses. If
we are unable to obtain any licenses that may be necessary for the use of our
corporate name, we may be required to change our name. Our management personnel
were previously employed by other pharmaceutical companies. The prior employers
of these individuals may allege violations of trade secrets and other similar
claims relating to their drug development activities for us. See -- "Risks and
Uncertainties--Uncertainty of Patents; Dependence on Patents, Licenses and
Proprietary Rights."
Government Regulation
The development of our drug candidates and the manufacturing and marketing
of any drug candidates we successfully develop is subject to extensive
regulation by numerous governmental authorities in the United States and other
countries. See "--Risks and Uncertainties--Extensive Government Regulation; No
Assurance of Regulatory Approval."
FDA Approval
In the United States, pharmaceuticals are subject to rigorous FDA
regulation. The Federal Food, Drug, and Cosmetic Act governs the testing,
manufacture, approval, labeling, storage, record keeping, reporting, advertising
and promotion of our drug candidates and any products that we may successfully
develop. Product development and approval within this regulatory framework takes
a number of years and involves the expenditure of substantial resources. The
steps required before a new prescription drug may be marketed in the United
States include:
o preclinical laboratory and animal tests,
o the submission to the FDA of an Investigational New Drug Application
("IND"), which must be evaluated and found acceptable by the FDA
before human clinical trials may commence,
o adequate and well-controlled human clinical trials to establish the
safety and effectiveness of the drug,
o the submission of an New Drug Application ("NDA") to the FDA,
o FDA review of the NDA, which usually includes review by an Advisory
Committee to the FDA, and
o FDA approval of the NDA.
Prior to obtaining FDA approval of an NDA, the facilities that will be
used to manufacture the drug must undergo a preapproval inspection to ensure
compliance with good manufacturing practices regulations. A company must also
pay a one-time user fee for each NDA submission and pay annual user fees for
each approved product and manufacturing establishment.
Preclinical tests include laboratory evaluation of the drug candidate and
animal studies to assess the safety and effectiveness of the drug candidate and
its formulation. Preclinical test results are submitted to the FDA as part of an
IND, and unless the FDA objects, the IND will become effective 30 days following
its receipt. If the FDA has concerns about a proposed clinical trial, it may
delay the trial and require modifications to the trial protocol before
permitting the trial to begin. There are no guarantees that the FDA will permit
a proposed IND to become effective.
Clinical trials involve administering a drug candidate to normal, healthy
volunteers or to patients identified as having the condition for which the drug
candidate is being tested. The drug candidate is administered under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with protocols previously submitted to the FDA as part of the IND.
These protocols detail the objectives of the trial, the parameters used to
monitor safety and the efficacy criteria that are being evaluated. Each clinical
trial is conducted under the auspices of a local Institutional Review Board
which considers among other things:
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o the clinical trial plan,
o ethical factors,
o safety of the human subjects, and
o possible liability risk for the institution.
Clinical trials are typically conducted in three sequential phases that
may overlap.
o Phase I involves the initial introduction of the drug candidate in
normal, healthy volunteers, where the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism,
distribution, excretion, clinical pharmacology and early evidence of
effectiveness. In serious diseases such as AIDS or cancer, patients
suffering from the disease as well as normal, healthy volunteers may
be enrolled in Phase I trials.
o Phase II involves trials in a limited patient population to
determine the effectiveness of the drug candidate for specific
targeted indications, to determine dosage tolerance and optimal
dosage and to identify possible short-term side effects and safety
risks. After a drug candidate demonstrates an acceptable safety
profile and probable effectiveness Phase III trials are initiated.
o Phase III trials are undertaken to further evaluate clinical
effectiveness and to further test for safety within an expanded
patient population at multiple clinical study sites.
Pivotal clinical trials are those expanded studies intended to support a
submission for regulatory approval of a drug candidate. Pilot clinical trials
are those involving a small number of patients. The FDA reviews both the
clinical trial plans and the results of the trials at each phase and may
discontinue the trials at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of an NDA for marketing approval. The testing and approval
process requires substantial time and effort and approvals may not be granted on
a timely basis or at all. The approval process is affected by a number of
factors, including the severity of the disease, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials.
Additional animal studies or clinical trials may be requested during the FDA
review process and may delay marketing approval. Upon approval, a drug may be
marketed only for the approved indications in the approved dosage forms. Further
clinical trials are required to gain approval for the use of the product for any
additional indications or dosage forms. The FDA may also require post-marketing
testing, such as monitoring for adverse effects, which can involve significant
expense.
A company may conduct clinical trials outside of the United States, using
a product manufactured outside the country, and in some circumstances
manufactured within the United States, without an IND. The FDA will accept data
from foreign clinical trials to support clinical investigations in the United
States and/or approval of an NDA only if the agency determines that the trials
are well-designed, well-conducted, performed by qualified investigators, and
conducted in accordance with internationally recognized ethical principles and
any applicable foreign requirements. We initiated Phase I/II clinical trials in
Europe for Coactinon prior to submitting an IND in the United States. We may, in
the future, conduct clinical trials with other drug candidates in various
foreign countries without an IND. Clinical trials we conduct in either the
United States or foreign countries may not demonstrate that any of our drug
candidates under development are safe and effective, and the FDA may require
additional clinical trials to support approval of an NDA.
As part of its IND regulations, the FDA has developed several regulatory
procedures to accelerate the clinical testing and approval of drugs intended to
treat life-threatening or seriously debilitating illnesses under certain
circumstances. For example, in 1988, the FDA issued regulations to expedite the
development, evaluation and marketing of drugs for life-threatening and severely
debilitating illnesses, especially where no alternative therapy exists. These
procedures encourage early consultation between the IND sponsors and the FDA in
the preclinical testing and clinical trial phases to determine what evidence
will be necessary for marketing approval and to assist the sponsors in designing
clinical trials. Under this program, the FDA works closely with the IND sponsors
to accelerate and condense Phase II clinical trials, which may, in some cases,
either eliminate the need to conduct Phase III trials or limit the scope of
Phase III trials. Under these regulations, the FDA may require post-marketing
(Phase IV) clinical trials to obtain additional information on the drug's risks,
benefits and optimal use.
The FDA has also issued regulations establishing an accelerated NDA
approval procedure for certain drugs
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under Subpart H of the agency's NDA approval regulations. The Subpart H
regulations provide for accelerated NDA approval for new drugs intended to treat
serious or life-threatening diseases where the drugs provide a meaningful
therapeutic advantage over existing treatment. Under this accelerated approval
procedure, the FDA may approve a drug based on evidence from adequate and
well-controlled studies of the drug's effect on a surrogate endpoint that is
reasonably likely to predict clinical benefits, or on evidence of the drug's
effect on a clinical endpoint other than survival or irreversible morbidity.
This approval is conditional on the favorable completion of post-marketing
(Phase IV) trials to establish and define the degree of clinical benefits to the
patient. These clinical trials would usually be underway when the product
obtains this accelerated approval. The FDA may also impose distribution
restrictions where necessary to assure safe use of the drug. If, after approval,
a post-marketing clinical study establishes that the drug does not perform as
expected, or if post-marketing restrictions are not adhered to or are not
adequate to ensure the safe use of the drug, or other evidence demonstrates that
the product is not safe and/or effective under its conditions of use, the FDA
may withdraw approval. The Subpart H accelerated approval regulations can
complement other accelerated approval regulations further expediting
development, evaluation, and marketing of drugs. These two procedures for
expediting the clinical evaluation and approval of certain drugs may shorten the
drug development process by as much as two to three years.
The Food and Drug Administration Modernization Act of 1997 also contains
statutory provisions designed to expedite the review of new drugs intended to
treat serious or life-threatening conditions. This Act amended the Federal Food,
Drug and Cosmetic Act to provide for the designation of a "fast track" product.
This Act also establishes procedures to facilitate development and expedite FDA
review of a drug intended for treatment of a serious or life-threatening
condition that demonstrates the potential to address unmet medical needs.
Approval of a fast track product may be subject to conditions, including
requirements to conduct post-approval clinical trials and to presubmit
promotional materials. Approval of a fast track product can be withdrawn, using
expedited procedures, for reasons similar to those specified in the Subpart H
Regulations.
The FDA has notified us that two of our drug candidates, Coactinon and
Coviracil for the treatment of HIV, qualify for designation as "fast track"
products under provisions of the Food and Drug Administration Modernization Act
of 1997. We believe that certain of our other drug candidates may also meet the
fast track criteria. We may be able to commercialize our drug candidates which
meet these criteria in a shorter time period than has historically been required
for drugs that do not meet the criteria for expedited review. We cannot assure
you, however, that any of our drug candidates will qualify or continue to
qualify for expedited review or be approved in a time period that is shorter
than other drugs that do not qualify for this review.
Once the sale of a product is approved, the FDA regulates the
manufacturing, marketing, safety reporting and other activities. The FDA
periodically inspects both domestic and foreign drug manufacturing facilities to
ensure compliance with applicable good manufacturing practice regulations, NDA
conditions of approval and other requirements. In addition, manufacturers must
register with the FDA and submit a list of every drug in commercial
distribution. We do not have or currently intend to develop the facilities to
manufacture our drug candidates in commercial quantities and, therefore, we
intend to establish relationships with contract manufacturers for the commercial
manufacture of any products that we successfully develop. Some of these contract
manufacturers may be located outside the United States. Our contract
manufacturers may not be able to attain or maintain compliance with good
manufacturing practice regulations and NDA conditions. Changes in contract
manufactures may result in the need for new NDA submissions or delays in the
availability of product. Post-marketing reports are also required, for purposes
such as monitoring the product's usage and any adverse effects. Product
approvals may be withdrawn, or other actions may be ordered, or criminal or
other sanctions imposed if we do not maintain compliance with regulatory
requirements.
Foreign Regulatory Approval and Sale
Many foreign countries also regulate the clinical testing, manufacturing,
reporting, marketing and use of pharmaceutical products. The requirements
relating to the conduct of clinical trials, product approval, manufacturing,
marketing, pricing and reimbursement vary widely from country to country and we
can give no assurance that Triangle or any third parties with whom we may
establish collaborative relationships will be able to attain or maintain
compliance with such requirements.
In addition to the import requirements of foreign countries, a company
must also comply with United States laws governing the export of FDA regulated
products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug
that has not obtained FDA approval may be exported to any country in the world
without FDA
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authorization if the product both complies with the laws of the importing
country and has obtained valid marketing authorization in one of the following
countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland, South
Africa, the European Union, or a country in the European Economic Area. The FDA
is authorized to add countries to this list in the future. Among other
restrictions, a drug that has not obtained FDA approval may be exported under
the new law only if it is not adulterated, accords to the specifications of the
foreign purchaser, complies with the laws of the importing country, is labeled
for export, is manufactured in substantial compliance with GMP regulations and
is not sold in the United States.
Other Regulations
In addition to regulations enforced by the FDA, we are also subject to
regulation under:
o the Occupational Safety and Health Act,
o the Controlled Substances Act,
o the Toxic Substances Control Act,
o the Resource Conservation and Recovery Act, and
o other similar federal, state and local regulations governing
permissible laboratory activities, waste disposal, handling of
toxic, dangerous or radioactive materials and other matters.
We believe we are in compliance, in all material respects, with all
applicable regulations. These regulations are subject to change and may in the
future require substantial effort and cost to us to comply with each of the
regulations, and may possibly restrict our business activities. See "--Risks and
Uncertainties--Risks of Hazardous Materials."
Competition
We are engaged in segments of the drug industry that are highly
competitive and rapidly changing. Any of our current drug candidates that we
successfully develop will compete with numerous existing therapies. In addition,
many companies are pursuing novel drugs that target the same diseases we are
targeting. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV and
HBV. We anticipate that we will face intense and increasing competition as new
products enter the market and advanced technologies become available. Our
competitors' products may be more effective, or more effectively marketed and
sold, than any of our products. Competitive products may render our products
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our products. Furthermore, the development of a cure or new
treatment methods for the diseases we are targeting could render our drug
candidates noncompetitive, obsolete or uneconomical. Many of our competitors:
o have significantly greater financial, technical and human resources
than we have and may be better equipped to develop, manufacture and
market products,
o have extensive experience in preclinical testing and clinical
trials, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products,
o 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. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
If we successfully develop and obtain approval for our drug candidates, we
will face competition based on the safety and effectiveness of our products, the
timing and scope of regulatory approvals, the availability of supply, marketing
and sales capability, reimbursement coverage, price, patent position and other
factors. Our competitors may develop or commercialize more effective or more
affordable products, or obtain more effective patent protection, than we do.
Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position and adversely
affect our business. See "--Risks and Uncertainties--Highly Competitive
Industry; Risk of Technological Change."
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Manufacturing
We do not have any internal manufacturing capacity and we rely on third
party manufacturers for the manufacture of all of our clinical trial material.
We plan to expand our existing relationships or to establish relationships with
additional third party manufacturers for products that we successfully develop.
We may be unable to establish or maintain relationships with third party
manufacturers on acceptable terms, and third party manufacturers may be unable
to manufacture products in commercial quantities on a cost effective basis. Our
dependence upon third parties for the manufacture of our products may adversely
affect our profit margins and our ability to develop and commercialize products
on a timely and competitive basis. Further, third party manufacturers may
encounter manufacturing or quality control problems in connection with the
manufacture of our products and may be unable to maintain the necessary
governmental licenses and approvals to continue manufacturing our products. Our
business could be adversely affected if we fail to establish or maintain
relationships with third parties for our manufacturing requirements on
acceptable terms. See "--Risks and Uncertainties--Lack of Manufacturing
Capabilities" and "--Government Regulation."
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Sales and Marketing
We will have to develop a sales force or rely on arrangements with third
parties for the marketing, distribution and sale of any products we develop. Any
such third parties may have significant control over important aspects of the
commercialization of our products, including market identification, marketing
methods, pricing, composition of sales force and promotional activities. We will
also be unable to prevent any third party from pursuing alternative products
that could result in the development of products that compete with our products
and the withdrawal of support for our programs. We will have little if any
control over the amount and timing of resources that any third party may devote
to our products. We currently intend to use a direct sales force in the United
States and arrangements with third parties outside the United States to market
most of the drug candidates that we develop successfully. As part of the
ordinary course of our business, we consider arrangements or collaborations with
third parties to market and/or sell products we develop both within and outside
of the United States. We may not, however, enter into any such arrangements or
collaborations on satisfactory terms and any such arrangements or collaborations
we enter into may not be successful. Further, any internal capabilities or third
party arrangements may not be successful. See "--Risks and Uncertainties--Lack
of Sales and Marketing Capabilities."
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 pressure on
pharmaceutical pricing. While we cannot predict whether legislative or
regulatory proposals will be adopted or the effect those proposals or managed
care efforts may have on our business, the announcement and/or adoption of such
proposals or efforts could adversely affect our business. In the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in whole or
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans. These third party payors
frequently mandate predetermined discounts from list prices. Third party payors
are increasingly challenging the prices charged for medical products and
services. If we succeed in bringing one or more products to the market, our
products may not be considered cost effective and reimbursement to the consumer
may not be available or may not be sufficient to allow us to sell our products
on a competitive basis. See "--Risks and Uncertainties--Uncertainty of Health
Care Reform Measures and Third Party Reimbursement."
Human Resources
As of January 31, 1999, Triangle had approximately 120 employees,
including approximately 90 in development and approximately 30 in
administration. Of these employees, 52 hold advanced degrees, of which 30 are
M.D.s or Ph.D.s. Our future success will depend in large part upon our ability
to attract and retain highly qualified personnel. Our employees are not
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. All of our employees have signed confidentiality
agreements and all of our officers have entered into employment agreements. See
"--Risks and Uncertainties--Dependence on Key Employees."
Risks and Uncertainties
In addition to the other information contained herein, the following risks
and uncertainties should be carefully considered in evaluating our business.
Early Stage Company; Risk of Unsuccessful Product Development
We formed our company in July 1995 and we have only a limited operating
history for you to review in evaluating our business. In addition, many of our
drug candidates are at an early stage of development and all of our drug
candidates will require expensive and lengthy testing and regulatory clearances.
None of our drug candidates have been approved by regulatory authorities. We do
not expect any of our drug candidates to be commercially available before the
year 2000. There are many reasons that we may fail in our efforts to develop our
drug candidates, including the possibility that:
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o our drug candidates will be ineffective, toxic or will not receive
regulatory clearances,
o our drug candidates will be too expensive to manufacture or market
or will not achieve broad market acceptance,
o third parties will hold proprietary rights that will preclude us
from marketing our drug candidates, or
o third parties will market equivalent or superior products.
The success of our business depends upon our ability to successfully
develop and market our drug candidates.
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability
We have incurred losses since our inception. At December 31, 1998, our
accumulated deficit was $116.8 million. Our historical costs relate primarily to
the acquisition and development of our drug candidates and general and
administrative costs. We have not generated any revenue to date and do not
expect to do so before the year 2000. In addition, we expect annual losses to
increase over the next several years as we expand our drug development efforts.
To become profitable, we must successfully develop and obtain regulatory
approval for our drug candidates and effectively manufacture, market and sell
any products we develop. We may never generate significant revenues or achieve
profitable operations.
Our Need for Future Capital; Uncertainty of Additional Funding
Our drug development programs and potential commercialization of our drug
candidates require substantial capital expenditures, including expenses for
preclinical testing, chemical synthetic scale-up, manufacture of drug substance
for clinical trials and toxicology studies, clinical trials of drug candidates,
sales and marketing expenses and payments to our licensors. We expect our
capital requirements to increase significantly. Our future capital needs will
depend on many factors, including:
o the progress and magnitude of our drug development programs,
o the scope and results of preclinical testing and clinical trials,
o the cost, timing and outcome of regulatory reviews,
o the costs under license and option agreements for our drug
candidates (including the costs of obtaining patent protection for
our drug candidates),
o the costs of acquiring any additional drug candidates,
o the rate of technological advances,
o the commercial potential of our drug candidates,
o the magnitude of our administrative and legal expenses,
o the costs of establishing sales and marketing functions, and
o the costs of establishing third party arrangements for
manufacturing.
We have incurred negative cash flow from operations since we began our
company and do not expect to generate positive cash flow to fund our operations
for at least the next several years. Accordingly, we will need additional future
financings to fund our operations. We may not be able to obtain adequate
financing to fund our operations, and any additional financing we obtain may be
on terms that are not favorable to us. In addition, any additional financings
could substantially dilute our stockholders. If adequate funds are not
available, we will be required to delay, reduce or eliminate one or more of our
drug development programs, or to enter into collaborative arrangements on terms
that are not favorable to us. These collaborative arrangements could result in
the transfer to third parties of rights that we consider valuable. In addition,
we often consider the acquisition of technologies and drug candidates that would
increase our capital requirements. Our inability to meet our capital
requirements would adversely affect our business.
Uncertainties Related to Clinical Trials
To obtain regulatory approvals needed for the sale of our drug candidates,
we must demonstrate through preclinical testing and clinical trials that each
drug candidate is safe and effective. The clinical trials process is complex and
uncertain. Positive results from preclinical testing and early clinical trials
do not ensure positive results in pivotal clinical trials. Many companies in our
industry have suffered significant setbacks in pivotal
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clinical trials, even after promising results in earlier trials. Any of our drug
candidates may produce undesirable side effects in humans. These side effects
could cause us or regulatory authorities to interrupt, delay or halt clinical
trials of a drug candidate. These side effects could also result in the FDA or
foreign regulatory authorities refusing to approve the drug candidate for any
and all targeted indications. We, the FDA or foreign regulatory authorities may
suspend or terminate clinical trials at any time if we or they believe the trial
participants face unacceptable health risks. Clinical trials may not demonstrate
that our drug candidates are safe or effective.
Clinical trials are lengthy and expensive. They require adequate supplies
of drug substance and sufficient 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 clinical trial. Delays in patient enrollment can
result in increased costs and longer development times. Even if we successfully
complete clinical trials, we may not be able to file any required regulatory
submissions in a timely manner and we may not receive regulatory approval for
the drug candidate. Our failure to successfully complete clinical trials and
obtain regulatory approvals will adversely affect our business.
Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights
Our success will depend on our ability and the ability of our licensors to
obtain and maintain patents and proprietary rights for our drug candidates and
to avoid infringing the proprietary rights of others, both in the United States
and in foreign countries. We have no patents in our own name and we have only
five patent applications of our own pending (one of which is a joint application
with co-inventors from another institution). We have, however, licensed or we
have an option to license patents, patent applications and other proprietary
rights from third parties for each of our drug candidates. If we breach our
licenses, we may lose rights to important technology and drug candidates.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have in-licensed. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our
products or processes may infringe the patent rights of others.
Several pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents that
cover our technologies or technologies similar to ours. Others have filed patent
applications and received patents that conflict with patents or patent
applications we own or have in-licensed, either by claiming the same methods or
compounds or by claiming methods or compounds that could dominate those owned by
or licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, United States patent applications are confidential
while pending in the 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 our patents and limit our ability to obtain meaningful patent
protection. If other companies obtain patents with conflicting claims, we may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. We may not be able to obtain any such license on acceptable terms or
at all. Any failure to obtain such licenses could delay or prevent us from
pursuing the development or commercialization of our drug candidates, which
would adversely affect our business.
There are significant risks regarding the patent rights of two of our
in-licensed drug candidates. We may not be able to commercialize Coviracil or
DAPD for HIV and/or HBV due to patent rights held by third parties other than
our licensors. Third parties have filed numerous patent applications and have
received numerous issued patents in the United States and many foreign countries
that relate to these drug candidates and their use alone or coactively to treat
HIV and HBV. As a result, our patent position regarding the use of Coviracil and
DAPD to treat HIV and/or HBV is highly uncertain and involves 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 us, we would not have
the right to commercialize Coviracil and/or DAPD 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 if any of these questions is favorably resolved, we
may still attempt to obtain licenses from one or more third parties to reduce or
eliminate the risks relating to some or all of these matters. Such licenses may
not be available on acceptable terms or at all. Our inability to commercialize
either of these drug candidates could adversely affect our business.
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Coviracil
Coviracil belongs to the same general class of nucleosides as 3TC. In the
United States, the FDA has approved 3TC for the treatment of HBV and for use in
combination with AZT for the treatment of HIV. Regulatory authorities have
approved 3TC for the treatment of HBV in several other countries and for use in
combination with other nucleoside analogues for the treatment of HIV in a number
of other countries. Glaxo Wellcome plc ("Glaxo") currently sells 3TC for the
treatment of HIV and HBV under a license agreement with BioChem Pharma Inc.
("BioChem Pharma"). We obtained rights to purified forms of Coviracil under a
license from Emory. In 1990 and 1991, Emory filed in the United States and
thereafter in numerous foreign countries patent applications with claims to
compositions of matter and methods to treat HIV and HBV with Coviracil. In 1991,
Yale filed in the United States patent applications on Coviracil and its use to
treat HBV, and subsequently licensed its rights under those patent applications
to Emory. Our license arrangement with Emory includes all rights to Coviracil
and its uses claimed in the Yale patent applications.
HIV. Emory received a United States patent in 1993 covering a method to
treat HIV with Coviracil. In September 1998, Emory received United States and
European patents containing composition of matter claims for Coviracil. BioChem
Pharma filed a patent application in the United States in 1989 and received a
patent in 1991 covering a group of nucleosides in the same general class as
Coviracil, but which did not include Coviracil. BioChem Pharma filed foreign
patent applications in 1990, which expanded upon its 1989 United States patent
application to include Coviracil among a large class of nucleosides. The foreign
patent applications are pending in many countries and have issued in a number of
countries with claims directed to Coviracil 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 Coviracil that exhibits advantageous
properties for the treatment of HIV. BioChem Pharma has received two patents in
the United States based on this patent application, one directed to the purified
form of Coviracil and the other directed to a method for treating antiviral
diseases with the purified form of Coviracil. The PTO has declared an
interference between the latter BioChem Pharma patent and a patent application
filed by Emory. Emory may not prevail in the interference proceeding, and the
interference proceeding may also delay the decision of the PTO regarding Emory's
patent application. BioChem Pharma also filed patent applications in many
foreign countries based upon its 1991 United States patent application and has
received patents in certain countries. BioChem Pharma may have additional patent
applications pending in the United States.
In the United States, the first to invent a technology is entitled to
patent protection on that technology. For patent applications filed prior to
January 1, 1996, United States patent law provides that a party who invented a
technology outside the United States 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 recent filing with the Securities
and Exchange Commission (the "SEC"), BioChem Pharma stated that it conducts
substantially all of its research activities outside the United States. BioChem
Pharma also stated that it considers this to be a disadvantage in obtaining
United States patents as compared to companies that mainly conduct research in
the United States. We do not know whether Emory or BioChem Pharma was the first
to invent the technology claimed in their respective United States patent
applications or patents. We also do not know 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 a
technology, not the first to invent the technology, is entitled to patent
protection on that technology. We believe that Emory filed patent applications
disclosing Coviracil as a useful anti-HIV agent in many foreign countries before
BioChem Pharma filed its foreign patent applications on that technology.
However, BioChem Pharma has received patents in several foreign countries. In
addition, BioChem Pharma has filed patent applications on Coviracil and its uses
in certain countries in which Emory did not file patent applications. Emory has
opposed or otherwise challenged patent claims on Coviracil granted to BioChem
Pharma in Australia, Japan and Norway. Emory may not initiate opposition
proceedings in any other countries or be successful in any foreign proceeding
attempting to prevent the issuance of, revoke or limit the scope of patents
issued to BioChem Pharma. BioChem Pharma has opposed patent claims on Coviracil
granted to Emory in Japan and Australia. BioChem Pharma may make additional
challenges to Emory patents or patent applications, which Emory may or may not
succeed in defending. Our sales of Coviracil for the treatment of HIV may 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 if the third party patent covers
subject
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matter that is substantially equivalent in nature to the product or method, even
if the patent does not expressly cover the product or method. If it is
determined that the sale of Coviracil for the treatment of HIV infringes a
BioChem Pharma patent, we would not have the right to make, use or sell
Coviracil for the treatment of HIV in one or more countries in the absence of a
license from BioChem Pharma. We may be unable to obtain such a license from
BioChem Pharma on acceptable terms or at all.
HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent
applications in March 1991 and May 1991 in Great Britain on a method to treat
HBV with emtricitabine. Burroughs Wellcome filed similar patent applications in
other countries, which we believe includes the United States. Glaxo subsequently
acquired Burroughs Wellcome's rights under those patent applications. Those
patent applications were filed in all foreign countries prior to the date Emory
filed its patent application on the use of emtricitabine to treat HBV. Burroughs
Wellcome's foreign patent applications, therefore, 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. If Emory fails to establish ownership rights, we
will not be able to make, use or sell emtricitabine for the treatment of HBV in
countries in which Glaxo receives patents 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. We may be unable 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 emtricitabine. BioChem Pharma filed
similar patent applications in other countries. In January 1996, BioChem Pharma
received a patent in the United States. The PTO has declared an interference
between the BioChem Pharma patent and a patent application filed by Yale. Yale
licensed all of its rights relating to Coviracil and its uses claimed in this
patent application to Emory, which subsequently licensed these rights to us.
Yale may not prevail in the interference proceeding, and the proceeding may
delay the decision of the PTO regarding Yale's patent application. In addition,
the PTO may declare interference proceedings with respect to other patent
applications filed by Emory, Burroughs Wellcome's patent application and BioChem
Pharma's issued United States patent. Emory may not pursue or succeed in any
such proceedings. We will not be able to sell emtricitabine for the treatment of
HBV in the United States unless a United States court or administrative body
determines that the BioChem Pharma patent is invalid or unless we obtain a
license from BioChem Pharma. We may be unable to obtain such a license on
acceptable terms or at all. In July 1991, BioChem Pharma received a United
States patent on the use of 3TC to treat HBV and has corresponding patent
applications pending or issued in foreign countries. If it is determined that
the use of emtricitabine to treat HBV is not substantially different from the
use of 3TC to treat HBV, a court could hold that the use of emtricitabine 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 Coviracil, from which BioChem Pharma has
received several patents in the United States and many foreign countries. If we
use a manufacturing method that is covered by patents issued on any of these
applications, we will not be able to manufacture Coviracil without a license
from BioChem Pharma. We may not be able to obtain such a license on acceptable
terms or at all.
DAPD
We obtained our rights to DAPD under a license from Emory and UGARF. Our
rights to DAPD include five issued United States patents that cover composition
of matter, a method for the synthesis of DAPD, and methods for the use of DAPD
alone or in combination with certain other anti-HBV agents for the treatment of
HBV. We also have rights to several foreign patents that cover methods for the
use of DAPD alone or in combination with certain other anti-HBV agents for the
treatment of HBV. Additional United States and foreign patent applications are
pending which contain claims for the use of DAPD to treat HIV. Emory and UGARF
filed patent applications claiming these inventions in the United States in 1990
and 1992. 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 patent claims granted to BioChem Pharma by the European Patent
Office based, in part, upon Emory's assertion that BioChem Pharma's
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patent does not disclose how to make DAPD. In an opposition hearing held at the
European Patent Office on March 4, 1999, the Opposition Division ruled that the
BioChem Pharma European patent covering DAPD is valid. Emory has informed
Triangle that it intends to appeal this decision to the European Patent Office
Technical Board of Appeal. If the Technical Board of Appeal affirms the decision
of the Opposition Division, or if Emory or Triangle do not pursue the appeal, we
would not be able to sell DAPD in Europe without a license from BioChem Pharma,
which may not be available on acceptable terms or at all. Patent claims granted
to Emory on a portion of the DAPD technology by the Australian Patent Office
have also been opposed by BioChem Pharma. Emory has informed us that it intends
to challenge BioChem Pharma's patents and patent applications in other
countries. We cannot assure you that a court or administrative body would
invalidate BioChem Pharma's patent claims. Further, a sale of DAPD by us may
infringe BioChem Pharma's patents. If Emory, UGARF and we do not challenge, or
are not successful in any challenge to, BioChem Pharma's issued patents or
pending patent applications (or patents that may issue from such applications),
we 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. We may not be able to obtain such a license from
BioChem Pharma on acceptable terms or at all.
With respect to any of our drug candidates, litigation, opposition and
interference proceedings, including the currently pending proceedings, could
result in substantial costs to us. We expect the costs of the currently pending
proceedings to increase significantly during the next several years. We
anticipate that additional litigation and/or proceedings will be necessary or
may be initiated to enforce any patents we own or in-license, or to determine
the scope, validity and enforceability of other parties' proprietary rights and
the priority of an invention. Any of these activities could result in
substantial costs and/or delays to us. The outcome of any of these proceedings
may significantly affect our drug candidates and technology. United States
patents carry a presumption of validity and generally can be invalidated only
through clear and convincing evidence. As indicated above, the PTO has already
declared two interferences in connection with the emtricitabine technology. We
cannot assure you that a court or administrative body would hold our in-licensed
patents valid or would find an alleged infringer to be infringing. Further, the
license and option agreements with Emory, UGARF, the Regents, DuPont, and
Mitsubishi provide that each of these licensors is primarily responsible for any
patent prosecution activities, such as litigation, interference, opposition or
other actions, for the technology licensed to us. These agreements also provide
that in general we are required to reimburse these licensors for the costs they
incur in performing these activities. Similarly, Yale and UGARF, the licensors
of L-FMAU to Bukwang, are primarily responsible for patent prosecution
activities with respect to L-FMAU at our expense. As a result, we generally do
not have the ability to institute or determine the conduct of any such patent
proceedings unless our licensors elect not to institute or to abandon such
proceedings. If our licensors elect to institute and prosecute patent
proceedings, our rights will depend in part upon the manner in which these
licensors conduct the proceedings. In any proceedings they elect to initiate and
maintain, these licensors may not vigorously pursue or defend or may decide to
settle such proceedings on terms that are unfavorable to us. An adverse outcome
of these proceedings could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require us
to cease using such technology, any of which could adversely affect our
business. Moreover, the mere uncertainty resulting from the initiation and
continuation of any technology related litigation or interference proceeding
could adversely affect our business pending resolution of the disputed matters.
We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may breach or
terminate these agreements, and we may not have adequate remedies for any
breach. Our trade secrets may also be independently discovered by competitors.
We rely on certain technologies to which we do not have exclusive rights or
which may not be patentable or proprietary and thus may be available to
competitors. We have filed an application for, but have not obtained, a
trademark registration for our corporate name and our logo. Several other
companies use trade names that are similar to our name for their businesses. If
we are unable to obtain any licenses that may be necessary for the use of our
corporate name, we may be required to change our name. Our management personnel
were previously employed by other pharmaceutical companies. The prior employers
of these individuals may allege violations of trade secrets and other similar
claims relating to their drug development activities for us.
Extensive Government Regulation; No Assurance of Regulatory Approval
The FDA and foreign regulatory authorities require rigorous preclinical
testing, clinical trials and other approval procedures for human pharmaceutical
products. Numerous regulations also govern the manufacturing, safety, labeling,
storage, record keeping, reporting and marketing of pharmaceutical products. The
requirements
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vary widely from country to country, and the time required to complete
preclinical testing and clinical trials and to obtain regulatory approvals is
uncertain. We expect the process of obtaining these approvals and complying with
appropriate government regulations to be time consuming and expensive. If we
replace a drug candidate in preclinical testing and/or clinical trials with a
modified drug candidate, it may extend the development period. In addition, if
the FDA or similar foreign regulatory authorities require additional clinical
trials, we could face increased costs and significant development delays.
Changes in regulatory policy or additional regulations adopted during product
development and regulatory review of information we submit could also result in
delays or rejections. The FDA has notified us that two of our drug candidates,
Coactinon and Coviracil for the treatment of HIV, qualify for designation as
"fast track" products under provisions of the Food and Drug Administration
Modernization Act of 1997. The fast track provisions are designed to expedite
the review of new drugs intended to treat serious or life-threatening conditions
and essentially codified the criteria previously established by the FDA for
accelerated approval. These drug candidates may not, however, continue to
qualify for expedited review and our other drug candidates may fail to qualify
for expedited review. Even though some of our drug candidates have qualified for
expedited review, the FDA may not approve them at all or any sooner than other
drug candidates that do not qualify for expedited review. Further, any approval
may require postmarketing studies or other conditions. Even after substantial
time and expenditures, our drug candidates may not receive marketing approval on
a timely basis or at all. If we are unable to demonstrate the safety and
effectiveness of our drug candidates to the satisfaction of government
authorities, our business will be adversely affected.
Even if our products receive regulatory approval, we may still face
difficulties in marketing and manufacturing those products. The approval of any
of our drug candidates may limit the indicated uses of the drug candidate. A
marketed product, its manufacturer and the manufacturer's facilities are subject
to continual review and periodic inspections. The discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the 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:
o fines,
o suspended regulatory approvals,
o refusal to approve pending applications,
o refusal to permit exports from the United States,
o product recalls,
o seizure of products,
o injunctions,
o operating restrictions, and
o criminal prosecutions.
Governmental regulation may significantly delay the marketing of our
products, prevent such marketing altogether, impose costly requirements on our
activities or provide our competitors with an advantage in the market. Adverse
clinical results by others could negatively impact the development and approval
of our drug candidates. Some of our drug candidates are intended for use as
coactive therapy with one or more other drugs, and adverse safety, effectiveness
or regulatory developments in connection with such other drugs will also have an
adverse effect on our business. A delay in obtaining or failure to obtain
regulatory approvals for any of our drug candidates will have an adverse effect
on our business. We cannot predict the adverse effects that future government
regulations may have on our business.
We are 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 our development work.
Highly Competitive Industry; Risk of Technological Change
We are engaged in segments of the drug industry that are highly
competitive and rapidly changing. Any of our current drug candidates that we
successfully develop will compete with numerous existing therapies. In addition,
many companies are pursuing novel drugs that target the same diseases we are
targeting. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV,
HBV and cancer. We anticipate that we will face intense and increasing
competition as new
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products enter the market and advanced technologies become available. Our
competitors' products may be more effective, or more effectively marketed and
sold, than any of our products. Competitive products may render our products
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our products. Furthermore, the development of a cure or new
treatment methods for the diseases we are targeting could render our drug
candidates noncompetitive, obsolete or uneconomical. Many of our competitors:
o have significantly greater financial, technical and human resources
than we have and may be better equipped to develop, manufacture and
market products,
o have extensive experience in preclinical testing and clinical
trials, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products, and
o 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. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
If we successfully develop and obtain approval for our drug candidates, we
will face competition based on the safety and effectiveness of our products, the
timing and scope of regulatory approvals, the availability of supply, marketing
and sales capability, reimbursement coverage, price, patent position and other
factors. Our competitors may develop or commercialize more effective or more
affordable products, or obtain more effective patent protection, than we do.
Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position and adversely
affect our business.
Risks Related to License and Option Agreements
We have in-licensed or obtained an option to in-license our drug
candidates pursuant to agreements with our licensors. These agreements permit
our licensors to terminate the agreements under certain circumstances, such as
our failure to achieve certain development milestones or the occurrence of an
uncured material breach by us. The termination of any of these agreements could
result in the loss of our rights to a drug candidate. Upon termination of most
of our license agreements, we are required to return the licensed technology to
our licensors. In addition, most of these agreements provide that our licensors
are primarily responsible for any patent prosecution activities, such as
litigation, interference, opposition or other actions, for the technology
licensed to us. These agreements also provide that in general we are required to
reimburse our licensors for the costs they incur in performing these activities.
We believe that these costs as well as other costs under our license and option
agreements will be substantial and may increase significantly during the next
several years. Our inability or failure to pay any of these costs with respect
to any drug candidate could result in the termination of the license or option
agreement for the drug candidate. Any such termination could have an adverse
effect on our business.
Lack of Manufacturing Capabilities
We do not have any internal manufacturing capacity and we rely on third
party manufacturers for the manufacture of all of our clinical trial material.
We plan to expand our existing relationships or to establish relationships with
additional third party manufacturers for products that we successfully develop.
We may be unable to establish or maintain relationships with third party
manufacturers on acceptable terms, and third party manufacturers may be unable
to manufacture products in commercial quantities on a cost effective basis. Our
dependence upon third parties for the manufacture of our products may adversely
affect our profit margins and our ability to develop and commercialize products
on a timely and competitive basis. Further, third party manufacturers may
encounter manufacturing or quality control problems in connection with the
manufacture of our products and may be unable to maintain the necessary
governmental licenses and approvals to continue manufacturing our products. Our
business could be adversely affected if we fail to establish or maintain
relationships with third parties for our manufacturing requirements on
acceptable terms.
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Lack of Sales and Marketing Capabilities
We will have to develop a sales force or rely on arrangements with third
parties for the marketing, distribution and sale of any products we develop. Any
such third parties may have significant control over important aspects of the
commercialization of our products, including market identification, marketing
methods, pricing, composition of sales force and promotional activities. We will
also be unable to prevent any third party from pursuing alternative products
that could result in the development of products that compete with our products
and the withdrawal of support for our programs. We will have little if any
control over the amount and timing of resources that any third party may devote
to our products. We currently intend to use a direct sales force in the United
States and arrangements with third parties outside the United States to market
most of the drug candidates that we successfully develop. We may be unable to
establish marketing or sales capabilities or to make arrangements with third
parties to perform those activities on favorable terms. Further, any internal
capabilities or third party arrangements may not be successful.
Dependence on Third Parties for Development and Acquisition of Drug Candidates
We have engaged and intend to continue to engage third party contract
research organizations and other third parties ("CROs") to help us develop our
drug candidates. Although we have designed the clinical trials for our drug
candidates, the CROs have conducted many of the clinical trials. As a result,
many important aspects of our drug development programs have been and will
continue to be outside of our direct control. In addition, the CROs may not
perform all of their obligations under arrangements with us. If the CROs do not
perform clinical trials in a satisfactory manner or breach their obligations to
us, the development and commercialization of any drug candidate may be delayed
or precluded. We do not intend to engage in drug discovery. Our strategy for
obtaining additional drug candidates is to utilize the relationships of our
management team and Scientific Advisory Board to identify drug candidates for
in-licensing from companies, universities, research institutions and other
organizations. We may not succeed in acquiring additional drug candidates on
acceptable terms or at all.
Dependence on Key Employees
We are highly dependent on our senior management and scientific staff,
including Dr. David Barry, our Chairman and Chief Executive Officer. We have
entered into employment agreements with each officer of the Company. Dr. Barry's
employment agreement contains certain non-competition provisions. In addition,
the employment agreements for each of the other officers provide for certain
severance payments which are contingent upon the officer's refraining from
competition with the Company. The loss of the services of any member of our
senior management or scientific staff may significantly delay or prevent the
achievement of product development and other business objectives. Our ability to
attract and retain qualified personnel, consultants and advisors is critical to
our success. In order to pursue our drug development programs and marketing
plans, we will need to hire additional qualified scientific and management
personnel. Competition for qualified individuals is intense and we face
competition from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. We may be unable to attract and
retain these individuals, and our failure to do so would have an adverse effect
on our business. In addition, we rely on members of our Scientific Advisory
Board for assistance in formulating our drug development strategy. All of the
members of the Scientific Advisory Board are employed by other employers and any
such member may have commitments to, or consulting or advisory contracts with,
other entities that may limit their availability to us.
Uncertainty of Health Care Reform Measures and Third Party Reimbursement
The efforts of governments and third party payors to contain or reduce the
cost of health care will continue to affect the business and financial condition
of drug companies. A number of legislative and regulatory proposals to change
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 pressure on drug pricing. While we cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business, the announcement
and/or adoption of such proposals or efforts could have an adverse effect on our
profit margins and financial condition. Sales of prescription drugs depend
significantly on the availability of reimbursement to the consumer from third
party payors, such as government and private insurance plans. These third party
payors frequently require that drug companies give them predetermined discounts
from list prices, and they are increasingly challenging the prices charged for
medical products and services. If we succeed in bringing one or more products to
the market, these products may not be considered cost effective and
reimbursement to the consumer may not be available or sufficient to allow us to
sell our products on a competitive basis.
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No Assurance of Market Acceptance
Our success will depend on the market acceptance of any products we
develop. 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 our
products and their potential advantages over existing treatment methods, and
reimbursement policies of government and third party payors. Physicians,
patients, payors or the medical community in general may not accept or utilize
any product that we may develop.
Uncertainty of Year 2000 Compliance
The Year 2000 issue is the result of date-sensitive devices, systems and
computer programs that use a two digit rather than a four digit recognition
system to define an applicable year. We have initiated a program and task force
to assess the Year 2000 compliance of our systems and the systems of our key
business vendors. We have inventoried and assessed our significant internal
information and operation systems, and we are replacing or modifying those
portions of our software, hardware and other equipment which we have determined
are non-compliant. We anticipate that we will complete the required changes to
our critical internal systems by March 31, 1999, and that we will complete the
testing and verification of these modified systems by June 30, 1999. We plan to
complete the testing and verification of all other significant internal systems
by September 30, 1999. Accordingly, we expect that the Year 2000 issue will not
pose significant operational problems for our internal systems and equipment.
If, however, we are unable to fix any technologies utilizing a two digit
recognition system, we could experience system failures or miscalculations
causing disruption of operations, including the temporary inability to process
transactions or conduct normal business activities in the new millennium.
We are also assessing our key business vendors' Year 2000 compliance. We
have requested information from these vendors regarding their compliance efforts
and written assurances of their Year 2000 compliance. We currently plan to
complete our risk assessments, readiness evaluations and action and contingency
plans related to these vendors by June 30, 1999. However, it is extremely
difficult to assess the likelihood of these third parties' Year 2000 compliance
or the impact their noncompliance may have on our operations. If we fail to
implement successfully our Year 2000 compliance plan, our business could be
adversely affected. In addition, significant delays or unanticipated Year 2000
issues with key business vendors could adversely affect the development of our
drug candidates and our financial condition.
Risks Relating to Coactive Therapy
Our success will depend significantly on the market acceptance of coactive
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. Present
coactive 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
limitations in the reimbursement available from third party payors for the
treatment of HIV infection, and we expect that reimbursement pressures will
continue in the future. If coactive therapy gains acceptance as a method to
treat HBV infection, treatment regimens are also likely to be expensive. We
expect that even the cost of monotherapy for HBV will be considered expensive in
developing countries where HBV is most prevalent. Any failure of coactive
therapy to achieve significant market acceptance for the treatment of HIV or HBV
could adversely affect our business.
Limited Product Liability Insurance; Insurance Risks
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of drug products and we may
face product liability claims in the future. We currently have only limited
product liability insurance relating to potential claims arising from our
clinical trials. We intend to expand our insurance coverage if and when we begin
marketing commercial products. We may, however, be unable to obtain additional
product liability insurance on commercially acceptable terms. In addition, we
may be unable to maintain our existing insurance and/or any additional insurance
we may obtain in the future at a reasonable cost or in sufficient amounts to
protect against potential losses. A successful product liability claim or series
of claims brought against us could have an adverse effect on our business.
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Risks of Hazardous Materials
We use hazardous materials, chemicals, viruses and various radioactive
compounds in our drug development programs. Although we believe that our
handling and disposing of these materials comply with state and federal
regulations, the risk of accidental contamination or injury still exists. In the
event of such an accident, we could be held liable for any damages or fines that
result and any such liability could exceed our resources.
Concentration of Stock Ownership; Control by Management and Existing
Stockholders
As of January 31, 1999, our directors, executive officers and their
respective affiliates owned approximately 28% of our outstanding common stock.
As a result, these stockholders are able to significantly influence all matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
could also delay or prevent a change in control of Triangle that may be favored
by other stockholders.
Our Stock Price may be Volatile
The market price of our common stock is likely to be volatile and could
fluctuate widely in response to many factors, including:
o announcements of the results of clinical trials,
o developments with respect to patents or proprietary rights,
o announcements of technological innovations,
o announcements of new products or new contracts by us or our
competitors,
o actual or anticipated variations in our operating results due to the
level of development expenses and other factors,
o changes in financial estimates by securities analysts,
o conditions and trends in the pharmaceutical and other industries,
o new accounting standards, and
o general market conditions and other factors.
As a result, it is possible that our operating results will be below the
expectations of market analysts and investors, which could reduce the market
price of our common stock.
If our stockholders sell a substantial number of shares of our common
stock in the public market, the market price of our common stock could be
reduced. As of January 31, 1999, there were 28,901,255 shares of common stock
outstanding, of which a majority were immediately eligible for resale in the
public market without restriction. Holders of approximately 12,900,000 of these
shares (excluding shares issuable upon the conversion of outstanding shares of
Series A Preferred Stock) have rights to cause us to register these shares for
sale to the public. We have filed registration statements to register the sale
of 7,589,500 of these shares. Any such sales may make it more difficult for us
to raise needed capital through an offering of our equity or convertible debt
securities and may reduce the market price of our common stock.
The stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of equity securities of many
companies in our industry. Often, these fluctuations 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 reduce the market
price of our common stock. In the past, following periods of volatility in the
market price of the securities of companies in our industry, securities class
action litigation has often been instituted against those companies. If we face
such litigation in the future, it would result in substantial costs and a
diversion of management attention and resources, which would negatively impact
our business. Any of the risks described in these "Risks Factors," if they
occur, could have a dramatic and adverse impact on the market price of our
common stock.
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Antitakeover Provisions
We have adopted a number of provisions that could have antitakeover
effects. On January 29, 1999, our Board of Directors (the "Board") adopted a
preferred stock purchase rights plan, commonly referred to as a "poison pill."
The rights plan is intended to deter an attempt to acquire the Company in a
manner or on terms not approved by the Board. Thus, the rights plan will not
prevent an acquisition of the Company which is approved by the Board. Our
charter authorizes our Board to issue shares of undesignated preferred stock
without stockholder approval on terms as the Board may determine. The issuance
of preferred stock could decrease the amount of earnings and assets available
for distribution to our other stockholders or otherwise adversely affect the
rights and powers, including voting rights, of our other stockholders. 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, voting control of
Triangle. Our bylaws divide the Board into three classes of directors with each
class serving a three year term. These and other provisions of our charter and
our 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 Triangle, even if the events could be
beneficial to our stockholders. These provisions could also limit the price that
investors might be willing to pay for our common stock.
No Dividends
We have never declared or paid any cash dividends on our common stock, and
we currently do not intend to pay any cash dividends on our common stock in the
foreseeable future. We intend to retain our earnings, if any, for the operation
of our business.
Special Note Regarding Forward-Looking Statements
Statements in this Annual Report regarding the dates on which we
anticipate commencing clinical trials with our drug candidates, anticipated
developments in the markets for anti-HIV and anti-HBV drugs and estimates of the
date through which we believe our working capital will satisfy our capital
requirements constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements are subject to certain risks and uncertainties that
could cause the actual timing of such clinical trials, developments in the
markets for anti-HIV and anti-HBV drugs and the date through which our working
capital will satisfy our capital requirements to differ materially from those
projected. With respect to the dates on which we anticipate commencing clinical
trials, we have made certain assumptions regarding, among other things, the
successful and timely completion of preclinical tests, the approval to conduct
clinical trials by the FDA or other regulatory authorities, the availability of
adequate supplies of drug substance, the pace of patient enrollment and the
availability of the capital resources necessary to complete preclinical tests
and conduct clinical trials. With respect to future developments in the markets
for anti-HIV and anti-HBV drugs, our assumptions include, among other things,
that the number of individuals infected with HIV and HBV will continue to
increase, that current therapies will continue to have only limited
effectiveness in controlling the viruses, and that additional drugs with
improved safety or effectiveness will be developed. Our estimate of the date
through which our working capital will satisfy our capital requirements is based
on assumptions regarding, among other things, the progress of our 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, costs under the license and/or option agreements relating to
our drug candidates (including the costs of obtaining patent protection for our
drug candidates), the timing and the terms of the acquisition of any additional
drug candidates, the magnitude of administrative and legal expenses, the costs
of establishing internal capacity and third party arrangements for sales and
marketing functions, the costs of establishing third party arrangements for
manufacturing, changes in interest rates and foreign currency exchange rates,
and losses on our investment portfolio. Our ability to commence clinical trials
on the dates anticipated, developments in the markets for anti-HIV and anti-HBV
drugs and the date through which our working capital will satisfy our capital
requirements are subject to numerous risks, including the risks discussed under
the caption "Risks and Uncertainties" contained herein. Undue reliance should
not be placed on the dates on which we anticipate commencing clinical trials
with respect to any of our drug candidates, anticipated increases in the markets
for anti-HIV and anti-HBV drugs or our estimate of the date through which our
working capital will satisfy our capital requirements. These estimates are based
on our current expectations, which may change in the future due to a large
number of potential events, including unanticipated future developments.
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Item 2. Properties
As of December 31, 1998, we occupied an approximately 52,000 square foot
administrative office, laboratory and pilot manufacturing facility in Durham,
North Carolina pursuant to a lease that continues through September 2003. In
February 1999, we leased an additional 49,000 square foot administrative office
and laboratory facility, adjacent to our existing facility, pursuant to a lease
that continues through September 2003. We believe our facilities will be
adequate to meet our needs through June 2000.
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, we are not a party to any legal proceedings.
Emory, from which we have licensed several of our drug candidates, including
Coviracil, is a party to several interference and opposition proceedings and one
lawsuit in Australia regarding certain of the patents and patent applications
related to these drug candidates. There can be no assurance that Emory will
prevail in any of these proceedings and any significant adverse development with
respect to Emory's claims could have a material adverse effect on us and our
ability to commercialize these drug candidates. In addition, we are obligated to
reimburse Emory for certain expenses related to these proceedings and these
expenses could be substantial. See "Item 1. Business--Risks and
Uncertainties--Uncertainty of Patents; Dependence on Patents, Licenses and
Proprietary Rights" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." See also note 11 to Notes to
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Price of and Dividends on the Registrant's Common Equity.
Our common stock is traded on the Nasdaq National Market under the symbol
"VIRS." The following table sets forth the high and low sale prices for the
common stock on the Nasdaq National Market in the last two fiscal years and
through March 5, 1999:
High Low
------ ------
Year Ended December 31, 1997:
1st Quarter .................................... $24.75 $14.75
2nd Quarter .................................... 26.88 14.50
3rd Quarter .................................... 24.88 18.13
4th Quarter .................................... 19.75 14.50
Year Ended December 31, 1998:
1st Quarter .................................... $21.13 $14.63
2nd Quarter .................................... 19.63 14.38
3rd Quarter .................................... 18.25 8.38
4th Quarter .................................... 13.88 10.25
Year Ended December 31, 1999:
1st Quarter (through March 5, 1999) ............ $16.75 $11.25
On March 5, 1999, the last reported sale price of our common stock was
$12.13 per share. As of January 31, 1999, there were approximately 380 holders
of record, and approximately 3,000 beneficial holders of our common stock. We
have never declared or paid any cash dividends on our capital stock. We
currently do not intend to pay any cash dividends on our common stock in the
foreseeable future. We will be required to pay a $5.00 dividend, in cash or
common stock at our election, on any of our Series A Preferred Stock which
remains outstanding after June 15, 1999.
On December 24, 1998, we completed a private placement of 170,000 shares
of Series A Preferred Stock for aggregate consideration of $17,000,000, or
$100.00 per share. Net proceeds to us from the placement were approximately
$15,639,000. Vector Securities International, Inc. acted as placement agent in
the financing.
Each share of Series A Preferred Stock will automatically convert into ten
shares of common stock upon the earlier of receipt of stockholder approval of
the issuance of the Series A Preferred Stock (we intend to submit the matter to
our stockholders for approval at our Annual Stockholders' Meeting for 1999) or
December 24, 1999, the first anniversary of the closing of the sale. The
conversion ratio is subject to adjustment under certain circumstances. The
holders of Series A Preferred Stock remaining outstanding after June 15, 1999,
if any, will receive a dividend of $5.00 per share upon the conversion of the
preferred stock into common stock. This dividend will be payable, at the
Company's option, in cash or common stock. The Company has also agreed to file a
resale registration statement with the SEC relating to the sale of the common
stock issuable upon conversion of the Series A Preferred Stock within 30 days
after the conversion date.
The Series A Preferred Stock was offered and sold to selected accredited
institutional investors pursuant to a claim of exemption under Regulation D
promulgated by the SEC or, alternatively, under Section 4(2) of the Securities
Act of 1933. The Company did not use any general advertisement or solicitation
in connection with the offer or sale of the preferred stock. Each investor
represented and warranted, among other things, that it was purchasing the
preferred stock 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 certificates for the shares of
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preferred stock.
On December 30, 1998, Triangle completed a private placement of 4.8
million shares of common stock for aggregate consideration of $48,000,000, or
$10.00 per share. Net proceeds to the Company from the placement were
approximately $44,386,000. Vector Securities International, Inc. acted as
placement agent in the financing. We filed a registration statement with the SEC
relating to the resale of the common stock which was declared effective on
December 31, 1998.
The common stock was offered and sold to selected accredited investors and
other accredited institutional investors pursuant to a claim of exemption under
Regulation D promulgated by the SEC or, alternatively, under Section 4(2) of the
Securities Act of 1933. We did not use any general advertisement or solicitation
in connection with the offer or sale of the common stock. Each investor
represented and warranted, among other things, that it was purchasing the common
stock 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 certificates for the shares of common stock.
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Item 6. Selected Financial Data
The selected consolidated statement of operations data with respect to the
years ended December 31, 1998, 1997, and 1996, and with respect to the period
from inception (July 12, 1995) through December 31, 1995, and the consolidated
balance sheet data at December 31, 1998, 1997, 1996 and 1995, set forth below
are derived from the consolidated financial statements of the Company which have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in Item 7 below, and the Company's
consolidated financial statements and the notes thereto contained in Item 8
below. Historical results are not necessarily indicative of our future
consolidated results.
<TABLE>
<CAPTION>
Period
From
Inception
(July
12,
1995)
Through
Year Ended December 31, December
--------------------------------- 31,
1998 1997 1996 1995
---------- -------- -------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Operating expenses:
License fees ................................................. $ 6,500 $ 610 $ 3,267 $ --
Development .................................................. 55,117 22,240 4,967 --
Purchased research and
development (1) ............................................ -- 11,261 -- --
Selling, general and
administrative ............................................. 9,774 7,071 3,558 1,004
--------- -------- -------- -------
Loss from operations ............................................ (71,391) (41,182) (11,792) (1,004)
Interest income, net............................................. 4,120 3,514 875 37
--------- -------- -------- -------
Net loss ........................................................ $ (67,271) $(37,668) $(10,917) $ (967)
========= ======== ======== =======
Basic and diluted net loss per
common share (2) .............................................. $ (2.93) $ (2.00) $ (1.89) $ (0.60)
========= ======== ======== =======
Shares used in computing basic
and diluted net loss per common share (2) ..................... 22,927 18,871 5,784 1,624
========= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997 1996 1995
---------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ....................................... $ 77,653 $ 34,698 $ 25,255 $ 3,082
Working capital (3) ............................................. 79,807 50,247 41,349 2,868
Investments ..................................................... 41,039 23,098 27,946 --
Total assets .................................................... 124,313 61,878 55,495 3,102
Capital lease obligation - noncurrent ........................... 153 300 364 --
Long-term debt .................................................. -- 178 -- --
Accumulated deficit during
development stage ............................................... (116,823) (49,552) (11,884) (967)
Total stockholders' equity ...................................... 101,951 52,717 52,656 2,888
</TABLE>
- ----------------------
(1) See note 10 of notes to consolidated financial statements for information
concerning the Company's acquisition of Avid on August 28, 1997. As a
result of the acquisition, the Company recorded an in-process research and
development charge of $11.3 million in 1997. The operating results of Avid
have been included in the Company's consolidated financial statements from
the date of the acquisition.
(2) See note 1 of notes to consolidated financial statements for information
concerning the computation of basic and diluted net loss per common share
and shares used in computing net loss per common share.
(3) Working capital represents the difference between the Company's current
assets and current liabilities.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-K may contain certain projections, estimates
and other forward-looking statements that involve a number of risks and
uncertainties, including those discussed above at "Item 1. Business--Risks and
Uncertainties" and "Item 1. Business--Risks and Uncertainties--Special Note
Regarding Forward-Looking Statements." 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 these forward-looking
statements to reflect events or circumstances arising after the date hereof.
Overview
Triangle is 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 its 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 until at least the year 2000. As of December 31, 1998,
the Company's accumulated deficit was $116.8 million.
The Company requires substantial capital expenditures relating to the
development and potential commercialization of its drug candidates, including
expenditures for preclinical testing, chemical synthetic scale-up, manufacture
of drug substance for clinical trials and toxicology studies, clinical trials of
drug candidates, sales and marketing expenses 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
substantially to the expansion of its drug development programs and the addition
of infrastructure necessary to commercialize its drug candidates. The Company
will require substantial capital expenditures relating to activities many of
which may need to occur prior to, and in anticipation of, the potential
regulatory approval of its drug candidates, including expenditures associated
with the establishment of a sales and marketing organization, the manufacture of
drug substance, the development of a distribution system with outside vendors
and other administrative expenditures necessary to support the Company. Many of
these capital expenditures may be incurred irrespective of whether the Company's
drug candidates are approved when anticipated or at all. The Company expects
that losses will fluctuate from period to period and that such fluctuations may
be substantial. See "Item 1. Business--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, obtain additional financing and continue to attract, retain and
motivate qualified personnel. There can be no assurance that the Company will be
successful in addressing these risks. See "Item 1. Business--Risks and
Uncertainties--Early Stage Company; Risk of Unsuccessful Product Development"
and "--Risks and Uncertainties--Our Need for Future Capital; Uncertainty of
Additional Funding."
The operating expenses of the Company will depend on several factors,
including the level of development expenses and the potential commercialization
of its drug candidates. 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. The level of expenses relating to the
establishment of a sales and marketing organization, the manufacture of drug
substance, the development of a distribution system with outside vendors and
other administrative expenditures will depend on the success of the development
of the Company's drug candidates; however, many of these capital expenditures
may be incurred irrespective of whether the Company's drug candidates are
approved when anticipated or at all. As a result of these factors, the Company
believes that period to period comparisons 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 consolidated operating
results will be below the expectations of market analysts and investors. In such
event, the prevailing market price of the common stock could be materially
adversely affected. See "Item 1. Business--Risks and Uncertainties--Our Stock
Price may be Volatile."
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<PAGE>
Results of Operations
Interest Income, Net
The Company had total net interest income of $4.1 million in 1998,
compared to $3.5 million in 1997 and to $875,000 in 1996. The increase in
interest income in 1998 compared to 1997 and 1996 is due primarily to an
increase in investments associated with financing activities partially offset by
a decline in short-term interest rates. See "--Liquidity and Capital Resources."
License Fees
License fees totaled $6.5 million in 1998, compared to $610,000 in 1997
and to $3.3 million in 1996. The increase in 1998 as compared to 1997 and 1996
relates primarily to the execution of the L-FMAU license agreement with Bukwang
during 1998. The decrease in 1997 as compared to 1996, relates to the decrease
in the number of license agreements executed and the achievement by the Company
of certain financing milestones in 1996. Future license fees may consist of
milestone payments or annual preservation payments under existing 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. See "--Liquidity and Capital Resources."
Development Expenses
Development expenses totaled $55.1 million in 1998, compared to $22.2
million in 1997 and to $5.0 million in 1996. Development expenses in 1998
consisted primarily of expenses for drug synthesis, clinical trials, employee
compensation, toxicology studies, preclinical testing and patent related
activities for the Company's drug candidates. Development expenses in 1997
consisted primarily of expenses for drug synthesis, clinical trials, toxicology
studies, compensation, preclinical testing and patent related activities for the
Company's drug candidates. The substantial increase in 1998 development expenses
as compared to 1997 and 1996 is due primarily to the Company's continued and
more expansive drug development activities on its drug candidates, including the
significant addition of development personnel necessary to perform these
activities. Additionally in 1997 and 1996, development expenses were reduced by
approximately $1.2 million and $832,000, respectively, relating to the
reimbursement of certain development expenses under a license agreement for one
of the Company's drug candidates.
In February 1999, the Company elected to limit the current support of its
cancer drug candidate, alanosine, to the completion of its ongoing clinical
trial. Should circumstances warrant, investment in the future development of
alanosine may be reinitiated in the future. The Company expects its development
expenses to increase in the future due to continued expansion of drug
development activities for its existing portfolio of drug candidates, including
preclinical testing, toxicology studies, clinical trials and the manufacture of
drug substance for preclinical tests 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.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses totaled $9.8 million
in 1998, compared to $7.1 million in 1997 and $3.6 million in 1996. SG&A
expenses in 1998 consisted primarily of compensation expenses; amounts paid for
outside professional services, primarily marketing, legal and investor relations
services; and rent expense. SG&A expenses in 1997 consisted primarily of
compensation expenses, rent expense and amounts paid for outside professional
services. The increases in 1998 compared to 1997 and 1996 are due primarily to
the growth of the Company's operations and personnel to support clinical and
development activities, and increased sales and marketing expenditures as the
Company develops its sales and marketing infrastructure. The Company expects
that its SG&A expenses will continue to increase in future periods as the
Company continues to expand development activities and the development of its
sales and marketing organization.
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<PAGE>
Purchased Research and Development Expenses
Purchased research and development expenses totaled $11.3 million in 1997,
and relate to the Company's acquisition of Avid. This amount represents a charge
for Avid's in-process research and development. Avid's principal asset consisted
of worldwide license rights to DMP-450, a protease inhibitor for the treatment
of human immunodeficiency virus infection. Pursuant to the merger agreement,
Triangle issued 400,000 shares of common stock in exchange for all outstanding
capital stock of Avid. Triangle also agreed to issue up to 2,100,000 additional
shares of common stock upon the achievement of certain milestones relating to
DMP-450. Pursuant to the merger agreement, the issuance of 1,600,000 of these
shares was contingent upon Triangle's initiating pivotal Phase II clinical
trials with DMP-450 before February 28, 1999 (the "DMP Milestone Date"), or
electing on or before the DMP Milestone Date to continue the development of
DMP-450 even if such clinical trials had not been initiated. Representatives of
the former Avid stockholders have agreed to extend the DMP Milestone Date until
February 28, 2000, in exchange for Triangle's issuance of 100,000 of the
1,600,000 contingent shares in 1999. The issuance of the remaining 500,000 of
the 2,100,000 shares is contingent upon the attainment of other development
milestones with DMP-450. Issuance of any of these contingent shares will be
recorded as additional purchase price and will be allocated upon resolution of
the underlying contingency. The amount recorded will be the fair market value of
the common stock issued at the time the contingency is resolved. The merger was
accounted for as a purchase and the operating results of Avid have been included
in the Company's consolidated financial statements from its acquisition. No
purchased research and development expenses were incurred in either 1998 or
1996.
Liquidity and Capital Resources
The Company has financed its operations since inception (July 12, 1995)
through December 31, 1998, primarily with the net proceeds received from private
placements of equity securities, which provided aggregate net proceeds of
approximately $111.9 million (net of offering costs), and the Company's initial
and secondary public offerings, which provided aggregate net proceeds of
approximately $96.8 million (net of offering costs). In addition, the Company
has received approximately $2.0 million as reimbursement of certain development
expenses under a license agreement for one of its drug candidates.
During 1998, the Company had three equity offerings providing aggregate
net proceeds of approximately $115.8 million. The first offering was completed
on April 15, 1998 with the sale of 4,025,000 shares of common stock (including
the exercise of the Underwriters over-allotment options) at $15.00 per share.
The total proceeds of this public offering, net of offering costs, were
approximately $55.8 million. On December 24, 1998, the Company completed its
second offering of 1998, issuing 170,000 shares of convertible Series A
Preferred Stock for $100 per share in a private offering to accredited
institutional investors. The total proceeds of this offering, net of offering
costs, were approximately $15.6 million. This preferred stock has dividend
rights of $5.00 per share per annum for all preferred shares that remain
outstanding after June 15, 1999 and voting rights equal approximately 7.8 votes
per share. The conversion feature provides that ten shares of common stock will
be issued for each share of preferred stock at the earlier of approval of the
issuance by the Company's stockholders or December 24, 1999, the first
anniversary of the date the preferred stock was issued. On December 30, 1998,
the Company completed the third of its 1998 equity offerings and issued
4,800,000 shares of common stock for $10 per share in a private offering to
accredited investors. The total proceeds of this offering, net of offering
costs, were approximately $44.4 million. Pursuant to the terms of this offering,
a registration statement covering the resale of these shares was declared
effective by the SEC on December 31, 1998.
At December 31, 1998, the Company had net working capital of $79.8
million, an increase of $29.6 million over December 31, 1997. The increase in
working capital is principally the result of the three 1998 financings,
resulting in net proceeds of approximately $115.8 million, partially offset by
costs of the continued development of the Company's drug candidates, payment of
the L-FMAU license initiation fee and SG&A costs. The Company's principal source
of liquidity at December 31, 1998, was $77.7 million in cash and cash
equivalents and $41.0 million in investments which are considered "available for
sale," reflecting a $60.9 million increase of cash, cash equivalent and
investment balances over those at December 31, 1997.
The Company had a note payable and secured equipment lease line
obligations totaling $437,000 at December 31, 1998 ($837,000 at December 31,
1997), of which $284,000 was classified as a current liability. The
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<PAGE>
Company has purchased property, plant and equipment totaling $2.2 million in
1998, as compared to $2.3 million in 1997 and $794,000 in 1996, primarily
associated with the growth of the Company's laboratory operations to support
expanded development activities. The Company expects its capital expenditures to
increase in future periods.
In conjunction with the development of its drug candidates, the Company
outsources certain aspects of clinical trials and focuses on what it believes
are the most critical aspects of the development process. Accordingly, the
Company has entered into contractual arrangements with selected third parties
regarding clinical and toxicology studies in the development of its drug
candidates. At December 31, 1998, Company management estimates this contractual
commitment to be approximately $15.0 million; however, this estimate is
dependent upon the results of the underlying studies as well as certain other
variable components. Additionally, the Company has entered into agreements with
selected third parties to provide drug substance to satisfy its drug development
requirements and in anticipation of the commercial launch of Coactinon (formerly
known as MKC-442). At December 31, 1998, Company management estimates the drug
substance commitment to be approximately $4.0 million. The actual obligation
underlying these commitments may differ from management's estimates due to a
number of variable components.
The Company expects that its capital requirements will increase in future
periods as the Company funds its drug development programs, pays obligations
under its license and/or option agreements, develops a sales and marketing
organization, acquires drug substance from third party manufacturers, develops a
distribution system with outside vendors and incurs other SG&A expenditures
necessary to support the Company's expanding operations. 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, costs under the license and/or option agreements
relating to the Company's drug candidates (including the costs of obtaining
patent protection for the Company's drug candidates), the timing and the terms
of the acquisition of any additional drug candidates, the rate of technological
advances, determinations as to the commercial potential of the Company's drug
candidates, administrative and legal expenses, the establishment of internal
capacity and third party arrangements for sales and marketing functions, the
establishment of third party arrangements for manufacturing 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 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, as of December 31,
1998, may require future cash payments of up to $74.3 million contingent upon
the achievement of certain development milestones and up to $30.0 million upon
the achievement of certain sales milestones. One of the Company's licensors has
the option to receive $2.0 million of such future milestone payments in shares
of common stock (based on the then current market price) in lieu of a cash
payment. The Company is also obligated to issue up to 2,100,000 shares of common
stock upon the achievement of certain development milestones relating to
DMP-450, which was acquired in the acquisition of Avid. 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 commencing three years after
regulatory approval. Depending on the Company's success and timing in obtaining
regulatory approval, aggregate annual minimum royalties and annual license
preservation fees could range from $25,000 (if only a single drug candidate is
approved for one indication) to $46.5 million (if all drug candidates are
approved for all indications) under the Company's existing license agreements.
The Company believes that its existing cash, cash equivalents and
short-term investments will be adequate to satisfy its anticipated capital
requirements through March 2000. 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 "Item 1. Business--Risks and
Uncertainties--Our Need for Future Capital; Uncertainty of Additional Funding."
Foreign Currency Risk Management
In the ordinary course of business, the Company is exposed to foreign
currency exchange rate risk. This
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exposure primarily relates to the purchase of drug substance and/or services
from foreign vendors in contracts for which the obligation is denominated in a
foreign currency. The Company periodically enters into foreign exchange
contracts to manage these exposures when it considers it practical to do so.
The Company has established a control environment, which includes policies
and procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. These policies include only the
hedging of firm commitments and prohibit the holding of derivative instruments
for trading purposes. Specific hedging strategies depend on several factors,
including the magnitude of the exposure, offset through contract terms, cost and
availability of the appropriate instruments, anticipated time horizon, and the
variability of the underlying commitment. The Company monitors the effectiveness
of its hedging structures on an ongoing basis. At December 31, 1998, the Company
had no outstanding derivative financial instruments.
Litigation and Other Contingencies
As discussed in note 11 of the Notes to Consolidated Financial Statements,
the Company is indirectly involved in several opposition and interference
proceedings and one lawsuit filed in Australia regarding the patent rights
related to two of its licensed drug candidates, including Coviracil. Although
the Company is not a named party in any of these proceedings, it is obligated to
reimburse its licensors for certain legal expenses associated with these
proceedings. The Company cannot predict the outcome of these proceedings. The
Company believes that an adverse judgment would not result in a material
financial obligation to the Company, nor would the Company have to recognize an
impairment under Statement of Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets" as no amounts have been capitalized related
to these drug candidates. However, any development in these proceedings adverse
to the Company's interests, including but not limited to any adverse development
related to the patent rights licensed to the Company for these two drug
candidates or the Company's rights or obligations related thereto, could have a
material adverse effect on the Company's future consolidated financial position,
results of operations and cash flow. See "Item 1. Business--Risks and
Uncertainties--Uncertainties of Patents; Dependence on Patents, Licenses and
Proprietary Rights."
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS 130 is effective for financial statements for fiscal years beginning after
December 15, 1997 and was adopted by the Company in the three months ended March
31, 1998. Disclosure required by adoption of SFAS 130 has been incorporated into
the Company's consolidated financial statements, and its adoption did not have a
material impact on the Company's consolidated financial position, results of
operations, or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Company intends to adopt SFAS 133 when
required; however, SFAS 133 is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows.
Year 2000 Compliance
The Company recognizes the need to ensure that Year 2000 hardware and
software issues will not adversely impact its operations. In 1997, the Company
initiated a program, and subsequently established a Year 2000 committee, to
assess the expected impact of the Year 2000 date recognition problem on its
existing internal systems, those which it intends to implement and the systems
of its key business vendors. The purpose of this program is to attempt to ensure
that this problem does not have a material adverse effect on the Company's
business operations or its financial condition. The Company has completed an
assessment of its internal information systems which support business
applications and is in the process of modifying or replacing those portions of
software, hardware, and other equipment that it has determined are
non-compliant. Key financial, informational and
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<PAGE>
operational systems, including equipment with embedded microprocessors, have
been inventoried and assessed, and detailed plans are in place to ready the
Company's internal operating systems. Implementation of required changes to
critical internal systems is expected to be completed by March 31, 1999. Testing
and verification of internal systems using internal and/or external experts for
critical internal systems is expected to be completed by June 30, 1999 and the
testing and verification of all other significant existing internal systems is
expected to be completed by September 30, 1999.
In addition, the Company is assessing its key business vendors' Year 2000
compliance so as to minimize the likelihood that noncompliance of any vendor
would significantly impact the Company's operations. Informational requests
and/or formal discussions with key business vendors have been distributed or
initiated and replies and readiness will be evaluated pending receipt or
completion of these inquiries and/or discussions. Key business vendors have been
requested to provide assurances regarding their Year 2000 compliance. Risk
assessment, readiness evaluation, action, and contingency plans related to these
vendors are expected to be completed by June 30, 1999. Due to the Company's
evolving internal systems and reliance on third parties, the Company anticipates
periodic reevaluation and maintenance regarding its internal systems and
business vendors throughout 1999.
The projected incremental expenditures associated with the Company's Year
2000 compliance program are not expected to be material to the Company's
consolidated financial position, results of operations, and cash flow.
Management anticipates that the total external cost of the Year 2000 project to
be less than $200,000, including the replacement, testing and implementation of
all software and hardware. As of December 31, 1998, the Company has incurred and
expensed approximately $125,000 in association with the Year 2000 project.
Expenditures required to make the Company Year 2000 compliant are, and will
continue to be, expensed as incurred. Due to the Company's relatively short
operating history, initial assessment of Year 2000 issues, and the Company's
evolving internal systems, the modification or replacement of internal systems
is not anticipated to be significant. The aggregate cost and dates for which
aspects of the Year 2000 project are to be complete are based upon management's
and the Year 2000 committee's best estimates and were derived utilizing
assumptions of future events, continued availability of certain internal and
external resources, and other factors. However, there can be no guarantee that
these estimates and projections will be correct since actual results may differ
from anticipated projections and plans. See "Item 1. Business--Risks and
Uncertainties--Uncertainty of Year 2000 Compliance."
Stockholder Rights Plan
On January 29, 1999, the Company's Board adopted a "Stockholder Rights
Plan" in which preferred stock purchase rights were distributed as a dividend at
the rate of one right per share of common stock and ten rights per share of
Series A Preferred Stock (i.e., the equivalent of one right per share of common
stock issuable upon the conversion of the Series A Preferred Stock), held as of
February 16, 1999. Each right entitles the holder to acquire one-thousandth of a
share of $0.001 par value Series B Junior Participating Preferred Stock, upon a
third party acquiring beneficial ownership of 15% or more of the Company's
common stock, at a price of $100 per right. The Stockholder Rights Plan is
designed to deter a party from gaining control of the Company without offering a
fair price to all stockholders and should encourage a party to negotiate with
the Board prior to attempting to acquire the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
At December 31, 1998, we had no outstanding derivative financial
instruments. We have, however, established policies and procedures for market
risk assessment and the approval, reporting, and monitoring of derivative
financial instrument activities. The following discusses our exposure to market
risk related to changes in interest rates and foreign currency exchange rates.
Interest Rate Sensitivity
Triangle is subject to interest rate risk on our investment portfolio. We
maintain an investment portfolio consisting primarily of high quality government
and corporate bonds with an average maturity of less than one year. We attempt
to mitigate default risk by investing in high credit quality securities and by
monitoring the credit rating of investment issuers. Our investment portfolio
includes only marketable securities with active secondary or resale
-40-
<PAGE>
markets to help ensure portfolio liquidity and we have implemented guidelines
limiting the duration of investments. These available-for-sale securities are
subject to interest rate risk and will decrease in value if market interest
rates increase. If market rates were to increase by 10 percent from levels at
December 31, 1998, the fair value of the portfolio is expected to decline by an
immaterial aggregate amount primarily due to the short maturity of the
portfolio. At December 31, 1998, our portfolio consisted of approximately $22.9
million of investments maturing within one year and approximately $18.1 million
of investments maturing after one year but within 18 months. Additionally, we
generally have the ability to hold our fixed income investments to maturity and
therefore do not expect our consolidated operating results or cash flows to be
affected by a significant amount due to a sudden change in interest rates.
Foreign Currency Exchange Risk
The majority of our transactions occur in U.S. dollars and we do not have
subsidiaries or investments in foreign countries. Therefore, we are not subject
to significant foreign currency exchange risk. We have, however, established
policies and procedures for market risk assessment, including a foreign currency
hedging program. The goal of our hedging program is to economically guarantee,
or lock into, exchange rates on firm foreign currency cash outflows and to
minimize the impact to the Company of foreign currency fluctuations. These
policies specifically provide for the hedging of firm commitments and prohibit
the holding of derivative instruments for speculative or trading purposes.
-41-
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants......................................... 43
Consolidated Balance Sheets as of December 31, 1998 and 1997.............. 44
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, 1996 and the period from inception
(July 12, 1995) through December 31, 1998............................... 45
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, 1996 and the period from inception
(July 12, 1995) through December 31, 1998............................... 46
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997, 1996 and the period from
inception (July 12, 1995) through December 31, 1998..................... 47
Notes to Consolidated Financial Statements................................ 48
-42-
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Triangle Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of Triangle Pharmaceuticals, Inc. and its subsidiary (the "Company") at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 and the period
from inception (July 12, 1995) through December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 5, 1999
-43-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------------
Assets 1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 77,653 $ 34,698
Restricted deposits ............................................ 49 43
Investments .................................................... 22,933 23,098
Interest receivable ............................................ 612 300
Prepaid expenses ............................................... 769 791
--------- ---------
Total current assets ......................................... 102,016 58,930
--------- ---------
Property, plant and equipment, net ............................... 4,164 2,872
Investments ...................................................... 18,106 --
Restricted deposits .............................................. 27 76
--------- ---------
Total assets ................................................. $ 124,313 $ 61,878
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................................... $ 11,778 $ 3,152
Capital lease obligation - current ............................. 126 178
Long-term debt - current ....................................... 158 181
Accrued expenses ............................................... 10,147 5,172
--------- ---------
Total current liabilities .................................... 22,209 8,683
--------- ---------
Capital lease obligation - noncurrent ............................ 153 300
Long-term debt - noncurrent ...................................... -- 178
--------- ---------
Total liabilities ............................................ 22,362 9,161
--------- ---------
Commitments and contingencies (See notes 3,4,6,8,10,11 & 13) ..... -- --
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value; 5,000 shares
authorized; 170 and 0 shares, issued and outstanding,
respectively ................................................. -- --
Common Stock, $0.001 par value; 75,000 shares authorized;
28,871 and 19,995 shares, issued and outstanding,
respectively.................................................. 29 20
Warrants ....................................................... 114 114
Additional paid-in capital ..................................... 218,683 102,260
Accumulated deficit during development stage ................... (116,823) (49,552)
Accumulated other comprehensive income ......................... 18 --
Deferred compensation .......................................... (70) (125)
--------- ---------
Total stockholders' equity ................................... 101,951 52,717
--------- ---------
Total liabilities and stockholders' equity ................... $ 124,313 $ 61,878
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-44-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period From
Inception
(July 12, 1995)
Year Ended December 31, Through
--------------------------------------- December 31,
1998 1997 1996 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating expenses:
License fees ........................ $ 6,500 $ 610 $ 3,267 $ 10,377
Development ......................... 55,117 22,240 4,967 82,324
Purchased research and development... -- 11,261 -- 11,261
Selling, general and administrative.. 9,774 7,071 3,558 21,408
--------- --------- --------- ---------
Loss from operations .................. (71,391) (41,182) (11,792) (125,370)
Interest income, net .................. 4,120 3,514 875 8,547
--------- --------- --------- ---------
Net loss .............................. $ (67,271) $ (37,668) $ (10,917) $(116,823)
========= ========= ========= =========
Basic and diluted net loss per
common share ........................ $ (2.93) $ (2.00) $ (1.89)
========= ========= =========
Shares used in computing basic and
diluted net loss per common share.... 22,927 18,871 5,784
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-45-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Period From
Inception
(July 12,
1995)
Year Ended December 31, Through
---------------------------------------- December 31,
1998 1997 1996 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $ (67,271) $ (37,668) $ (10,917) $(116,823)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ................ 889 313 98 1,303
Purchased research and development ........... -- 11,261 -- 11,261
Stock-based compensation: license fees ....... -- -- 636 636
Stock-based compensation: development ........ 45 43 347 435
Stock-based compensation: selling, general
and administrative ......................... 36 -- 231 268
Change in assets and liabilities:
Receivables ................................ (312) 429 (729) (612)
Prepaid expenses ........................... 22 (233) (558) (769)
Accounts payable ........................... 8,626 1,568 1,462 11,778
Accrued expenses ........................... 4,949 4,358 628 10,026
--------- --------- --------- ---------
Net cash used by operating activities .......... (53,016) (19,929) (8,802) (82,497)
--------- --------- --------- ---------
Cash flows from investing activities:
Sale (purchase) of restricted deposits ....... 43 56 (175) (76)
Purchase of investments ...................... (55,632) (29,259) (33,268) (118,159)
Proceeds from sale/maturity of investments.... 37,709 34,108 5,322 77,138
Purchase of property, plant and equipment .... (2,181) (2,295) (794) (5,292)
Acquisition of Avid Corp., net of cash
acquired ................................... -- (3,053) -- (3,053)
--------- --------- --------- ---------
Net cash used by investing activities .......... (20,061) (443) (28,915) (49,442)
--------- --------- --------- ---------
Cash flows from financing activities:
Sale of stock, net of related issuance costs.. 116,334 29,523 59,515 209,226
Sale of stock options under salary investment
option grant program ....................... 97 70 -- 167
Proceeds from stock options exercised ........ 1 1 25 27
Proceeds from long-term debt ................. -- 374 -- 374
Equipment financing .......................... -- -- 354 354
Principal payments on capital lease
obligations and note payable ............... (400) (153) (4) (556)
--------- --------- --------- ---------
Net cash provided by financing activities ...... 116,032 29,815 59,890 209,592
--------- --------- --------- ---------
Net increase in cash and cash equivalents ...... 42,955 9,443 22,173 77,653
Cash and cash equivalents at beginning of year.. 34,698 25,255 3,082 --
--------- --------- --------- ---------
Cash and cash equivalents at end of year ....... $ 77,653 $ 34,698 $ 25,255 $ 77,653
========= ========= ========= =========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
On August 28, 1997, the Company issued 400 shares of Common Stock,
valued at $8,117, in exchange for all outstanding shares of Avid Corporation.
Noncash investing activities during 1997 and 1996 totaled $59 and
$116, respectively, and relate to the acquisition of laboratory equipment for
the assumption of a capital lease obligation.
The accompanying notes are an integral part
of these consolidated financial statements.
-46-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
------------------------- -------------------------- Paid-In
Shares Amount Warrants Shares Amount Capital
--------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Initial sale of stock ....... 933 $ 1 $ -- 1,175 $ 1 $ 710
Additional sale of stock .... 4,249 4 -- 1,495 2 3,137
Stock-based compensation .... -- -- -- -- -- 12
Comprehensive loss:
Net loss, July 12 through
December 31, 1995 ....... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 .. 5,182 5 -- 2,670 3 3,859
Sale of stock ............... 3,756 4 -- 4,943 5 59,506
Stock-based compensation .... -- -- 152 700 1 1,127
Stock options exercised ..... -- -- -- 317 -- 57
Conversion of Preferred
to Common Stock ........... (8,938) (9) -- 8,938 9 --
Comprehensive loss:
Net loss ................. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 .. -- -- 152 17,568 18 64,549
Sale of stock ............... -- -- -- 2,014 2 29,521
Acquisition of Avid Corp..... -- -- -- 400 -- 8,117
Sale of stock options ....... -- -- -- -- -- 70
Stock-based compensation .... -- -- (38) -- -- --
Stock options exercised ..... -- -- -- 13 -- 3
Comprehensive loss:
Net loss .................. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 .. -- -- 114 19,995 20 102,260
Sale of stock ............... 170 -- -- 8,868 9 116,325
Sale of stock options ....... -- -- -- -- -- 97
Stock-based compensation .... -- -- -- -- -- --
Stock options exercised ..... -- -- -- 8 -- 1
Comprehensive loss:
Net loss ................. -- -- -- -- -- --
Change in unrealized gains
on marketable securities.. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 .. 170 $ -- $ 114 28,871 $ 29 $ 218,683
========= ========= ========= ========= ========= =========
<CAPTION>
Accumulated
Comprehensive Other
Accumulated Income Comprehensive Deferred
Deficit (Loss) Income Compensation Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Initial sale of stock ......... $ -- $ -- $ -- $ -- $ 712
Additional sale of stock ...... -- -- -- -- 3,143
Stock-based compensation ...... -- -- -- (12) --
Comprehensive loss:
Net loss, July 12 through
December 31, 1995 ......... (967) (967) -- -- (967)
--------- --------- --------- --------- ---------
Balance, December 31, 1995 .... (967) (967) -- (12) 2,888
Sale of stock ................. -- -- -- -- 59,515
Stock-based compensation ...... -- -- -- (141) 1,139
Stock options exercised ....... -- -- -- (26) 31
Conversion of Preferred
to Common Stock ............. -- -- -- -- --
Comprehensive loss:
Net loss ................... (10,917) (10,917) -- -- (10,917)
--------- --------- --------- --------- ---------
Balance, December 31, 1996 .... (11,884) (10,917) -- (179) 52,656
Sale of stock ................. -- -- -- -- 29,523
Acquisition of Avid Corp....... -- -- -- -- 8,117
Sale of stock options ......... -- -- -- -- 70
Stock-based compensation ...... -- -- -- 48 10
Stock options exercised ....... -- -- -- 6 9
Comprehensive loss:
Net loss .................... (37,668) (37,668) -- -- (37,668)
--------- --------- --------- --------- ---------
Balance, December 31, 1997 .... (49,552) (37,668) -- (125) 52,717
Sale of stock ................. -- -- -- -- 116,334
Sale of stock options ......... -- -- -- -- 97
Stock-based compensation ...... -- -- -- 48 48
Stock options exercised ....... -- -- -- 7 8
Comprehensive loss:
Net loss ................... (67,271) (67,271) -- -- (67,271)
Change in unrealized gains
on marketable securities... -- 18 18 -- 18
--------- --------- --------- --------- ---------
Balance, December 31, 1998 .... (116,823) (67,253) $ 18 $ (70) $ 101,951
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-47-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Organization and principles of consolidation
Triangle Pharmaceuticals, Inc. and its wholly-owned subsidiary (the
"Company" or "Triangle"), a development stage company, was formed July 12, 1995,
as a Delaware corporation. The Company is engaged in the development of new drug
candidates primarily in the antiviral area and has not yet generated revenues
from operations. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation. In 1998, the
Company merged Avid Therapeutics, Inc., an indirect wholly-owned subsidiary,
into Avid Corporation ("Avid"), a direct wholly-owned subsidiary of Triangle.
Cash and cash equivalents
The Company considers all short-term deposits with an initial maturity at
date of purchase of three months or less to be cash equivalents. The carrying
amount of cash and cash equivalents approximates fair value.
Restricted deposits
Restricted deposits consist of cash and cash equivalents which
collateralize a letter of credit and have been classified as current or
long-term based on the expected release date of such restriction. The carrying
amount of these restricted deposits approximates fair value.
Investments
Investments consist primarily of United States and municipal government
agency obligations, corporate bonds, notes and commercial paper, and other fixed
or variable income investments. The Company invests in high-credit quality
investments in accordance with its investment policy which minimizes the
possibility of loss. Investments with original maturities at date of purchase
beyond three months and which mature at or less than twelve months from the
balance sheet date are classified as current. Investments with a maturity beyond
twelve months from the balance sheet date are classified as long-term.
Investments are considered to be available-for-sale and are carried at fair
value with unrealized gains and losses recognized in comprehensive income.
Realized gains and losses are determined using the specific identification
method and transactions are recorded on a settlement date basis.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives as follows: laboratory
equipment - 5 years; office equipment - 4 to 7 years; and leasehold improvements
- - 7 years.
Long-term debt
The carrying value of the note payable approximates its fair value as the
note bears interest at market rates.
Revenue recognition
Revenue for any products that are developed will be recognized when such
products are shipped.
-48-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies (Continued)
License fees
Upon execution and continuation of license agreements, license initiation
and preservation fees are evaluated as to whether the underlying drug candidate
has alternative use, and if none, have been recorded as an expense at fair
value. License milestone criteria are continuously evaluated. When criterion
achievement is probable, the Company records expense at fair value, or will
capitalize the fair value if marketing approval is obtained for the licensed
compound or if the compound has an alternate future use. License preservation
fees are recorded when payment is probable and the Company records expense, at
fair value, ratably over the period for which the payment pertains.
Accrued expenses
The carrying value of accrued expenses approximates fair value because of
their short-term maturity.
Income taxes
Income taxes are computed using the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactment of changes in tax law or rates. If it is "more likely than not"
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recorded.
Net loss per common share
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"). Pursuant to the adoption of
SFAS 128 and Securities and Exchange Commission Staff Accounting Bulletin No.
98, all net loss per common share calculations reflect a historical approach
methodology. Basic net loss per common share is computed using the weighted
average number of shares of Common Stock outstanding during the period. Diluted
net loss per common share is computed using the weighted average number of
shares of common and dilutive potential common shares outstanding during the
period. Potential common shares consist of stock options, warrants and
convertible preferred stock using the treasury stock method and are excluded if
their effect is antidilutive. At December 31, 1998 had such potential common
shares not been antidilutive, their effect would be to increase the shares used
in computing diluted net loss per common share to 24,037.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-49-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies (Continued)
Stock-based compensation
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). As
provided by SFAS 123, the Company has elected to continue to account for its
stock-based compensation programs according to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense has been recognized to the extent of employee
or director services rendered based on the intrinsic value of compensatory
options or shares granted under the plans. The Company has adopted the
disclosure provisions required by SFAS 123.
Derivative financial instruments
Derivative financial instrument contracts are entered into and utilized by
the Company to manage foreign exchange risk by hedging certain transactions
which are denominated in a foreign currency. The Company has established a
control environment which includes policies and procedures for risk assessment
and the approval, reporting and monitoring of derivative financial instrument
activities.
To qualify for hedge accounting, the contracts must meet defined
correlation and effectiveness criteria, be designated as hedges and result in
cash flows and financial statement effects which substantially offset those of
the position being hedged. As exchange rates change, gains and losses on
contracts designated as hedges of existing assets or liabilities are recognized
in income. Gains and losses on contracts designated as hedges of identifiable
firm foreign currency commitments are deferred and recognized in the measurement
of the related foreign currency transaction. The Company had no open foreign
currency forward purchase contracts at December 31, 1998 and 1997. For the year
ended December 31, 1998, the Company realized net gains on foreign currency
forward purchase contracts of approximately $25. The Company did not enter into
any foreign currency forward purchase contracts in 1997 and 1996.
Recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS 130 is effective for financial statements for fiscal years beginning after
December 15, 1997 and was adopted by the Company in the three months ended March
31, 1998. Disclosure required by adoption of SFAS 130 has been incorporated into
the Company's consolidated financial statements, its adoption did not have a
material impact on the Company's consolidated financial position, results of
operations, or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Company intends to adopt SFAS 133 when
required; however, SFAS 133 is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
-50-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
2. Investments
A summary of the fair market value of "available for sale" securities by
classification is as follows:
December 31,
------------------------
1998 1997
------- -------
United States Government obligations ......... $20,983 $ 6,136
Corporate bonds, notes and
commercial paper ........................... 17,358 15,966
Municipals ................................... 1,200 --
Other fixed and variable income .............. 1,498 996
------- -------
Total .................................... $41,039 $23,098
======= =======
Maturities of debt securities at fair market value are as follows:
December 31,
--------------------
1998 1997
------- -------
Mature in one year or less .......................... $22,933 $23,098
Mature after one year through five years............. 18,106 --
------- -------
Total ........................................... $41,039 $23,098
======= =======
Gross realized and unrealized holding gains and losses for the years ended
December 31, 1998 and 1997 were not significant.
3. Property, Plant and Equipment
December 31,
-----------------------
1998 1997
------- -------
Laboratory equipment ........................... $ 3,315 $ 1,892
Office equipment ............................... 1,829 655
Leasehold improvements ......................... 193 169
Construction-in-progress (office and
laboratory equipment) ........................ 130 570
------- -------
5,467 3,286
Accumulated depreciation ....................... (1,303) (414)
------- -------
Property, plant and equipment, net ......... $ 4,164 $ 2,872
======= =======
The Company leases office and laboratory facilities and office equipment
under various operating leases. Rent expense totaled $1,335, $998, and $646 for
1998, 1997, and 1996, respectively. The Company has provided a $175 letter of
credit, collateralized by an equivalent amount of cash and cash equivalents, as
security for a lessor.
-51-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
3. Property, Plant and Equipment (Continued)
Minimum lease payments under operating leases at December 31, 1998 are as
follows:
Year Amount
- ---- ------
1999 ............................................................... $1,507
2000 ............................................................... 1,533
2001 ............................................................... 1,286
2002 ............................................................... 1,301
2003 ............................................................... 991
------
Total .......................................................... $6,618
======
The Company leases certain laboratory equipment under capital lease
agreements. Details of the capitalized leased assets are as follows:
December 31,
----------------------
1998 1997
----- ------
Laboratory equipment ........................... $ 567 $ 567
Less: accumulated depreciation ................. (270) (156)
----- -----
Net capitalized leased assets .............. $ 297 $ 411
===== =====
Future minimum lease payments under capital lease obligations at December
31, 1998 are as follows:
Year Amount
- ---- ------
1999 ................................................................. $ 157
2000 ................................................................. 143
2001 ................................................................. 8
-----
Total ............................................................ 308
Less: amounts representing interest and executory costs .............. (29)
-----
Net present value ................................................ $ 279
=====
Because the interest rates associated with these lease agreements
approximate a market rate, the carrying value of these obligations approximates
fair value. Interest expense under capital lease obligations for 1998, 1997, and
1996 was $31, $40 and $2, respectively.
-52-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
-----------------------
1998 1997
------- ------
Accrued clinical studies ...................... $ 6,118 $2,394
Accrued drug substance ........................ 1,602 1,137
Accrued professional fees ..................... 780 497
Accrued license fees .......................... 500 80
Accrued compensation and benefits ............. 332 279
Accrued duties and taxes ...................... 297 139
Other ......................................... 518 646
------- ------
Total ..................................... $10,147 $5,172
======= ======
The Company enters into contractual arrangements regarding clinical and
toxicology studies in the development of its drug candidates. At December 31,
1998, the Company estimates its commitment to be approximately $15,000 under
these agreements; however, this estimate is dependent upon the results of the
underlying studies and certain other variable components. Additionally, the
Company has entered into agreements with third parties to provide drug substance
to satisfy its drug development requirements and in anticipation of the
commercial launch of Coactinon (formerly known as MKC-442). At December 31,
1998, the Company estimates its commitment for drug substance to be
approximately $4,000. Similar to the clinical and toxicology studies'
commitment, this estimate is subject to a number of variables that may result in
the actual obligation differing from management's estimate.
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
------------------
1998 1997
------ ------
Unsecured note payable to a finance company; twenty-four
monthly payments with final payment due November 1999;
interest payable at a variable rate (6.49% and 6.85%
at December 31, 1998 and 1997, respectively) ......... $ 158 $ 359
Current portion ........................................ (158) (181)
----- -----
Total .............................................. $ -- $ 178
===== =====
Interest expense associated with long-term debt obligations for 1998 and
1997 was $20 and $2, respectively.
-53-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
6. Stockholders' Equity
During 1996 and 1995, the Company issued 5,232 shares of convertible
Series A Preferred Stock with a par value of $0.001 per share for $3,900, net of
offering costs. During 1996, the Company issued 3,706 shares of convertible
Series B Preferred Stock with a par value of $0.001 per share for $18,400, net
of offering costs. No preferred dividends were declared or paid from the date of
inception (July 12, 1995) through the date of conversion of all Preferred Stock
into Common Stock on a one-for-one basis in connection with the closing of the
Company's initial public offering (the "IPO").
In connection with a consulting agreement executed in May 1996, the
Company issued warrants which entitle the holder to purchase 130 shares of
Common Stock at a price of $0.75 per share. The shares represented by the
warrants vest over a five year period commencing March 1, 1996. On November 27,
1997, the Company terminated the consulting agreement, and pursuant to the terms
of the agreement, canceled 100 of the warrants which were outstanding. In
accordance with the terms of the agreement, 30 warrants were vested and are
exercisable at December 31, 1998. In connection with an equipment lease line
obtained in August 1996, the Company issued warrants which entitle the holder to
purchase 16 shares of Common Stock at a price of $5.00 per share. The Company
recognized $16 of interest expense during 1996 for these warrants.
On November 6, 1996, the Company completed its IPO of 4,533 shares of
Common Stock (including the exercise of the U.S. Underwriters over-allotment
option) at $10.00 per share. The net proceeds of this offering, after
underwriting discounts and costs in connection with the sale and distribution of
the securities, were approximately $41,000. Prior to the closing of the IPO, the
Company's certificate of incorporation was amended to modify the number of
authorized capital stock to 75,000 shares of Common Stock, $0.001 par value per
share, and 5,000 shares of Preferred Stock, $0.001 par value per share.
On June 6, 1997, the Company issued 2,000 shares of Common Stock for
$30,000, or a price of $15.00 per share (a discount of approximately 15% from
the average closing price of the Common Stock over the 30 trading days prior to
the date of the transaction). Net proceeds to the Company from this private
offering were approximately $29,400. Pursuant to the purchase agreement, these
shares were registered on January 23, 1998 with the Securities and Exchange
Commission (the "Commission"). The Company was introduced to the purchaser of
these shares by one of the Company's outside directors. The director received a
finders fee of $500 in connection with the transaction which was recorded as an
offering cost.
On April 15, 1998, the Company completed registration of 4,025 shares of
Common Stock (including the exercise of the Underwriters over-allotment options)
at $15.00 per share with the Commission. The total proceeds of this public
offering, net of offering costs, were approximately $55,800.
On December 24, 1998, the Company issued 170 shares of convertible Series
A Preferred Stock with a par value of $0.001 per share for $100 per share in a
private offering to accredited institutional investors. The total proceeds of
this offering, net of offering costs, were approximately $15,600. Dividend
rights are $5.00 per share per annum for all preferred shares that remain
outstanding after June 15, 1999 and voting rights equate to approximately 7.8
votes per share of Preferred Stock. The conversion feature provides that ten
shares of Common Stock are to be issued per share of Preferred Stock at the
earlier of approval of the issuance of preferred shares by the stockholders of
the Company or December 24, 1999, the first anniversary of the date the
Preferred Stock was issued. The Company's certificate of incorporation
authorizes the Board of Directors (the "Board"), without further action by the
stockholders, to issue Preferred Stock, in one or more series and to fix the
rights, priorities, preferences, qualifications, limitations and restrictions,
including dividend rights, conversion rights, voting rights, terms of
redemption, terms of sinking funds and liquidation preferences of each series of
Preferred Stock issued.
On December 30, 1998, the Company issued 4,800 shares of Common Stock for
$10 per share in a private offering to accredited investors. The total proceeds
of this offering, net of offering costs, were approximately
-54-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
6. Stockholders' Equity (Continued)
$44,400. Pursuant to the terms of this offering, a registration statement
covering the resale of these shares was declared effective by the Commission on
December 31, 1998.
Under the terms of various agreements, the Company has the option to
repurchase shares of Common Stock from certain stockholders who were employed by
or who provided services to the Company at the time they acquired those shares.
The Company may repurchase such shares in the event the stockholder discontinues
employment or provision of services. The repurchase price is limited to the
amount the stockholder originally paid for the shares. During 1996 and 1995, the
Company issued shares subject to vesting totaling 560 and 2,140, respectively.
The number of shares subject to repurchase decreases to zero over periods
ranging from three to four years. At December 31, 1998, 641 shares were subject
to repurchase rights. During 1998, 1997, and 1996, the Company recognized
compensation expense of $81, $43 and $1,214, respectively, related to equity
instruments for which the Company's repurchase option had lapsed based on the
differences between fair value and the selling price per share.
7. Employee Benefit Plans
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") became
effective November 1, 1996. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of Common Stock, at semi-annual
intervals, through periodic payroll deductions under the Purchase Plan. A
reserve of 300 shares of Common Stock has been established for this purpose. The
Purchase Plan is implemented in a series of successive offering periods, each
with a maximum duration of twenty-four (24) months. Payroll deductions may not
exceed 10% of the participant's base salary for each semi-annual period of
participation, and the accumulated payroll deductions will be applied to the
purchase of shares on the participant's behalf on each semi-annual purchase date
(the last business day of February and August each year, at a purchase price per
share not less than 85% of the lower of (i) the fair market value of the Common
Stock on the participant's entry date into the offering period or (ii) the fair
market value of the Common Stock on the semi-annual purchase date. Should the
fair market value of the Common Stock on any semi-annual purchase date be less
than the fair market value of the Common Stock on the first day of the offering
period, then the current offering period will automatically end and a new
twenty-four month offering period will begin, based on the lower fair market
value. The shares vest immediately upon issuance.
During 1998 and 1997, the Company issued 33 and 14 shares, respectively,
in conjunction with the Purchase Plan. At December 31, 1998, the Company held
payroll deductions of approximately $108 which will be converted to shares of
Common Stock in 1999. The Purchase Plan had an insignificant impact on the
Company's 1998, 1997 and 1996 pro forma fair value disclosure as required under
SFAS 123.
Salary Investment Option Grant Program
The Company's Salary Investment Option Grant Program (the "Investment
Plan") was activated by the Compensation Committee of the Board on December 13,
1996 for the calendar year 1997 and on December 4, 1997 for calendar year 1998.
The Investment Plan allows executive officers and other highly compensated
employees of the Company to reduce their base salary for that calendar year by a
specified dollar amount not less than $10 nor more than $50. Participants are
issued a non-statutory option to purchase that number of shares of Common Stock
determined by dividing the total salary reduction amount by an amount equal to
one-third of the fair market value per share of Common Stock on the grant date.
The option will be exercisable at a price per share equal to the difference
between the amount paid by the optionee for the option and the fair market value
of the option shares on the grant date. As a result, upon exercise of the
options issued under the Investment Plan, the optionee will have
-55-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Employee Benefit Plans (Continued)
paid 100% of the fair market value of the option shares as of the grant date.
The option will become vested and exercisable in a series of twelve (12) equal
monthly installments over the calendar year for which the salary reduction is in
effect and will become fully exercisable and vested upon certain changes in the
ownership or control of the Company. Options have a maximum term of ten years
from the date of grant.
Director Compensation
All eligible non-employee directors received an option to purchase 2
shares of Common Stock for each year of the director's Board term plus an
additional 2 shares for those directors who have not served previously. These
options have an exercise price equal to 100% of the fair market value of the
Common Stock on the grant date and will become exercisable in annual
installments after the completion of each year of service following such grant.
Options vest on the day immediately preceding the next annual Board meeting and
have a maximum term of ten years from the date of grant, or one year from the
cessation of Board service.
401(k) Pension Plan
The Company sponsors a qualified defined contribution pension plan which
is available to substantially all permanent employees. This 401(k) plan provides
for employer matching contributions based on employee participation. The total
expense under this plan was $104 and $26 for 1998 and 1997, respectively.
1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Plan") serves as the
successor equity incentive program to the Company's 1996 Stock Option/Stock
Issuance Plan. The 1996 Plan became effective on August 30, 1996 and 2,200
options of Common Stock have been authorized for issuance. On May 15, 1998, an
additional 1,000 options were authorized for issuance with an automatic increase
provision whereby on January 1, 1999, 2000 and 2001 four percent of the total
number of shares of Common Stock issued and outstanding, as of December 31 of
the preceding year, will be authorized for issuance up to an annual maximum
limitation of 1,000. In no event may any one participant receive option grants
or direct stock issuances for more than 500 shares in the aggregate per calendar
year. The options vest over a four or five year period and have a maximum term
of ten years from the date of grant.
-56-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Employee Benefit Plans (Continued)
In accordance with the provisions of SFAS 123, the Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method required by Accounting Principles Board Opinion No. 25.
The following table summarizes the stock option activity for the Company's
plans:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Shares Exercise Price Fair Value
--------- -------------- ----------
<S> <C> <C> <C>
Options outstanding, December 31, 1995 .. -- -- --
Granted below fair value ................ 1,168 $ 0.320 $ 0.234
Granted at fair value ................... 283 $ 7.025 $ 1.579
Exercised ............................... (317) $ 0.075 --
Forfeited ............................... (38) $ 0.075 --
------- ------- -------
Options outstanding, December 31, 1996 .. 1,096 $ 2.129 --
Granted at fair value ................... 626 $21.166 $11.682
Exercised ............................... (13) $ 0.075 --
Forfeited ............................... -- -- --
------- ------- -------
Options outstanding, December 31, 1997 .. 1,709 $ 9.121 --
Granted at fair value ................... 802 $14.809 $ 9.612
Exercised ............................... (8) $ 0.075 --
Forfeited ............................... (22) $19.352 --
------- ------- -------
Options outstanding, December 31, 1998 .. 2,481 $10.895 --
======= ======= =======
</TABLE>
-57-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
7. Employee Benefit Plans (Continued)
The following table summarizes information concerning options outstanding
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Weighted Contractual
Number Average Life
of Shares Exercise Price (In years)
--------- -------------- -----------
<S> <C> <C> <C>
Options outstanding-
Price range:
$0.075 ................................... 744 $ 0.075 7.13
$6.000 - $11.125 ......................... 513 $ 8.383 8.47
$11.688 - $16.000 ........................ 534 $15.222 9.19
$16.250 - $21.500 ........................ 315 $18.050 8.95
$23.625 .................................. 375 $23.625 8.48
----- ------- ----
Options outstanding, December 31, 1998 ..... 2,481 $10.895 8.29
===== ======= ====
Exercisable options outstanding-
Price range:
$0.075 ................................... 744 $ 0.075
$6.000 - $11.125 ......................... 331 $ 6.876
$11.688 - $16.000 ........................ 58 $15.700
$16.250 - $21.500 ........................ 63 $18.972
$23.625 .................................. 143 $23.625
----- -------
Exercisable options outstanding,
December 31, 1998 ........................ 1,339 $ 5.840
===== =======
Exercisable options outstanding,
December 31, 1997 ........................ 1,092 $ 2.312
===== =======
</TABLE>
To determine the impact of SFAS 123, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
Expected dividend yield .......... 0.00% 0.00% 0.00%
Expected stock price volatility... 80.00% 65.00% 0.00%
Risk-free interest rate .......... 4.53-4.54% 5.70-5.72% 6.01-6.07%
Expected life of options ......... 4-5 years 4-5 years 4-5 years
For purposes of pro forma disclosures, the estimated fair value of equity
instruments is amortized to expense over their respective vesting period. If the
Company had elected to recognize compensation expense based on the fair value of
stock-based instruments at the grant date, as prescribed by SFAS 123, its pro
forma net loss and net loss per common share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net loss - as reported ................. $ (67,271) $ (37,668) $ (10,917)
Net loss - pro forma .................... $ (70,598) $ (38,981) $ (11,120)
Net loss per common share - as reported.. $ (2.93) $ (2.00) $ (1.89)
Net loss per common share - pro forma.... $ (3.08) $ (2.07) $ (1.92)
</TABLE>
-58-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
8. Licensing Agreements
The Company has six license agreements for drug candidates as of December
31, 1998. In the aggregate, these agreements required payments of $9,100 upon
execution or satisfaction of certain financing milestones, and may require
future payments of up to $74,250 contingent upon the achievement of certain
development milestones and up to $30,000 upon the achievement of certain sales
milestones. One of the Company's licensors has the option to receive $2,000 of
such future milestone payments in shares of Common Stock (based on the then
current market price) in lieu of a cash payment. The Company is also obligated
to issue up to 2,100 shares of Common Stock upon the achievement of certain
development milestones relating to DMP-450 acquired in the acquisition of Avid.
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 commencing three
years after regulatory approval. Depending on the Company's success and timing
in obtaining regulatory approval, aggregate annual minimum royalties and annual
license preservation fees could range from $25 (if only a single drug candidate
is approved for one indication) to $46,500 (if all drug candidates are approved
for all indications) under the Company's existing license agreements. Under the
terms of one of the license agreements, the Company was reimbursed $1,515 in
1997 and $485 in 1996 associated with certain development work. Development
expenses for the year ended December 31, 1997 and 1996 have been reduced by
approximately $1,168 and $832, respectively. Additionally, under the terms of
certain of these agreements, the Company granted 650 shares of Common Stock to
some of the licensors.
9. Income Taxes
There is no current income tax provision or benefit recorded in any period
as the Company has generated net operating losses for income tax purposes. There
is no deferred income tax provision or benefit recorded in any period as the
Company is in a net deferred tax asset position for which a full valuation
allowance has been recorded due to the uncertainty of its realization.
At December 31, 1998, 1997, and 1996, the Company had net operating loss
carryforwards of approximately $91,866, $39,776, and $8,624, respectively, and a
research credit carryforward of approximately $6,072, $1,951 and $147,
respectively, which will expire in years 2006 to 2018. The Company's ability to
utilize its carryforwards may be subject to an annual limitation in future
periods pursuant to the "change in ownership" provisions under Section 382 of
the Internal Revenue Code.
In connection with Triangle's acquisition of Avid, the Company acquired
transferable net operating loss carryforwards, research and development credits
and capitalized start-up costs which may be used to offset certain future
income. Net operating loss carryforwards associated with Avid will have an
annual limitation on the amount available to reduce certain future taxable
income.
-59-
<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
9. Income Taxes (Continued)
The components of deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Loss carryforwards ...................... $ 36,480 $ 15,982 $ 3,363
Research tax credit ..................... 6,072 1,951 147
License fees ............................ 4,062 1,270 1,204
Start-up costs .......................... 1,253 1,531 --
Accrued liabilities ..................... 481 -- --
-------- -------- --------
Deferred tax assets ..................... 48,348 20,734 4,714
Deferred tax assets valuation allowance.. (48,348) (20,734) (4,714)
-------- -------- --------
Net deferred tax asset .............. $ -- $ -- $ --
======== ======== ========
</TABLE>
10. Avid Acquisition
On August 28, 1997, the Company acquired Avid in a merger accounted for as
a purchase transaction. Pursuant to the merger agreement, Triangle issued 400
shares of Common Stock in exchange for all outstanding capital stock of Avid.
Triangle also agreed to issue up to 2,100 additional shares of Common Stock, the
issuance of 1,600 shares of which is contingent upon Triangle initiating pivotal
Phase II clinical trials with DMP-450 before February 28, 1999, or electing on
or before that date to continue the development of DMP-450 even if such clinical
trials have not been initiated. The issuance of the remaining 500 shares is
contingent upon the attainment of other development milestones with DMP-450.
Issuance of any of these contingent shares will be recorded as additional
purchase price and will be allocated upon resolution of the underlying
contingency. In connection with the acquisition, the Company incurred a charge
of $11,261 for acquired in-process research and development. The operating
results of Avid have been included in the Company's consolidated financial
statements from its acquisition. Avid's principal asset consisted of worldwide
license rights to DMP-450, a protease inhibitor for the treatment of human
immunodeficiency virus infection.
11. Litigation and Other Contingencies
The Company is indirectly involved in several opposition and interference
proceedings and one lawsuit filed in Australia regarding the patent rights
related to two of its licensed drug candidates. Although the Company is not a
named party in any of these proceedings, it is obligated to reimburse its
licensors for certain legal expenses associated with these proceedings. The
Company cannot predict the outcome of these proceedings. The Company believes
that an adverse judgment would not result in a material financial obligation to
the Company, nor would the Company have to recognize an impairment under
Statement of Financial Accounting Standards No. 121 "Accounting for Impairment
of Long-Lived Assets" as no amounts have been capitalized related to these drug
candidates. However, any development in these proceedings adverse to the
Company's interests could have a material adverse effect on the Company's future
consolidated financial position, results of operations and cash flow.
12. Related Party Transactions
In May 1998, the stockholders' of the Company elected an outside director
to the Company's Board. This director has an ownership interest in various
companies that Triangle has utilized, and continues to utilize, in the
completion of its clinical and preclinical studies. As of December 31, 1998, the
Company had accounts payable outstanding to these companies of approximately
$235 and incurred approximately $1,475 in 1998 development expense for services
performed by these companies. The terms and conditions under which services are
provided under these contracts have not been altered from the terms and
conditions under those contracts which existed prior to the related party
relationship (see also Note 6).
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<PAGE>
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
December 31, 1998
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
13. Subsequent Events
Stockholder Rights Plan
On January 29, 1999, the Board adopted a "Stockholder Rights Plan" in
which Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one right per share of Common Stock and ten rights per share of Series A
Preferred Stock (i.e., the equivalent of one right per share of common stock
issuable upon the conversion of the Series A Preferred Stock), held as of
February 16, 1999. Each right entitles the holder to acquire one-thousandth of a
share of $0.001 par value Series B Junior Participating Preferred Stock, upon a
third party acquiring beneficial ownership of 15% or more of the Company's
Common Stock, at a price of $100 per right. The Company can redeem the rights
for $0.001 per right at the discretion of the Board. The Stockholder Rights Plan
is designed to deter a party from gaining control of the Company without
offering a fair price to all stockholders and should encourage a party to
negotiate with the Board prior to attempting to acquire the Company.
DMP-450 Milestone (Unaudited)
Pursuant to the merger agreement executed in connection with the 1997
acquisition of Avid, the Company agreed to issue up to 2,100 additional shares
of Common Stock to the former Avid Stockholders upon the achievement of certain
milestones related to DMP-450. The issuance of 1,600 of these shares was
contingent upon Triangle initiating pivotal Phase II clinical trials with
DMP-450 before February 28, 1999 (the "DMP Milestone Date"), or electing on or
before the DMP Milestone Date to continue the development of DMP-450 even if
such clinical trials had not been initiated. In February 1999, the Company and
representatives of the former stockholders of Avid agreed to extend the DMP
Milestone Date until February 28, 2000. As consideration for this extension, the
Company agreed to issue 100 of the 1,600 contingent shares in 1999. The issuance
of the 100 shares will be recorded as additional purchase price in the Avid
acquisition and will be recorded in 1999 based on the fair market value of the
Common Stock. The remaining 500 of the 2,100 shares are contingent upon the
obtainment of additional development milestones and have not been affected by
this extension.
-61-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors. The information under the heading "Election of
Directors," appearing in the Proxy Statement, is incorporated herein by
reference.
(b) Identification of Executive Officers. The information under the heading
"Executive Officers," appearing in the Proxy Statement, is incorporated herein
by reference.
(c) Business Expenses. The information under the heading "Business Expenses,"
appearing in the Proxy Statement, is incorporated herein by reference.
(d) Section 16(a) Beneficial Ownership Reporting Compliance. The information
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement, is incorporated herein by reference.
Item 11. Executive Compensation
The information under the heading "Executive Compensation and Other
Information," appearing in the Proxy Statement, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the headings "Principal Stockholders" and "Common
Stock Ownership of Directors and Management," appearing in the Proxy Statement,
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading "Certain Relationships and Related
Transactions," appearing in the Proxy Statement, is incorporated herein by
reference.
-62-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements of the Company are included herein as required
under Item 8 of this Annual Report on Form 10-K. See Index to Consolidated
Financial Statements on page 42.
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K
On December 29, 1998, the Company filed a Current Report on Form 8-K dated
December 24, 1998 announcing its completion of a private placement of 170,000
newly issued shares of Series A Convertible Preferred Stock.
(c) Exhibits
Exhibit
Number Description
- ------ -----------
2.1(c) Agreement and Plan of Reorganization among the Company, Project Z
Corporation and Avid Corporation dated June 30, 1997.
3.1(a) Restated Certificate of Incorporation of the Company.
3.2(a) Second Restated Certificate of Incorporation of the Company.
3.3(a) Bylaws of the Company, as amended.
3.4(a) Restated Bylaws of the Company.
3.5(f) Certificate of Designations, Preferences and Rights of the Series A
Preferred Stock, as filed with the Secretary of State of the State
of Delaware (filed as Exhibit 4.1 to the Company's Form 8-K filed
December 30, 1998).
3.6 Certificate of Designations, Preferences and Rights of the Series B
Junior Participating Preferred Stock, as filed with the Secretary of
State of the State of Delaware.
4.1(a) Form of Certificate for Common Stock.
4.2(a) Form of Restricted Stock Purchase Agreement.
10.2(a) Form of Employee Proprietary Information Agreement.
10.3(a) Form of Scientific Advisor Agreement.
10.4(a) Series A Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated July 19, 1995.
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<PAGE>
10.5(a) Series A Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated October 31, 1995.
10.6(a) Series A Preferred Stock Purchase Agreement among the Company and
Schroder Venture Managers Limited dated November 8, 1995.
10.7(a) Series A Preferred Stock Purchase Agreement among the Company and
Chris Rallis dated November 8, 1995.
10.8(a) License Agreement between the Company, Karl Hostetler, M.D. and
Dennis Carson, M.D., dated November 16, 1995.
10.9(a) Consulting Agreement between the Company and Karl Hostetler, M.D.,
dated November 16, 1995.
10.10(a) Consulting Agreement between the Company and Dennis Carson, M.D.,
dated November 16, 1995.
10.11(a) Option Agreement between the Company and Mitsubishi Chemical
Corporation, dated December 20, 1995.
10.12(a) Sublease between the Company and Eli Lilly, dated January 18, 1996.
10.13(a) Letter of Credit from First Union National Bank, dated February 28,
1996.
10.14(a) 1996 Stock Option/Stock Issuance Plan.
10.15(a) 1996 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.16(a) 1996 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
10.17(a) 1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
10.18(a) Sublease Amendment between the Company and Eli Lilly, dated March 1,
1996.
10.19(a) License Agreement among the Company, Emory University and the
University of Georgia Research Foundation, Inc. for compound DAPD,
dated March 31, 1996.
10.21(a) Restricted Stock Purchase Agreement among the Company and the
stockholders listed on Exhibit A thereto, dated March 31, 1996.
10.22(a) License Agreement between the Company and Emory University for
Coviracil (FTC), dated April 17, 1996.
10.23(a) Restricted Stock Purchase Agreement between the Company and Emory
University, dated April 17, 1996.
10.24(a) Amended and Restated Investors' Rights Agreement among the Company
and the Investors listed on Schedule A thereto, dated April 17,
1996.
10.25(a) Series A Preferred Stock Purchase Agreement among the Company and
the stockholders listed on Schedule A thereto, dated May 9, 1996.
10.26(a) Stock Purchase Warrant between the Company and Burrill & Craves,
dated May 21, 1996.
10.27(a) Investors' Rights Agreement between the Company and Burrill &
Craves, dated May 21, 1996.
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<PAGE>
10.28(a) Series B Preferred Stock Purchase Agreement among the Company and
the investors listed on Schedule A thereto, dated June 11, 1996.
10.29(a) Restated Investors' Rights Agreement among the Company and certain
stockholders of the Company, dated June 11, 1996.
10.30(a) Restated Co-Sale Agreement among the Company and certain
stockholders of the Company, dated June 11, 1996.
10.31(a) Second Amendment to Sublease between the Company and Eli Lilly and
Company, dated August 2, 1996.
10.32(a) Master Lease Agreement between the Company and Comdisco Ventures
dated August 8, 1996.
10.33(a) Stock Purchase Warrant between the Company and Comdisco Ventures
dated August 8, 1996.
10.34(a) Option Agreement between the Company and The Regents of the
University of California, dated September 1, 1996.
10.35(a) Sponsored Research Agreement between the Company and The Regents of
the University of California, dated September 1, 1996.
10.36(a) 1996 Stock Incentive Plan.
10.37(a) 1996 Stock Incentive Plan Form of Notice of Grant.
10.38(a) 1996 Stock Incentive Plan Form of Stock Option Agreement.
10.39(a) 1996 Stock Incentive Plan Form of Stock Purchase Agreement.
10.40(a) Employee Stock Purchase Plan.
10.41(a) Form of Indemnification Agreement between the Company and each of
its directors.
10.42(a) Form of Indemnification Agreement between the Company and each of
its officers.
10.43(a) Form of Written Consent of Holders of Series A and Series B
Preferred Stock to conversion, dated September 5, 1996.
10.44(a) Form of Waiver of Registration Rights, dated September 5, 1996.
10.45(b) Employment Agreement between the Company and Dr. David W. Barry,
dated October 28, 1996 (filed as Exhibit 10.44 to the Company's Form
10-K filed March 28, 1997).
10.46(d) License Agreement dated as of December 18, 1996 between Avid
Corporation and The DuPont Merck Pharmaceutical Company (filed as
Exhibit 10.1 to the Company's Form 10-Q filed November 14, 1997).
10.47(c) Common Stock Purchase Agreement among the Company and the investors
listed on Exhibit A thereto dated June 6, 1997 (filed as Exhibit
10.1 to the Company's Form 10-Q filed August 14, 1997).
10.48(c) First Amendment to Restated Investors' Rights Agreement among the
Company and certain stockholders of the Company dated June 6, 1997
(filed as Exhibit 10.2 to the Company's Form 10-Q filed August 14,
1997).
10.49(c) License Agreement between the Company and Mitsubishi Chemical
Corporation dated June 17, 1997 (filed as Exhibit 10.3 to the
Company's Form 10-Q filed August 14, 1997).
-65-
<PAGE>
10.50(d) First Amendment to License Agreement between Avid Corporation and
The DuPont Merck Pharmaceutical Company, dated as of August 26, 1997
(filed as Exhibit 10.2 to the Company's Form 10-Q filed November 14,
1997).
10.51(b) License Agreement dated as of February 27, 1998, between the Company
and Bukwang Pharm. Ind. Co., Ltd.
10.52(e) Amended and Restated 1996 Stock Incentive Plan (as amended and
restated through March 27, 1998) (filed as Exhibit 99.1 to the
Company's Form S-8 filed June 5, 1998).
10.53(e) Amended and Restated 1996 Stock Incentive Plan - Form of Stock
Option Agreement (filed as Exhibit 99.3 to the Company's Form S-8
filed June 5, 1998).
10.54(e) Amended and Restated 1996 Stock Incentive Plan - Form of Addendum to
Stock Option Agreement (Involuntary Termination Following Corporate
Transaction) (filed as Exhibit 99.4 to the Company's Form S-8 filed
June 5, 1998).
10.55(e) Amended and Restated 1996 Stock Incentive Plan - Form of Addendum to
Stock Option Agreement (Involuntary Termination Following Change in
Control) (filed as Exhibit 99.5 to the Company's Form S-8 filed June
5, 1998).
10.56(e) Amended and Restated 1996 Stock Incentive Plan - Form of Stock
Issuance Agreement (filed as Exhibit 99.6 to the Company's Form S-8
filed June 5, 1998).
10.57(e) Amended and Restated 1996 Stock Incentive Plan - Form of Automatic
Stock Option Agreement (filed as Exhibit 99.8 to the Company's Form
S-8 filed June 5, 1998).
10.58(e) Amended and Restated 1996 Stock Incentive Plan - Form of Salary
Investment Stock Option Agreement (filed as Exhibit 99.11 to the
Company's Form S-8 filed June 5, 1998).
10.59(f) Form of Stock Purchase Agreement with respect to the Series A
Preferred Stock (filed as Exhibit 10.1 to the Company's Form 8-K
filed December 30, 1998).
10.60 Employment Agreement between the Company and Dr. David W. Barry
dated November 23, 1998.
10.61 Form of Stock Purchase Agreement with respect to Common Stock placed
with certain investors on December 30, 1998.
10.62(g) Rights Agreement, dated as of February 1, 1999, between the Company
and American Stock Transfer & Trust Company, which includes the form
of Rights Certificate as Exhibit B and the Summary of Rights to
Purchase Series B Preferred Shares as Exhibit C (filed as Exhibit
4 to the Company's Form 8-K filed February 10, 1999).
10.63 Form of Employment Agreement among the Company and each Executive
Officer of the Company.
10.64 Third Amendment to Sublease between the Company and Eli Lilly and
Company, dated as of February 11, 1998.
11.1 Computation of Net Loss Per Common Share.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (see page 68).
-66-
<PAGE>
27.1 Financial Data Schedule.
- ----------
(a) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Registration statement on Form S-1
filed September 9, 1996.
(b) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-K filed March 28, 1997.
(c) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-Q filed August 14, 1997.
(d) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 10-Q filed November 14, 1997.
(e) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form S-8 filed June 5, 1998.
(f) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 8-K filed December 30, 1998.
(g) Incorporated by reference to the same-numbered exhibit (except as
otherwise indicated) to the Company's Form 8-K filed February 10, 1999.
Supplemental Information
Copies of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders and copies of the form of proxy to be used for such Annual Meeting
will be furnished to the Securities and Exchange Commission prior to the time
they are distributed to the Registrant's stockholders.
-67-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 16, 1999 TRIANGLE PHARMACEUTICALS, INC.
By: /s/ David W. Barry
-----------------------------------------
David W. Barry
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints David W. Barry or James A. Klein, Jr., his or her
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David W. Barry Chairman of the Board and March 16, 1999
- ------------------------ Chief Executive Officer
(David W. Barry) (Principal Executive Officer)
/s/ James A. Klein, Jr. Chief Financial Officer and Treasurer March 16, 1999
- ------------------------ (Principal Financial and Accounting Officer)
(James A. Klein, Jr.)
/s/ M. Nixon Ellis Director, President and Chief Operating Officer March 16, 1999
- ------------------------
(M. Nixon Ellis)
/s/ Anthony B. Evnin Director March 16, 1999
- ------------------------
(Anthony B. Evnin)
/s/ Standish M. Fleming Director March 16, 1999
- ------------------------
(Standish M. Fleming)
/s/ Dennis B. Gillings Director March 16, 1999
- ------------------------
(Dennis B. Gillings)
/s/ Henry G. Grabowski Director March 16, 1999
- ------------------------
(Henry G. Grabowski)
/s/ George McFadden Director March 16, 1999
- ------------------------
(George McFadden)
</TABLE>
-68-
CERTIFICATE OF DESIGNATION
of
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
TRIANGLE PHARMACEUTICALS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
---------------------------------
TRIANGLE PHARMACEUTICALS, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on January 29, 1999;
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.001 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series B Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series B Junior Participating Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be One Million Two Hundred Thousand (1,200,000). Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series B
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series B Preferred Stock with respect to dividends, each holder of a
share of Series B Preferred Stock, in preference to the holders of shares
of Common Stock, par value $.001 per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available
A-1
<PAGE>
for the purpose, quarterly dividends payable in cash on the last day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share Series B Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, One Thousand (1,000) times the aggregate
per share amount of all cash dividends, and One Thousand (1,000) times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of a
share or fraction of Series B Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
shares of Series B Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share of Series B Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on each
outstanding share of Series B Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
share of Series B Participating Preferred Stock, unless the date of issue
of such share is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such share shall begin to accrue
from the date of issue of such share, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series B Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all
A-2
<PAGE>
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series B
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior
to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series B Preferred Stock shall entitle the holder thereof to
One Thousand (1,000) votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Series B Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series B Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series B Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series B Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series B
Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution
A-3
<PAGE>
or winding up) with the Series B Preferred Stock, except dividends
paid ratably on the shares of Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series B Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series B Preferred Stock, or any shares of stock
ranking on a parity with the Series B Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series Bnd
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designation
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock unless, prior
thereto, the holders of shares of Series B Preferred Stock shall have
received One Thousand Dollars ($1,000) per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares
of Series B Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 1,000 times the aggregate amount to be distributed per
share to holders of shares of Common Stock (the "Common Adjustment"), or
(2) to the holders of shares of
A-4
<PAGE>
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred Stock, except
distributions made ratably on the Series B Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding
up. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event (the "Adjustment Number").
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series B Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series B Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after January 29,
1999 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to One Thousand (1,000) times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of
A-5
<PAGE>
shares of Series B Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series B Preferred Stock
shall not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series B Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least a majority of the outstanding shares of Series B Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its Chief Financial Officer and Treasurer this 5th
day of February, 1999.
/s/ James A. Klein, Jr.
--------------------------------------------
Name: James A. Klein, Jr.
Title: Chief Financial Officer and Treasurer
A-6
EMPLOYMENT AGREEMENT
This Employment Agreement ("AGREEMENT") is made by and between Dr. David
W. Barry ("DR. BARRY") and Triangle Pharmaceuticals, Inc. ("TRIANGLE") as of
November 23, 1998 (the "Effective Date").
RECITALS
DR. BARRY has been an employee of TRIANGLE since July 19, 1995. TRIANGLE
and DR. BARRY wish to set forth in this AGREEMENT the terms and conditions under
which DR. BARRY is to be employed by TRIANGLE from the date of execution
forward.
DR. BARRY and TRIANGLE entered into an Employment Agreement, dated as of
October 26, 1996 (the "Original Employment Agreement"), which expired on the
second anniversary thereof and the parties wish to continue the employment
relationship substantially consistent with the terms set forth in the Original
Employment Agreement.
In consideration of DR. BARRY's agreement to continue providing services
to TRIANGLE, TRIANGLE's agreement to employ DR. BARRY on the terms and
conditions set forth herein and the mutual agreements set forth herein, the
parties hereto agree as follows:
1. Term And Nature Of Employment
TRIANGLE hereby employs DR. BARRY as Chief Executive Officer of
TRIANGLE for a two (2) year period commencing on the Effective Date of this
AGREEMENT and ending on the second anniversary of the Effective Date, unless
said period of employment (the "Employment Period") is terminated earlier in
accordance with the terms of this AGREEMENT or is extended pursuant to a written
amendment executed by both parties. DR. BARRY hereby accepts such employment and
agrees to devote his full business time and attention, best efforts, energy and
skills to the business and affairs of TRIANGLE. DR. BARRY agrees to perform such
other duties as may from time to time be assigned to him by the Board of
Directors of TRIANGLE and shall act at all times in accordance with the best
interests of TRIANGLE. DR. BARRY agrees that he shall comply with all applicable
governmental laws, rules and regulations and with all of TRIANGLE's policies,
rules and/or regulations applicable to the employees of TRIANGLE. The employment
relationship between TRIANGLE and DR. BARRY may be terminated by TRIANGLE or by
DR. BARRY at any time, with or without cause, subject to the terms and
conditions contained in article 5 of this AGREEMENT and the obligations
described in articles 6 and 7 hereof.
2. Wage Compensation
2.1 Amount. DR. BARRY shall be compensated on the basis of an
annualized salary of Two Hundred Thirty-Nine Thousand Dollars ($239,000.00),
less applicable withholding taxes. Increases in salary, if any, shall be made at
the sole discretion of the Board of Directors of TRIANGLE. Nothing in this
paragraph 2.1 shall be construed to limit TRIANGLE's right to terminate this
AGREEMENT in accordance with the terms hereof.
<PAGE>
2.2 Payment. Salary payments will normally be made to DR. BARRY
monthly or otherwise in accordance with TRIANGLE's pay period practices
applicable to executive officers.
3. Other Benefits
During the Employment Period, DR. BARRY shall be entitled to receive
any other benefits which are provided to TRIANGLE's executive officers or other
full time employees, in accordance with TRIANGLE's policies and practices.
4. Former Employment
4.1 No Conflict. DR. BARRY represents and warrants that the
execution and delivery by him of this AGREEMENT, his employment by TRIANGLE and
his performance of duties under this AGREEMENT will not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship, or any other contractual obligations.
4.2 No Use of Prior Confidential Information. DR. BARRY will not
intentionally disclose to TRIANGLE or use on its behalf any confidential
information belonging to any of his former employers, but during his employment
by TRIANGLE he will use in the performance of his duties all information (but
only such information) which is generally known and used by persons with
training and experience comparable to his own or is common knowledge in the
industry or otherwise legally in the public domain.
5. Termination
5.1 Termination of AGREEMENT Due to Death. DR. BARRY's employment
and this AGREEMENT shall terminate upon DR. BARRY's death. In the event that DR.
BARRY's employment ends due to his death, TRIANGLE's obligations under this
AGREEMENT shall immediately cease and DR. BARRY's estate shall be entitled to no
severance benefits or any other benefits under this AGREEMENT, except that if
DR. BARRY dies within two (2) years after the date of this AGREEMENT, any
options or stock of the Company then owned by DR. BARRY shall automatically
accelerate and become fully vested. This provision shall not otherwise limit any
benefits available under TRIANGLE's benefit plans.
5.2 Involuntary Termination for Cause. Notwithstanding anything to
the contrary herein, DR. BARRY's employment and this AGREEMENT may be terminated
by TRIANGLE upon written notification upon the occurrence of any of the
following:
a. DR. BARRY being formally charged with the commission of a
felony, or being convicted of a misdemeanor involving moral turpitude.
b. DR. BARRY's demonstrable fraud or dishonesty.
c. DR. BARRY's use of illegal drugs or any illegal substance,
or his use of alcohol in any manner that materially interferes with the
performance of his duties under this AGREEMENT.
-2-
<PAGE>
d. DR. BARRY's intentional, reckless or grossly negligent
conduct detrimental to the best interests of TRIANGLE, including, without
limitation, any misappropriation or unauthorized use of TRIANGLE's property or
improper disclosure of confidential information.
e. DR. BARRY's failure to perform material duties under this
AGREEMENT if such failure has continued for 20 days after DR. BARRY has been
notified in writing by TRIANGLE of the nature of DR. BARRY's failure to perform.
f. DR. BARRY's chronic absence from work for reasons other
than illness.
g. DR. BARRY's violation of TRIANGLE's policy prohibiting
sexual harassment.
h. DR. BARRY's violation of TRIANGLE's policy prohibiting
unlawful discrimination.
In the event that DR. BARRY's employment is terminated with cause by
TRIANGLE pursuant to this paragraph 5.2 of this AGREEMENT within two (2) years
after the Effective Date, TRIANGLE will continue to pay salary payments to DR.
BARRY (based upon his then-current salary) for a period of two (2) years
following termination. In the event that DR. BARRY's employment is terminated
with cause by TRIANGLE for any of the reasons enumerated in this paragraph 5.2,
DR. BARRY shall have certain obligations to refrain from disclosing TRIANGLE's
confidential or proprietary information, as more fully described in article 6
below. In the event that DR. BARRY's employment is terminated with cause by
TRIANGLE for any of the reasons enumerated in this paragraph 5.2 within two (2)
years after the Effective Date, DR. BARRY shall have certain obligations to
refrain from engaging in competitive activities, as more fully described in
article 7, below. DR. BARRY acknowledges and agrees that the continuing salary
payments described in this paragraph 5.2, shall constitute good and sufficient
consideration for his agreement to abide by the terms of articles 6 and 7
hereof.
Termination of DR. BARRY pursuant to this section 5.2 shall be in
addition to and without prejudice to any other right or remedy to which TRIANGLE
may be entitled at law, in equity, or under this AGREEMENT.
5.3 Involuntary Termination For Other Than Cause. TRIANGLE may
terminate DR. BARRY's employment and this AGREEMENT at any time for any reason
upon written notification to DR. BARRY. If TRIANGLE so terminates pursuant to
this paragraph 5.3 (i.e., none of the matters specified in paragraph 5.2 has
occurred) within two (2) years after the Effective Date, TRIANGLE will continue
to pay salary payments to DR. BARRY (based upon his then-current salary) for a
period of two (2) years following termination. If TRIANGLE terminates DR.
BARRY's employment pursuant to this paragraph 5.3 within two (2) years after the
Effective Date, it will also accelerate DR. BARRY's vesting in any unvested
stock and/or options previously granted to him and any group health benefits
provided to DR. BARRY during his employment pursuant to this AGREEMENT will be
continued, if permitted by law, by
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<PAGE>
TRIANGLE at its expense for a period of two (2) years following termination.
Except as described in this paragraph 5.3, TRIANGLE shall have no other
obligations to DR. BARRY in the event that DR. BARRY's employment is terminated
pursuant to this paragraph 5.3. In the event that DR. BARRY's employment is
terminated by TRIANGLE pursuant to this paragraph 5.3, DR. BARRY shall have
certain obligations to refrain from disclosing TRIANGLE's confidential or
proprietary information, as more fully described in article 6 below. In the
event that DR. BARRY's employment is terminated by TRIANGLE pursuant to this
paragraph 5.3 within two (2) years after the Effective Date, DR. BARRY shall
have certain obligations to refrain from engaging in competitive activities, as
more fully described in article 7 below. DR. BARRY acknowledges and agrees that
the continuing salary payments and other benefits described in this paragraph
5.3 shall constitute good and sufficient consideration for his agreement to
abide by the terms of articles 6 and 7 hereof.
5.4 Resignation. DR. BARRY may terminate his employment and this
AGREEMENT at any time for any reason upon written notification to TRIANGLE. If
DR. BARRY resigns from his employment for any reason within two (2) years after
the Effective Date, except as provided to the contrary below, TRIANGLE will
continue to pay salary payments to DR. BARRY (based upon his then-current
salary) for a period of two (2) years following termination. If DR. BARRY
resigns from his employment pursuant to this paragraph 5.4 within two (2) years
after the Effective Date, except as provided to the contrary below, any group
health benefits provided to DR. BARRY during his employment pursuant to this
AGREEMENT will be continued, if permitted by law, by TRIANGLE at its expense for
a period of two (2) years following termination. Notwithstanding the foregoing,
if DR. BARRY terminates his employment and does not at the time of termination
intend to engage in competitive activities of the type prohibited by article 7,
then TRIANGLE shall not be obligated to make the salary payments and provide
group health benefits to DR. BARRY pursuant to the preceding two (2) sentences;
provided, however, that if DR. BARRY, within two (2) years after his termination
of employment under this paragraph 5.4 decides he would like to engage in
competitive activities that are prohibited by paragraph 7, then TRIANGLE shall
make the salary payments and provide group health benefits to DR. BARRY for the
period of time between the date DR. BARRY decides he would like to so compete
and the expiration of the two (2) year period after DR. BARRY's termination of
his employment under this paragraph 5.4 (but, notwithstanding DR. BARRY's desire
to compete, in no event shall DR. BARRY be permitted to engage in the
competitive activities described in paragraph 7 for the period of time described
in paragraph 7). Except as described in this paragraph 5.4, TRIANGLE shall have
no other obligations to DR. BARRY in the event that DR. BARRY resigns from his
employment for any reason pursuant to this paragraph 5.4. In the event that DR.
BARRY resigns from his employment with TRIANGLE pursuant to this paragraph 5.4,
DR. BARRY shall have certain obligations to refrain from disclosing TRIANGLE's
confidential or proprietary information, as more fully described in article 6
hereof. In the event that DR. BARRY resigns from his employment with TRIANGLE
pursuant to this paragraph 5.4, DR. BARRY shall have certain obligations to
refrain from engaging in competitive activities, as more fully described in
article 7 hereof. DR. BARRY acknowledges and agrees that the continuing salary
payments and other benefits described in this paragraph 5.4 shall constitute
good and sufficient consideration for his agreement to abide by the terms of
articles 6 and 7 hereof.
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<PAGE>
6. Confidentiality
DR. BARRY acknowledges that he is bound by the terms of that certain
Employee Proprietary Information and Inventions Agreement between TRIANGLE and
DR. BARRY dated September 7, 1995 (the "Confidentiality Agreement").
7. Non-Competition
DR. BARRY agrees and promises that if his employment is terminated
pursuant to paragraph 5.2, 5.3 or 5.4 hereof within two (2) years after the
Effective Date, then, for the period of time described below, he will not be
engaged in any other business or as a consultant to or general partner,
employee, officer or director of any partnership, firm, corporation, or other
entity, or as an agent for any person, or otherwise, if: (1) such other
business, partnership, firm, corporation, entity or person is engaged in
for-profit activity in the pharmaceutical industry within the United States and
competes with TRIANGLE in the field of viral diseases; and (2) DR. BARRY either
(a) is the President, Chief Executive Officer or Chairman of such other
business, partnership, firm, corporation, entity or person; or (b) participates
in or directs the development of drugs for the treatment of viral diseases for
such other business, partnership, firm, corporation, entity or person. This
agreement to refrain from engaging in competitive activities shall continue for
the period during which TRIANGLE is required by the terms of paragraphs 5.2, 5.3
or 5.4 of this AGREEMENT to make salary payments to DR. BARRY following his
termination (i.e., two (2) years in the case of termination under paragraph 5.2,
5.3 or 5.4). This agreement to refrain from engaging in competitive activities
shall be binding upon DR. BARRY even if DR. BARRY is not compensated for the
activities described in this article 7.
8. Termination Upon Merger
Notwithstanding anything to the contrary in this Agreement, this
Agreement shall automatically terminate upon a "Merger." A "Merger" shall
consist of the consolidation or merger of TRIANGLE into or with any other entity
or entities that results in the exchange of shares representing 50% or more of
the outstanding shares of voting capital stock of TRIANGLE for securities or
other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, or the sale or transfer by TRIANGLE or all or
substantially all of its assets. Upon termination of this Agreement, all of the
obligations of TRIANGLE and DR. BARRY under this Agreement, including without
limitation, Sections 5 and 7, shall terminate; provided, however, that DR.
BARRY's obligations under the Confidentiality Agreement shall continue pursuant
to the terms of the Confidentiality Agreement.
9. General Provisions
9.1 Governing Law. This AGREEMENT and the rights of the parties
thereunder shall be governed by and interpreted under North Carolina law without
regard to principles of conflicts of law.
9.2 Assignment. DR. BARRY may not delegate, assign, pledge or
encumber his rights or obligations under this AGREEMENT or any part thereof.
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<PAGE>
9.3 Notice. Any notice required or permitted to be given under this
AGREEMENT shall be sufficient if it is in writing and is sent by registered or
certified mail, postage prepaid, or personally delivered, to the following
addresses, or to such other addresses as either party shall specify by giving
notice under this section:
TO TRIANGLE: Triangle Pharmaceuticals, Inc.
4 University Place
4611 University Drive
Durham, NC 27707
Attention: General Counsel
TO DR. BARRY: Dr. David W. Barry
9.4 Amendment. This AGREEMENT may be waived, amended or supplemented
only by a writing signed by both of the parties hereto. To be valid, TRIANGLE's
signature must be by a person specially authorized by TRIANGLE's Board of
Directors to sign such particular document.
9.5 Waiver. No waiver of any provision of this AGREEMENT shall be
binding unless and until set forth expressly in writing and signed by the
waiving party. To be valid, TRIANGLE's signature must be by a person specially
authorized by TRIANGLE's Board of Directors to sign such particular document.
The waiver by either party of a breach of any provision of this AGREEMENT shall
not operate or be construed as a waiver of any preceding or succeeding breach of
the same or any other term or provision, or a waiver of any contemporaneous
breach of any other term or provision, or a continuing waiver of the same or any
other term or provision. No failure or delay by a party in exercising any right,
power, or privilege hereunder or other conduct by a party shall operate as a
waiver thereof, in the particular case or in any past or future case, and no
single or partial exercise thereof shall preclude the full exercise or further
exercise of any right, power or privilege. No action taken pursuant to this
AGREEMENT shall be deemed to constitute a waiver by the party taking such action
of compliance with any representations, warranties, covenants or agreements
contained herein.
9.6 Severability. All provisions contained herein are severable and
in the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
possible extent the parties' expressed intent; and in every case the remainder
of this AGREEMENT shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
9.7 Headings. Article and section headings are inserted herein for
convenience of reference only and in no way are to be construed to define, limit
or affect the construction or interpretation of the terms of this AGREEMENT.
9.8 Drafting Party. The provisions of this AGREEMENT have been
prepared, examined, negotiated and revised by each party hereto, and no
implication shall be drawn and no
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<PAGE>
provision shall be construed against either party by virtue of the purported
identity of the drafter of this AGREEMENT, or any portion thereof.
9.9 Arbitration. The parties agree that any and all disputes that
they have with one another which arise out of DR. BARRY's employment or under
the terms of this AGREEMENT shall be resolved through final and binding
arbitration, as specified herein. This shall include, without limitation,
disputes relating to this AGREEMENT, DR. BARRY's employment by TRIANGLE or the
termination thereof, claims for breach of contract or breach of the covenant of
good faith and fair dealing, and any claims of discrimination or other claims
under any federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of DR. BARRY's employment with TRIANGLE or its termination. The only
claims not covered by this paragraph 9.9 are claims for benefits under the
workers' compensation laws or claims for unemployment insurance benefits, which
will be resolved pursuant to those laws. Binding arbitration will be conducted
in Durham, North Carolina, in accordance with the rules and regulations of the
American Arbitration Association. Each party will bear one half of the cost of
the arbitration filing and hearing fees, and the cost of the arbitrator. Each
party will bear its own attorneys' fees, unless otherwise decided by the
arbitrator. DR. BARRY understands and agrees that the arbitration shall be
instead of any civil litigation and that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
10. Entire Agreement
Except for the Confidentiality Agreement, this AGREEMENT constitutes
the entire agreement between the parties pertaining to the subject matter hereof
and completely supersedes all prior or contemporaneous agreements,
understandings, arrangements, commitments, negotiations and discussions of the
parties, whether oral or written. The parties specifically acknowledge and agree
that, except for the Confidentiality Agreement, all prior agreements and
understandings between DR. BARRY and TRIANGLE that pertained to DR. BARRY's
employment with TRIANGLE are completely superseded. Each party acknowledges,
represents and warrants that this AGREEMENT is fully integrated and not in need
of parol evidence in order to reflect the intentions of the parties.
This AGREEMENT is executed as of this 23rd day of November, 1998.
TRIANGLE PHARMACEUTICALS, INC.
/s/ David W. Barry By: /s/ M. Nixon Ellis
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Dr. David W. Barry M. Nixon Ellis, President and
Chief Operating Officer
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FORM OF
PURCHASE AGREEMENT
THIS AGREEMENT is made as of the __ day of December, 1998, by and
among Triangle Pharmaceuticals, Inc. (the "Company"), a corporation organized
under the laws of the State of Delaware, with its principal offices at 4
University Place, 4611 University Drive, Durham, North Carolina 27707, and the
purchaser whose name and address is set forth on the signature page hereof (the
"Purchaser").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company, and the Purchaser agree as follows:
SECTION 1. Authorization of Sale of the Shares. Subject to the terms
and conditions of this Agreement, the Company has authorized the sale of up to
3,500,000 shares (the "Shares") of the common stock, par value $0.001 per share
(the "Common Stock"), of the Company.
SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing
(as defined in Section 3), the Company will sell to the Purchaser, and the
Purchaser will buy from the Company, upon the terms and conditions hereinafter
set forth, the number of Shares (at the purchase price) shown below:
Price Per
Number to Be Share In Aggregate
Purchased Dollars Price
--------- ------- -----
The Company proposes to enter into this same form of purchase
agreement with certain other investors (the "Other Purchasers") and expects to
complete sales of the Shares to them. The Purchaser and the Other Purchasers are
hereinafter sometimes collectively referred to as the "Purchasers," and this
Agreement and the agreements executed by the Other Purchasers are hereinafter
sometimes collectively referred to as the "Agreements." The term "Placement
Agent" shall mean Vector Securities International, Inc.
SECTION 3. Delivery of the Shares at the Closing. The completion of
the purchase and sale of the Shares (the "Closing") shall occur as soon as
practicable and as agreed by the parties hereto following notification by the
Securities and Exchange Commission (the "Commission") to the Company of the
Commission's willingness to declare effective the registration statement to be
filed by the Company pursuant to Section 7.1 hereof (the "Registration
Statement") at a place and time (the "Closing Date") to be agreed upon by the
Company, and the Placement Agent and of which the Purchasers will be notified by
facsimile transmission or otherwise.
<PAGE>
At the Closing, the Company shall deliver to the Purchaser one or
more stock certificates registered in the name of the Purchaser, or in such
nominee name(s) as designated by the Purchaser in writing, representing the
number of Shares set forth in Section 2 above. The name(s) in which the stock
certificates are to be registered are set forth in the Stock Certificate
Questionnaire attached hereto as part of Appendix I. The Company's obligation to
complete the purchase and sale of the Shares and deliver such stock
certificate(s) to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a) receipt
by the Company of same-day funds in the full amount of the purchase price for
the Shares being purchased hereunder; (b) completion of the purchases and sales
under the Agreements with all of the Other Purchasers; and (c) the accuracy of
the representations and warranties made by the Purchasers and the fulfillment of
those undertakings of the Purchasers to be fulfilled prior to the Closing. The
Purchaser's obligation to accept delivery of such stock certificate(s) and to
pay for the Shares evidenced thereby shall be subject to the following
conditions: (a) the Commission has notified the Company of the Commission's
willingness to declare the Registration Statement effective on or prior to the
60th day after the date such Registration Statement was filed by the Company;
and (b) the accuracy in all material respects of the representations and
warranties made by the Company herein and the fulfillment in all material
respects of those undertakings of the Company to be fulfilled prior to Closing.
The Purchaser's obligations hereunder are expressly not conditioned on the
purchase by any or all of the Other Purchasers of the Shares that they have
agreed to purchase from the Company.
SECTION 4. Representations, Warranties and Covenants of the Company.
The Company hereby represents and warrants to, and covenants with, the Purchaser
as follows:
4.1. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and the Company and
each of its subsidiaries is qualified to do business as a foreign corporation in
each jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect (as defined herein) on the
Company.
4.2. Authorized Capital Stock. Except as disclosed in or
contemplated by the Confidential Private Placement Memorandum dated December 1,
1998 prepared by the Company, including all Exhibits (except Exhibit J),
supplements and amendments thereto (the "Private Placement Memorandum"), the
Company had authorized and outstanding capital stock as set forth under the
heading "Capitalization" in the Private Placement Memorandum as of the date set
forth therein; the issued and outstanding shares of the Company's Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and conform in all material respects to
the description thereof contained in the Private Placement Memorandum. Except as
disclosed in or contemplated by the Private Placement Memorandum (including the
issuance of options under the Company's 1996 Stock Incentive Plan and the
issuance of shares of
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<PAGE>
Common Stock pursuant to the Company's Employee Stock Purchase Plan after
September 30, 1998), the Company does not have outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock, any shares of capital
stock of any subsidiary or any such options, rights, convertible securities or
obligations. The description of the Company's stock, stock bonus and other stock
plans or arrangements and the options or other rights granted and exercised
thereunder, set forth in the Private Placement Memorandum accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
4.3. Issuance, Sale and Delivery of the Shares. The Shares have been
duly authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform in all material respects to the description
thereof set forth in the Private Placement Memorandum. No preemptive rights or
other rights to subscribe for or purchase exist with respect to the issuance and
sale of the Shares by the Company pursuant to this Agreement. No stockholder of
the Company has any right (which has not been waived or has not expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement) to require the Company to register the sale of any
shares owned by such stockholder under the Securities Act of 1933, as amended
(the "Securities Act"), in the Registration Statement. No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein.
4.4. Due Execution, Delivery and Performance of the Agreements. The
Company has full legal right, corporate power and authority to enter into the
Agreements and perform the transactions contemplated hereby. The Agreements have
been duly authorized, executed and delivered by the Company. The making and
performance of the Agreements by the Company and the consummation of the
transactions herein contemplated will not violate any provision of the
organizational documents of the Company or any of its subsidiaries and will not
result in the creation of any lien, charge, security interest or encumbrance
upon any assets of the Company pursuant to the terms or provisions of, or will
not conflict with, result in the breach or violation of, or constitute, either
by itself or upon notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their respective
properties may be bound or affected and in each case which would have a material
adverse effect on the condition (financial or otherwise), properties, business,
prospects or results of operations of the Company and its subsidiaries, taken as
a whole (a "Material Adverse Effect") or, to the Company's knowledge, any
statute or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its subsidiaries or any of their respective
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the Blue
Sky laws and
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<PAGE>
federal securities laws applicable to the offering of the Shares. Upon their
execution and delivery, and assuming the valid execution thereof by the
respective Purchasers, the Agreements will constitute valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Company in Section 7.3 hereof may be
legally unenforceable.
4.5. Accountants. PricewaterhouseCoopers LLP, who have expressed
their opinion with respect to the consolidated financial statements to be
incorporated by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 into the Registration Statement and the Prospectus
which forms a part thereof, are independent accountants as required by the
Securities Act and the rules and regulations promulgated thereunder (the "Rules
and Regulations").
4.6. No Defaults. Except as disclosed in the Private Placement
Memorandum, and except as to defaults, violations and breaches which
individually or in the aggregate would not be material to the Company and its
subsidiaries, taken as a whole, neither the Company nor any of its subsidiaries
is in violation or default of any provision of its certificate of incorporation
or bylaws, or other organizational documents, or in breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist any state of fact which, with notice or lapse of time or
both, would constitute an event of default on the part of the Company or any of
its subsidiaries as defined in such documents, except such defaults which
individually or in the aggregate would not be material to the Company and its
subsidiaries, taken as a whole.
4.7. Contracts. The contracts described in the Private Placement
Memorandum that are material to the Company and its subsidiaries, taken as a
whole, are in full force and effect on the date hereof; and neither the Company
nor any of its subsidiaries, nor, to the Company's knowledge, any other party is
in breach of or default under any of such contracts which would have a Material
Adverse Effect.
4.8. No Actions. Except as disclosed in the Private Placement
Memorandum, there are no legal or governmental actions, suits or proceedings
pending or, to the Company's knowledge, threatened to which the Company or any
of its subsidiaries is or may be a part or of which property owned or leased by
the Company or any of its subsidiaries is or may be the subject, or related to
environmental or discrimination matters, which actions, suits or proceedings,
individually or in the aggregate, might prevent or might reasonably be expected
to materially and adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition (financial or
otherwise), properties, business, prospects or results of operations of the
Company and its subsidiaries, taken as a whole (a "Material
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<PAGE>
Adverse Change"); and no labor disturbance by the employees of the Company or
any of its subsidiaries exists, to the Company's knowledge, or is imminent which
might reasonably be expected to have a Material Adverse Effect. Except as
disclosed in the Private Placement Memorandum, neither the Company nor any of
its subsidiaries is party to or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body
administrative agency or other governmental body.
4.9. Properties. Each of the Company and its subsidiaries has good
and marketable title to all the properties and assets reflected as owned by them
in the consolidated financial statements included in the Private Placement
Memorandum, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except (i) those, if any, reflected in such consolidated financial
statements, or (ii) those which are not material in amount and do not adversely
affect the use made and promised to be made of such property by the Company or
its subsidiaries. Each of the Company and its subsidiaries holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to their respective businesses. Except as
disclosed in the Private Placement Memorandum, each of the Company and its
subsidiaries owns or leases all such properties as are necessary to its
operations as now conducted.
4.10. No Material Change. Since September 30, 1998 and except as
described in or specifically contemplated by the Private Placement Memorandum,
(i) neither the Company nor its subsidiaries has incurred any material
liabilities or obligations, indirect, or contingent, or entered into any
material verbal or written agreement or other transaction which is not in the
ordinary course of business or which could reasonably be expected to result in a
material reduction in the future earnings of the Company or its subsidiaries;
(ii) neither the Company nor its subsidiaries has sustained any material loss or
interference with its businesses or properties from fire, flood, windstorm,
accident or other calamity not covered by insurance; (iii) neither the Company
nor its subsidiaries has paid or declared any dividends or other distributions
with respect to its capital stock and neither the Company nor its subsidiaries
is in default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock of the
Company other than the sale of the Shares hereunder and shares or options issued
pursuant to employee equity incentive plans or purchase plans approved by the
Company's Board of Directors, or indebtedness material to the Company (other
than in the ordinary course of business); and (v) except for the operating
losses and negative cash flow the Company has continued to incur, there has not
been a Material Adverse Change.
4.11. Intellectual Property. Except as disclosed in or specifically
contemplated by the Private Placement Memorandum, (i) the Company and its
subsidiaries own or have obtained valid and enforceable licenses or options for
the inventions, patent applications, patents, trademarks (both registered and
unregistered), tradenames, copyrights and trade secrets necessary for the
conduct of the Company's and its subsidiaries' respective businesses as
currently conducted and as the Private Placement Memorandum indicate the Company
and its subsidiaries contemplate conducting (collectively, the "Intellectual
Property"); and (ii) to the Company's knowledge (for each of the following
subsections (a) through (e)): (a) there are no third parties
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<PAGE>
who have any ownership rights to any Intellectual Property that is owned by, or
has been licensed to, the Company or its subsidiaries for the product
indications described in the Private Placement Memorandum that would preclude
the Company or its subsidiaries from conducting their respective businesses as
currently conducted and as the Private Placement Memorandum indicates the
Company and its subsidiaries contemplate conducting, except for the ownership
rights of the owners of the Intellectual Property licensed or optioned by the
Company or its subsidiaries; (b) there are currently no sales of any products
that would constitute an infringement by third parties of any Intellectual
Property owned, licensed or optioned by the Company or its subsidiaries; (c)
there is no pending or threatened action, suit, proceeding or claim by others
challenging the rights of the Company or its subsidiaries in or to any
Intellectual Property owned, licensed or optioned by the Company or its
subsidiaries, other than non-material claims; (d) there is no pending or
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any Intellectual Property owned, licensed or optioned by the Company
or its subsidiaries, other than non-material claims; and (e) there is no pending
or threatened action, suit, proceeding or claim by others that the Company or
its subsidiaries infringe or otherwise violate any patent, trademark, copyright,
trade secret or other proprietary right of others, other than non-material
claims.
4.12. Compliance. Neither the Company nor any of its subsidiaries
has been advised, or has reason to believe, that it is not conducting business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations;
except where failure to be so in compliance would not have a Material Adverse
Effect.
4.13. Taxes. Each of the Company and its subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and neither the Company nor its
subsidiaries has knowledge of a tax deficiency which has been or might be
asserted or threatened against it which could have a Material Adverse Effect.
4.14. Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold to the Purchaser
hereunder will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been fully complied with.
4.15. Investment Company. The Company is not an "investment company"
or an "affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
4.16. Offering Materials. The Company has not distributed and will
not distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Shares other than the Private Placement
Memorandum or any amendment or supplement thereto. The Company has not in the
past nor will it hereafter take any action independent of the
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Placement Agent to sell, offer for sale or solicit offers to buy any securities
of the Company which would bring the offer, issuance or sale of the Shares, as
contemplated by this Agreement, within the provisions of Section 5 of the
Securities Act, unless such offer, issuance or sale was or shall be within the
exemptions of Section 4 of the Securities Act.
4.17. Insurance. Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts that the Company reasonably believes
is adequate for its business, including, but not limited to, insurance covering
all real and personal property owned or leased by the Company or its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against by similarly situated companies, all of which
insurance is in full force and effect.
4.18. Contributions. Neither the Company at any time since its
incorporation nor its subsidiaries at any time since they were acquired by the
Company has, directly or indirectly, (i) made any unlawful contribution to any
candidate for public office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
4.19. Additional Information. The Company represents and warrants
that the information contained in the following documents, which the Placement
Agent has furnished to the Purchaser, or will furnish prior to the Closing, is
or will be true and correct in all material respects as of their respective
final dates:
(a) the Company's Current Reports on Form 8-K filed with the
Commission on September 11, 1997, November 12, 1997 and April
2, 1998;
(b) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (without exhibits);
(c) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1998, June 30, 1998 and September 30,
1998;
(d) the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders;
(e) the Registration Statement;
(f) the Private Placement Memorandum, including all addenda and
exhibits thereto (other than the Appendices); and
(g) all other documents, if any, filed by the Company with the
Securities and Exchange Commission since December 31, 1997
pursuant to the reporting
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<PAGE>
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
4.20. Legal Opinion. Prior to the Closing, Brobeck, Phleger &
Harrison LLP, counsel to the Company, will deliver its legal opinion to the
Placement Agent reasonably satisfactory to the Placement Agent and counsel to
the Placement Agent. Such opinion shall also state that each of the Purchasers
may rely thereon as though it were addressed directly to such Purchaser.
4.21. Intellectual Property Opinion. If requested by the Placement
Agent, prior to the Closing, King & Spalding, patent counsel for the Company,
will deliver its legal opinion to the Placement Agent reasonably satisfactory to
the Placement Agent and counsel to the Placement Agent. Such opinion shall state
that each of the Purchasers may rely thereon as though it were addressed
directly to such Purchaser.
4.22. Certificate. At the Closing, the Company will deliver to
Purchaser a certificate executed by the Chairman of the Board or President and
the chief financial or accounting officer of the Company, dated the Closing
Date, in form and substance reasonably satisfactory to the Purchasers, to the
effect that the representations and warranties of the Company set forth in this
Section 4 are true and correct in all material respects as of the date of this
Agreement and as of the Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions herein on its part to be performed
or satisfied on or prior to such Closing Date.
SECTION 5. Representations, Warranties and Covenants of the
Purchaser. (a) The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments in
shares representing an investment decision like that involved in the purchase of
the Shares, including investments in securities issued by the Company, and has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Shares; (ii) the Purchaser is
acquiring the number of Shares set forth in Section 2 above in the ordinary
course of its business and for its own account for investment (as defined for
purposes of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the
regulations thereunder) only and with no present intention of distributing any
of such Shares or any arrangement or understanding with any other persons
regarding the distribution of such Shares; (iii) the Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Act and the Rules and
Regulations; (iv) the Purchaser has completed or caused to be completed the
Registration Statement Questionnaire and the Stock Certificate Questionnaire,
both attached hereto as Appendix I, for use in preparation of the Registration
Statement, and the answers thereto are true and correct as of the date hereof
and will be true and correct as of the effective date of the Registration
Statement; (v) the Purchaser has, in connection with its decision to purchase
the number of Shares set forth in Section 2 above, relied solely upon the
Private Placement
-8-
<PAGE>
Memorandum and the documents included therein and the representations and
warranties of the Company contained herein; and (vi) the Purchaser is an
"accredited investor" within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act.
(b) The Purchaser hereby covenants with the Company not to make any
sale of the Shares without satisfying the prospectus delivery requirement under
the Securities Act, and the Purchaser acknowledges and agrees that such Shares
are not transferable on the books of the Company unless the certificate
submitted to the transfer agent evidencing the Shares is accompanied by a
separate officer's certificate: (i) in the form of Appendix II hereto, (ii)
executed by an officer of, or other authorized person designated by, the
Purchaser, and (iii) to the effect that (A) the Shares have been sold in
accordance with the Registration Statement, the Securities Act and the Rules and
Regulations and any applicable state securities or blue sky laws and (B) the
requirement of delivering a current prospectus has been satisfied. The Purchaser
acknowledges that there may occasionally be times when the Company must suspend
the use of the prospectus forming a part of the Registration Statement until
such time as an amendment to the Registration Statement has been filed by the
Company and declared effective by the Commission, or until such time as the
Company has filed an appropriate report with the Commission pursuant to the
Exchange Act. The Purchaser hereby covenants that it will not sell any Shares
pursuant to said prospectus during the period commencing at the time at which
the Company gives the Purchaser written notice of the suspension of the use of
said prospectus and ending at the time the Company gives the Purchaser written
notice that the Purchaser may thereafter effect sales pursuant to said
prospectus. The Purchaser further covenants to notify the Company promptly of
the sale of all of its Shares.
(c) The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser in Section 7.3 hereof may be
legally unenforceable.
SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
delivered pursuant hereto shall survive the execution of this Agreement, the
delivery to the Purchaser of the Shares being purchased and the payment
therefor.
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<PAGE>
SECTION 7. Registration of the Shares; Compliance with the
Securities Act.
7.1. Registration Procedures and Expenses. The Company shall:
(a) as soon as practicable, prepare and file with the Commission
the Registration Statement on Form S-3 relating to the sale of
the Shares by the Purchaser from time to time through the
automated quotation system of the Nasdaq National Market or
the facilities of any national securities exchange on which
the Company's common stock is then traded or in
privately-negotiated transactions;
(b) use its reasonable efforts, subject to receipt of necessary
information from the Purchasers, to cause the Commission to
notify the Company of the Commission's willingness to declare
the Registration Statement effective within 60 days after the
Registration Statement is filed by the Company;
(c) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep the
Registration Statement effective until the earlier of (i)
twenty-four months after the effective date of the
Registration Statement or (ii) the date on which the Shares
may be resold by the Purchasers without registration by reason
of Rule 144(k) under the Securities Act or any other rule of
similar effect;
(d) furnish to the Purchaser with respect to the Shares registered
under the Registration Statement (and to each underwriter, if
any, of such Shares) such reasonable number of copies of
prospectuses and such other documents as the Purchaser may
reasonably request, in order to facilitate the public sale or
other disposition of all or any of the Shares by the
Purchaser; provided, however, that the obligation of the
Company to deliver copies of prospectuses to the Purchaser
shall be subject to the receipt by the Company of reasonable
assurances from the Purchaser that the Purchaser will comply
with the applicable provisions of the Securities Act and of
such other securities or blue sky laws as may be applicable
in connection with any use of such prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser;
provided, however, that the Company shall not be required to
qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so
consented; and
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<PAGE>
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section 7.1 and the
registration of the Shares pursuant to the Registration
Statement, other than fees and expenses, if any, of counsel or
other advisers to the Purchaser or the Other Purchasers or
underwriting discounts, brokerage fees and commissions
incurred by the Purchaser or the Other Purchasers, if any.
7.2. Transfer of Shares After Registration. The Purchaser agrees
that it will not effect any disposition of the Shares or its right to purchase
the Shares that would constitute a sale within the meaning of the Securities
Act, except as contemplated in the Registration Statement referred to in Section
7.1, and that it will promptly notify the Company of any changes in the
information set forth in the Registration Statement regarding the Purchaser or
its Plan of Distribution.
7.3. Indemnification. For the purpose of this Section 7.3:
(i) the term "Purchaser/Affiliate" shall include the Purchaser and
any affiliate of such Purchaser; and
(ii) the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or
relating to the Registration Statement referred to in Section
7.1.
(a) The Company agrees to indemnify and hold harmless each of the
Purchasers and each person, if any, who controls any Purchaser within the
meaning of the Securities Act, against any losses, claims, damages, liabilities
or expenses, joint or several, to which such Purchasers or such controlling
person may become subject, under the Securities Act, the Exchange Act, or any
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, including the prospectus, financial statements and schedules, and all
other documents filed as a part thereof, as amended at the time of effectiveness
of the Registration Statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A,
or pursuant to Rule 434, of the Rules and Regulations, or the prospectus, in the
form first filed with the Commission pursuant to Rule 424(b) of the Regulations,
or filed as part of the Registration Statement at the time of effectiveness if
no Rule 424(b) filing is required (the "Prospectus"), or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them, in light of the
circumstances under which they were made, not misleading, or arise out of or are
based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained in
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<PAGE>
this Agreement, or any failure of the Company to perform its obligations
hereunder or under law, and will reimburse each Purchaser and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Purchaser or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company: by or on behalf of the Purchaser expressly for use therein, or (ii)
the failure of such Purchaser to comply with the covenants and agreements
contained in Sections 5(b) or 7.2 hereof respecting sale of the Shares, or (iii)
the inaccuracy of any representations made by such Purchaser herein or (iv) any
statement or omission 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 will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Securities Act, against any losses, claims, damages, liabilities or
expenses to which the Company, each of its directors, each of its officers who
signed the Registration Statement or controlling person may become subject,
under the Securities Act, the Exchange Act, or any other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Purchaser) insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof as contemplated below) arise out of
or are based upon (i) any failure to comply with the covenants and agreements
contained in Sections 5(b) or 7.2 hereof respecting the sale of the Shares or
(ii) the inaccuracy of any representation made by such Purchaser herein or (iii)
any untrue or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon 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, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Purchaser expressly
for use therein, and will reimburse the Company, each of its directors, each of
its officers who signed the Registration Statement or controlling person for any
legal and other expense reasonably incurred by the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action.
(c) Promptly after receipt by an indemnified party under this
Section 7.3 of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 7.3 promptly
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<PAGE>
notify the indemnifying party in writing thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 7.3 or to the extent it is not prejudiced as
a result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7.3 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party in the case of paragraph (a), representing the indemnified
parties who are parties to such action) or (ii) the indemnified party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of action, in each of which cases the reasonable fees and expenses
of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 7.3 in respect to any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Purchaser from the placement of Common Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but the relative fault of the
Company and the Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The respective relative benefits
received by the Company on the one hand and each Purchaser on the other shall be
deemed to be in the same proportion as the amount paid by such Purchaser to the
Company pursuant to this Agreement for
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<PAGE>
the Shares purchased by such Purchaser that were sold pursuant to the
Registration Statement bears to the difference (the "Difference") between the
amount such Purchaser paid for the Shares that were sold pursuant to the
Registration Statement and the amount received by such Purchaser from such sale.
The relative fault of such Selling Stockholders and each Purchaser shall be
determined by reference to, among other things, whether the untrue or alleged
statement of a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company or by such Purchaser and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in paragraph (c) of this Section 7.3, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in paragraph (c) of this Section
7.3 with respect to the notice of the threat or commencement of any threat or
action shall apply if a claim for contribution is to be made under this
paragraph (d); provided, however, that no additional notice shall be required
with respect to any threat or action for which notice has been given under
paragraph (c) for purposes of indemnification. The Company and each Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 7.3 were determined solely by pro rata allocation (even if the Purchaser
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 in this paragraph. Notwithstanding the provisions of this Section 7.3, no
Purchaser shall be required to contribute any amount in excess of the amount by
which the Difference exceeds the amount of any damages that 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 to contribute pursuant
to this Section 7.3 are several and not joint.
7.4. Termination of Conditions and Obligations. The conditions
precedent imposed by Section 5 or this Section 7 upon the transferability of the
Shares shall cease and terminate as to any particular number of the Shares upon
the passage of twenty-four months from the effective date of the Registration
Statement covering such Shares or at such time as an opinion of counsel
satisfactory in form and substance to the Company shall have been rendered to
the effect that such conditions are not necessary in order to comply with the
Securities Act.
7.5. Information Available. So long as the Registration Statement is
effective covering the resale of Shares owned by the Purchaser, the Company will
furnish to the Purchaser:
(a) as soon as practicable after available (but in the case of the
Company's Annual Report to Stockholders, within 120 days after
the end of each fiscal year of the Company), one copy of (i)
its Annual Report to Stockholders (which Annual Report shall
contain financial statements
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<PAGE>
audited in accordance with generally accepted accounting
principles by a national firm of certified public
accountants), (ii) if not included in substance in the Annual
Report to Stockholders, its Annual Report on Form 10-K, (iii)
if not included in substance in its Quarterly Reports to
Shareholders, its quarterly reports on Form 10-Q, and (iv) a
full copy of the particular Registration Statement covering
the Shares (the foregoing, in each case, excluding exhibits);
(b) upon the reasonable request of the Purchaser, a reasonable
number of copies of the prospectuses to supply to any other
party requiring such prospectuses;
and the Company, upon the reasonable request of the Purchaser, will meet with
the Purchaser or a representative thereof at the Company's headquarters to
discuss information relevant for disclosure in the Registration Statement
covering the Shares subject to appropriate confidentiality limitations.
SECTION 8. Broker's Fee. The Purchaser acknowledges that the Company
intends to pay to the Placement Agent a fee in respect of the sale of the Shares
to the Purchaser. 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
Purchaser.
SECTION 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, confirmed facsimile or nationally recognized
overnight express courier postage prepaid, and shall be deemed given when so
mailed and shall be delivered as addressed as follows:
(a) if to the Company, to:
Triangle Pharmaceuticals, Inc.
4 University Place
4611 University Drive
Durham, North Carolina 27707
Attn: General Counsel
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street
Suite 1300
San Diego, California 92101
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<PAGE>
Attn: John A. Denniston, Esq.
or to such other person at such other place as the Company
shall designate to the Purchaser in writing; and
(b) if to the Purchaser, at its address as set forth at the end of
this Agreement, or at such other address or addresses as may
have been furnished to the Company in writing.
SECTION 10. Changes. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and the
Purchaser.
SECTION 11. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 12. Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and the federal
law of the United States of America.
SECTION 14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
TRIANGLE PHARMACEUTICALS, INC.
By
---------------------------------------
Print or Type:
Name of Purchaser
(Individual or Institution):
---------------------------------------
Name of Individual representing Purchaser
(if an Institution):
---------------------------------------
Title of Individual representing Purchaser
(if an Institution):
---------------------------------------
Signature by:
Individual Purchaser or Individual
representing Purchaser:
---------------------------------------
Address:
-----------------------------
Telephone:
-----------------------------
Telecopier:
-----------------------------
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<PAGE>
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(to be read in conjunction with the entire
Purchase Agreement which follows)
A. Complete the following items on BOTH Purchase Agreements:
1. Page 17 - Signature:
(i) Name of Purchaser (Individual or Institution)
(ii) Name of Individual representing Purchaser (if an Institution)
(iii) Title of Individual representing Purchaser (if an Institution)
(iv) Signature of Individual Purchaser or Individual representing
Purchaser
2. Appendix I - Stock Certificate Questionnaire:
Provide the information requested by the Stock Certificate
Questionnaire.
Appendix I - Registration Statement Questionnaire:
Provide the information requested by the Registration Statement
Questionnaire.
3. Return BOTH properly completed and signed Purchase Agreements
including the properly completed Appendix I to:
Vector Securities International, Inc.
Suite 350
1751 Lake Cook Road
Deerfield, Illinois 60015
Attn: Bernhard Hoffmann
B. Instructions regarding the transfer of funds for the purchase of Shares
will be sent by facsimile to the Purchaser by the Placement Agent at a
later date.
C. Upon the resale of the Shares by the Purchasers after the Registration
Statement covering the Shares is effective, as described in the Purchase
Agreement, the Purchaser:
(i) must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the
Purchaser's request); and
(ii) must send a letter in the form of Appendix II to the Company
so that the Shares may be properly transferred.
<PAGE>
Appendix I
(one of two)
TRIANGLE PHARMACEUTICALS, INC.
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares
are to be registered in (this is
the name that will appear on your
stock certificate(s)). You may use
a nominee name if appropriate:
------------------------------
2. The relationship between the
Purchaser of the Shares and the
Registered Holder listed in
response to item 1 above:
------------------------------
3. The mailing address of the
Registered Holder listed in
response to item 1 above:
------------------------------
------------------------------
------------------------------
------------------------------
4. The Social Security Number or Tax
Identification Number of the
Registered Holder listed in
response to item 1 above:
------------------------------
<PAGE>
Appendix I
(two of two)
TRIANGLE PHARMACEUTICALS, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information:
1. Pursuant to the "Selling Shareholder" section of the Registration
Statement, please state your or your organization's name exactly as it should
appear in the Registration Statement:
2. Please provide the number of shares that you or your organization
will own immediately after Closing, including those Shares purchased by you or
your organization pursuant to this Purchase Agreement and those shares purchased
by you or your organization through other transactions:
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?
|_| Yes |_| No
If yes, please indicate the nature of any such relationships below:
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<PAGE>
APPENDIX II
Attention:
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly authorized by]
_____________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she [said institution] is the Purchaser of
the shares evidenced by the attached certificate, and as such,
sold such shares on ______________ in accordance with
[date]
Registration Statement number _____________________________________
[fill in the number of or otherwise
________________________________ and the requirement of delivering a
identify Registration Statement]
current prospectus by the Company has been complied with in connection with such
sale.
Print or Type:
Name of Purchaser
(Individual or
Institution): ______________________
Name of Individual
representing
Purchaser (if an
Institution) ______________________
Title of Individual
representing
Purchaser (if an
Institution): ______________________
Signature by:
Individual Purchaser
or Individual repre-
senting Purchaser: ______________________
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this the (____) day of
(__________), by and between Triangle Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), and (_____________________) (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive has been an employee of the Company since (__________);
WHEREAS, the terms of Executive's employment are set forth in certain
employment related documents (hereinafter the "Employment Memoranda");
WHEREAS, the Company and Executive desire to modify Executive's terms of
employment and the Employment Memoranda as set forth herein;
WHEREAS, the Company desires to receive certain promises, including
noncompetition and nonsolicitation covenants, from Executive;
WHEREAS, Executive desires to receive from the Company certain enhanced
severance benefits and certain other benefits in the event of a change in
control of the Company as set forth herein; and
WHEREAS, Executive acknowledges that this Agreement and the benefits
described herein are valuable consideration to which he is not otherwise
entitled.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, including the
employment of Executive by the Company under this Agreement, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Employment. The Company hereby employs Executive as Vice President,
Commercial Operations and IR/PR, or in such other capacity as may be designated
by the Company from time to time in its sole discretion, and Executive hereby
accepts such employment upon the terms and conditions set forth herein for the
Term of the Agreement, as defined in Section 2 hereof. While so employed,
Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities under this Agreement and to use his best efforts,
skills and abilities to further the interests of the Company. While employed by
the Company, Executive may not work
<PAGE>
for any other entity, in any capacity, without the prior express written consent
of the Company. Executive agrees to comply with all applicable governmental
laws, rules and regulations, and policies, standards and regulations of the
Company now existing or hereafter promulgated.
2. Term of Agreement. The term of this Agreement shall commence as of the
date and year first above written and shall continue until December 31, 2000
(the "Initial Term"), unless terminated as provided herein. Thereafter, this
Agreement shall renew automatically for successive one (1) year terms on the
same terms and conditions as set forth herein, or as may be amended from time to
time upon mutual written consent of the parties, unless it is terminated as
provided herein or unless either party gives written notice of non-renewal at
least thirty (30) days prior to the end of any term of this Agreement, unless
such notice is waived by the Company. As used in this Agreement, "Term of
Agreement" means the Initial Term and any extensions of this Agreement, as
provided for in this Section.
3. Compensation. Executive shall receive initially a base salary of
($__________) a year ("Base Salary"), less required federal and state
withholdings and other authorized deductions, payable in accordance with the
Company's normal payroll schedule. Executive's Base Salary may be adjusted from
time to time as determined by the Board of Directors of the Company.
4. Other Benefits. Executive may be eligible to participate in the
Company's retirement and welfare benefit plans under the terms and conditions
established by the applicable plan documents. Executive shall be entitled
annually to paid vacation and other paid time off in compliance with all
applicable laws and in accordance with the terms and conditions of the Company's
vacation and professional leave policies, as may be amended from time to time in
the Company's sole discretion.
5. Disability Payments. If Executive becomes eligible to receive benefits
under any short-term or long-term disability plan or policy sponsored by the
Company, then all payments and benefits provided by this Agreement, including,
but not limited to, the compensation described in Section 3, will cease, and
this Agreement shall terminate when Executive is considered to be a terminated
employee under the applicable policies and procedures of the Company.
6. Termination of Employment.
(a) Termination of Employment Relationship. The employment
relationship between the Company and Executive shall terminate
automatically upon the termination or non-renewal of this Agreement by
either party as provided in Section 2 or 6.
(b) Termination For Cause. The Board of Directors of the Company may
terminate this Agreement for Cause, as defined in Section 8, upon three
(3) business days written notice which shall state the reason for such
termination and shall be delivered to Executive in accordance with Section
16 hereof. Upon the mailing or the delivery in person of such notice,
Executive's duties and authority to act on behalf of the Company shall
cease
2
<PAGE>
immediately and his employment shall be deemed to terminate on the date
fixed in the notice.
(c) Voluntary Termination. Either the Company or Executive may
voluntarily terminate this Agreement upon thirty (30) days written notice,
for any reason, other than death or Retirement, as such terms are defined
in Section 8.
(d) Termination Upon Death or Retirement. This Agreement shall
terminate automatically, except as otherwise provided herein, upon
Executive's death or "Retirement," as defined in Section 8. If this
Agreement is terminated on account of Executive's Retirement, the parties
shall be required to carry out any provisions hereof which contemplate
performance thereof subsequent to termination and nothing contained herein
shall be deemed to preclude Executive and the Company from negotiating a
mutually acceptable basis upon which Executive continues his employment by
the Company in a full-time or part-time capacity.
(e) Termination for Good Reason. Executive may terminate this
Agreement at any time upon three (3) business days written notice to the
Company for "Good Reason," as defined in Section 8.
7. Effect of Termination.
(a) Termination for Cause. If this Agreement is terminated for Cause
pursuant to Section 6(b), the Company shall pay Executive such Base Salary
as Executive may be entitled to receive for services rendered prior to the
effective date of such termination and for any accrued but unused
vacation.
(b) Voluntary Termination by Executive. If Executive voluntarily
terminates this Agreement pursuant to Section 6(c) or elects not to renew
this Agreement pursuant to Section 2, the Company shall pay Executive such
Base Salary as Executive may be entitled to receive for services rendered
prior to the effective date of such termination and for any accrued but
unused vacation.
(c) Termination Upon Death or Retirement. If this Agreement is
terminated on account of Executive's death or Retirement pursuant to
Section 6(d), the Company shall pay Executive such Base Salary as
Executive may be entitled to receive for services rendered prior to the
effective date of such termination and for any accrued but unused
vacation. In addition, if this Agreement is terminated on account of
Executive's death, all outstanding options to purchase shares of stock of
the Company granted to Executive will become fully vested and exercisable,
and the Company's rights to repurchase, and all other restrictions
applicable to awards of restricted stock, shall lapse on the date of
Executive's death, subject to the terms and conditions of the applicable
plan documents and agreement(s).
3
<PAGE>
(d) Termination without Cause. Except as provided in Section 7(e),
if this Agreement is terminated by the Company without Cause pursuant to
Section 6(c) or if the Company elects not to renew this Agreement pursuant
to Section 2, then:
(i) The Company shall pay Executive such Base Salary as he may
be entitled to receive for services rendered prior to the date of
such termination (the "Payment for Services Rendered");
(ii) The Company shall pay Executive for any accrued but
unused vacation (the "Vacation Payment");
(iii) Subject the restrictions set forth in Sections 9 and 10,
the Company shall pay Executive an amount equal to one-twelfth
(1/12) of Executive's Base Salary each month for a period of
eighteen (18) months, which amount shall be payable in accordance
with the regularly scheduled payroll of the Company beginning on or
after the Release Date, as defined in Section 8 (the "Eighteen Month
Payment");
(iv) Subject to the restrictions set forth in Sections 9 and
10, if Executive timely elects to continue coverage under the
Company's health care plan, pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), the Company
shall pay Executive at the end of each month for the first eighteen
(18) months beginning on the first day of the first month following
the Release Date, an amount equal to Executive's monthly premium for
the COBRA coverage so elected (the "COBRA Payment"). The Company's
obligation under this Section 7(d)(iv) shall immediately cease at
such time as Executive becomes eligible for comparable health
coverage from another company. If Executive fails to notify the
Company that he is eligible for other health coverage within thirty
(30) days of becoming eligible for such coverage, Executive shall be
considered in breach of this Agreement and shall be required to
repay to the Company all payments made under this Section 7(d)(iv);
and
(v) Subject to the restrictions set forth in Section 9, the
Company shall accelerate the vesting of any outstanding option to
purchase shares of stock of the Company granted to Executive by one
(1) year, and accelerate the lapse of all repurchase rights and
forfeiture restrictions applicable to any restricted stock award by
one (1) year, all subject to the terms and conditions of the
applicable plan documents and agreement(s).
(e) Termination Following a Change in Control. If, within twelve
(12) months following a Change in Control, as defined in Section 8, this
Agreement is terminated by the Company without Cause pursuant to Section
6(c), the Company elects not to renew this Agreement pursuant to Section
2, or Executive terminates this Agreement for Good Reason pursuant to
Section 6(e), then the Company shall pay
4
<PAGE>
Executive the Payment for Services Rendered and the Vacation Payment. In
addition to the foregoing, and subject to the restrictions set forth in
Section 9:
(i) the Company shall pay Executive an amount equal to
one-twelfth (1/12) of Executive's Base Salary for a period of
twenty-four (24) months (the "Twenty-Four Month Payment"), which
amount shall be payable in accordance with the regularly scheduled
payroll of the Company beginning on or after the Release Date, as
defined in Section 8;
(ii) all outstanding options to purchase shares of stock of
the Company granted to Executive will become fully vested and
exercisable, and the Company's rights to repurchase, and all other
restrictions applicable to awards of restricted stock, shall lapse,
all subject to the terms and conditions of the applicable plan
documents and agreement(s); and
(iii) the Company shall pay Executive the COBRA Payment. The
Company's obligation under this Section 7(e)(iii) shall immediately
cease at such time as Executive becomes eligible for comparable
health coverage from another company. If Executive fails to notify
the Company that he is eligible for other health coverage within
thirty (30) days of becoming eligible for such coverage, Executive
shall be considered in breach of this Agreement and shall be
required to repay to the Company all payments made under this
Section 7(e)(iii).
(f) Notwithstanding the foregoing, nothing herein shall be construed
to entitle Executive to any severance benefits beyond those specified in
this Section, and the severance benefits described in this Section are in
lieu of any other severance benefits which may be offered by the Company,
whether by the terms of this Agreement or otherwise, to any employee.
(g) Notwithstanding the foregoing, the Company shall have the right
to waive or accelerate any applicable notice period for termination or
non-renewal of this Agreement and may terminate this Agreement immediately
upon payment to Executive of an amount which the Company determines, in
its sole discretion and in good faith, to be equal to the amount of Base
Salary Executive would have received if notice had not been waived or
accelerated by the Company.
8. Definitions.
(a) For purposes of this Agreement, "Cause" shall be defined as:
(i) Executive being formally charged with the commission of a
felony, or being convicted of a misdemeanor involving moral
turpitude.
(ii) Executive's demonstrable fraud or dishonesty.
5
<PAGE>
(iii) Executive's use of illegal drugs or any illegal
substance, or his use of alcohol in any manner that materially
interferes with the performance of his duties under this Agreement.
(iv) Executive's intentional, reckless or grossly negligent
conduct detrimental to the best interests of the Company, including
without limitation, any misappropriation or unauthorized use of the
Company's property or improper disclosure of confidential
information.
(v) Executive's failure to perform material duties under this
Agreement if such failure has continued for twenty (20) days after
Executive has been notified in writing by the Company of the nature
of Executive's failure to perform.
(vi) Executive's chronic absence from work for reasons other
than illness.
(vii) Executive's violation of the Company's policy
prohibiting sexual harassment.
(viii) Executive's violation of the Company's policy
prohibiting unlawful discrimination.
(b) For purposes of this Agreement, "Change of Control" shall be
deemed to have occurred if:
(i) Assumption or Assignment. A merger or asset sale occurs in
which this Agreement is assumed or assigned;
(ii) Tender Offer or Acquisition. Any "person" as defined in
Section 3(a)(9) of the United States Securities Exchange Act of 1934
(the "Act"), including a "group" (as that term is used in sections
13(d)(3) and 14(d)(2) of the Act), but excluding the Company and any
Executive benefit plan sponsored or maintained by the Company,
including any trustee of such plan acting as trustee, who:
(1) makes a tender or exchange offer for any shares of
the Company's stock pursuant to which at least fifty percent
(50%) of the Company's stock is purchased; or
(2) together with its "affiliates" and "associates" (as
those terms are defined in Rule 12b-2 under the Act) becomes
the "beneficial owner" (within the meaning of Rule 13d-3 under
the Act) of at least fifty percent (50%) of the Company's
stock;
6
<PAGE>
(iii) Merger or Consolidation. The shareholders of the Company
approve one of the following transactions to which the Company is a
party:
(1) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such
transaction; or
(2) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete
liquidation or dissolution of the Company; or
(iv) Change in Board. When, during the Term of Agreement, the
individuals who, at the beginning of such period, constitute the
Board (the "Incumbent Directors") cease for any reason other than
death or retirement to constitute at least a majority thereof;
provided, however, that a director who was not a director at the
beginning of the Term of Agreement shall be deemed to have satisfied
such requirement, and be an Incumbent Director, if such director was
elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors either actually, because they were directors at the
beginning of the Term of Agreement, or by prior operation of this
Section.
(c) For the purposes of this Agreement, "Good Reason" shall mean the
termination of Executive's employment by Executive within twelve (12)
months following a Change of Control on account of (i) a change in
Executive's position with the Company which materially reduces his level
of responsibility; (ii) a reduction in Executive's level of compensation
(including base salary, fringe benefits and participation in any corporate
performance based bonus or incentive programs) by more than fifteen
percent (15%); or (iii) a relocation of Executive's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Company, without Executive's consent.
(d) For purposes of this Agreement, "Release Date" shall mean the
date on which the Release, described in Section 9, is effective, which
date shall be set forth in the Release.
(e) For purposes of this Agreement, "Retirement" shall occur at the
Executive's election, exercisable by ninety (90) days prior written
notice, at the end of any fiscal year during which or after Executive
attains age seventy (70), or age fifty-five (55) and fifteen (15) years of
continuous service.
7
<PAGE>
9. Condition of Payment of Benefits.
(a) Executive agrees that he shall be entitled to the Eighteen Month
Payment, the COBRA Payment, the Twenty-Four Month Payment and benefits
under the terms of Sections 7(d)(v) and 7(e)(ii), as applicable, only if
he timely executes a complete and general release in a form substantially
comparable to the release set forth in Exhibit A hereto and incorporated
herein by reference or in such other comparable form as is determined by
the Company in good faith to be advisable due to legitimate legal or
business needs of the Company, so long as any such changes are consistent
with the intent of this Agreement and Exhibit A. The release shall contain
a release by Executive and any beneficiary of Executive entitled to
receive all or any portion of the benefits specified in such Sections of
any claims arising from Executive's employment or association with the
Company or otherwise existing against the Company and its officers,
directors, agents, employees, shareholders, and representatives at the
time of execution of the release. Notwithstanding any other provision set
forth herein, if the Executive elects not to execute such a general
release, then Executive's entitlement to the Eighteen Month Payment, the
COBRA Payment and the Twenty-Four Month Payment, and benefits under
Sections 7(d)(v) and 7(e)(ii), as applicable, shall consist solely of an
amount equal to one-twelfth (1/12) of Executive's Base Salary in effect at
the time of the termination, which amount shall be payable in a lump sum
accordance with the regularly scheduled payroll of the Company.
(b) Notwithstanding anything to the contrary contained in this
Agreement, in the event that Section 10(d)(i) of this Agreement, to the
extent applicable pursuant to Section 10(e), is determined to be
unenforceable due to Executive's actions, to any extent, by a court or
arbitration panel, whether by preliminary or final adjudication, the
Company shall not be liable for the Eighteen Month Payment or the COBRA
Payment payable pursuant to Section 7(d)(iv).
10. Noncompetition and Nonsolicitation.
(a) Need for Covenants. Executive acknowledges that the Company has
expended, and is expected to expend, large amounts of time, money and
effort in researching, developing, designing and testing its products,
developing and keeping a committed management team. Executive acknowledges
and agrees that as an employee of the Company, he has had and will have
access to, the benefit of, and acquire a considerable amount of know-how,
confidential and proprietary information, and other valuable knowledge and
good will with respect to the business of the Company, which knowledge,
information, know-how and goodwill would be extremely detrimental to the
Company if used by Executive to compete with the Company, and Executive
agrees that the Company is entitled to be protected from the possibility,
both during and after Executive's employment terminates, of Executive
becoming associated with a business which competes with the Company.
Executive further acknowledges that if he did become associated with such
a business, such business would compete unfairly with the business of the
Company in view of the trade secrets and confidential, proprietary
8
<PAGE>
information which has and will become known to the Executive by reason of
being employed by the Company. Executive further acknowledges that the
nature of the Company's products are such that its natural market will be
worldwide because the development of drugs for the treatment of HIV/HBV
diseases can be conducted worldwide and the Company's competition in the
development of drugs for the treatment of HIV/HBV diseases is located
throughout the world and competes in a worldwide market. Accordingly,
Executive hereby agrees that the time, geographic and other restrictions
contained in this Agreement are reasonable to protect the legitimate
interests of the Company and do not unfairly restrict or penalize
Executive.
(b) Executive agrees that during his employment and, for so long of
the period after his employment terminates as he may elect to honor his
obligations under this Section 10(b) but in any event no longer than
eighteen (18) months following the termination of his employment (the
"Noncompetition Period") with the Company for any reason and by any party,
Executive will not within the Restricted Area defined below, directly or
indirectly, engage in any other business or be a consultant to or general
partner, employee, officer or director of any partnership, firm,
corporation, or other entity, or act as an agent for any of the foregoing
persons or entities, if (i) such other business, partnership, firm,
corporation, entity or person is engaged in for-profit activity in the
pharmaceutical industry within the Restricted Area, as defined below, and
competes with the Company in the field of HIV/HBV diseases or such other
field in which the Company has drug candidates in the clinical stage of
development; and (ii) Executive performs duties in the same or similar
functional area for such other business, partnership, firm, corporation,
entity or person as are substantially comparable to, those performed by
Executive at the Company; and (iii) Executive's duties are performed in
the United States.
(c) For purposes of this Agreement, "Restricted Area" means any
location within North America.
(d) Executive agrees that during the Term of Agreement and for the
Noncompetition Period, he or she will not, in the Restricted Area:
(i) encourage or solicit any employee or consultant to the
Company to leave the Company for any reason; or
(ii) solicit the business of any client or customer of the
Company (other than on behalf of the Company). However, this
obligation shall not affect any responsibility Executive may have as
an employee of the Company with respect to the bona fide hiring and
firing of Company personnel.
(e) This Section 10 shall apply only in the event that (i) the
Company terminates Executive's employment without Cause pursuant to
Section 6(c) or the Company elects not to renew this Agreement in
accordance with Section 2, and (ii) such termination or non-renewal does
not occur within twelve (12) months following a Change of
9
<PAGE>
Control. Accordingly, this Section 10 does not apply if (i) the Company
terminates Executive's employment pursuant to Section 6(b); (ii) Executive
voluntarily terminates his employment pursuant to Section 6(c); (iii)
Executive elects not to renew this Agreement pursuant to Section 2; (iv)
Executive terminates his employment for Good Reason pursuant to Section
6(e); (v) the Company terminates Executive's employment without Cause or
elects not to renew this Agreement within twelve (12) months following a
Change of Control; or (vi) Executive terminates his employment on account
of Executive's Retirement pursuant to Section 6(d).
(f) If, for any reason, any provision of this Section 10, to the
extent applicable pursuant to Section 10(e), is determined to be
unenforceable due to Executive's actions, by a court or arbitration panel,
whether by preliminary or final adjudication, or Executive elects not to
adhere to the restrictions of Sections 10(b) or 10(d)(ii), which is his
right subject to forfeiture of his eligibility for the payments and
benefits described herein, the Company shall cease immediately payment of
the Eighteen Month Payment and the COBRA Payment payable pursuant to
Section 7(d)(iv). Executive agrees to notify the Company immediately of
his election not to adhere to Sections 10(b) or 10(d)(ii). If Executive
fails to notify the Company within thirty (30) days of making such
election, Executive shall be considered in breach of this Agreement, the
Company shall have no further obligations hereunder, and Executive shall
be required to repay to the Company all payments made for the Eighteen
Month Payment and the COBRA Payment payable pursuant to Section 7(d)(iv).
(g) The Noncompetition Period shall be extended for any period of
time in which Executive is in violation of the provisions of Section 10 or
period(s) of time required for legal action to enforce the provisions of
Section 10.
(h) Executive acknowledges and agrees that the provisions of Section
10 are reasonable and necessary to protect the legitimate business
interests of the Company, and are reasonable with respect to time and
territory.
(i) In the event the duration, scope or geographic area in Section
10 are determined to be unenforceable by a court or arbitration panel, the
parties agree that such duration, scope or geographic area shall be deemed
to be reduced to the greatest scope, duration or geographic area which
would be enforceable.
(j) The provisions of Section 10 shall be deemed severable, and the
invalidity or unenforceability of any provision (or part thereof) shall in
no way affect the validity or enforceability of any other provisions (or
remaining part thereof). Without limiting the foregoing, in the event any
of the restrictions on competition, interference, or solicitation as set
forth in Section 10 are determined to be invalid or unenforceable, the
provisions of Section 10 shall be deemed severable, and the invalidity or
unenforceability of any provision (or part thereof) shall in no way effect
the validity or enforceability of any other provision (or remaining part
thereof).
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<PAGE>
(k) The provisions of Section 10 shall survive the termination of
this Agreement and the employment relationship between the parties.
11. Remedies. Executive acknowledges and agrees that any breach of Section
10(d)(i) of this Agreement will result in irreparable damage and continuing
injury to the Company. Therefore, in the event of any breach or threatened
breach of Section 10(d)(i) by Executive, Executive acknowledges and agrees that
the Company shall be entitled, without limiting any other available legal or
equitable remedy (whether conferred by statute or otherwise), to an injunction
to be issued by any court of competent jurisdiction enjoining and restraining
Executive from committing any violation or threatened violation of Section
10(d)(i), and Executive hereby consents to the issuance of such injunction. The
Company shall not be required to post any bond to obtain any such injunction.
Executive agrees that all remedies available to the Company by reason of a
breach of any of the foregoing provisions of this Agreement are cumulative and
that none is exclusive and that all remedies may be exercised concurrently or
consecutively at the option of the Company.
12. Arbitration. The parties agree that any and all disputes that they
have with one another which arise out of Executive's employment or under the
terms of this Agreement shall be resolved through final and binding arbitration,
as specified herein. This shall include, without limitation, disputes relating
to this Agreement, Executive's employment by the Company or the termination
thereof, claims for breach of contract or breach of the covenant of good faith
and fair dealing, and any claims of discrimination or other claims under any
federal, state or local law or regulation now in existence or hereinafter
enacted and as amended from time to time concerning in any way the subject of
Executive's employment with the Company or its termination. The only claims not
covered by this Section 12 are claims for benefits under the workers'
compensation laws or claims for unemployment insurance benefits, which will be
resolved pursuant to those laws. Binding arbitration will be conducted in
Durham, North Carolina, in accordance with the rules and regulations of the
American Arbitration Association. Each party will bear one half of the cost of
the arbitration filing and hearing fees, and the cost of the arbitrator.
Executive understands and agrees that the arbitration shall be instead of any
civil litigation and that the arbitrator's decision shall be final and binding
to the fullest extent permitted by law and enforceable by any court having
jurisdiction thereof. Notwithstanding the foregoing, the Company shall be
permitted to seek injunctive relief before any court within the State of North
Carolina for any alleged breach of Section 10(d)(i) of this Agreement.
13. Modification. No modification, amendment, or alteration of any
provision of this Agreement shall be effective unless contained in a written
agreement signed by the parties hereto, and then such modification, amendment,
or alteration shall be effective only in the specific instances and for the
specific purposes for which given.
14. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties and their respective successors and permitted assigns.
Upon prior notice to Executive, the Company may assign this Agreement to a
wholly-owned subsidiary, "spin-off" Company, or other entity affiliated with the
Company. Executive shall not assign his rights or obligations hereunder to any
person or entity without the prior written consent of the Company.
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<PAGE>
15. No Waiver. No delay or failure on the part of the Company in the
exercise of any right, power, or privilege under this Agreement shall impair any
such right, power, or privilege or be construed as a waiver of any default or
any acquiescence therein. No waiver shall be valid against the Company unless
made in writing and signed by it, and then only to the extent expressly
specified therein.
16. Notices. All notices and communications provided for hereunder shall
be in writing and personally delivered or sent by first-class, registered, or
certified mail, postage prepaid, and addressed as follows:
If to the Company:
Triangle Pharmaceuticals, Inc.
Attn: Director of Human Resources
4 University Place
4611 University Drive
Durham, North Carolina 27707
If to Executive:
To the Executive's last known address as shown on the Company's records.
Either party may change its address for notice purposes by notice to the other
party as specified herein.
17. Restrictive Legends. Promptly, and in any event within five (5)
business days after any request is made by or on behalf of Executive to remove
any restrictive legends on any vested shares owned by Executive, the Company
shall instruct its stock transfer agent to remove such restrictive legends,
except to the extent that such vested shares cannot be sold by Executive at the
time of such request pursuant to (i) a lock-up agreement entered into by
Executive which restricts the transfer of such shares (provided that the Company
shall promptly instruct its stock transfer agent to remove such restrictive
legends following the expiration of such lock-up period) or (ii) Rule 144 of the
Regulations under the Securities Act of 1933; provided that with respect to the
portion of such shares (if any) which Executive cannot sell pursuant to
subsection (k) of Rule 144, the Company may require such notices,
representations and other actions by or from Executive and/or his/her agents as
are customarily required and/or reasonably necessary prior to directing the
Company's stock transfer agent to remove such restrictive legends therefrom.
Solely with respect to this Section 17, reference to Executive shall include
reference to Executive's spouse, an immediate family member or other permissible
transferee, to the extent such transferee, consistent with applicable law, shall
request the removal of any restrictive legends. The provisions of this Section
shall survive any termination or expiration of this Agreement.
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<PAGE>
18. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of North Carolina without reference to its
conflict of law provisions, and any legal action brought by the parties related
to this Agreement shall be brought in Durham County, North Carolina.
19. Severability. If any provision or part thereof contained in this
Agreement shall be invalid or unenforceable under applicable law, that provision
or part thereof shall be ineffective to the extent of such invalidity only,
without in any way affecting the remainder of this Agreement.
20. Entire Agreement. This Agreement with attachments constitutes the
entire understanding of the parties with respect to the subject matter hereof.
This Agreement supersedes any and all other understandings and agreements,
either oral or in writing, between the parties hereto with respect to the
subject matter hereof and constitutes the sole and only Agreement between the
parties with respect to said subject matter. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party or by anyone acting on behalf of any
party, which are not embodied herein, and that no agreement, statement or
promise not contained in this Agreement shall be valid or binding or of any
force or effect. Notwithstanding the foregoing, Executive will adhere to and
honor all obligations to the Company as described in the Proprietary Information
and Inventions Agreement dated (_______), except that the provisions of Section
3(h) and 3(i) of said agreement are superseded, and any agreement providing for
the award of stock options and/or restricted stock to which Executive is a
party.
21. Duplication. If a benefit promised herein is otherwise provided by the
terms of a plan or policy sponsored by the Company on account of the same event
giving rise to the benefit under this Agreement, nothing herein shall be
construed to entitle Executive to duplicate benefits; however, if the terms of
this Agreement provide for an enhanced benefit, Executive shall be entitled to
the incremental benefit hereunder whether under the plan or policy or by direct
payments from the Company.
22. Withholding. All payments made hereunder shall be less taxes and
applicable withholdings.
23. Gender. The use of the masculine gender is for convenience only and
shall be deemed to refer to the applicable gender.
24. Survival. The provisions of Sections 9 through 24 shall survive the
termination of this Agreement and the termination of Executive's employment.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
TRIANGLE PHARMACEUTICALS, INC.
ATTEST:
By:
- ------------------ ---------------------------
- ------------------, Secretary Authorized Officer
[Corporate Seal]
EXECUTIVE
(SEAL)
----------------------
14
THIRD AMENDMENT TO SUBLEASE
This THIRD AMENDMENT TO SUBLEASE ("Third Amendment") is executed
this 11th day of February, 1999, between ELI LILLY AND COMPANY, an Indiana
corporation ("Sublessor"), and TRIANGLE PHARMACEUTICALS, INC. ("Sublessee").
Recitals
WHEREAS, Sublessor and Sublessee executed a Sublease dated January
18, 1996, pursuant to which Sublessor subleased to Sublessee a portion of the
building commonly known as 4611 University Drive, Durham, North Carolina, which
Sublease has heretofore been amended by amendments dated as of March 1, 1996,
and August 2, 1997, respectively, executed by Sublessor and Sublessee (the
Sublease as heretofore amended is hereinafter referred to as the "Sublease").
WHEREAS, Sublessor and Sublessee desire to further amend the
Sublease in the manner set forth in this Third Amendment; and
WHEREAS, all terms used in this Third Amendment with initial capital
letters and not otherwise defined herein shall have the respective meaning
ascribed to them in the Sublease.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, Sublessor and Sublessee agree as follows:
Agreement
1. From and after the date that this Third Amendment is fully
executed and consented to in a consent agreement (the "Consent") between
Sublessor, Sublessee, and GRA Durham Associates Limited, LLC ("Prime Landlord")
and the UP5 Space (defined below) delivered to Sublessee, the Entire Premises is
expanded to include all of the building commonly known as University Place V,
located at 4615 University Drive, Durham, North Carolina, consisting of
approximately 48,824 rentable square feet of space (the "UP5 Space"), and such
UP5 Space shall thereafter constitute a part of the premises leased pursuant to
the Sublease for the remaining portion of the Extended Term for all purposes of
the Sublease. In the event that the UP5 Space has not been delivered to
Sublessee with the Prime Landlord's consent on or before March 1, 1999,
Sublessee shall have the right to terminate this Third Amendment. The Entire
Premises subleased by Sublessee from Sublessor, consisting of 51,302 rentable
square feet in the building commonly known as 4611 University Drive, Durham, NC,
as such term is defined prior to this Third Amendment, shall be hereafter
referred to as the "UP4 Space".
2. From and after the date that this Third Amendment is fully
executed, the Consent is fully executed, and the UP5 Space is delivered to
Sublessee, Section 6 and Section 7 of the Sublease are deleted in their entirety
and replaced with the following:
The Rent payable by Sublessee to Sublessor for the UP5 Space shall
be as follows:
--------------------- -----------------
PERIOD ANNUAL RENT
--------------------- -----------------
02/01/99 - 12/31/99 512,001
01/01/00 - 12/31/00 1,023,839
01/01/01 - 12/31/01 1,017,980
01/01/02 - 12/31/02 1,035,557
<PAGE>
--------------------- -----------------
01/01/03 - 09/30/03 766,415
--------------------- -----------------
The Rent payable by Sublessee to Sublessor for the UP4 Space shall
be as follows:
--------------------- -----------------
PERIOD ANNUAL RENT
--------------------- -----------------
02/01/99 - 12/31/99 680,595.67
01/01/00 - 12/31/00 760,704.00
01/01/01 - 12/31/01 783,108.00
01/01/02 - 12/31/02 800,823.00
01/01/03 - 09/30/03 617,163.06
--------------------- -----------------
The Rent thus payable by Sublessee to Sublessor for the Entire
Premise shall be as follows:
--------------------- -----------------
PERIOD ANNUAL RENT
--------------------- -----------------
02/01/99 - 12/31/99 1,192,596.68
01/01/00 - 12/31/00 1,784,543.00
01/01/01 - 12/31/01 1,801,088.00
01/01/02 - 12/31/02 1,836,380.00
01/01/03 - 19/30/03 1,383,578.06
--------------------- -----------------
The Rent to be paid as provided in this Paragraph 2 shall be paid in equal
monthly installments, in the manner set forth in the Sublease and shall be pro
rated for partial months.
3. Section 10 of the Sublease is deleted in its entirety and
replaced with the following:
"NET LEASE: This Sublease is a "net lease", subject to the
qualifications contained in this Section 10 and elsewhere in the
Sublease. The Rent is a net rental payment and all costs of
maintenance, repairs, utilities, and any and all other expenses
necessary in connection with the operation or maintenance of the
Entire Premises, as imposed on Sublessor, or as Sublessor is
otherwise obligated to pay, as tenant under the Lease, will be paid
solely by Sublessee during the Extended term of the Sublease.
Notwithstanding the above, Sublessor shall continue to pay common
area costs and expenses, as provided in Section 6(B) of the lease
and real estate taxes as provided in Section 8 of the Lease, and
shall provide casualty insurance coverage as provided in Section
9(B) of the Lease. Without in any way limiting the generality of
this Section 10, except as provided in the preceding sentence, the
terms, provisions, covenants and conditions of the third grammatical
paragraph of Section 6(A) of the Lease are applicable to this
Sublease with the same force and effect as if Sublessee was the
Tenant under the Lease and Sublessor was the Landlord under the
Lease."
4. Sublessee has recently completed a diagnostic evaluation of the
HVAC system for the Entire Premises (the "Evaluation"). Sublessor shall pay to
Sublessee an improvement allowance
2
<PAGE>
of fifty thousand and no/100 ($50,000.00), within thirty (30) days after the
effective date of this Third Amendment, for repairs or replacements recommended
as a result of such Evaluation (the Evaluation, together with the work done
pursuant thereto, is hereinafter referred to collectively as the "HVAC Work").
In the event such allowance is not delivered to Sublessee within said thirty
(30) days, Sublessee shall have the right to offset such amounts against rents
due under the Sublease. It is understood that among the HVAC Work to be done
will be repairs of existing systems, the purchase and installation of additional
units, and a modification to the HVAC system necessary to bring the system into
year 2000 compliance (meaning able to effectively process data, including dates,
in order to operate and function property on and after January 1, 2000). It is
expressly understood that Sublessee is not obligated to do all of the work
recommended in the Evaluation nor does Sublessee need to proceed with all of the
HVAC Work all at one time. Sublessee shall provide Sublessor with copies of paid
receipts showing its direct expenses arising from the HVAC Work until Fifty
Thousand and No/100 Dollars ($50,000.00) worth of work is completed and shall
return the excess balance of this allowance, if any, with thirty (30) days of
the completion of the HVAC Work. The HVAC Work shall be done in compliance with
all provisions of the Sublease. Sublessor has received a copy of, and approved,
the Evaluation and agrees that the HVAC Work to be done shall be based upon the
recommendations resulting from the Evaluation.
5. The provisions of Section 19 of the Sublease shall be and are
modified as provided in this Paragraph 5. The FFE and tenant improvements in the
Entire Premises shall, upon the satisfaction of the conditions described in
Section 1 and the expansion of the Entire Premises to include the UP5 Space,
become the property of Sublessee, and shall be transferred from Sublessor to
Sublessee for the consideration of the making of the Sublease and one dollar
($1.00) in hand paid. Sublessor shall execute a bill of sale or such similar
documentation to evidence the transfer of the FFE and tenant improvements to
Sublessee.
6. All of the provisions of the Sublease, except as herein expressly
amended and modified, shall remain in full force and effect. This Third
Amendment shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
7. Upon the full execution of this Third Amendment, Sublessor and
Sublessee shall enter into an amendment to memorandum of lease, to be recorded
at Sublessee's expense at the Durham County Registry.
8. This Third Amendment shall not be effective unless and until the
Consent is fully executed.
9. Without limiting other portions of this Third Amendment, the
provisions of Section 28 of the Sublease shall apply to the Entire Premises and
Sublessee shall further be permitted, without further consent, to sublease
portions of the Entire Premises to Trimeris, Inc.
10. Notwithstanding anything in the Sublease to the contrary,
Sublessee shall not be required to remove alterations to the UP5 Space, or other
portions of the Entire Premises, if such alterations and improvements were
approved in accordance with the Sublease, unless at the time of such approval
Sublessee is notified by Sublessor or Prime Landlord that such removal will be
required. The foregoing provisions shall not affect Sublessee's obligation under
paragraph 10 of the Sublease to remove any alterations or improvements for which
Sublessor's or Prime Landlord's consent was not required to be obtained.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Third Amendment
as of the date above written.
ELI LILLY AND COMPANY
By: /s/ Michael L. Eagle
------------------------------
Its: VP, Manufacturing
-----------------------
TRIANGLE PHARMACEUTICALS INC.
By: /s/ Chris A. Rallis
------------------------------
Its: Vice President, Business
-------------------------------
Development and General Counsel
-------------------------------
4
EXHIBIT 11.1
Computation of Net Loss Per Common Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Historical weighted average shares outstanding ... 22,927 18,871 5,784
-------- -------- --------
Shares used in computing net loss per common share 22,927 18,871 5,784
======== ======== ========
Net loss ......................................... $(67,271) $(37,668) $(10,917)
======== ======== ========
Basic and diluted net loss per common share ...... $ (2.93) $ (2.00) $ (1.89)
======== ======== ========
</TABLE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-15187 and 333-56189) and the Prospectuses
constituting part of the Registration Statements on Form S-3 (File Nos.
333-44881 and 333-69067) of our report dated February 5, 1999, which appears on
page 43 of Triangle Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1998.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 16, 1999
EXHIBIT 24.1
Power of Attorney
(See Page 68)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary consolidated financial information extracted from
its Annual Report on Form 10-K for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 77,653,000
<SECURITIES> 22,933,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,016,000
<PP&E> 5,467,000
<DEPRECIATION> (1,303,000)
<TOTAL-ASSETS> 124,313,000
<CURRENT-LIABILITIES> 22,209,000
<BONDS> 153,000
0
170
<COMMON> 29,000
<OTHER-SE> 101,921,830
<TOTAL-LIABILITY-AND-EQUITY> 124,313,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 71,391,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (67,271,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,271,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,271,000)
<EPS-PRIMARY> (2.93)
<EPS-DILUTED> (2.93)
</TABLE>
