<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO. 333-96029
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------
INTERMUNE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 99-3296648
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------------
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 493-8333
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
W. SCOTT HARKONEN, M.D.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 493-8333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, ESQ. JONATHAN L. KRAVETZ, ESQ.
STEPHEN N. ROSENFIELD, ESQ. EDWARD P. GONZALES, ESQ.
COOLEY GODWARD LLP MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
FIVE PALO ALTO SQUARE ONE FINANCIAL CENTER
3000 EL CAMINO REAL BOSTON, MA 02111
PALO ALTO, CA 94306 (617) 542-6000
(650) 843-5000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion, dated February 18, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
- --------------------------------------------------------------------------------
5,500,000 Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our common stock. We expect the public offering price to be
between $14.00 and $16.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "ITMN."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
- --------------------------------------------------------------------------------
Public offering price $ $
- --------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
- --------------------------------------------------------------------------------
Proceeds, before expenses, to InterMune $ $
- --------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 825,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised to
cover over-allotments, if any. If the option is exercised in full, the total
underwriting discounts and commissions will be $ , and the total proceeds,
before expenses, to InterMune Pharmaceuticals, Inc. will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about , 2000.
WARBURG DILLON READ LLC
CHASE H&Q
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
<PAGE>
DESCRIPTION OF GRAPHICS
[1. Title: ACTIMMUNE
2. Photograph of ACTIMMUNE packaging
3. Horizontal bar chart showing the FDA-approval status of our product and
prospective products.]
"InterMune" and the InterMune logo are trademarks of InterMune Pharmaceuticals,
Inc. Other trademarks and trade names appearing in this prospectus are the
property of their holders.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS."
OUR BUSINESS
InterMune Pharmaceuticals develops and commercializes innovative products
for the treatment of serious pulmonary and infectious diseases and congenital
disorders. We have the exclusive license rights in the United States to
ACTIMMUNE (interferon gamma-1b injection) for a range of indications, including
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
mycobacterial infections, systemic fungal infections and cystic fibrosis. We
currently market ACTIMMUNE for chronic granulomatous disease and osteopetrosis.
We have active development programs underway for the other indications, several
of which are in mid- or advanced-stage human testing, known as clinical trials.
Idiopathic pulmonary fibrosis, mycobacterial infections and systemic fungal
infections are serious and difficult to treat diseases that we believe represent
a combined potential market opportunity for ACTIMMUNE of approximately $3.5
billion annually in the United States.
Interferon gamma-1b, the active ingredient in ACTIMMUNE, is a human protein
which plays a key role in preventing the formation of excessive scar, or
fibrotic, tissue and is a potent stimulator of the immune system. Interferon
gamma is biologically distinct from interferon alpha and interferon beta, two
related proteins that are currently marketed for the treatment of diseases such
as hepatitis B infection and multiple sclerosis. Interferon gamma has a superior
safety profile as compared to interferon alpha and interferon beta because it
results in fewer and less severe adverse side effects.
ACTIMMUNE--MARKETED INDICATIONS
CHRONIC GRANULOMATOUS DISEASE. The U.S. Food and Drug Administration has
approved ACTIMMUNE for the treatment of chronic granulomatous disease, and we
currently market and sell ACTIMMUNE in the United States for this disease.
Chronic granulomatous disease is a life-threatening congenital disorder of the
immune system that causes patients to be vulnerable to severe recurrent
infections. This disease affects children, and no other FDA-approved treatment
currently exists. ACTIMMUNE was approved by the FDA based on its ability to
reduce the frequency and severity of infections in these patients.
OSTEOPETROSIS. In February 2000, we received approval from the FDA for the
use of ACTIMMUNE for the treatment of osteopetrosis, and we currently market and
sell ACTIMMUNE in the United States for this disease. The FDA has granted
ACTIMMUNE orphan drug status for the treatment of osteopetrosis. Osteopetrosis
is a life-threatening, congenital disorder in which an overgrowth of bony
structures leads to blindness, deafness and increased susceptibility to
infection. This disorder primarily affects children, and no other effective
treatment is currently available.
ACTIMMUNE--INDICATIONS IN DEVELOPMENT
IDIOPATHIC PULMONARY FIBROSIS. We believe the most significant near-term
use of ACTIMMUNE is for the treatment of idiopathic pulmonary fibrosis, a
life-threatening lung condition that afflicts approximately 50,000 persons in
the United States. Idiopathic pulmonary fibrosis is characterized by progressive
scarring of the lungs, which leads to their deterioration and destruction. The
prognosis of patients with idiopathic pulmonary fibrosis is poor and most
patients die from progressive loss of lung function, which leads to suffocation.
Therapeutic options for idiopathic pulmonary fibrosis are limited and only
minimally effective.
The results of a Phase II clinical trial published in October 1999 in THE
NEW ENGLAND JOURNAL OF MEDICINE showed statistically significant evidence that
interferon gamma-1b halts and reverses the
3
<PAGE>
progression of idiopathic pulmonary fibrosis. We are continuing the clinical
development of ACTIMMUNE for idiopathic pulmonary fibrosis by initiating a Phase
II/III pivotal clinical trial during the first half of 2000.
OTHER INDICATIONS. We are also developing ACTIMMUNE to treat a variety of
other diseases, including infectious diseases and cystic fibrosis. Preclinical
studies and clinical trials have demonstrated the therapeutic potential of
ACTIMMUNE against a broad range of infectious diseases, notably mycobacterial
and systemic fungal infections. A study published in May 1997 in THE LANCET
showed that ACTIMMUNE was effective in the treatment of multidrug-resistant
tuberculosis, a type of mycobacterial infection. As a result of these studies,
we are initiating a Phase III pivotal clinical trial for ACTIMMUNE in the
treatment of multidrug-resistant tuberculosis and have commenced a Phase II
clinical trial in cryptococcal meningitis, a type of systemic fungal infection.
We intend to initiate Phase II clinical trials in cystic fibrosis and in
atypical mycobacterial infections in the second half of 2000.
We believe that the risks and time required to obtain FDA approval for new
indications of ACTIMMUNE may be reduced because ACTIMMUNE has proven to be safe
for patients since its approval in 1990 for the treatment of chronic
granulomatous disease.
OTHER PRODUCTS IN DEVELOPMENT
We also have two preclinical development programs that address infections
caused by two types of bacteria, pseudomonas aeruginosa and staphylococcus
aureus. We believe that these indications present combined market opportunities
of approximately $2 billion annually in the United States.
STRATEGY
We plan to pursue a growth strategy through:
- growing product revenue;
- expanding the number of FDA-approved indications for ACTIMMUNE;
- enhancing physician awareness and education;
- developing a sales and marketing organization to serve pulmonologists and
infectious disease specialists; and
- continuing to in-license preclinical and development-stage programs.
BACKGROUND
InterMune was formed in 1998 and began operations as a wholly-owned
subsidiary of Connetics Corporation. In 1998, Connetics acquired from Genentech
Inc., and subsequently sublicensed to us, rights to develop and commercialize
ACTIMMUNE for a broad range of indications. We initially focused on marketing
ACTIMMUNE for chronic granulomatous disease and developing it for serious
infectious diseases and congenital disorders. In October 1999, a study published
in the THE NEW ENGLAND JOURNAL OF MEDICINE showed significant evidence that
interferon gamma-1b halts and reverses the progression of idiopathic pulmonary
fibrosis. As a result, we expanded our development and commercialization plans
to include idiopathic pulmonary fibrosis as well as other life-threatening
pulmonary diseases.
4
<PAGE>
THIS OFFERING
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE
AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK INTO
SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING (II) OUR
REINCORPORATION IN DELAWARE PRIOR TO THE CLOSING OF THIS OFFERING, (III) THE
ISSUANCE OF 4,966,361 SHARES OF OUR SERIES B PREFERRED STOCK IN JANUARY 2000,
AND (IV) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
The following information assumes that the underwriters do not exercise the
over-allotment option granted by us to purchase additional shares in this
offering.
<TABLE>
<S> <C>
Common stock offered by us................ 5,500,000 shares
Common stock to be outstanding after this
offering................................ 20,192,194 shares(1)
Proposed Nasdaq National Market symbol.... ITMN
Use of proceeds........................... We intend to use the net proceeds from this offering for
clinical development and commercialization of our
existing products, in-licensing new products, payment of
existing debt for royalties payable, working capital and
general corporate purposes. See "Use of Proceeds."
</TABLE>
- ------------------------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, and
excludes:
- 285,000 shares of common stock underlying options outstanding as of
December 31, 1999 at a weighted average exercise price of $0.125 per
share;
- 705,000 shares of common stock underlying options outstanding as of
December 31, 1999, and exercised in January 2000, at a weighted average
exercise price of $0.125 per share;
- 443,500 shares of common stock issuable upon the exercise of options
granted in January 2000 at a weighted average exercise price of $2.82 per
share;
- 386,500 shares of common stock available for issuance as of January 31,
1999 under our 1999 Equity Incentive Plan;
- 2,180,000 shares available for issuance or future grant under our 2000
Equity Incentive Plan and 2000 Non-Employee Directors' Stock Option Plan;
- 200,000 shares available for issuance under our 2000 Employee Stock
Purchase Plan; and
- 342,359 shares of common stock available for issuance in connection with
convertible promissory notes for royalties payable.
Our principal executive offices are located at 3294 West Bayshore Road, Palo
Alto, CA 94303. Our telephone number is (650) 493-8333. Our website is
http://www.intermune.com. The information found on our website is not a part of
this prospectus.
5
<PAGE>
SUMMARY FINANCIAL DATA
We have prepared this information using our audited financial statements for
the period from February 25, 1998 (inception) to December 31, 1998 and the year
ended December 31, 1999. The following summary historical data should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FEBRUARY 25, FEBRUARY 25,
1998 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 1998 1999 1999
- ----------------------------- -------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Product sales, net...................................... $ -- $ 556 $ 556
Costs and expenses:
Cost of goods sold.................................... -- 240 240
Research and development.............................. 1,235 2,934 4,169
General and administrative............................ 892 2,552 3,444
Acquired pre-FDA approval rights...................... 4,000 1,094 5,094
------- ------- --------
Total costs and expenses................................ 6,127 6,820 12,947
Loss from operations.................................... (6,127) (6,264) (12,391)
Other income (expense):
Interest income....................................... 55 240 295
Interest expense...................................... -- (186) (186)
------- ------- --------
Net loss................................................ $(6,072) $(6,210) $(12,282)
------- ------- --------
Preferred stock accretion............................... -- (656) (656)
Net loss applicable to common stockholders.............. $(6,072) $(6,866) $(12,938)
======= ======= ========
Net loss per share, basic and diluted................... $ (8.94)
=======
Shares used in computing net loss per share,
basic and diluted..................................... 768
=======
</TABLE>
The pro forma balance sheet data reflects the receipt of the net proceeds
from the sale of 4,876,916 shares of our Series B preferred stock in a private
placement completed on January 7 and 27, 2000 and the issuance on January 7,
2000 of 89,445 shares of our Series B preferred stock to Connetics Corporation
in payment of the $500,000 short-term obligation payable to Connetics as of
December 31, 1999. The pro forma as adjusted balance sheet reflects the sale of
5,500,000 shares of our common stock in this offering at an assumed price to the
public of $15.00 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
BALANCE SHEET DATA: ACTUAL PRO FORMA AS ADJUSTED
- ------------------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 4,214 $ 29,976 $ 102,762
Working capital............................................. 1,222 27,484 102,184
Total assets................................................ 5,855 31,617 104,403
Redeemable convertible preferred stock...................... 7,774 34,036 --
Accumulated deficit......................................... (12,282) (12,282) (12,282)
Total stockholders' equity (deficit)........................ (7,898) (7,898) 100,838
</TABLE>
6
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN THAT CASE, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY AND MAY NOT SUCCEED IN OUR DEVELOPMENT EFFORTS.
We commenced operations in 1998 and are at an early stage of development. We
have incurred significant losses to date, and our revenues have been limited to
sales of ACTIMMUNE for only one indication, chronic granulomatous disease.
Although we are developing ACTIMMUNE for the treatment of idiopathic pulmonary
fibrosis, multidrug-resistant tuberculosis, cryptococcal meningitis and cystic
fibrosis, ACTIMMUNE will not be commercially launched for any of these
indications earlier than the first half of 2003, if at all. As a result, our
business is subject to all of the risks inherent in the development of a new
business enterprise, such as the need:
- to obtain substantial capital in addition to the net proceeds of this
offering to support the expenses of developing our technology and
commercializing our products;
- to develop a market for our products;
- to generate a sufficient and reliable supply of ACTIMMUNE;
- to successfully transition from a company with limited sales for a single
indication to a company capable of supporting broad commercial activities;
and
- to attract and retain qualified management, sales, technical and
scientific staff.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED,
WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS.
We have lost money since we commenced operations in August 1998, and our
accumulated deficit was approximately $12.3 million at December 31, 1999. We
expect to incur substantial additional losses for at least the next several
years. The extent of our future losses and the timing of our profitability are
highly uncertain, and we may never achieve profitable operations. We are
planning to expand the number of indications for which ACTIMMUNE may be
marketed, and this expansion will require significant expenditures. To date, we
have generated revenues through the sale of ACTIMMUNE for chronic granulomatous
disease. After consideration of the direct costs of marketing ACTIMMUNE for
chronic granulomatous disease and osteopetrosis, and royalties we must pay to
Genentech, Inc. on sales of ACTIMMUNE, we do not currently generate profits on
those sales. Even if we succeed in developing ACTIMMUNE for additional
indications, we expect to incur losses for at least the next several years and
expect that these losses will increase as we expand our research and development
activities. If the time required to achieve profitability is longer than
anticipated, we may not be able to continue our operations.
IF ACTIMMUNE FAILS IN ITS CLINICAL TRIALS FOR IDIOPATHIC PULMONARY FIBROSIS,
MULTIDRUG-RESISTANT TUBERCULOSIS, ATYPICAL MYCOBACTERIAL INFECTIONS,
CRYPTOCOCCAL MENINGITIS OR CYSTIC FIBROSIS, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL FOR THESE INDICATIONS AND WILL NOT BE ABLE TO MARKET ACTIMMUNE FOR
THESE INDICATIONS.
In order to market ACTIMMUNE for the treatment of idiopathic pulmonary
fibrosis, multidrug-resistant tuberculosis, atypical mycobacterial infections,
cryptococcal meningitis and cystic fibrosis, the FDA must grant regulatory
approval for ACTIMMUNE in these indications. To obtain these regulatory
7
<PAGE>
approvals, we must conduct clinical trials demonstrating that ACTIMMUNE is safe
and effective for these indications. We must also conduct similar clinical
trials in Japan to obtain approval to market ACTIMMUNE in Japan for the
treatment of tuberculosis.
Clinical trials are inherently unpredictable. If we cannot obtain FDA
approval for ACTIMMUNE for the targeted indications, our revenues will suffer.
Although ACTIMMUNE appears promising in these indications based on clinical
trials, ACTIMMUNE may not be successful in later confirmatory clinical trials.
Our proposed clinical trials in these indications might be delayed or halted for
various reasons, including that:
- ACTIMMUNE is not effective, or physicians think that ACTIMMUNE is not
effective, for a particular indication;
- the FDA does not approve our clinical trial protocol;
- patients experience severe adverse side effects during or following
treatment;
- patients die during a clinical trial because their disease is too advanced
or because they experience medical problems that are not related to
ACTIMMUNE;
- a sufficient quantity of patients do not enroll in the clinical trials at
the rate we expect; and
- the supply of ACTIMMUNE is not sufficient to treat the patients in some or
all of the proposed clinical trials.
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process and may impose ongoing requirements for
post-marketing studies.
IF WE CANNOT MAINTAIN OUR EXISTING REGULATORY APPROVALS FOR ACTIMMUNE FOR
CHRONIC GRANULOMATOUS DISEASE AND OSTEOPETROSIS, OR FOR NEW INDICATIONS IF
OBTAINED, WE WILL BE UNABLE TO SELL ACTIMMUNE FOR THESE INDICATIONS, AND OUR
REVENUES WILL SUFFER.
The process of obtaining and maintaining regulatory approvals for biological
drug products such as ACTIMMUNE, and obtaining and maintaining regulatory
approvals to market these products for new indications is lengthy, expensive and
uncertain. The manufacturing and marketing of drugs are subject to continuing
FDA and foreign regulatory review, and later discovery of previously unknown
problems with a product, manufacturing process or facility may result in
restrictions, including withdrawal of the product from the market. The
manufacturing, distribution, advertising and marketing of pharmaceuticals are
subject to extensive regulation. Any new indication approval that we receive
could include significant restrictions on the use or marketing of ACTIMMUNE. Our
existing approvals for chronic granulomatous disease and osteopetrosis and any
new approval for idiopathic pulmonary fibrosis, multidrug-resistant
tuberculosis, cryptococcal meningitis or other indications, if granted, could be
withdrawn for failure to comply with regulatory requirements. If the FDA
withdrew its approval for ACTIMMUNE for an indication, we could not market
ACTIMMUNE for that indication, and our revenues would suffer. In addition,
governmental authorities could seize our inventory of ACTIMMUNE or force us to
recall ACTIMMUNE already in the market if we fail to comply with strictly
enforced FDA regulations.
IF WE BREACH OUR SUBLICENSE AGREEMENT WITH CONNETICS CORPORATION OR THAT
AGREEMENT OTHERWISE TERMINATES, OR IF CONNETICS BREACHES ITS LICENSE AGREEMENT
WITH GENENTECH OR THAT AGREEMENT OTHERWISE TERMINATES, WE WOULD LOSE OUR RIGHT
TO MARKET AND DEVELOP ACTIMMUNE.
We sublicense ACTIMMUNE from Connetics, which licenses ACTIMMUNE from
Genentech. If Connetics terminates its agreement with us or Genentech terminates
its agreement with Connetics, we
8
<PAGE>
will have no further rights to utilize the patents or trade secrets covered by
these agreements to develop and market ACTIMMUNE. This two-tier license of
ACTIMMUNE has the following risks:
- our sublicense agreement provides for termination by Connetics in the
event we breach that agreement, including our failure to pay royalties and
other fees on a timely basis;
- if Connetics breaches its agreement with Genentech, and we are unable to
cure that breach, Genentech could terminate its license to Connetics, and
we could lose our rights to develop and market ACTIMMUNE; and
- if Genentech fails to maintain the intellectual property licensed to
Connetics, we may lose our rights to develop and market ACTIMMUNE and may
be forced to incur substantial additional costs to maintain the
intellectual property or to force Genentech to do so.
DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES BY ESTABLISHED DRUG COMPANIES OR
OTHERS MAY MAKE ACTIMMUNE OBSOLETE.
Our commercial opportunities will be reduced or eliminated if our
competitors develop and market products that are more effective, have fewer or
less severe adverse side effects or are less expensive than ACTIMMUNE for
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
multidrug-resistant tuberculosis, atypical mycobacterial infections,
cryptococcal meningitis, cystic fibrosis, or any other indication that we
target. With respect to our drug discovery programs in pseudonomas aeruginosa
and staphlococcus aureus, other companies have product candidates or research
programs that are further advanced in development than any of our potential
products and may result in effective, commercially successful products. Even if
we are successful in developing effective drugs, our products may not compete
effectively with these products or other successful products. Researchers are
continually learning more about diseases, which may lead to new technologies for
treatment. Our competitors may succeed in developing and marketing products
either that are more effective than those that we may develop, alone or with our
collaborators, or that are marketed before any products we develop are marketed.
Our competitors include fully-integrated pharmaceutical companies and
biotechnology companies that currently have drug and target discovery efforts,
as well as universities and public and private research institutions. Many of
the organizations competing with us have substantially greater capital
resources, larger research and development staffs and facilities, greater
experience in drug development and in obtaining regulatory approvals and greater
marketing capabilities than we do.
PHYSICIANS AND/OR PATIENTS MAY NOT ACCEPT ACTIMMUNE FOR THE TREATMENT OF
IDIOPATHIC PULMONARY FIBROSIS, MULTIDRUG-RESISTANT TUBERCULOSIS, ATYPICAL
MYCOBACTERIAL INFECTIONS, CRYPTOCOCCAL MENINGITIS, CYSTIC FIBROSIS OR OTHER
INDICATIONS EVEN IF WE OBTAIN REGULATORY APPROVAL.
Even if regulatory authorities approve ACTIMMUNE for the treatment of the
indications we are targeting, ACTIMMUNE may not be commercially successful.
ACTIMMUNE is an expensive drug, and we anticipate that the annual cost for
treatment under each of the indications for which we are seeking approval will
be significant. Market acceptance of and demand for ACTIMMUNE will depend
largely on the following factors:
- acceptance by physicians and patients of ACTIMMUNE as a safe and effective
therapy for a particular indication;
- reimbursement by third-party payors for treatment with ACTIMMUNE;
- pricing of alternative products;
- relative convenience and ease of administration of ACTIMMUNE; and
9
<PAGE>
- prevalence and severity of adverse side effects associated with ACTIMMUNE.
IF THIRD-PARTY PAYORS WILL NOT PROVIDE COVERAGE OR REIMBURSE PATIENTS FOR
ACTIMMUNE, OUR REVENUES AND PROFITABILITY WILL SUFFER.
Our ability to commercialize ACTIMMUNE in additional indications may depend
in part on the extent to which coverage and reimbursement for ACTIMMUNE will be
available from:
- governmental payors, such as Medicare and Medicaid;
- private health insurers, including managed care organizations; and
- other third-party payors.
Significant uncertainty exists as to the coverage and reimbursement status
of pharmaceutical products. If governmental and other third-party payors do not
provide adequate coverage and reimbursement levels for ACTIMMUNE, the market
acceptance of ACTIMMUNE will be reduced, and our sales will suffer.
The continuing efforts of governmental and other third-party payors to
contain or reduce the cost of health care through various means may adversely
affect our ability to successfully commercialize products. For example, in some
foreign markets, pricing and profitability of prescription pharmaceuticals are
subject to governmental control. In the United States, we expect that there will
continue to be federal and state proposals to implement similar governmental
control. In addition, increasing emphasis on managed care in the United States
will continue to put pressure on the pricing of pharmaceutical products. Cost
control initiatives could decrease the price that we would receive for ACTIMMUNE
or any products in the future, which would reduce our revenues and
profitability.
IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
LIABILITIES.
The testing, marketing, and sale of medical products entail an inherent risk
of product liability. If losses exceed our liability insurance coverage, we may
incur substantial liabilities. Whether or not we were ultimately successful in
product liability litigation, such litigation would consume substantial amounts
or our financial and managerial resources, and might result in adverse
publicity, all of which would impair our business. We may not be able to
maintain our clinical trial insurance or product liability insurance at an
acceptable cost, if at all, and this insurance may not provide adequate coverage
against potential claims or losses.
IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES TO MANUFACTURE ACTIMMUNE IN
SUFFICIENT QUANTITIES, ON A TIMELY BASIS OR AT AN ACCEPTABLE COST, WE MAY BE
UNABLE TO MEET DEMAND FOR ACTIMMUNE AND MAY LOSE POTENTIAL REVENUES.
We do not have the resources, facilities or experience to manufacture
ACTIMMUNE ourselves. Completion of our clinical trials and commercialization of
ACTIMMUNE for new indications requires access to, or development of, facilities
to manufacture a sufficient supply of ACTIMMUNE. The FDA must approve
manufacturing facilities for ACTIMMUNE. We depend on third parties with
FDA-approved manufacturing facilities for the manufacture of ACTIMMUNE for
pre-clinical, clinical, and commercial purposes. We presently rely on
Genentech, Inc. for the manufacture of commercially marketed ACTIMMUNE and on
Boehringer Ingelheim Austria GmbH for the supply of ACTIMMUNE for clinical
trials. Our manufacturing strategy presents the following risks:
- Before we can obtain approval for a new indication for ACTIMMUNE, we must
demonstrate to the FDA's satisfaction that the drug used in the clinical
trials is substantially equivalent to the commercial drug manufactured by
Genentech.
10
<PAGE>
- Delays in scale-up to quantities needed for multiple clinical trials could
delay clinical trials, regulatory submissions and commercialization of
ACTIMMUNE.
- Our current manufacturers of ACTIMMUNE are subject to ongoing periodic
inspection by the FDA and corresponding state agencies for compliance with
strictly enforced good manufacturing practices regulations and similar
foreign standards, and we do not have control over our third-party
manufacturers' compliance with these regulations and standards.
- If we need to change to other manufacturers, the FDA and comparable
foreign regulators must approve these manufacturers prior to our use. This
would require new testing and compliance inspections. The new
manufacturers would have to be educated in, or themselves develop,
substantially equivalent processes necessary for the production of
ACTIMMUNE. In addition, the FDA or comparable foreign regulators would
need to approve the new manufacturers.
- If market demand for ACTIMMUNE increases suddenly, our current
manufacturers might not be able to fulfill our commercial needs, which
would require us to seek new manufacturing arrangements and may result in
substantial delays in meeting market demand.
- If market demand for ACTIMMUNE is less than our purchase obligations to
our manufacturers, we may incur substantial penalties.
- Our supply arrangements with our manufacturers may be seriously
interrupted.
- We may not have intellectual property rights, or may have to share
intellectual property rights, to any improvements in the manufacturing
processes or new manufacturing processes for ACTIMMUNE.
Any of these factors could delay clinical trials or commercialization of
ACTIMMUNE for new indications, interfere with current sales, entail higher costs
and result in our being unable to effectively sell ACTIMMUNE.
BECAUSE IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, WE MAY NOT
BE ABLE TO PROTECT THEM.
Our commercial success will depend in part on obtaining and maintaining
patent protection on our products and successfully defending these patents
against third party challenges. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, we cannot predict the
breadth of claims that may be allowed in other companies' patents.
The degree of future protection for our proprietary rights is uncertain, and
we cannot ensure that:
- we were the first to make the inventions covered by each of our pending
patent applications;
- we were the first to file patent applications for these inventions;
- others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
- we will develop additional proprietary technologies that are patentable;
or
- the patents of others will not have an adverse effect on our business.
11
<PAGE>
In addition, we could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties or if we
initiate these suits.
Others may have filed and in the future may file patent applications
covering interferon gamma-1b and its uses and other products in our development
program. For example, we are aware that the principal investigator of
Phase I/II and Phase II clinical trials of interferon gamma-lb for the treatment
of idiopathic pulmonary fibrosis has filed a patent application in several
European countries claiming the use of interferon gamma-lb for this indication.
We do not believe that a corresponding patent application has been filed in the
United States or that the investigator could successfully obtain patent
protection in the United States for the use of interferon gamma-lb to treat
idiopathic pulmonary fibrosis. However, we cannot be certain that the
investigator or any other third party has not filed and will not obtain a U.S.
patent claiming the use of interferon gamma-lb for the treatment of idiopathic
pulmonary fibrosis or any of the other indications for which we are developing
ACTIMMUNE. If a third party were issued a patent that blocked our ability to
commercialize ACTIMMUNE for any of the indications we are targeting, a legal
action could result.
Any legal action against our collaborators or us claiming damages and
seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting us to potential liability for
damages, require our collaborators or us to obtain a license to continue to
manufacture or market the affected products and processes. We cannot predict
whether we or our collaborators would prevail in any of these actions or that
any license required under any of these patents would be made available on
commercially acceptable terms, if at all. We believe that there may be
significant litigation in our industry regarding patent and other intellectual
property rights. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
In addition, we generally do not control the patent prosecution of
technology that we license from others. Accordingly, we are unable to exercise
the same degree of control over this intellectual property as we would exercise
over technology that we own.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, which generally provide
that proprietary information developed or inventions conceived during the
relationship shall be our exclusive property, we may not be able to adequately
protect our trade secrets or other proprietary information.
Our research collaborators and scientific advisors have rights to publish
data and information in which we have rights. If we cannot maintain the
confidentiality of our technology and other confidential information in
connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information will be impaired.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
BUSINESS DEVELOPMENT EFFORTS.
We have only 21 employees, and our success depends on our continued ability
to attract, retain and motivate highly qualified management and scientific
personnel and on our ability to develop relationships with leading academic
scientists. Competition for personnel and academic collaborations is intense. We
are highly dependent on our current management and key scientific and technical
personnel, including W. Scott Harkonen, Chief Executive Officer, President and
Chairman of our board of directors, as well as the other principal members of
our management. Our success will depend in part on retaining the services of our
existing management and key personnel and attracting and retaining new highly
qualified personnel. In addition, we may need to hire additional personnel and
develop additional collaborations as we continue to expand our research and
development activities. We
12
<PAGE>
do not know if we will be able to attract, retain or motivate personnel or
cultivate academic collaborations. Our inability to hire, retain or motivate
qualified personnel or cultivate academic collaborations would harm our business
and hinder the planned expansion of our business.
WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS FOR ACTIMMUNE, AND THOSE
THIRD PARTIES MAY NOT PERFORM SATISFACTORILY.
If third parties do not successfully carry out their contractual duties or
meet expected deadlines, we will not be able to obtain regulatory approvals for
ACTIMMUNE and will not be able to successfully commercialize ACTIMMUNE for new
indications. We do not have the ability to independently conduct clinical
studies for ACTIMMUNE, and we rely on third parties to perform this function. If
these third parties do not perform satisfactorily, we may not be able to locate
acceptable replacements or enter into favorable agreements with them, if at all.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS PLAN.
We believe that the net proceeds from this offering, existing cash,
investment securities and cash flow from sales of ACTIMMUNE will be sufficient
to meet our capital requirements through at least the end of 2001. However, we
also expect capital outlays and operating expenditures to increase over the next
several years as we expand our infrastructure and research and development
activities. We may need to spend more money than currently expected because we
may need to change our product development plans or product offerings to address
difficulties with clinical studies or preparing for commercial sales in new
indications. We have no committed sources of capital and do not know whether
additional financing will be available when needed, or, if available, that the
terms will be favorable to our stockholders or us. If additional funds are not
available, we may be forced to delay or terminate clinical trials, curtail
operations or obtain funds through collaborative and licensing arrangements that
may require us to relinquish commercial rights or potential markets or grant
licenses on terms that are not favorable to us. If adequate funds are not
available, we will not be able to execute our business plan.
RISKS RELATED TO THIS OFFERING
IF OUR OFFICERS, DIRECTORS AND LARGEST STOCKHOLDERS CHOOSE TO ACT TOGETHER, THEY
MAY BE ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS, ACTING IN THEIR BEST
INTERESTS AND NOT NECESSARILY THOSE OF OTHER STOCKHOLDERS.
Following completion of this offering, our directors, executive officers and
principal stockholders and their affiliates will beneficially own approximately
66% of our common stock. Accordingly, they collectively will have the ability to
determine the election of all of our directors and to determine the outcome of
most corporate actions requiring stockholder approval. They may exercise this
ability in a manner that advances their best interests and not necessarily those
of other stockholders.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE
DIFFICULT.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions:
- establish a classified board of directors so that not all members of our
board may be elected at one time;
- authorize the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and hinder a takeover attempt;
13
<PAGE>
- limit who may call a special meeting of stockholders;
- prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted upon at
stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law, which
prohibits business combinations between us and one or more significant
stockholders unless specified conditions are met, may discourage, delay or
prevent a third party from acquiring us.
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
Prior to this offering, there has been no public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price of our common
stock will be determined by negotiations between the representatives of the
underwriters and us and may not be indicative of future market prices. The
following factors will be among those considered in determining the initial
public offering price of our common stock:
- clinical trial data;
- prevailing market conditions;
- estimates of our business potential and earnings prospects; and
- an assessment of our management.
If the market price of our common stock after this offering does not exceed
the initial public offering price, you may not realize any return on your
investment in us and may lose some or all of your investment.
The market prices for securities of pharmaceutical and biotechnology
companies in general have been highly volatile and may continue to be highly
volatile in the future. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of
our common stock:
- results of, or the perceived results of, our clinical trials and of our
competitors' clinical trials;
- regulatory developments in the United States and foreign countries;
- period-to-period fluctuations in financial results;
- developments concerning proprietary rights, including patents;
- announcements of technological innovations or new commercial products by
our competitors or us;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us; or
- actual or threatened litigation.
SUBSTANTIAL SALES OF SHARES MAY IMPACT THE MARKET PRICE OF OUR COMMON STOCK.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, the market price of our
common stock may decline. These sales also might make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. We are unable to predict the effect that sales may
have on the then prevailing market price of our common stock. After completion
of this offering, we will have
14
<PAGE>
outstanding 20,192,194 shares of common stock, assuming no exercise of
outstanding options after December 31, 1999 and no exercise of the underwriters'
over-allotment option. Of these shares, the 5,500,000 shares sold in this
offering will be freely tradeable without restriction or further regulation,
other than shares purchased by our officers, directors or other "affiliates"
within the meaning of Rule 144 under the Securities Act of 1933.
The remaining 14,692,194 shares of common stock held by existing
stockholders may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. These shares will become eligible for public resale at various
times over a period of less than one year following the completion of this
offering, subject to volume limitations.
We, our officers and directors and all of our current stockholders, have
agreed not to sell or offer to sell or otherwise dispose of any shares of common
stock held by us or them for a period of 180 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read LLC. Warburg
Dillon Read LLC may release any or all of the shares subject to lock-up
agreements at any time without notice.
We further expect to file a registration statement covering shares of common
stock issuable upon exercise of options and other grants pursuant to our stock
plans. In addition, the holders of 13,656,361 shares of common stock are
entitled to registration rights.
THIS OFFERING WILL CAUSE DILUTION IN NET TANGIBLE BOOK VALUE.
Purchasers in this offering will experience immediate and substantial
dilution in the net tangible book value of the common stock from the initial
public offering price. Additional dilution is likely to occur upon the exercise
of options or warrants granted by us. To the extent we raise additional capital
by issuing equity securities, our stockholders may experience additional
substantial dilution.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements are found
in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in this prospectus generally. When used
in this prospectus, the words "anticipate," "believe," "expect," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements as a result of certain factors, including the
risks described in "Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
- --------------------------------------------------------------------------------
We estimate that the net proceeds from the sale of the 5,500,000 shares of
common stock that we are offering will be $75.7 million after deducting
estimated underwriters' discounts and commissions and estimated offering
expenses and assuming an initial public offering price of $15.00 per share. If
the underwriters' over-allotment option is exercised in full, we estimate that
the net proceeds will be $87.2 million.
We anticipate using the net proceeds from this offering for clinical
development and commercialization of our existing products, in-licensing new
products, payment of existing debt for royalties payable, working capital and
general corporate purposes. We will retain broad discretion over the use of the
net proceeds of this offering. The amounts and timing of the expenditures may
vary significantly depending on numerous factors, such as the progress of our
research and development efforts, technological advances and the competitive
environment for our products. We also might use a portion of the net proceeds to
acquire or invest in complementary businesses, products and technologies. We are
not currently planning any acquisition, and no portion of the net proceeds has
been allocated for any specific acquisition.
We believe that the net proceeds of this offering, existing cash, investment
securities and cash flow from sales of ACTIMMUNE will be sufficient to meet our
capital requirements through at least the end of 2001. Pending the use of the
net proceeds, we intend to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
- --------------------------------------------------------------------------------
We have never declared or paid any cash dividends on our capital shares. We
currently intend to retain earnings, if any, to support the research and
development of our business and do not anticipate paying cash dividends for the
foreseeable future.
16
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
The pro forma net tangible book value of the common stock as of
December 31, 1999, was $26,137,888 million or $1.78 per share, assuming the
issuance of 4,876,916 shares of our Series B preferred stock for cash on
January 7 and 27, 2000, the issuance of 89,445 shares of our Series B preferred
stock to Connetics on January 7, 2000, in payment of our $500,000 short-term
obligation to them as of December 31, 1999, and after giving effect to the
automatic conversion of all outstanding shares of preferred stock into an
aggregate of 12,801,361 shares of common stock. After giving effect to the sale
of the common stock pursuant to this offering at an assumed initial public
offering price of $15.00 per share, assuming that the underwriters'
over-allotment option is not exercised, and after deducting the estimated
underwriting discount and offering expenses and the payment of royalties payable
to Genentech of $1,913,785 and of our contingent liability to Connetics in the
amount of $1,000,000, which will occur upon the closing of this offering, the
adjusted pro forma net tangible book value at December 31, 1999, would have been
$100.8 million, or $4.99 per share.
Pro forma net tangible book value per share before this offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1999. This offering will result in an increase in
pro forma net tangible book value per share of $3.21 to existing stockholders
and dilution in pro forma net tangible book value per share of $10.01 to new
investors who purchase shares in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share after this offering from
the assumed initial public offering price of $15.00 per share. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $15.00
Pro forma net tangible book value per share at
December 31, 1999....................................... $ 1.78
Increase attributable to new investors.................... $ 3.21
Pro forma net tangible book value per share after this
offering.................................................. $ 4.99
------
Dilution in net tangible book value to new investors........ $10.01
</TABLE>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $5.35 per
share, the increase in net tangible book value per share to existing
stockholders would be $3.57 per share and the dilution in net tangible book
value to new investors would be $9.65 per share.
The following table summarizes, on a pro forma basis as of December 31, 1999
as adjusted for the January 2000 issuances of Series B preferred stock described
above, the differences between the total consideration paid and the average
price per share paid by the existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us based on an
assumed public offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 14,692,194 72.8% $ 39,808,364 32.5% $ 2.71
New investors........................... 5,500,000 27.2 $ 82,500,000 67.5 $15.00
---------- ------ ------------ ------
Total................................... 20,192,194 100.0% $122,308,364 100.0%
========== ====== ============ ======
</TABLE>
The tables and calculations above assume no exercise of outstanding options.
At December 31, 1999, there were:
- 990,000 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $0.125 per share; and
- and 663,000 shares subject to repurchase by us at a weighted average price
of $0.041 per share.
17
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table shows our actual capitalization as of December 31, 1999.
Our capitalization is presented in the column labeled pro forma to give effect
to:
- the issuance of 4,876,916 shares of our Series B preferred stock in
conjunction with the private placement on January 7 and 27, 2000; and
- the issuance of 89,445 shares of our Series B preferred stock on January
7, 2000 to Connetics Corporation (in payment of the $500,000 short-term
payable as of December 31, 1999).
Our capitalization is also presented in the column labeled pro forma as
adjusted to give effect to:
- The receipt of the estimated net proceeds from this sale of 5,500,000
shares of stock offered by this prospectus at an assumed initial public
offering price of $15.00 per share; and
- The automatic conversion of all preferred shares into shares of our common
stock on a one-for-one basis upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Long-term obligations payable to Connetics.......... $ 1,624,343 $ 1,624,343 $ 1,624,343
============ ============ ============
Redeemable convertible preferred stock, no par value
Authorized shares--11,200,000 actual, pro forma
and pro forma as adjusted
Issued and outstanding shares 6,000,000 actual,
10,966,361 pro forma and none pro forma as
adjusted...................................... 7,773,877 34,035,831 --
Stockholders' equity (deficit):
Convertible preferred stock, no par value
Authorized shares--14,870,000 actual pro forma
and pro forma as adjusted
Issued and outstanding shares 1,835,000 actual
and pro forma and none pro forma as
adjusted...................................... 4,506,804 4,506,804 --
Common stock, no par value
Authorized shares--30,000,000 actual
Issued and outstanding shares 1,890,833 actual,
and pro forma and 20,192,194 pro forma as
adjusted...................................... 3,049,664 3,049,664 116,075,228
Deferred compensation related to stock options.... (3,172,926) (3,172,926) (3,172,926)
Accumulated other comprehensive income............ 41 41 41
Deficit accumulated during the development
stage........................................... (12,281,524) (12,281,524) (12,281,524)
------------ ------------ ------------
Total stockholders' equity (deficit)................ $ (7,897,941) $ (7,897,941) $100,837,890
============ ============ ============
</TABLE>
The outstanding share information in the table above excludes
990,000 shares of common stock issuable upon the exercise of options outstanding
as of December 31, 1999 at a weighted average exercise price of $0.125 per
share, and 443,500 shares of common stock issuable upon the exercise of options
granted in January 2000 at a weighted average exercise price of $2.82 per share.
18
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected historical financial data should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from February 25, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, and the balance sheet data at
December 31, 1998 and 1999, are derived from our financial statements which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The selected data in this section is not intended
to replace our financial statements. Historical results are not necessarily
indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FEBRUARY 25, FEBRUARY 25,
1998 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA 1998 1999 1999
- ---------------------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Product sales, net...................................... $ -- $ 556 $ 556
Costs and expenses:
Cost of goods sold.................................... -- 240 240
Research and development.............................. 1,235 2,934 4,169
General and administrative............................ 892 2,552 3,444
Acquired pre-FDA approval rights...................... 4,000 1,094 5,094
------- ------- --------
Total costs and expenses................................ 6,127 6,820 12,947
Loss from operations.................................... (6,127) (6,264) (12,391)
Other income (expense):
Interest income....................................... 55 240 295
Interest expense...................................... -- (186) (186)
------- ------- --------
Net loss................................................ $(6,072) $(6,210) $(12,282)
------- ------- --------
Preferred stock accretion............................... -- (656) (656)
Net loss applicable to common stockholders.............. $(6,072) $(6,866) $(12,938)
======= ======= ========
Net loss per share, basic and diluted................... $ (8.94)
=======
Shares used in computing net loss per share, basic and
diluted............................................... 768
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
BALANCE SHEET DATA 1998 1999
- ------------------ ---------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 4,720 $ 4,214
Working capital............................................. 4,181 1,222
Total assets................................................ 4,720 5,855
Redeemable convertible preferred stock...................... -- 7,774
Accumulated deficit......................................... (6,072) (12,282)
Total stockholders' equity (deficit)........................ 4,181 (7,898)
</TABLE>
Please see note 2 of our financial statements for an explanation of the
method used to calculate the net loss per share and the number of shares used in
the computation of per share amounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR "SELECTED FINANCIAL DATA," OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We have been primarily involved in the research and development of ACTIMMUNE
for the treatment of serious infectious and pulmonary diseases and congenital
disorders. We licensed from Genentech, Inc. and Connetics Corporation the
exclusive U.S. rights to ACTIMMUNE (interferon gamma-1b injection), a
FDA-approved product. We currently market ACTIMMUNE in the United States for the
treatment of chronic granulomatous disease and osteopetrosis. We have the rights
and plan to develop ACTIMMUNE for a range of indications including idiopathic
pulmonary fibrosis, infectious diseases and cystic fibrosis.
Since our inception, we have incurred significant losses and, as of
December 31, 1999, we had an accumulated deficit of $12,281,524.
Our expenses have consisted primarily of costs incurred in research and
development, sales and marketing and from general and administrative costs
associated with our operations. We expect our research and development expenses
to increase in the future as we expand our clinical trial activities in our
target indications. Our sales and marketing expenses will increase as we
continue to commercialize ACTIMMUNE. Expansion of our operations and the
additional obligations of a public reporting entity will also add to our
expenses. As a result, we expect to incur losses for the foreseeable future.
We have a limited history of operations and anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market acceptance of current or new products, patent
conflicts, the introduction of new products by our competitors, the timing and
extent of our research and development efforts, and the timing of significant
orders. Our limited operating history makes accurate prediction of future
operating results difficult or impossible.
STOCK COMPENSATION
During the year ended December 31, 1999, in connection with the grant of
stock options to employees, we recorded deferred stock compensation totaling
$3,378,821, representing the difference between the deemed fair value of our
common stock for financial reporting purposes on the date such options were
granted and the applicable exercise prices. Such amount is included as a
reduction of stockholders' equity and is being amortized on an accelerated basis
over the vesting period of the individual options, which is generally five
years. This accelerated method provides for vesting of portions of the overall
award at interim dates and results in higher vesting in earlier years than
straight-line vesting. We recorded amortization of deferred stock compensation
of $205,895 for the year ended December 31, 1999. At December 31, 1999, we had a
total of $3,172,926 remaining to be amortized over the vesting periods of the
stock options. Please see notes 2 and 6 of our financial statements.
SUBSEQUENT EVENTS
On January 7 and January 27, 2000, we issued 4,876,916 aggregate shares of
Series B preferred stock at $5.59 per share for aggregate proceeds of
$26,600,000. We will reflect a deemed dividend of $9,300,000 in our first
quarter 2000 financial statements in relation to the series B financing. See
note 12 of our financial statements. We incurred approximately $1.5 million of
associated issuance costs, including 120,000 additional shares of Series B
preferred stock valued at $5.59 per share. On
20
<PAGE>
January 7, 2000, pursuant to the terms of the collaboration agreement with
Connetics, we also issued to Connetics 89,445 shares of our Series B preferred
stock.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUE. We recognized no product sales of ACTIMMUNE for the period from
February 25, 1998 (inception) to December 31, 1998 and $556,401 for the year
ended December 31, 1999. The sales in 1999 represent our portion of ACTIMMUNE
sales that exceed the annual contractual baseline established with Connetics.
Please see note 2 of our financial statements.
Connetics is entitled to net sales of ACTIMMUNE up to a predetermined
baseline for the period from January 15, 1999 through December 31, 2001 less
associated cost of goods sold and marketing expenses. The predetermined baseline
is preset for each calendar year under our agreement.
COST OF GOODS SOLD. We recognized no cost of goods sold for the period from
February 25, 1998 (inception) to December 31, 1998 because we had no product
sales. For the year ended December 31, 1999, cost of goods sold totaled $239,778
which included all product cost of goods sold, royalties and distribution costs
associated with our revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased from $1,234,957 for the period from February 25, 1998 (inception) to
December 31, 1998, to $2,934,695 in 1999. The increase resulted primarily from
increased costs for additional personnel and clinical trial study expenses for
ACTIMMUNE in additional indications.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $892,295 for the period from February 25, 1998 (inception) to
December 31, 1998, to a total of $2,551,793 in 1999. The increase in expenses
for 1999 was primarily attributed to increased costs for additional personnel,
marketing and distribution expenses, and a full 12-month period of operations.
ACQUIRED PRE-FDA APPROVAL RIGHTS. Acquired pre-FDA approval rights totaled
$4,000,000 for the period from February 25, 1998 (inception) to December 31,
1998 in connection with the sublicensed rights of ACTIMMUNE and a total of
$1,093,750 for the year ended December 31, 1999 in connection with the
acquisition of additional development rights for ACTIMMUNE. Amounts in both
periods were expensed as acquired pre-FDA approval rights. Please see note 3 of
our financial statements.
INTEREST INCOME. Interest income increased from $55,531 for the period from
February 25, 1998 (inception) to $239,778 in 1999. The increase was due to
higher average balances of cash and cash equivalents and short-term investments
in 1999, resulting from the investment of the net proceeds from the sale of
Series A-2 convertible preferred stock in April 1999.
INTEREST EXPENSE. We recognized a total of $110,674 for imputed interest
expense on our long-term obligation to Connetics and $75,268 interest expense on
the royalty payable obligation to Genentech for the year ended December 31,
1999. The obligation to Connetics was incurred in April 1999, as part of our
collaboration agreement with them. The long-term obligation is described in
greater detail in note 3 of our financial statements. We had no interest expense
for the period from February 25, 1998 (inception) to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations with $7,444,720 of private equity financings
and $1,173,723 (net) of contributions from Connetics. At December 31, 1998,
cash, cash equivalents and short-term investments totaled $4,719,831 compared to
$4,214,294 at December 31, 1999. Our cash reserves are held in a
21
<PAGE>
variety of interest-bearing instruments including high-grade corporate bonds,
commercial paper and money market accounts.
Cash used in operations for the period from February 25, 1998 (inception) to
December 31, 1998, was $1,280,185 compared with cash used in operations of
$3,093,540 for the year ended December 31, 1999. A net loss of $6,209,803 for
the year ended December 31, 1999, was partially offset by non-cash charges of
$205,895 for the amortization of deferred compensation, $2,564 for depreciation,
$110,674 for the accretion of obligations payable to Genentech and preferred
stock issued for $1,093,750 for additional product rights from Genentech for
ACTIMMUNE.
Financing activities included the receipt of net proceeds of $6,000,000 as
capital contributed from Connetics and $395,600 of expenses they incurred on our
behalf in 1998. In 1999, we received net proceeds of $7,117,112 from the sale of
Series A preferred stock to investors and $297,750 from the sale of common
stock. Also in 1999, we returned capital to Connetics in the amount of
$5,221,877.
Working capital of $4,181,295 at December 31, 1998 decreased to $1,222,378
at December 31, 1999. The decrease in working capital was due to our use of cash
in operations, higher accounts payable and royalty payables as a result of
product sales and increased corporate expenses offset in part by higher
inventory and accounts receivable balances.
We have deferred payment of the royalties due to Genentech for 1999
(approximately $1.9 million) under a series of interest-bearing promissory notes
that will become due upon the closing date of this offering. The amounts due
under these notes may be converted, at Genentech's option, into shares of our
stock sold in our most recent financing prior to the conversion, at the same
price per share.
We believe our existing cash, cash equivalents and short-term investments,
together with cash flows and the net proceeds of this offering will be
sufficient to fund our operating expenses, debt obligations and capital
requirements through at least the end of 2001. Our future capital uses and
requirements depend on numerous factors, including:
- our progress with research and development;
- our ability to introduce and sell new products;
- our sales and marketing expenses;
- expenses associated with litigation;
- costs and timing of obtaining new patent rights; and
- regulatory changes and competition and technological developments in the
market.
Therefore, our capital requirements may increase in future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners or from other sources.
We have no commitments for any additional financings, additional funding may
not be available to finance our operations when needed or, if available, the
terms for obtaining such funds may not be favorable or may result in dilution to
our stockholders.
IMPACT OF THE YEAR 2000
The computer systems and software programs of many companies and
governmental agencies are currently coded to accept or recognize only two digit
entries in the date code field. These systems may recognize a date using "00" as
the year 1900 rather than the year 2000. As a result, these computer systems
and/or software programs may need to be upgraded to comply with such year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
22
<PAGE>
STATE OF READINESS. We have made an assessment of the year 2000 readiness
of our information technology systems. We believe that substantially all of our
applications, databases and infrastructure are year 2000 compliant. We are
currently assessing our non-information technology systems and will seek
assurances of year 2000 compliance from providers of these systems. Until such
testing is complete and these vendors and providers have replied to our
requests, we will not be able to completely evaluate whether our information
technology systems or non-information technology systems will need to be revised
or replaced.
We have not identified any internally used capital equipment or software
that will require an additional material expenditure for year 2000 compliance
upgrades.
RISKS. We are not currently aware of any year 2000 compliance problems
relating to our information technology or non-information technology systems
that would have a material adverse effect on our business. Third-party software,
hardware or services incorporated into our information technology and
non-information technology systems may need to be revised or replaced, all of
which could be time consuming and expensive. Our failure to fix or replace
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material adverse effect on our
business. In addition, governmental agencies, utility companies, third-party
service providers and others outside our control may not be year 2000 compliant.
The failure by these entities to be year 2000 compliant could result in a
systemic failure beyond our control, such as a prolonged telecommunications or
electrical failure, which could have a material adverse effect on our business.
CONTINGENCY PLAN. In the event that year 2000-related problems materialize,
we maintain relationships with several suppliers of services and products to
mitigate the risks associated with using suppliers which are not year 2000
compliant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative, which focused on
freestanding contracts such as options and forwards, including futures and
swaps, expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve our
capital until it is required to fund operations while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. To minimize this risk, we maintain a portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds and corporate debt securities. The average
duration of all our investments in 1999 was less than six months. Due to the
short term nature of these investments, a 10% movement in market interest rates
would not have a significant impact on the total value of our portfolio as of
December 31, 1999.
23
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
OVERVIEW OF OUR BUSINESS
InterMune Pharmaceuticals develops and commercializes innovative products
for the treatment of serious pulmonary and infectious diseases and congenital
disorders. We have the exclusive license rights in the United States to
ACTIMMUNE (interferon gamma-1b injection) for a range of indications, including
chronic granulomatous disease, osteopetrosis, idiopathic pulmonary fibrosis,
mycobacterial infections, systemic fungal infections and cystic fibrosis. We
have active development programs underway for these indications, several of
which are in mid- or advanced-stage human testing, or clinical trials. The FDA
has approved ACTIMMUNE for the treatment of chronic granulomatous disease and
osteopetrosis, and we currently market and sell ACTIMMUNE in the United States
for these diseases.
We believe the most significant near-term use of ACTIMMUNE is for the
treatment of idiopathic pulmonary fibrosis, a life-threatening lung condition
that afflicts approximately 50,000 persons in the United States. During the
first half of 2000, we plan to initiate a Phase II/III pivotal clinical trial to
test dosing and efficacy of ACTIMMUNE for the treatment of this condition. We
are also commencing a Phase III pivotal clinical trial of ACTIMMUNE for the
treatment of multidrug-resistant tuberculosis. We are currently conducting a
Phase II clinical trial of ACTIMMUNE for the treatment of cryptococcal
meningitis, a type of systemic fungal infection. We plan to initiate Phase II
clinical trials of ACTIMMUNE for the treatment of cystic fibrosis and atypical
mycobacterial infections in the second half of 2000. We believe that the risks
and time required to obtain FDA approval for new indications of ACTIMMUNE may be
reduced because ACTIMMUNE has proven to be safe for patients since its approval
in 1990 for the treatment of chronic granulomatous disease and through its
approval in February 2000 for osteopetrosis.
Interferon gamma-1b, the active ingredient in ACTIMMUNE, is a human protein
which plays a key role in preventing the formation of excessive scar, or
fibrotic, tissue and is a potent stimulator of the immune system. The results of
a clinical trial published in October 1999 in THE NEW ENGLAND JOURNAL OF
MEDICINE showed statistically significant evidence that interferon gamma-1b can
halt and reverse the progression of idiopathic pulmonary fibrosis. In addition,
both animal studies, known as preclinical studies, and clinical trials have
demonstrated the therapeutic potential of interferon gamma-1b against a broad
range of infectious diseases, notably mycobacterial and systemic fungal
infections. A study published in May 1997 in THE LANCET showed that ACTIMMUNE
was effective in the treatment of multidrug-resistant tuberculosis, a type of
mycobacterial infection.
Idiopathic pulmonary fibrosis, mycobacterial infections and systemic fungal
diseases are serious and difficult to treat diseases that we believe represent a
combined potential market opportunity for ACTIMMUNE of approximately
$3.5 billion annually in the United States.
In addition to our late stage product development efforts with ACTIMMUNE, we
have two additional products in preclinical development to treat infections
caused by pseudomonas aeruginosa and staphylococcus aureus. We believe that
these indications represent a combined potential market opportunity of
approximately $2 billion annually in the United States.
ACTIMMUNE
The active ingredient in ACTIMMUNE is interferon gamma-1b. Interferons are
comprised of two families of related proteins that are secreted by a variety of
cells in the body. Interferon alpha and interferon beta, which are included in
one family, have been approved and are currently marketed for the treatment of
diseases such as hepatitis B infection and multiple sclerosis. However,
interferon alpha and interferon beta are associated with serious adverse side
effects that often result in discontinuation of therapy. Interferon gamma, which
is included in a separate family of interferons, is biologically
24
<PAGE>
distinct from interferon alpha and interferon beta. Interferon gamma has a
superior safety profile as compared to interferon alpha and interferon beta
because it results in fewer and less severe adverse side effects.
ACTIMMUNE performs two important activities in the human body. First,
ACTIMMUNE activates the immune system by stimulating a class of immune cells
known as macrophages. This action results in increased killing and removal of
infectious organisms, such as bacteria and fungi. Interferon gamma-1b has the
broadest range of therapeutic activity in bacterial and fungal diseases of any
protein yet identified. This activity enhances the body's ability to fight
infection and is the reason we are developing ACTIMMUNE for use in the treatment
of infectious diseases.
ACTIMMUNE's second important activity in the body is to regulate the
activity of the body's scar-forming cells, called fibroblasts. ACTIMMUNE
directly blocks the multiplication of fibroblasts and also inhibits the
production and action of TGF-beta, a potent scar-inducing molecule. The result
of these actions is the prevention of excessive scarring, which is known as
anti-fibrotic activity. The anti-fibrotic activity of ACTIMMUNE has been
demonstrated in both preclinical studies and in clinical trials. We are pursuing
a Phase II/III pivotal clinical trial using ACTIMMUNE for the treatment of
idiopathic pulmonary fibrosis because prior clinical trials have demonstrated
its anti-fibrotic activity.
BACKGROUND
InterMune was formed in 1998 and began operations as a wholly-owned
subsidiary of Connetics Corporation. In 1998, Connetics acquired from Genentech
and subsequently sublicensed to us, the rights to develop and commercialize
ACTIMMUNE for a broad range of indications, including infectious diseases,
congenital disorders and idiopathic pulmonary fibrosis. We initially focused on
expanding the sales of ACTIMMUNE for chronic granulomatous disease and on
developing ACTIMUNNE to treat serious infectious diseases and congenital
disorders. In April 1999, we became an independent company through venture
capital funding. In October 1999, a study published in THE NEW ENGLAND JOURNAL
OF MEDICINE showed significant evidence that interferon gamma-1b may halt or
reverse the progression of idiopathic pulmonary fibrosis. As a result, we
expanded our development and commercialization plans to include idiopathic
pulmonary fibrosis as well as other life-threatening pulmonary diseases. In
February 2000, we received FDA approval for the use of ACTIMMUNE for
osteopetrosis. Both Connetics and Genentech maintain significant ownership
positions in InterMune.
STRATEGY
We plan to pursue a growth strategy through the following:
GROW PRODUCT REVENUE. We assumed commercial operations for ACTIMMUNE in
January 1999. In 1999, we were able to increase the sales of ACTIMMUNE by
approximately 41% in the United States, compared to 1998. We accomplished this
increase in sales through a product price increase and by increasing awareness
of ACTIMMUNE through direct mailings and trade shows targeted at the
academic-centered physician community. We believe increased physician awareness
resulted in increased usage of the product for chronic granulomatous disease and
other indications.
EXPAND THE NUMBER OF FDA-APPROVED INDICATIONS FOR ACTIMMUNE. We plan to
develop ACTIMMUNE for a number of indications where preclinical studies and
clinical trials have shown promise for ACTIMMUNE as a potential treatment. Some
of the diseases for which ACTIMMUNE has demonstrated therapeutic activity
include idiopathic pulmonary fibrosis, mycobacterial infections, systemic fungal
infections and cystic fibrosis. We believe that the risks and time required to
obtain FDA approval for new indications of ACTIMMUNE may be reduced because of
its established safety profile. We also believe that the life-threatening nature
of some of the indications that we intend to treat will enable us to obtain
accelerated, or fast track, approval for ACTIMMUNE for these indications.
25
<PAGE>
ENHANCE PHYSICIAN AWARENESS AND EDUCATION. We have initiated a program to
further heighten physician awareness of ACTIMMUNE through a group of at least 12
medical science liaisons as well as through peer-reviewed journal advertisements
for ACTIMMUNE and our recently launched ACTIMMUNE.com website. Although
ACTIMMUNE is currently only approved for chronic granulomatous disease and
osteopetrosis, we believe that some physicians may prescribe ACTIMMUNE to treat
patients with idiopathic pulmonary fibrosis, as well as other diseases, based on
available clinical data and publications of such data in THE NEW ENGLAND JOURNAL
OF MEDICINE, THE LANCET and other peer-reviewed publications. To the extent
allowed by law, we intend to disseminate these peer-reviewed articles to our
physician customers for the purpose of off-label education.
DEVELOP A SALES AND MARKETING ORGANIZATION TO SERVE PULMONOLOGISTS AND
INFECTIOUS DISEASE SPECIALISTS. Pulmonologists are the physicians who generally
treat idiopathic pulmonary fibrosis, and infectious disease specialists are the
physicians who generally treat multidrug-resistant tuberculosis, atypical
mycobacterial and systemic fungal infections. Accordingly, we intend to develop
a sales and marketing force to target the approximately 6,000 pulmonologists and
4,000 infectious disease specialists practicing in the United States. In
addition, because these pulmonologists and infectious disease specialists are
primarily hospital-based and concentrated in major metropolitan areas, we
believe that a focused marketing organization and specialized sales force can
effectively serve them.
CONTINUE TO IN-LICENSE PRECLINICAL AND DEVELOPMENT-STAGE PROGRAMS. We plan
to continue to in-license and acquire rights to preclinical and
development-stage programs, especially those for the treatment of
life-threatening pulmonary and infectious diseases. To date, we have in-licensed
ACTIMMUNE, our pseudomonas aeruginosa program and our staphylococcus aureus
program. We believe that increasing consolidation in the pharmaceutical and
biotechnology industries and continuing changes in the health care system will
provide us with significant opportunities to in-license or acquire additional
products and programs from pharmaceutical companies and research and academic
institutions.
26
<PAGE>
MARKETED PRODUCT AND PRODUCT DEVELOPMENT
The following table summarizes key information concerning our targeted
indications and the status of our product development:
<TABLE>
PRODUCT/PROGRAM INDICATION STATUS MARKETING RIGHTS
<S> <C> <C> <C>
ACTIMMUNE Chronic granulomatous Marketed United States
disease
ACTIMMUNE Osteopetrosis Marketed United States
ACTIMMUNE Idiopathic pulmonary Phase II/III clinical United States
fibrosis trial planned for first
half 2000
ACTIMMUNE MYCOBACTERIAL INFECTIONS
- Multidrug-resistant Phase III clinical trial United States
tuberculosis planned for first half and Japan
2000
- Atypical mycobacterial Phase II clinical trial United States
infections planned for second half
2000
ACTIMMUNE SYSTEMIC FUNGAL
INFECTIONS
- Cryptococcal Phase II clinical trial United States
meningitis ongoing
ACTIMMUNE Cystic fibrosis Phase II clinical trial United States
planned for second half
2000
Pseudomonas aeruginosa Pseudomonas aeruginosa Preclinical studies Worldwide
program infection
Staphylococcus aureus Staphylococcus aureus Preclinical studies Worldwide
program infection
</TABLE>
ACTIMMUNE--Marketed Indications
CHRONIC GRANULOMATOUS DISEASE
ACTIMMUNE is currently approved for the treatment of chronic granulomatous
disease, a life-threatening congenital disorder of the immune system that
affects children. This disorder causes patients to be vulnerable to severe
recurrent bacterial and fungal infections that result in frequent and prolonged
hospitalizations and are commonly a cause of death.
In 1990, ACTIMMUNE was approved by the FDA for the treatment of chronic
granulomatous disease based on its ability to reduce the frequency and severity
of infections in these patients. A randomized, double blind, placebo-controlled
study of ACTIMMUNE in patients with chronic granulomatous disease demonstrated
that ACTIMMUNE effectively reduced the frequency and severity of serious
infections associated with chronic granulomatous disease. Overall, patients
treated with ACTIMMUNE had 67% fewer disease-related infections compared to the
placebo group. Additionally, ACTIMMUNE reduced hospitalizations associated with
chronic granulomatous disease by 67% compared to the placebo group.
There are an estimated 400 patients with chronic granulomatous disease in
the United States, and there is no FDA-approved treatment for these patients
other than ACTIMMUNE. Based on the indicated dosage levels, the annual cost per
patient is approximately $25,000. Accordingly, we believe
27
<PAGE>
that chronic granulomatous disease represents an annual market opportunity of
approximately $10 million in the United States for ACTIMMUNE.
OSTEOPETROSIS
In February 2000, the FDA approved ACTIMMUNE for the treatment of
osteopetrosis and granted ACTIMMUNE orphan drug status for the treatment of
osteopetrosis. Osteopetrosis is a life-threatening, congenital disorder in which
an overgrowth of bony structures leads to blindness, deafness and increased
susceptibility to infection. This disorder primarily affects children, and no
other effective treatment is currently available other than ACTIMMUNE.
The results of a Phase II clinical trial, which were published in June 1995
in THE NEW ENGLAND JOURNAL OF MEDICINE, demonstrated that osteopetrosis patients
treated with ACTIMMUNE had a statistically significant improvement in the course
of the disease. In addition, patients treated with ACTIMMUNE in a Phase III
clinical trial experienced a statistically significant reduction in the rate of
disease progression, defined as death, serious infection or cranial nerve
damage, compared to the placebo group.
There are approximately 400 patients with osteopetrosis in the United
States. Based on the indicated dosage levels for osteopetrosis patients, the
annual cost per patient is approximately $25,000. Accordingly, we believe that
osteopetrosis represents an annual market opportunity of approximately
$10 million in the United States for ACTIMMUNE.
ACTIMMUNE--INDICATIONS UNDER DEVELOPMENT
IDIOPATHIC PULMONARY FIBROSIS
Idiopathic pulmonary fibrosis is a life-threatening disease characterized by
progressive scarring, or fibrosis, of the lungs, which leads to their
deterioration and destruction. The cause of idiopathic pulmonary fibrosis is
unknown. The prognosis is poor for patients with idiopathic pulmonary fibrosis,
which occurs primarily in persons 40 to 70 years old. Most patients die from
progressive loss of lung function, which leads to suffocation. The median life
span for patients suffering from idiopathic pulmonary fibrosis is approximately
three to five years from the time of diagnosis. There are approximately 50,000
patients in the United States with idiopathic pulmonary fibrosis. We plan to
commence a Phase II/III pivotal clinical trial for this indication in the first
half of 2000.
CURRENT THERAPY. Therapeutic options for idiopathic pulmonary fibrosis are
limited and only minimally effective. Approximately 70% to 80% of patients with
idiopathic pulmonary fibrosis do not respond to any currently available drug
therapy. Attempted drug therapies include high dose corticosteroids and
anti-cancer drugs, both of which are minimally effective and result in
significant adverse side effects. For these reasons, treatment with
corticosteroids and anti-cancer drugs are not recommended for all patients with
idiopathic pulmonary fibrosis. As a last resort, a small percentage of patients
undergo lung transplantation, but donors are limited, and many patients die
while awaiting a transplant.
PRIOR CLINICAL TRIALS OF INTERFERON GAMMA-1B AS A TREATMENT FOR IDIOPATHIC
PULMONARY FIBROSIS. Independent investigators conducted two clinical trials of
interferon gamma-1b for the treatment of idiopathic pulmonary fibrosis. The
results of these clinical trials demonstrated that interferon gamma-1b can be
safely administered with minimal adverse side effects and can halt and reverse
the deterioration in lung function in patients.
The results of one of these clinical trials, a Phase II clinical trial
published in October 1999 in THE NEW ENGLAND JOURNAL OF MEDICINE, demonstrated
that interferon gamma-1b may be effective in the treatment of idiopathic
pulmonary fibrosis. Investigators at the University of Vienna conducted the
clinical trial with 18 patients who had not responded to treatment with
corticosteroids or anti-cancer
28
<PAGE>
agents. Nine patients were treated for 12 months with oral prednisolone, a
corticosteroid, and nine patients were treated with a combination of interferon
gamma-1b and prednisolone.
Lung function, as measured by total lung capacity and blood oxygen levels,
deteriorated in all nine patients in the group given prednisolone alone. Total
lung capacity decreased from a mean of 66% at the start of the trial to 62%
after 12 months. In contrast, in the group receiving interferon gamma-1b plus
prednisolone, total lung capacity increased from a mean of 70% at the start of
the trial to 79% after 12 months. Similarly, in the nine patients in the group
given prednisolone alone, blood oxygen levels of patients at rest decreased from
a mean of 65% at the start of the trial to 62% after 12 months; in the group
receiving interferon gamma-1b plus prednisolone, blood oxygen levels of patients
at rest increased from a mean of 65% at the start of the trial to 76% after
12 months. Both of these results are statistically significant, each with a
p value < 0.001. This means that, applying widely-used statistical methods, the
chance that these results occurred by accident is less than 1 in 1000. All
patients treated with interferon gamma-1b exhibited improved pulmonary function
for the trial period of 12 months. In contrast, patients receiving treatment
with prednisolone alone showed gradual impairment of their pulmonary function,
and two of them died following the 12-month clinical trial.
These results confirmed the observations of a prior Phase I/II clinical
trial by the same investigators. In the prior clinical trial, the investigators
tested safety and dosing of interferon gamma-1b in combination with prednisolone
for the treatment of idiopathic pulmonary fibrosis in 30 patients. The clinical
data showed that the ten patients who received 200 micrograms of ACTIMMUNE
demonstrated overall improvement in lung function. In the ten patients that
received 100 micrograms of interferon gamma-1b, four showed improvement. None of
the ten patients in the control group, who were not treated with interferon
gamma-1b, improved. Overall, the investigators concluded that patients who
received interferon gamma-1b in combination with prednisolone showed significant
improvement in lung function compared to the control group that received
prednisolone alone.
OUR PHASE II/III PIVOTAL CLINICAL TRIAL. We are continuing the clinical
development of ACTIMMUNE in idiopathic pulmonary fibrosis by initiating a Phase
II/III pivotal clinical trial during the first half of 2000. Our clinical trial
will enroll patients with documented idiopathic pulmonary fibrosis who have not
responded to previous treatment with corticosteroids and who have evidence of
deteriorating lung function. We anticipate that our trial will compare two
different doses, 100 micrograms and 200 micrograms, of ACTIMMUNE in combination
with corticosteriods to a control group that receives corticosteriods alone.
Outcomes will include several measures of lung function, including lung
capacity, blood oxygen levels and several measures of quality of life.
IDIOPATHIC PULMONARY FIBROSIS MARKET. There are approximately 50,000
patients with idiopathic pulmonary fibrosis in the United States. Based on the
expected dosing level of 200 micrograms of ACTIMMUNE three times per week for
idiopathic pulmonary fibrosis patients, the annual cost per patient would be
approximately $50,000 per year. Assuming this treatment regimen, we believe that
idiopathic pulmonary fibrosis represents an annual market opportunity of
approximately $2.5 billion in the United States for ACTIMMUNE. In addition, if
ACTIMMUNE is approved to treat idiopathic pulmonary fibrosis, we anticipate that
it may also be used to treat some other forms of pulmonary fibrosis, including
fibrosis caused by sarcoidosis, radiation, some environmental exposures and
connective tissue diseases such as scleroderma.
MYCOBACTERIAL INFECTIONS
Mycobacteria are the cause of several infectious diseases, including
tuberculosis, multidrug-resistant tuberculosis and atypical mycobacterial
infections. Tuberculosis is a major worldwide health threat. Tuberculosis is a
difficult disease to treat and requires multidrug regimens of 6 to 12 months for
eradication. It is estimated that 1% to 10% of tuberculosis cases, classified as
multidrug-resistant
29
<PAGE>
tuberculosis, are caused by mycobacteria that are resistant to standard drug
therapy. During the past ten years, multidrug-resistant tuberculosis has emerged
as a global health issue.
In the United States, each year there are approximately 20,000 new cases of
tuberculosis, of which approximately 250 are multidrug-resistant tuberculosis,
and 4,000 cases of atypical mycobacterial infection. In Japan, where we have
commercial rights for the use of ACTIMMUNE in the treatment of tuberculosis,
there are approximately 43,000 new cases of tuberculosis each year, of which
approximately 2,000 are multidrug-resistant tuberculosis. Based upon expected
dosing levels, we believe that mycobacterial infections represent an annual
market opportunity of approximately $500 million for ACTIMMUNE in United States
and Japan.
MULTIDRUG-RESISTANT TUBERCULOSIS. A recent clinical trial conducted at
Bellevue Hospital in New York and published in THE LANCET in May 1997 found that
patients with multidrug-resistant tuberculosis were able to respond to
conventional tuberculosis drugs when ACTIMMUNE was added to their treatment
regimen. In contrast, none of these patients had responded to conventional
tuberculosis drugs alone after an average of 13 months of therapy. We plan to
initiate a Phase III clinical trial of ACTIMMUNE for the treatment of
multidrug-resistant tuberculosis in the first half of 2000.
ATYPICAL MYCOBACTERIAL INFECTION. In May 1994, THE NEW ENGLAND JOURNAL OF
MEDICINE published the results of a clinical trial showing ACTIMMUNE to be
successful in reducing fever and other signs of infection in patients with
atypical mycobacterial infection. We plan to initiate a Phase II clinical trial
for this indication in the second half of 2000.
SYSTEMIC FUNGAL INFECTIONS--CRYPTOCOCCAL MENINGITIS
Systemic fungal infections, such as cryptococcal meningitis, an infection of
the lining of the brain, and pneumonia, are life-threatening diseases caused by
various fungi that attack patients with weakened immune systems. Currently
available therapies for these infections are often ineffective and result in
serious adverse side effects. Mortality from systemic fungal infections remains
high. There is a clear need for new, effective and less toxic drugs to treat
them. Recent research results support the potential benefit of combining
ACTIMMUNE with conventional antifungal therapy in the treatment of several of
the most prevalent types of systemic fungal infections. Because ACTIMMUNE works
by acting directly on the immune system, we believe that new antifungal agents
will also have greater efficacy when combined with ACTIMMUNE.
Our strategy for the development of ACTIMMUNE for the treatment of systemic
fungal diseases is twofold. We plan to conduct clinical trials and seek
regulatory approval in cryptococcal meningitis and one other systemic fungal
indication. To this end, we are currently conducting a Phase II clinical trial
designed to determine dose and efficacy of ACTIMMUNE in combination therapy for
the treatment of cryptococcal meningitis. Upon regulatory approval in two
specific systemic fungal indications, we plan to seek broad labeling from the
FDA for systemic fungal diseases in general. There are approximately 100,000
patients with systemic fungal infections in the United States. Based on expected
dosing regimens for these patients, we believe that systemic fungal infections
represent an annual market opportunity of approximately $500 million for
ACTIMMUNE in the United States.
CYSTIC FIBROSIS
Cystic fibrosis is a congenital disorder that leads to chronic pulmonary
infections in children, usually by four years of age. These infections result in
an exaggerated inflammatory response, leading to clogging and obstruction of the
airways. Chronic pulmonary infection is the major cause of mortality in these
patients. Due to its ability to regulate the immune system, we believe that
ACTIMMUNE may have the potential to modify many of the processes that lead to
the exaggerated inflammation and to reduce the chronic inflammation in the
lungs. By preventing excessive inflammation in the airways, ACTIMMUNE may be
able to slow the progression of pulmonary deterioration. We are currently
30
<PAGE>
evaluating ACTIMMUNE in animal models of cystic fibrosis and plan to initiate a
Phase I/II clinical trial of ACTIMMUNE in patients with cystic fibrosis in the
second half of 2000. Cystic fibrosis affects an estimated 23,000 persons in the
United States. We believe that cystic fibrosis represents an annual market
opportunity of approximately $500 million for ACTIMMUNE in the United States.
OTHER PROGRAMS
PSEUDOMONAS AERUGINOSA INFECTION
Pseudomonas aeruginosa is a bacterial infection that often affects patients
using respirators and catheters as well as patients with a number of conditions,
including burns, low white blood cell counts and cystic fibrosis. Because the
types of patients at risk generally have pre-existing illnesses, pseudomonas
aeruginosa infection most often occurs in a hospital setting.
Scientists at the Medical College of Wisconsin have identified a protein,
designated PcrV, on the surface of pseudomonas aeruginosa bacteria that enables
the bacteria to invade human tissue. By directing antibodies against the PcrV
protein, they have been able to demonstrate highly effective treatment, as well
as prevention, of infections caused by pseudomonas in animal models. We are
currently working with a third party to generate a human monoclonal antibody
directed against the PcrV protein as a therapeutic, in combination with
antibiotics. This antibody would treat pseudomonas aeruginosa infection and
prevent infection in high-risk patients.
Pseudomonas aeruginosa infections account for 71,000 annual cases in the
United States of pneumonia in hospitalized patients, 30% to 40% of which die
from their pneumonia. Furthermore, chronic pseudomonas aeruginosa is the leading
cause of pulmonary infection and resulting mortality in patients with cystic
fibrosis, which annually affects an estimated 23,000 persons in the United
States. We believe pseudomonas represents an annual market opportunity of
approximately $1 billion in the United States for our prospective product.
STAPHYLOCOCCUS AUREUS INFECTION
Staphylococcus aureus is a bacteria that causes diseases ranging from minor
skin infections to life-threatening deep tissue infections such as pneumonia,
meningitis, heart valve infections, post-operative wound infections, bloodstream
infections and toxic shock syndrome. The emergence of antibiotic resistance has
made many anti-infective agents ineffective. We are working with collaborators
to discover protein fragments, known as peptides, that block infections caused
by staphylococcus aureus. The efficacy of one of these peptides, known as VIF,
has been demonstrated in animal models, and we intend to develop one or more
peptides as therapy to be used in conjunction with antibiotics in the treatment
of infections caused by staphylococcus aureus. We are also developing a vaccine
for the prevention of infections caused by staphylococcus aureus in high-risk
populations.
In the United States, over 40 million surgeries are performed each year. Of
these, approximately 10%, or four million, of the patients are at high risk of a
post-operative infection caused by staphylococcus aureus. In addition, there are
also approximately 200,000 dialysis patients who are at high risk of serious
infections caused by staphylococcus aureus. These infections extend
hospitalization and increase required medical and nursing care, and it would be
highly cost-effective to immunize these high-risk patient groups with a
staphylococcal vaccine. We believe infections caused by staphylococcus aureus
represent an annual market opportunity of approximately $1 billion in the United
States for our prospective product.
31
<PAGE>
LICENSE AND OTHER AGREEMENTS
CONNETICS CORPORATION (ACTIMMUNE)
In August 1998, we entered into an Exclusive Sublicense Agreement with
Connetics under which we obtained an exclusive sublicense under the rights
granted to Connetics by Genentech through a license agreement relating to
interferon gamma-1b. We also agreed to assume many of Connetics' obligations to
Genentech under that license agreement. We entered into an Amended and Restated
Exclusive Sublicense Agreement with Connetics in April 1999 in order to broaden
the scope of rights granted to us.
Our sublicensed rights include exclusive and non-exclusive rights. The
exclusive rights are to commercialize ACTIMMUNE in the United States for the
treatment and prevention of all human diseases and conditions, including
infectious diseases and pulmonary fibrosis, but excluding arthritis and cardiac
and cardiovascular diseases and conditions. The non-exclusive rights include the
right to commercialize ACTIMMUNE for gene therapy in the United States, except
for cardiac and cardiovascular diseases and conditions. In Japan, we have the
exclusive license rights to commercialize interferon gamma-1b for tuberculosis.
We also have the opportunity, under specified conditions, to obtain further
rights to interferon gamma-1b in Japan. We pay both Connetics and Genentech
royalties on the sales of ACTIMMUNE, and make one-time payments to Genentech
upon the occurrence of specified milestone events. Connetics must satisfy
specified obligations under the agreement with Genentech to maintain its license
from Genentech. We are obligated under the agreement to develop and
commercialize ACTIMMUNE for a number of indications.
We have deferred payment of the royalties due to Genentech for 1999
(approximately $1.9 million) under a series of interest-bearing promissory notes
that will become due upon the closing date of this offering. The amounts due
under these notes may be converted, at Genentech's option, into shares of our
stock sold in our most recent financing prior to the conversion at the same
price per share.
Connetics has an option under our agreement to obtain the exclusive,
royalty-free right to commercialize ACTIMMUNE for dermatological indications in
the United States. If Connetics exercises its option, then it will make one-time
payments to us upon the occurrence of milestones. Connetics also has a first
right of negotiation to become our marketing partner for the sale of ACTIMMUNE
to dermatologists for indications that are not primarily dermatological in
origin.
In connection with the execution of the Amended and Restated Exclusive
Sublicense Agreement, we also entered into a Transition Agreement with
Connetics. Under the Transition Agreement, Connetics books the net sales of
ACTIMMUNE, up to a baseline amount through December 2001, less associated cost
of goods sold and marketing expenses. We book all net sales in excess of that
baseline. This agreement also provides for economic incentives to transition the
manufacturing of ACTIMMUNE from Genentech to a third party.
MEDICAL COLLEGE OF WISCONSIN (PCRV PROTEIN)
In March 1999, we entered into a License Agreement with the Medical College
of Wisconsin under which we received exclusive, worldwide rights to technology
owned by the College relating to PcrV protein. We are obligated to pay the
College one-time payments on the occurrence of milestone events, as well as a
royalty on the sales of products covered by this technology. We have also
entered into a research agreement with the College to sponsor basic research
relating to pseudomonas aeruginosa.
PANORAMA RESEARCH, INC. (STAPHYLOCOCCUS AUREUS)
In January 2000, we entered into a Sponsored Research and License Agreement
with Panorama Research, Inc. under which we received exclusive, worldwide rights
to technology owned by Panorama
32
<PAGE>
relating to staphylococcus aureus, as well as to technology to be developed by
Panorama pursuant to the staphylococcus aureus research program that we support.
We will pay to Panorama one-time payments on the occurrence of milestone events,
as well as a royalty on the sales of products covered by this technology.
MANUFACTURING
We contract with qualified third-party manufacturers to produce our
products. This manufacturing strategy enables us to direct financial resources
to the development and commercialization of products rather than diverting
resources to establishing a manufacturing infrastructure that complies with the
FDA's regulations. Genentech currently manufactures and formulates bulk active
ingredient and fills and finishes ACTIMMUNE destined for commercial supply. We
have contracted with CORD Logistics for the commercial distribution of ACTIMMUNE
in the United States. We are negotiating with a third party to perform the
packaging and distribution of ACTIMMUNE for our clinical trials.
Boehringer Ingelheim manufactures and formulates bulk active ingredient and
fills and finishes ACTIMMUNE destined for clinical supply. We recently entered
into a supply agreement with Boehringer Ingelheim to manufacture both clinical
and commercial supply of ACTIMMUNE. Boehringer Ingelheim is currently pursuing
qualification by the FDA to manufacture ACTIMMUNE for our commercial supply. We
believe that the FDA will approve Boehringer Ingelheim as a manufacturer of
commercial supply of ACTIMMUNE by mid-2001.
PATENTS AND PROPRIETARY RIGHTS
The proprietary nature of, and protection for, our products, product
candidates, processes and know-how are important to our business. We plan to
prosecute and defend aggressively our patents and proprietary technology. Our
policy is to patent or in-license the technology, inventions, and improvements
that we consider important to the development of our business. We also rely on
trade secrets, know-how, and continuing innovation to develop and maintain our
competitive position.
We have acquired proprietary rights in the United States and Japan to make,
use and sell interferon gamma-1b, ACTIMMUNE, in particular fields in connection
with our Amended and Restated Exclusive Sublicense Agreement with Connetics.
This sublicense agreement covers 15 U.S. patents and 9 corresponding Japanese
patents. We have also licensed a patent application in the area of pseudomonas
vaccine methods and have filed patent applications in the area of interferon
gamma treatment methods and compositions and treatment methods for
staphylococcus infections. We expect to continue to protect our proprietary
technology with additional filings as appropriate.
We attempt to ensure that our technology does not infringe the rights of
others. We are not aware of any asserted or unasserted claims that our
technology violates the proprietary rights of others. We are aware that the
principal investigator of Phase I/II and Phase II clinical trials of interferon
gamma-1b for the treatment of idiopathic pulmonary fibrosis has filed a patent
application in several European countries claiming the use of interferon
gamma-1b for this indication. We do not believe that a corresponding patent
application has been filed in the United States. Further, we believe it is
unlikely that the investigator could successfully obtain patent protection in
the United States for the use of interferon gamma-1b to treat idiopathic
pulmonary fibrosis. However, we cannot be certain that the investigator or a
third party has not filed and will not obtain a U.S. patent claiming the use of
interferon gamma-1b for the treatment of idiopathic pulmonary fibrosis or any of
the other indications for which we are developing ACTIMMUNE. If a third party
were issued a patent that blocked our ability to commercialize ACTIMMUNE for any
of the indications we are targeting, we and our collaborators would be subject
to legal action, unless we obtained a license under that patent in order to
continue our commercialization efforts for those indications.
33
<PAGE>
COMPETITION
ACTIMMUNE is the only FDA-approved therapy for each of chronic granulomatous
disease and osteopetrosis. There is no currently available effective therapy for
the treatment of idiopathic pulmonary fibrosis. The main potential competition
for ACTIMMUNE in idiopathic pulmonary fibrosis is the development of Avonex
interferon beta by Biogen, Inc. Biogen, which currently markets Avonex for
multiple sclerosis, is conducting a Phase II clinical trial of Avonex for
idiopathic pulmonary fibrosis. We believe that successful development of Avonex
for idiopathic pulmonary fibrosis will have a limited impact on ACTIMMUNE for
idiopathic pulmonary fibrosis due to the more favorable side effect profile of
ACTIMMUNE relative to interferon beta.
We believe that the primary competition for ACTIMMUNE in serious infectious
diseases such as mycobacterial and systemic fungal infections consists of:
- the potential development of new generations of advanced antibiotics and
anti-fungal agents that successfully treat these diseases; and
- the current treatment regimens, which may be less effective in many cases,
but cost substantially less than the current price for ACTIMMUNE.
The primary competition for ACTIMMUNE in cystic fibrosis are the
FDA-approved drugs marketed by Genentech and Pathogenesis Corporation.
SALES AND MARKETING
We are currently marketing ACTIMMUNE in the United States for the treatment
of chronic granulomatous disease and osteopetrosis. Our marketing efforts
currently consist of the following:
- direct mailings to physicians;
- advertisements for ACTIMMUNE;
- our ACTIMMUNE.com website, which contains product and disease information
for physicians and patients; and
- attendance at physician trade shows.
We have contracted the services of 12 medical science liaisons who will
educate physicians and increase their awareness of ACTIMMUNE. We also plan to
sponsor speaker programs, medical symposia and continuing medical education
programs regarding ACTIMMUNE.
FDA REGULATION AND PRODUCT APPROVAL
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. We believe that our products will be regulated as
biologics by the FDA.
The process required by the FDA before our products, or new indications for
approved products, may be marketed in the United States generally involves the
following:
- preclinical laboratory and animal tests;
- submission of an investigational new drug, or IND, application, which must
become effective before clinical trials may begin;
34
<PAGE>
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug for its intended use; and
- FDA approval of a new BLA supplement.
The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be certain that any new approvals for
ACTIMMUNE will be granted on a timely basis, if at all.
Prior to commencing a clinical trial, we must submit an IND application to
the FDA. The IND automatically becomes effective 30 days after receipt by the
FDA, unless the FDA, within the 30-day time period, raises concerns or questions
about the conduct of the trial. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Our
submission of an IND may not result in FDA authorization to commence a clinical
trial. Further, an independent institutional review board at the medical center
proposing to conduct the clinical trial must review and approve the plan for any
clinical trial before it commences.
Human clinical trials are typically conducted in three sequential phases
that may overlap:
- PHASE I: The drug is initially introduced into healthy human subjects or
patients and tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion.
- PHASE II: Involves studies in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy of
the product for specific targeted diseases and to determine dosage
tolerance and optimal dosage.
- PHASE III: When Phase II evaluations demonstrate that a dosage range of
the product is effective and has an acceptable safety profile, Phase III
trials are undertaken to further evaluate dosage, clinical efficacy and to
further test for safety in an expanded patient population at
geographically dispersed clinical study sites.
- In the case of products for severe or life-threatening diseases such as
idiopathic pulmonary fibrosis, the initial human testing is often
conducted in patients rather than in healthy volunteers. Because these
patients already have the target disease, these studies may provide
initial evidence of efficacy traditionally obtained in Phase II trials,
and thus these trials are frequently referred to as Phase I/II trials.
We may not successfully complete Phase I, Phase II or Phase III testing of
ACTIMMUNE within any specific time period, if at all. Furthermore, the FDA or an
institutional review board or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of a BLA, or a BLA supplement, for approval of
a new indication if the product is already approved for an indication. The FDA
may deny a BLA or BLA supplement if the applicable regulatory criteria are not
satisfied or may require additional clinical data. Even if such data is
submitted, the FDA may ultimately decide that the BLA or BLA supplement does not
satisfy the criteria for approval. Once issued, the FDA may withdraw product
approval if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and the FDA has the power to prevent or
limit further marketing of a product based on the results of these
post-marketing programs.
The FDA's fast track program is intended to facilitate the development and
expedite the review of drugs intended for the treatment of serious or
life-threatening diseases and that demonstrate the potential to address unmet
medical needs for such conditions. Under this program, the FDA can, for example,
review portions of a BLA for a fast track product before the entire application
is complete,
35
<PAGE>
thus potentially beginning the review process at an earlier time. We cannot
guarantee that the FDA will grant any of our requests for fast track
designation, that any fast track designation would affect the time of review, or
that the FDA will approve the BLA submitted for any of our drug candidates,
whether or not fast track designation is granted. Additionally, the FDA's
approval of a fast track product can include restrictions on the product's use
or distribution, such as permitting use only for specified medical procedures or
limiting distribution to physicians or facilities with special training or
experience. Approval of fast track products can be conditional with a
requirement for additional clinical studies after approval.
Satisfaction of FDA requirements or similar requirements of state, local and
foreign regulatory agencies typically takes several years and the actual time
required may vary substantially, based upon the type, complexity and novelty of
the product or indication. Government regulation may delay or prevent marketing
of potential products or new indications for a considerable period of time and
to impose costly procedures upon our activities. We cannot be certain that the
FDA or any other regulatory agency will grant additional approvals for ACTIMMUNE
on a timely basis, if at all. Success in early stage clinical trials does not
assure success in later stage clinical trials. Data obtained from clinical
activities is not always conclusive and may be susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. Even if
a product receives regulatory approval, the approval may be significantly
limited to specific indications and dosages. Further, even after regulatory
approval is obtained, later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of
the product from the market. Delays in obtaining, or failures to obtain
additional regulatory approvals for ACTIMMUNE would have a material adverse
effect on our business. In addition, we cannot predict what adverse governmental
regulations may arise from future U.S. or foreign governmental action.
Any products manufactured or distributed by us pursuant to FDA approvals are
subject to continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with good manufacturing practices, which impose certain procedural
and documentation requirements upon us and our third party manufacturers. We
cannot be certain that we or our present or future suppliers will be able to
comply with the GMP regulations and other FDA regulatory requirements.
Physicians may prescribe drugs for uses that are not described in the
product's labeling for uses that differ from those tested by us and approved by
the FDA. Such off-label uses are common across medical specialties. Physicians
may believe that such off-label uses are the best treatment for many patients in
varied circumstances. The FDA does not regulate the behavior of physicians in
their choice of treatments. The FDA does, however, restrict manufacturer's
communications on the subject of off-label use. Companies cannot actively
promote FDA-approved drugs for off-label uses, but a recent court decision now
allows them to disseminate to physicians articles published in peer-reviewed
journals, like THE NEW ENGLAND JOURNAL OF MEDICINE, that discuss off-label uses
of approved products. To the extent allowed by law, we intend to disseminate
peer-reviewed articles on ACTIMMUNE to our physician customers.
The FDA's policies may change and additional government regulations may be
enacted which could prevent or delay regulatory approval of our potential
products or new indications for ACTIMMUNE. We cannot predict the likelihood,
nature or extent of adverse governmental regulation which might arise from
future legislative or administrative action, either in the United States or
abroad.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition, which is generally a
disease or condition that affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting
36
<PAGE>
a BLA. After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in or shorten the
duration of the regulatory review and approval process. If a product that has
orphan drug designation subsequently receives FDA approval for the indication
for which it has such designation, the product is entitled to orphan
exclusivity, i.e., the FDA may not approve any other applications to market the
same drug for the same indication, except in very limited circumstances, for
seven years. We intend to file for orphan drug designation for those ACTIMMUNE
indications which meet the criteria for orphan exclusivity. Although obtaining
FDA approval to market a product with orphan drug exclusivity can be
advantageous, there can be no assurance that it would provide us with a material
commercial advantage.
RESEARCH AND DEVELOPMENT
We direct financial resources efficiently to goal-oriented projects by
reducing the time and infrastructure spent on research and development. We do
not conduct in-house preclinical research and development. Instead, we contract
these activities to qualified third-party research and development institutions
such as academia or private contract labs. We have two contracted research and
development programs. The first is with the Medical College of Wisconsin and is
focused on the development of monoclonal antibodies against pseudomonas
aeruginosa. The other program is in collaboration with Panorama Research and is
focused on the development of peptides that block staphylococcus aureus
infections.
EMPLOYEES
As of January 31, 2000, we had 21 full-time employees. Of the full-time
employees, 10 were engaged in research and development and 11 were engaged in
sales, general and administrative positions. In addition, we have contracted
with consultants, including the 12 full-time medical science liaisons, that we
estimate are the equivalent of 25 additional full-time employees. We believe our
relations with our employees are good.
FACILITIES
We currently utilize approximately 5,000 square feet for our interim
corporate headquarters and administrative offices in Palo Alto, California
through a services agreement with Connetics, which will expire when we move to a
new facility. We have entered into a lease agreement for 7,000 square feet for
our new corporate headquarters in Burlingame, California. We intend to move into
these offices in the first quarter of 2000. We have no laboratory or research
facilities.
37
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
The following table provides information regarding our directors, executive
officers, and key employees:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- ------------------------------------------
<S> <C> <C>
W. Scott Harkonen, M.D.................... 48 Chief Executive Officer, President and
Chairman of the Board of Directors
Timothy P. Lynch.......................... 29 Chief Financial Officer, Vice President of
Business Development
Peter Van Vlasselaer, Ph.D................ 41 Senior Vice President of Technical
Operations
Nzeera Virani-Ketter, M.D................. 50 Vice President of Clinical Research
Christine Czarniecki, Ph.D................ 49 Vice President of Regulatory Affairs
J. Woodruff Emlen, M.D.................... 53 Vice President of Scientific Affairs
Mary Fermi................................ 47 Senior Director of Commercial Operations
Edgar Engleman, M.D....................... 54 Director
James I. Healy, M.D., Ph.D................ 35 Director
John L. Higgins........................... 29 Director
Jonathan S. Leff.......................... 31 Director
Nicholas J. Simon......................... 45 Director
Michael F. Powell......................... 45 Director
</TABLE>
- ------------------------
W. SCOTT HARKONEN, M.D. Dr. Harkonen founded InterMune in February 1998 and
has served as a member of our board of directors since inception and is
currently the Chairman of the Board. Dr. Harkonen has been our Chief Executive
Officer and President since inception. From September 1995 to April 1999,
Dr. Harkonen served as Senior Vice President of Product Development and
Operations at Connetics Corporation. From March 1991 to September 1995,
Dr. Harkonen served as Vice President of Medical and Regulatory Affairs at
Univax Biologics. Dr. Harkonen holds an M.D. from the University of Minnesota
and an M.B.A. from the Haas School of Business at the University of California
at Berkeley.
TIMOTHY P. LYNCH. Mr. Lynch has served as our Chief Financial Officer and
Vice President of Business Development since November 1999. From July 1999 to
October 1999, Mr. Lynch served as the Director of Business Development at
ePhysician, Inc. From August 1997 to July 1999, Mr. Lynch served as Director of
Strategic Planning at Elan Corporation, plc. From August 1993 to June 1995,
Mr. Lynch was employed by Goldman, Sachs & Co. in the investment banking
division. From June 1992 to August 1993, Mr. Lynch was employed by Chase
Securities, Inc. in the investment banking division. Mr. Lynch holds an M.B.A.
from the Harvard Graduate School of Business.
PETER VAN VLASSELAER, PH.D. Dr. Van Vlasselaer has served as our Senior Vice
President of Technical Operations since November 1999. From July 1993 to
November 1999, Dr. Van Vlasselaer served as Vice President of Development at
Dendreon Corporation. Dr. Van Vlasselaer holds a Ph.D. from the University of
Leuven in Belgium and was an immunology fellow at Stanford University.
NZEERA VIRANI-KETTER, M.D. Dr. Virani-Ketter has served as our Vice
President of Clinical Research since November 1999. From April 1998 to
March 1999, Dr. Virani-Ketter served as Senior Director of Clinical Research at
VaxGen. From June 1996 to March 1998, Dr. Virani-Ketter served as associate
38
<PAGE>
director of clinical research at Gilead Sciences. Dr. Virani-Ketter holds an
M.D. from the University of Toronto.
CHRISTINE CZARNIECKI, PH.D. Dr. Czarniecki has served as our Vice President
of Regulatory Affairs since January 2000. From March 1997 to January 2000,
Dr. Czarniecki served as Director of Regulatory Affairs and Quality at Axys
Pharmaceuticals Inc. From July 1993 to March 1997, Dr. Czarniecki served as
Director of Regulatory Affairs at ICOS Corporation. Dr. Czarniecki holds a Ph.D.
from Georgetown University.
J. WOODRUFF EMLEN, M.D. Dr. Emlen has served as our Vice President of
Scientific Affairs since October 1998. From August 1997 to October 1998,
Dr. Emlen served as Vice President of Exploratory Medicine at Connetics
Corporation. From September 1987 to August 1997, Dr. Emlen served as a professor
of medicine and immunology at the University of Colorado Health Services Center.
Dr. Emlen holds an M.D. from the University of California at San Diego.
MARY FERMI. Ms. Fermi has served as our Senior Director of Commercial
Operations since June 1998. From March 1996 to June 1998, Ms. Fermi directed the
Managed Care Contracting Department at Spectra Laboratories. From March 1995 to
March 1996, Ms. Fermi had management responsibilities, marketing, sales, managed
care, and corporate accounts at MAST Immunosystems, Inc. Ms. Fermi holds an
M.B.A. from San Jose State University.
EDGAR ENGLEMAN, M.D. Dr. Engleman has served as a member of our board of
directors since April 1999. Dr. Engleman joined BioAsia Investments, LLC in 1997
and is currently a General Partner of BioAsia Investments, LLC. Dr. Engleman has
served on the faculty of Stanford University Medical School since 1978 and is
currently Professor of Pathology and Medicine. Dr. Engleman serves on the board
of directors of several private companies. Dr. Engleman holds an M.D. from
Columbia University School of Medicine.
JAMES I. HEALY, M.D., PH.D. Dr. Healy has served as a member of our board of
directors since April 1999 and as the interim chairman of the board of directors
from October 1999 through January 2000. Dr. Healy joined Sanderling Ventures in
January 1998 and is currently a partner at Sanderling Ventures. From August 1997
to December 1997, Dr. Healy was a Novartis Foundation Fellow at Brigham &
Women's Hospital. From August 1990 to July 1997 he was employed by the Howard
Hughes Medical Institute and Stanford University. Dr. Healy serves on the board
of directors of several private companies. Dr. Healy holds an M.D. and a Ph.D.
from Stanford University.
JOHN L. HIGGINS. Mr. Higgins has served as a member of our board of
directors since April 1999. Mr. Higgins joined Connetics Corporation in
September 1997 and currently serves as Chief Financial Officer and Executive
Vice President of Finance and Administration. From August 1994 to
September 1997, Mr. Higgins worked at BioCryst Pharmaceuticals, Inc. serving in
various management positions, including Executive Vice President of Corporate
Development.
JONATHAN S. LEFF. Mr. Leff has served as a member of our board of directors
since January 2000. Mr. Leff joined E.M. Warburg, Pincus & Co., LLC in 1996 and
is currently a Managing Director. Mr. Leff serves on the board of directors of
Visible Genetics, Inc. and VitalCom, Inc., both of which are publicly held, and
is on the board of directors of several private companies. Mr. Leff holds an
M.B.A. from Stanford University.
NICHOLAS J. SIMON. Mr. Simon has served as a member of our board of
directors since August 1999. Mr. Simon joined Genentech, Inc. in December 1989
and is currently serving as Vice President of Business and Corporate
Development. Mr. Simon serves on the board of directors of several private
companies. Mr. Simon holds an M.B.A. from Loyola College.
MICHAEL F. POWELL, PH.D. Dr. Powell has served as a member of our board of
directors since January 2000. Dr. Powell joined Sofinnova Ventures in 1997 and
is currently a Managing Director at Sofinnova Ventures. From 1990 to 1997,
Dr. Powell served as Group Leader at Genentech, Inc.
39
<PAGE>
Dr. Powell serves on the board of directors of several private companies.
Dr. Powell holds a Ph.D. from the University of Toronto and is currently an
adjunct professor at the University of Kansas, department of Pharmaceutical
Chemistry.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. Although no
director has a contractual right to serve as a member of our board of directors,
pursuant to the Amended and Restated Investor Rights Agreement, dated
January 7, 2000, among the holders of our preferred stock and us, we have agreed
to use reasonable efforts to elect:
- a representative designated by Sanderling Ventures until the earlier of
January 7, 2004 or such time as the entities affiliated with Sanderling
Ventures beneficially own less than 95% of the aggregate capital stock
beneficially owned by them at the closing of our Series B preferred stock
financing in January 2000 and
- a representative designated by Warburg, Pincus Equity Partners, L.P. until
the earlier of January 7, 2004 or such time as the entities affiliated
with Warburg, Pincus Equity Partners, L.P. beneficially own less than 95%
of the aggregate capital stock beneficially owned by them at the closing
of our Series B preferred stock financing in January 2000.
BOARD COMPOSITION
Dr. Harkonen is currently the chairman of our board of directors. We are
searching for an independent chairman.
Our board of directors consists of seven directors. Upon the closing of the
offering, our board of directors will be divided into three classes:
- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001;
- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002; and
- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. Any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors. This
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of us.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. Our audit committee, consisting currently of Messrs.
, and , was recently formed in connection with this
offering. The audit committee will review our internal accounting procedures and
consult with and review the services provided by our independent auditors.
COMPENSATION COMMITTEE. Our compensation committee, consisting currently of
Dr. Harkonen and Messrs. and , was recently formed in connection
with this offering. The compensation committee will review and recommend to our
board of directors the compensation and benefits of all our officers and
establish and review general policies relating to compensation and benefits of
our employees.
40
<PAGE>
COMPENSATION OF DIRECTORS
We do not provide cash compensation to members of our board of directors for
serving on our board of directors or for attendance at committee meetings.
Members of our board of directors are reimbursed for some out-of-pocket expenses
in connection with attendance at board and committee meetings. In July 1999,
each of Messrs. Engleman, Healy and Higgins, three of our non-employee
directors, received option grants to purchase 30,000 shares of common stock at
exercise price of $0.125 per share. In October 1999, Mr. Simon, one of our
non-employee directors, received an option grant to purchase 30,000 shares of
common stock at an exercise price of $0.125 per share. In January 2000, each of
Messrs. Leff and Powell, two of our non-employee directors, received option
grants to purchase 30,000 shares of common stock at exercise prices of $4.50 per
share. Under each of these grants, the option shares vest over a two-year period
in equal quarterly installments. In July 1999, Messrs. Engleman and Healy each
received an option grant for the purchase of 70,000 shares of fully vested
common stock at an exercise price of $0.125 per share. Our 2000 Non-Employee
Directors' Stock Option Plan, which will become effective upon the closing of
this offering, will provide for ongoing option grants to our non-employee
directors. See "Management--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither member of our compensation committee has at any time been an officer
or employee of ours. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past.
EMPLOYMENT AGREEMENTS
In April 1999, we entered into an executive employment agreement with Dr.
Harkonen, our Chairman, Chief Executive Officer and President. The employment
agreement provides for an annual salary of $225,000 and the payment of bonuses
upon the achievement of milestones to be agreed to on an annual basis. In
connection with his employment with us, we sold Dr. Harkonen 690,000 shares of
common stock subject to a five year vesting schedule. If Dr. Harkonen's
employment is terminated by us in an involuntary termination, other than for
cause, as these terms are defined in the employment agreement, including
circumstances involving a change in control, he will be entitled to receive his
salary for an additional six months and will vest for an additional 28% of his
common stock.
In October 1999, we entered into an employment offer letter with Mr. Lynch,
our Chief Financial Officer and Vice President of Business Development. The
offer letter provides for an annual salary of $160,000. It also provides that if
we terminate Mr. Lynch's employment other than for cause or if there is a
significant change in his responsibilities following a change of control, he
will be entitled to receive salary and benefits for an additional six months and
will continue to vest for an additional six-month period.
In October 1999, we entered into an employment offer letter with Dr. Van
Vlasselaer, our Senior Vice President of Technical Operations. The offer letter
provides for an annual salary of $165,000. It also provides that if we terminate
Dr. Van Vlasselaer's employment other than for cause, he will be entitled to
receive salary and benefits for an additional three months and will continue to
vest for an additional three-month period.
In December 1999, we entered into an employment offer letter with Dr.
Czarniecki, our Vice President of Regulatory Affairs. The offer letter provides
for an annual salary of $175,000. It also provides that if we terminate
Dr. Czarniecki's employment other than for cause, she will be entitled to
receive salary and benefits for an additional four months and will continue to
vest for an additional four-month period.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and our other most highly
compensated executive officers whose salary and bonus for such year was in
excess of $100,000 on an annualized basis. All option grants were made under our
1999 equity incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------
------------ SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION($)
NAME AND PRINCIPAL POSITION ($) OPTIONS (1)
- --------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
W. Scott Harkonen, M.D............................... $169,998 -- $10,749
Chief Executive Officer, President and Chairman of
the Board of Directors
Timothy P. Lynch..................................... $ 26,667 180,000 $10,000
Chief Financial Officer, Vice President of Business
Development
Peter Van Vlasselaer, Ph.D........................... $ 21,240 160,000 $10,000
Senior Vice President of Technical Operations
J. Woodruff Emlen, M.D............................... $114,928 90,000 $ 4,768
Vice President of Clinical Research
Nzeera Virani-Ketter, M.D............................ $ 60,000 120,000 --
Vice President of Scientific Affairs
</TABLE>
- ------------------------
(1) Includes term-life insurance premiums paid by us on behalf of these named
executive officers signing and annual bonuses, and excess long-term
disability.
OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our other executive
officers whose salary and bonus was in excess of $100,000 on an annualized basis
during 1999. Options granted to purchase shares of our common stock under our
1999 equity incentive plan are generally immediately exercisable by the optionee
but are subject to a right of repurchase pursuant to the vesting schedule of
each specific grant. In the event that a purchaser ceases to provide service to
us, we have the right to repurchase any of that person's unvested shares of
common stock at the original option exercise price. The exercise price per share
is equal to the fair market value of our common stock on the date of grant as
determined by our board of directors. The percentage of total options was
calculated based on options to purchase an aggregate of 1,170,000 shares of
common stock granted under our 1999 equity incentive plan in 1999. The potential
realizable value was calculated based on the ten-year term of the options and
assumed rates of stock appreciation of 5% and 10%, compounded annually from the
date the options were granted to their expiration date based on the fair market
value of the common stock on the date of grant. Twenty percent of the option
grant generally vests on the one-year anniversary of employment, and the
remainder vest in a series of equal monthly installments beginning on the one
year anniversary of employment and continuing over the next four years of
service. However, Mr. Lynch's option grant of 15,000 shares will vest upon the
closing of this offering. See "Stock Plans" for a description of the material
terms of these options.
42
<PAGE>
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR
UNDERLYING IN EXERCISE OPTION TERM
OPTIONS FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ---------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Scott Harkonen M.D.................... -- -- -- $ $
Timothy P. Lynch......................... 165,000 14.10% $0.125 11/16/09 $12,971 $32,871
15,000 1.28% $0.125 11/16/09 $ 1,179 $ 2,988
Peter Van Vlasselaer, Ph.D............... 160,000 13.68% $0.125 11/16/09 $12,578 $31,875
J. Woodruff Emlen, M.D................... 70,000 5.98% $0.125 7/29/09 $ 5,503 $13,945
20,000 1.71% $0.125 11/16/09 $ 1,572 $ 3,984
Nzeera Virani-Ketter, M.D................ 120,000 10.26% $0.125 11/16/09 $ 9,433 $23,906
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and our other most highly compensated executive officers with
annualized base salaries in excess of $100,000 as of December 31, 1999. Options
granted to purchase shares of our common stock under our 1999 equity incentive
plan are generally immediately exercisable by optionees but are subject to a
right of repurchase pursuant to the vesting schedule of each specific grant. The
repurchase option generally lapses over a five-year period with 20% lapsing
after the first year and 1.667% lapsing monthly thereafter. In the event that a
purchaser ceases to provide service to us or our affiliates, we have the right
to repurchase any of that person's unvested shares of common stock at the
original option exercise price. Amounts shown in the value realized column were
calculated based on the difference between the option exercise price and the
fair market value of the common stock on the date of exercise, without taking
into account any taxes that may be payable in connection with the transaction,
multiplied by the number of shares of common stock underlying the option. The
exercise price for all options granted in 1999 was $0.125.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
SHARES ACQUIRED ---------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED VESTED UNVESTED EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Scott Harkonen, M.D..... -- -- -- -- -- --
Timothy P. Lynch........... 180,000 0 -- -- -- --
Peter Van Vlasselaer,
Ph.D..................... 160,000 0 -- -- -- --
J. Woodruff Emlen, M.D..... 90,000 0 -- -- -- --
Nzeera Virani-Ketter,
M.D...................... 120,000 0 -- -- -- --
</TABLE>
STOCK PLANS
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted the 2000 plan in January 2000 and will ask
our stockholders to approve the 2000 plan in February 2000. The 2000 plan will
become effective on the effective date of this offering.
43
<PAGE>
SHARE RESERVE. A total of 2,000,000 shares of our common stock have been
reserved for issuance under the 2000 plan. On January 1 of each year, commencing
with January 1, 2001, the share reserve will increase by the least of the
following:
- 3% of our total outstanding common stock (on a fully diluted, as converted
basis) at the time of an increase;
- an amount less than that above as determined by our board of directors.
No more than 10,000,000 of the shares reserved can be issued through the
exercise of incentive stock options. When a stock award expires or is terminated
before it is exercised, the shares not acquired pursuant to the stock award
again become available for issuance under the 2000 plan.
ADMINISTRATION. Our board of directors administers the 2000 plan. Our board
of directors, however, may delegate this authority to a committee of one or more
board members. The board or a committee of the board has the authority to
construe, interpret and amend the 2000 plan as well as to determine:
- the recipient of any stock award;
- the number of stock awards a recipient may receive;
- the grant date of a stock award;
- the number of shares subject to a stock award;
- the exercisability and vesting of a stock award;
- the exercise price of a stock award;
- the type of consideration to receive stock under a stock award; and
- the other terms of a stock award.
Our board of directors may amend or modify the 2000 plan at any time.
However, no amendment or modification shall adversely affect the rights and
obligations with respect to stock awards unless the holder consents to that
amendment or modification. In addition, our board of directors may, if required
or desirable, seek the approval of our stockholders to:
- increase the maximum number of shares issuable under incentive stock
options under the 2000 plan or the rate at which shares are added to the
reserve of the 2000 plan (except for permissible adjustments in the event
of certain changes in our capitalization);
- materially modify the eligibility requirements for participation; or
- materially increase the benefits accruing to participants.
ELIGIBILITY. The 2000 plan permits granting stock awards to employees,
directors and consultants of ours or certain of our affiliates. A stock award
may be an "incentive stock option" (ISO), within the meaning of Section 422 of
the Internal Revenue Code, a nonstatutory stock option (NSO), a right to
purchase restricted stock or a restricted stock bonus.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer or any of the four highest compensated officers (excluding the
chief executive officer) in a taxable year to the extent that the compensation
of that officer exceeds $1,000,000. To prevent options granted under the 2000
plan from being included in this compensation, in any calendar year the board
may not grant options under the 2000 plan to an employee covering an aggregate
of more than 1,000,000 shares.
STOCK OPTION PROVISIONS GENERALLY. In general, the duration of a stock
option granted under the 2000 plan cannot exceed ten years. The exercise price
of an ISO cannot be less than 100% of the fair market value of the common stock
on the date of grant. The exercise price of an NSO cannot be less than 50% of
the fair market value of the common stock on the date of grant. An ISO may be
44
<PAGE>
transferred only on death, but an NSO may also be transferable to the extent
permitted in the stock option agreement.
Unless the terms of an optionholder's stock option agreement provide for
earlier or later termination, if all of an optionholder's service relationships
with us and our affiliates terminate, then generally that optionholder (or that
optionholder's beneficiary if that optionholder has died) may exercise vested
options within:
- 18 months after that date if termination is due to death;
- 12 months after that date if termination is due to disability; or
- 3 months after that date if termination is for any reason other than
disability or death.
ISOs may be granted only to our employees (including those of certain
affiliates). The aggregate fair market value, determined at the time of grant,
of shares of our common stock with respect to which ISOs are exercisable for the
first time by an optionholder during any calendar year under all of our stock
plans may not exceed $100,000. An ISO granted to a person who at the time of
grant owns or is deemed to own more than 10% of the total combined voting power
of us or any of our affiliates must have a term of no more than five years and
an exercise price that is at least 110% of fair market value at the time of
grant.
PROVISIONS OF OTHER STOCK AWARDS GENERALLY. The board or a committee of the
board determines the purchase price of other stock awards, which for
nonstatutory stock options and stock purchase awards cannot be less than 50% of
the stock's fair market value at the time of grant. Stock bonuses, however, may
be awarded in consideration of past services without additional payment. Shares
that we sell or award under the 2000 plan may, but need not be, restricted and
subject to a repurchase option in our favor in accordance with a vesting
schedule. The board or committee, however, may accelerate the vesting of
restricted stock.
EFFECT ON STOCK AWARDS OF A CHANGE IN CONTROL. The 2000 plan provides that
in the event of a change in control in the beneficial ownership of us, the
surviving entity may assume all outstanding stock awards or substitute similar
stock awards for them. If the surviving entity determines not to assume or
substitute for these stock awards, the vesting in full of stock awards held by
persons whose service with us or our affiliates has not already terminated will
accelerate prior to this change in control. Awards not assumed or substituted
and not exercised prior to the effective date of the change in control shall
terminate and cease to be outstanding on the effective date of the change in
control.
OTHER PROVISIONS. If there is a transaction or event not involving our
receipt of consideration, including a merger, consolidation, reorganization,
stock dividend, or stock split, the board will appropriately adjust the class
and the maximum number of shares subject to the 2000 plan, the maximum number of
shares available for ISOs, and the Section 162(m) limit.
PLAN TERMINATION. The 2000 plan terminates on January 30, 2010.
OPTIONS ISSUED. As the 2000 plan is not effective until the effective date
of this offering, we have not granted any stock awards under the 2000 plan.
1999 EQUITY INCENTIVE PLAN
Our board of directors adopted and our stockholders approved our 1999 equity
incentive plan in June 1999. The 1999 plan was amended in December 1999, and our
stockholders approved such amendment. An aggregate of 2,000,000 shares of common
stock currently are authorized for issuance under the 1999 plan. On the
effective date of this offering stock awards will no longer be granted under the
1999 plan. Stock awards granted under the 1999 plan have substantially the same
terms as will apply to grants under the 2000 plan. With respect to change in
control provisions, all outstanding options under the 1999 plan may be either
assumed or substituted by any surviving entity. If the surviving entity
determines not to assume or substitute such awards, the vesting schedule of all
45
<PAGE>
outstanding awards held by persons whose service with us or our affiliates has
not already terminated shall accelerate, and all such outstanding awards will be
immediately exercisable. Awards not assumed or substituted and not exercised
prior to the effective date of the change in control shall terminate and cease
to be outstanding on the effective date of the change in control. As of
January 31, 2000, we had issued 885,000 shares upon the exercise of options
under the 1999 plan and options to purchase 728,500 shares at a weighted average
exercise price of $1.76 per share were outstanding. As of January 31, 2000, our
board had not granted any stock bonuses or restricted stock under the 1999 plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 employee stock purchase plan in
January 2000, and will ask our stockholders to approve the purchase plan in
February 2000.
SHARE RESERVE. A total of 200,000 shares of common stock have currently
been authorized for issuance under the purchase plan. On each January 1,
beginning with January 1, 2001, and including and ending on January 1, 2009, the
share reserve will increase by the least of the following:
- 1% of our total outstanding common stock, on a fully-diluted, as converted
basis;
- 400,000 shares; or
- a lesser amount as determined by our board at or prior to the date of an
increase.
The purchase plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. Under the purchase plan, eligible employees will be able to purchase
common stock at a discount price in periodic offerings. The purchase plan and
the first offering under the purchase plan will commence on the effective date
of this offering.
ELIGIBILITY. All employees are eligible to participate in the purchase plan
so long as they are employed by us, or a U.S. incorporated subsidiary designated
by the board of directors, for at least 20 hours per week and are customarily
employed by us, or a subsidiary designated by the board of directors, for at
least five months per calendar year. Any employee who is a 5% stockholder is not
eligible to participate in the purchase plan.
OFFERINGS. Under the purchase plan, the board may specify offerings of up
to 27 months. Unless our board determines otherwise, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share of our common stock on the first
day of the offering; or
- 85% of the fair market value of a share of our common stock on the
purchase date.
The first offering will begin on the effective date of this offering, and
the shares will be registered on a Form S-8 registration statement soon after
the effective date of this offering. The fair market value of the shares on the
first date of this offering will be the price per share at which our shares are
first sold to the public as specified in the final prospectus with respect to
this offering. Otherwise, fair market value generally means the closing sales
price (rounded up where necessary to the nearest whole cent) for these shares
(or the closing bid, if no sales were reported) as quoted on the Nasdaq National
Market on the last trading day prior to the relevant determination date, as
reported in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
46
<PAGE>
Participating employees may authorize payroll deductions of up to 15% of
their compensation for the purchase of stock under the purchase plan. Employees
may end their participation in an offering before a purchase period ends.
Participation ends automatically on termination of employment.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 worth of our stock (based on
its fair market value at the time the purchase right was granted) for each
calendar year in which the purchase rights are outstanding.
Upon a change in control, the successor corporation may either assume or
replace outstanding purchase rights. Alternatively, the time for exercise of
purchase rights under the ongoing offering period(s) will be accelerated and our
stock will be purchased for the participants immediately before the change in
control.
SHARES ISSUED. The purchase plan will not be effective until the effective
date of this offering. Therefore, as of the date hereof, no shares of common
stock have been purchased under the purchase plan.
PLAN TERMINATION. The purchase plan has no set termination date.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board adopted the 2000 non-employee directors' stock option plan in
January 2000 and will ask our stockholders to approve the plan in February 2000.
The directors' plan provides for the automatic grant to our non-employee
directors of options to purchase shares of our common stock.
SHARE RESERVE. We have reserved a total of 180,000 shares of our common
stock for issuance under the directors' plan. On January 1 of each year,
commencing with January 1, 2001, the share reserve will automatically be
increased by 180,000 shares. However, the automatic increase is subject to
reduction by the board. If an optionholder does not purchase the shares subject
to his or her option before the option expires or otherwise terminates, the
shares that are not purchased will again become available for issuance under the
directors' plan.
ADMINISTRATION. The board administers the directors' plan. The board has
the authority to construe, interpret and amend the directors' plan but the
directors' plan specifies the essential terms of the options, including:
- the option recipients;
- the grant dates;
- the number of shares subject to the option;
- the exercisability and vesting of the option;
- the exercise price; and
- the type of consideration.
ELIGIBILITY. Options will automatically be granted under the directors'
plan to our non-employee directors as follows:
- Each non-employee director who, on the later of the closing of this
offering or the date of initial election or appointment to our board as a
non-employee director, does not already hold at least one stock option
granted by us, will automatically be granted an option for 30,000 shares
and an option for 10,000 shares.
- Each non-employee director who, on the later of the closing of this
offering or the date of initial election or appointment to our board as a
non-employee director, already holds at least one
47
<PAGE>
stock option granted by us, will automatically be granted under the
directors' plan an option for 10,000 shares on the date on which he is
fully vested under all of his stock options granted by us.
- On each anniversary of his or her first stock option grant for
10,000 shares under the directors' plan, each non-employee director who is
continuing as a non-employee director will be granted an additional option
for 10,000 shares.
As long as the non-employee director continues to serve with us or with an
affiliate of ours (whether in the capacity of a director, consultant, or an
employee) each option granted under the directors' plan to such person will vest
commencing one month after the date of its grant, at the rate of 1/36th of the
total number of shares for 30,000 share grants and 1/12th of the total number of
shares for 10,000 share grants until fully vested and will remain exercisable
throughout its term.
OPTION TERMS. Options have an exercise price equal to 100% of the fair
market value of our common stock on the grant date. The option term is
ten years but it generally will terminate three months after the optionholder's
service terminates. If termination is due to the optionholder's disability,
however, the post-termination exercise period is extended to 12 months. If this
termination is due to the optionholder's death or if the optionholder dies
within three months after his or her service terminates, the post-termination
exercise period is extended to 18 months following death.
The optionholder may transfer the option by gift to immediate family or for
estate-planning purposes. The optionholder also may designate a beneficiary to
exercise the option following the optionholder's death. Otherwise, the option
exercise rights will pass by the optionholder's will or by the laws of descent
and distribution.
OTHER PROVISIONS. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the directors' plan
and to outstanding options. In that event, the board will appropriately adjust
the directors' plan as to the class and the maximum number of shares subject to
the directors' plan and to the automatic option grants. The board will also
adjust outstanding options as to the class, number of shares and price per share
subject to the options.
In the event of a change in control, the surviving entity may either assume
or replace outstanding options under the directors' plan. If this does not
occur, then generally for options held by persons then performing services as an
employee or director of, or consultant to, us or our affiliates, the vesting of
their options will accelerate, and unexercised options will terminate
immediately prior to the event. Even if assumption or substitution does occur,
the vesting of options held by non-employee directors will accelerate and vest
in full. A change in control includes the following:
- a dissolution, liquidation or sale of all or substantially all of our
assets;
- a merger or consolidation in which we are not the surviving corporation;
or
- a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property.
OPTIONS ISSUED. The directors' plan will not be effective until the
effective date of this offering. Therefore, we have not issued any options under
the directors' plan.
PLAN TERMINATION. The directors' plan has no stated termination date.
401(k) PLAN
We sponsor a 401(k) plan, a defined contribution plan intended to qualify
under Section 401(a) of the Internal Revenue Code of 1986. All employees are
eligible to participate. Participants may make pre-tax contributions to the
401(k) plan of up to 15% of their eligible earnings, subject to a statutorily
48
<PAGE>
prescribed annual limit ($10,500 in calendar year 2000). Under the 401(k) plan,
each employee is fully vested in his or her deferred salary contributions.
Employee contributions are held and invested by the 401(k) plan's trustee.
Each participant's contributions, and the corresponding investment earnings,
are generally not taxable to the participants until withdrawn. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which a director derives an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and officers, and may indemnify our employees and other agents, to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity and certain other capacities, such as
serving as a director of another corporation at the request of our board of
directors.
We intend to enter into agreements to indemnify our directors and officers
in addition to indemnification provided for in our certificate of incorporation
and our bylaws. These agreements, among other things, will provide for
indemnification of our directors and officers for expenses specified in the
agreements, including attorneys' fees, judgments, fines and settlement amounts
incurred by any of these persons in any action or proceeding arising out of
these persons' services as a director or officer for us, any of our subsidiaries
or any other entity to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted.
49
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts as of the
dates shown below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
-----------------------------------
COMMON STOCK SERIES A-1 SERIES A-2 SERIES B
--------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
W. Scott Harkonen............................. 690,000 -- -- 4,472
Timothy P. Lynch.............................. 180,000 -- -- 4,472
Peter Van Vlassalaer.......................... 160,000 -- -- --
J. Woodruff Emlen............................. 90,000 -- -- 4,472
Nzeera Virani-Ketter.......................... 120,000 -- -- 894
Nicholas J. Simon............................. -- -- -- 4,472
John L. Higgins............................... -- -- -- 4,472
James I. Healy................................ -- -- -- 4,472
Edgar Engleman................................ -- -- -- 2,236
5% STOCKHOLDERS
Genentech, Inc.(1)............................ -- 875,000 -- 178,891
Connetics Corporation(2)...................... -- 960,000 -- 89,445
Entities affiliated with Sanderling
Ventures(3)................................. 600,000 -- 2,400,000 313,060
Entities affiliated with BioAsia Investments,
LLC(4)...................................... 312,500 -- 1,200,000 201,254
Veron International, Ltd...................... -- -- 800,000 67,084
Entities affiliated with E.M. Warburg, Pincus
& Co. LLC(5)................................ -- -- -- 3,130,590
Entities affiliated with Sofinnova
Ventures(6)................................. -- -- 1,200,000 183,363
Price Per Share............................... $0.001 to $.125 $1.25 $1.25 $5.59
Date(s) of Purchase........................... 4/99 to 1/00 4/99 4/99 1/00
</TABLE>
- ------------------------
(1) Nicholas J. Simon, one of our directors, is a vice president of
Genentech, Inc.
(2) John L. Higgins, one of our directors, is the chief financial officer of
Connetics Corporation.
(3) James I. Healy, one of our directors, is a partner of Sanderling Ventures.
(4) Edgar Engleman, one of our directors, is a managing member of BioAsia
Investments, LLC.
(5) Jonathan S. Leff, one of our directors, is a general partner of
E.M. Warburg, Pincus & Co. LLC.
(6) Michael F. Powell, one of our directors, is a general partner of Sofinnova
Ventures.
We have entered into the following agreements with our executive officers,
directors and holders of more than five percent of our voting securities.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. We and the preferred
stockholders described above have entered into an agreement, under which these
and other preferred stockholders will have registration rights with respect to
their shares of common stock following this offering. Upon the closing of this
offering, all shares of our outstanding Series A-1, Series A-2, and Series B
preferred stock will be automatically converted into common stock on a one for
one basis. See "Description of Capital Stock--Registration Rights" for a further
description of the terms of this agreement.
AGREEMENTS WITH CONNETICS CORPORATION. We entered into the following
agreements with Connetics in April 1999: an Amended and Restated Service
Agreement, dated April 7, 1999, Amended and Restated Exclusive Sublicense
Agreement, dated April 27, 1999, Collaboration Agreement, dated April 27, 1999,
and Transition Agreement, dated April 27, 1999. Under the Amended and Restated
50
<PAGE>
Exclusive Sublicense Agreement, we obtained a sublicense to the exclusive rights
granted to Connetics by Genentech relating to interferon gamma-1b. See
"Business--License Agreements." Pursuant to the Collaboration Agreement, we made
cash payments to Connetics of approximately $500,000, committed to pay Connetics
an additional $500,000 in 2001, committed to issue shares of Series B preferred
stock to Connetics, which shares have been issued, and committed to issue to
Connetics shares of Series C preferred stock, or in the event of our initial
public offering or sale of us prior to the issuance of Series C preferred stock
to either pay Connetics $1,000,000 cash or issue additional shares of Series B
preferred stock. Under the Transition Agreement, Connetics books the net sales
for ACTIMMUNE, up to a baseline amount through December 2001 less associated
cost of goods sold and marketing expenses. After December 31, 2001, the net
sales for ACTIMMUNE will fully revert to us. We further pay to Connetics gross
margins on sales of ACTIMMUNE for chronic granulomatous disease below the
baseline units until December 31, 2001. Under the Amended and Restated Service
Agreement, Connetics has provided to us for a fee information services, payroll,
facilities, human resources, accounting, employee benefits, and administration
services. As of the date of this prospectus, we have discontinued most services
under the Amended and Restated Service Agreement.
SUPPLY AGREEMENT WITH GENENTECH, INC. Connetics and Genentech entered into
a Supply Agreement, dated May 5, 1998, for the supply of ACTIMMUNE for clinical
use and commercial sale. Connetics assigned all rights and obligations under the
Supply Agreement to us in April 1999. The agreement terminates upon the earlier
of May 5, 2001 or the date on which a mutually agreed upon third party
manufacturer, with whom we will have entered into a supply agreement to
manufacture ACTIMMUNE, receives an FDA license to manufacture ACTIMMUNE. Under
some circumstances in which we are unable to conclude an agreement with a third
party, Genentech may be required to supply ACTIMMUNE until May 5, 2003 or
longer. However, we recently entered into a supply agreement with Boehringer
Ingelheim for the supply of ACTIMMUNE, and upon their receipt of a license from
the FDA for the manufacture of ACTIMMUNE, the Genentech Supply Agreement would
terminate. See "Business--Strategy."
We have deferred payment of the royalties due to Genentech for 1999
(approximately $1.9 million) under a series of interest-bearing promissory notes
that will become due upon the closing date of this offering. The amounts due
under these notes may be converted, at Genentech's option, into shares of our
stock sold in our most recent financing prior to the conversion at the same
price per share.
INDEBTEDNESS OF MANAGEMENT. In connection with Dr. Harkonen's employment
transition from Connetics to us, we assumed an outstanding loan of $100,000 made
by Connetics to Dr. Harkonen pursuant to a secured loan agreement and promissory
note dated September 19, 1997. The interest rate on the promissory note is 7.5%
per annum. The principal and accrued interest are due on October 30, 2000.
STOCK OPTIONS. Stock option grants to our executive officers and directors
are described in this prospectus under the captions "Management--Director
Compensation" and "--Executive Compensation."
EXECUTIVE EMPLOYMENT AGREEMENTS. In April 1999, we entered into an
executive employment agreement with Dr. Harkonen, our Chief Executive Officer
and President, and in October, November and December 1999, we entered into
employment offer letters with Dr. Van Vlassalaer, our Senior Vice President of
Technical Operations; Mr. Lynch, our Chief Financial Officer and Vice President
of Business Development; and Dr. Czarniecki, our Vice President of Regulatory
Affairs. See "Management--Employment Agreements."
INDEMNIFICATION AGREEMENTS. We intend to enter into indemnification
agreements with our directors and officers for the indemnification of these
persons to the full extent permitted by law. We also intend to execute these
agreements with our future directors and officers.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of our outstanding common stock as of January 31, 2000, and
as adjusted to reflect the sale of our common stock by this prospectus, by:
- our Chief Executive Officer and each of our four other most highly
compensated executive officers;
- each director;
- all directors and executive officers as a group; and
- each stockholder who is known by us to own beneficially 5% or more of our
common stock.
Percentage of ownership in the following table is calculated based on
15,397,194 shares of common stock outstanding as of January 31, 2000 and
20,897,194 shares of common stock outstanding after completion of this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 31, 2000 are deemed
outstanding. Those shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to the table, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws, where
applicable. Unless otherwise indicated, the address of each of the individuals
named below is: 3294 West Bayshore Road, Palo Alto, CA 94303.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF JANUARY 31, 2000
-------------------------------------------------------------------------------
PERCENT OF TOTAL
SHARES ISSUABLE OUTSTANDING SHARES
OUTSTANDING SHARES SUBJECT TO UNDER OPTIONS BENEFICIALLY OWNED
SHARES OF A RIGHT OF EXERCISABLE ------------------------
COMMON REPURCHASE AS OF WITHIN 60 DAYS OF BEFORE THIS AFTER THIS
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK(1) MARCH 31, 2000(2) JANUARY 31, 2000 OFFERING OFFERING
- ------------------------------------ ----------- ----------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
W. Scott Harkonen, M.D............... 245,972 448,500 -- 4.51% 3.32%
Timothy P. Lynch..................... 19,472 165,000 -- 1.20 *
Peter Van Vlassalaer, Ph.D........... -- 160,000 -- 1.04 *
J. Woodruff Emlen, M.D............... 24,805 69,667 -- * *
Nzeera Virani-Ketter, M.D............ 894 120,000 -- * *
Christine Czarniecki, Ph.D........... -- 105,000 -- * *
James I. Healy, M.D., Ph.D.(3)....... 3,317,532 -- 100,000 22.05 16.28
Edgar Engleman M.D.(4)............... 1,715,989 -- 100,000 11.72 8.65
Jonathan S. Leff(5).................. 3,130,590 -- 30,000 20.49 15.10
John L. Higgins(6)................... 1,053,917 -- 30,000 7.03 5.18
Nicholas J. Simon(7)................. 4,472 -- 30,000 * *
Michael F. Powell, Ph.D.(8).......... 1,383,363 -- 30,000 9.16 6.75
Entities affiliated with Warburg,
Pincus Equity Partners, L.P.(9).... 3,130,590 -- -- 20.33 14.98
Entities affiliated with Sanderling
Ventures(10)....................... 3,313,060 -- -- 21.52 15.85
Entities affiliated with BioAsia
Investments, LLC(11)............... 1,713,753 -- -- 11.13 8.20
Entities affiliated with Sofinnova
Ventures(12)....................... 1,383,363 -- -- 8.98 6.62
Genentech, Inc.(13).................. 1,053,891 -- -- 6.84 5.04
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED AS OF JANUARY 31, 2000
-------------------------------------------------------------------------------
PERCENT OF TOTAL
SHARES ISSUABLE OUTSTANDING SHARES
OUTSTANDING SHARES SUBJECT TO UNDER OPTIONS BENEFICIALLY OWNED
SHARES OF A RIGHT OF EXERCISABLE ------------------------
COMMON REPURCHASE AS OF WITHIN 60 DAYS OF BEFORE THIS AFTER THIS
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK(1) MARCH 31, 2000(2) JANUARY 31, 2000 OFFERING OFFERING
- ------------------------------------ ----------- ----------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Connetics Corporation(14)............ 1,049,445 -- -- 6.82 5.02
Veron International Ltd.(15)......... 867,084 -- -- 5.63 4.15
All directors and executive officers
as a group (12 persons)(16)........ 10,891,640 1,068,167 320,000 78.13 57.88
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Excludes shares of common stock subject to a right of repurchase within
60 days of January 31, 2000.
(2) The unvested portion of the shares of common stock is subject to a right of
repurchase, at the original option price, in the event the holder ceases to
provide services to us and its affiliates or upon a change of control of
us. The repurchase rights lapse at a rate of 20% at the end of the first
year of service, and at a rate of 1/48th of the remaining purchased shares
for each continuous month of service thereafter. The option exercise prices
range from $0.01 to $4.50.
(3) Includes 1,510,462 shares held by Sanderling Venture Partners IV, L.P.,
588,016 shares held by Sanderling IV Biomedical, L.P., 580,963 shares held
by Sanderling IV Limited Partnership, L.P., 189,394 shares held by
Sanderling IV Venture Management, 178,891 shares held by Sanderling IV
Biomedical Co-Investment Fund, L.P., 167,581 shares held by Sanderling
[Feri Trust] Venture Partners IV, L.P., 8,307 shares held by Sanderling IV
Limited, L.P. and 89,446 shares held by Sanderling IV Co-Investment Fund,
L.P. Dr. Healy is a partner of Sanderling Ventures. Sanderling Ventures is
a general partner of Sanderling Venture Partners IV, L.P., Sanderling IV
Biomedical, L.P., Sanderling IV Limited Partnership, L.P., Sanderling IV
Venture Management, Sanderling IV Biomedical Co-Investment Fund, L.P.,
Sanderling [Feri Trust] Venture Partners IV, L.P., Sanderling IV Limited,
L.P. and Sanderling IV Co-Investment Fund, L.P. Dr. Healy disclaims
beneficial ownership of these shares except to the extent of his
proportionate partnership interest in these shares.
(4) Includes 1,205,201 shares held by Biotechnology Development Fund, L.P.,
58,140 shares held by Biotechnology Development Fund II, L.P., and 450,412
shares held by Biotechnology Development Fund III, L.P. Dr. Engleman is a
managing member of BioAsia Investments, LLC. BioAsia Investments, LLC is a
general partner of Biotechnology Development Fund, L.P., Biotechnology
Development Fund II, L.P., and Biotechnology Development Fund III, L.P.
Dr. Engleman disclaims beneficial ownership of these shares except to the
extent of his proportionate partnership interest in these shares.
(5) Includes 2,958,407 shares held by Warburg, Pincus Equity Partners, L.P.,
93,918 shares held by Warburg, Pincus Netherlands Equity Partners I, C.V.,
62,612 shares held by Warburg, Pincus Netherlands Equity Partners II, C.V.,
and 15,653 shares held by Warburg, Pincus Netherlands Equity Partners III,
C.V. Warburg, Pincus Equity Partners, L.P. and its three Dutch affiliates
are referred to as the "WPEP Group." Warburg, Pincus & Co. ("WP") is the
sole general partner of each of the four partnerships in the WPEP Group. WP
is managed by E.M. Warburg, Pincus & Co., LLC "EMWP." Lionel I. Pincus is
the managing partner of WP and the managing member of EMWP, and may be
deemed to control both entities. Mr. Leff is a managing director and member
of EMWP and a general partner of WP. Mr. Leff may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by the WPEP Group. All shares indicated as owned by Mr.
Leff are included because of his affiliation with the Warburg Pincus
entities. Mr. Leff disclaims beneficial ownership of all shares owned by
the Warburg Pincus entities.
53
<PAGE>
(6) Includes 1,049,445 shares held by Connetics Corporation. Mr. Higgins is the
Chief Financial Officer of Connetics Corporation and disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
(7) Although Mr. Simon is a Vice President of Genentech, Inc., he does not have
voting or investment power with respect to the shares owned by Genentech,
Inc.
(8) Includes 1,340,971 shares held by Sofinnova Venture Partners IV, L.P.,
4,472 shares held by Sofinnova Management IV, LLC and 37,920 shares held by
Sofinnova Venture Affiliates IV, L.P. Dr. Powell is a general partner of
Sofinnova Ventures and a managing director of Sofinnova Management IV, LLC.
Sofinnova Management IV, LLC is the general partner of Sofinnova Venture
Partners IV, LP and Sofinnova Venture Affiliates IV, L.P. Sofinnova
Ventures is an administrative entity of Sofinnova Management IV LLC.
Dr. Powell disclaims beneficial ownership of these shares except to the
extent of his proportionate partnership interest in these shares.
(9) Includes 2,958,407 shares held by Warburg, Pincus Equity Partners, L.P.,
93,918 shares held by Warburg, Pincus Netherlands Equity Partners I, C.V.,
62,612 shares held by Warburg, Pincus Netherlands Equity Partners II, C.V.,
and 15,653 shares held by Warburg, Pincus Netherlands Equity Partners III,
C.V. Warburg, Pincus Equity Partners, L.P. and such three Dutch affiliates
are referred to as the "WPEP Group." Warburg, Pincus & Co. ("WP") is the
sole general partner of each of the four partnerships in the WPEP Group. WP
is managed by E.M. Warburg, Pincus & Co., LLC "EMWP." Lionel I. Pincus is
the managing partner of WP and the managing member of EMWP, and may be
deemed to control both entities. Each of the Warburg Pincus entities is
located at 466 Lexington Avenue, New York, NY 10017.
(10) Includes 1,510,462 shares held by Sanderling Venture Partners IV, L.P.,
588,016 shares held by Sanderling IV Biomedical, L.P., 580,963 shares held
by Sanderling IV Limited Partnership, L.P., 189,394 shares held by
Sanderling IV Venture Management, 178,891 shares held by Sanderling IV
Biomedical Co-Investment Fund, L.P., 167,581 shares held by Sanderling
[Feri Trust] Venture Partners IV, L.P., 8,307 shares held by Sanderling IV
Limited, L.P. and 89,446 shares held by Sanderling IV Co-Investment Fund,
L.P. Sanderling Ventures is located at 2730 Sand Hill Road, Suite 200,
Menlo Park, CA 94025.
(11) Includes 1,205,201 shares held by Biotechnology Development Fund, L.P.,
58,140 shares held by Biotechnology Development Fund II, L.P., and 450,412
shares held by Biotechnology Development Fund III, L.P. Dr. Engleman is a
managing member of BioAsia Investments, LLC. BioAsia Investments, LLC is a
general partner of Biotechnology Development Fund, L.P., Biotechnology
Development Fund II, L.P., and Biotechnology Development Fund III, L.P.
BioAsia Investments, LLC is located at 575 High St., Palo Alto, CA 94301.
(12) Includes 1,340,971 shares held by Sofinnova Venture Partners IV, L.P.,
4,472 shares held by Sofinnova Management IV, LLC and 37,920 shares held
by Sofinnova Venture Affiliates IV, L.P. Dr. Powell is a general partner
of Sofinnova Ventures and is a managing director of Sofinnova Management
IV, LLC. Sofinnova Management IV, LLC is a general partner of Sofinnova
Management IV, LLC. Sofinnova Ventures is an administrative entity
Sofinnova Management IV LLC. Sofinnova Ventures is located at 140 Geary
Street, 10(th) Floor, San Francisco, CA 94108.
(13) Genentech, Inc. is located at 1 DNA Way, South San Francisco, CA 94080.
(14) Connetics Corporation is located at 3400 West Bayshore Road, Palo Alto, CA
94303..
(15) Veron International, Ltd. is located at ChinaChem Golden Plaza, Top Floor,
77 Mody Road, Tsimshatsui East, Kowloon, Hong Kong.
(16) Total number of shares includes 10,590,211 shares of common stock held by
entities affiliated with directors and executive officers. See
footnotes 3 through 8 above.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
Upon completion of this offering, our authorized capital stock will consist
of 45,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws, which we have
included as exhibits to the registration statement of which this prospectus
forms a part.
COMMON STOCK
As of December 31, 1999, there were 14,692,194 shares of common stock and
preferred stock outstanding, held of record by 61 stockholders. These amounts
assume the conversion of all outstanding shares of preferred stock into common
stock, which is to occur upon the closing of this offering. In addition, as of
December 31, 1999, there were 990,000 shares of common stock subject to
outstanding options. Upon completion of this offering, there will be
20,192,194 shares of common stock outstanding, assuming no exercise of
outstanding stock options after December 31, 1999.
Each share of common stock entitles its holder to one vote on all matters to
be voted upon by stockholders. Subject to preferences that may apply to any
outstanding preferred stock, holders of common stock may receive ratably any
dividends that the board of directors may declare out of funds legally available
for that purpose. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and any liquidation preference of
preferred stock that may be outstanding. The common stock has no preemptive
rights, conversion rights or other subscription rights or redemption or sinking
fund provisions. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock that we will issue upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
According to our amended and restated certificate of incorporation, our
board of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series. Our board shall designate the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preference, sinking fund
terms and number of shares constituting any series or the designation of any
series. The issuance of preferred stock could have the effect of restricting
dividends on the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock or delaying or preventing a
change in control without further action by the stockholders. We have no present
plans to issue any shares of preferred stock after the completion of this
offering.
REGISTRATION RIGHTS
The holders of 13,656,361 shares of the common stock that will be
outstanding after this offering are entitled to require us for a period of five
years following this offering to register the sales of their shares under the
Securities Act of 1933, under the terms of an agreement between us and the
holders of these securities. Subject to limitations specified in the agreement,
these registration rights include the following:
- two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our board of
directors to delay the registration not more than twice in any twelve
month period;
55
<PAGE>
- an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering to
decrease the amount that holders may register to not less than thirty
percent (30%) of the total offering; and
- an unlimited number of rights to require us to register sales of shares on
Form S-3, a short form of registration statement permitted to be used by
some companies, which holders may exercise if they request registration of
the sale of more than $1,000,000 of common stock provided that Form S-3 is
available for such offering and subject to the discretion of our board of
directors to delay the registration not more than twice in any
twelve-month period.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder may sell those shares
under Rule 144(k) of the Securities Act, which for most parties means two years
after the acquisition of the shares from us or when a holder owning less than
one percent of our outstanding common stock may sell such holder's shares under
Rule 144 during any ninety day period.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates acquisitions of Delaware corporations. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date the person becomes an interested stockholder, unless:
- our board of directors approved the business combination or the
transaction in which the person became an interested stockholder prior to
the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to the date the person became an interested stockholder,
our board of directors approved the business combination and the
stockholders other than the interested stockholder authorized the
transaction at an annual or special meeting of stockholders.
Section 203 defines a "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested
stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any person
who, together with the person's affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status did own, 15%
or more of a corporation's voting stock.
56
<PAGE>
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws, to be effective upon the
closing of this offering, divide our board into three classes as nearly equal in
size as possible, with each class serving a three-year term. The terms are
staggered, so that one-third of the board is to be elected each year. The
classification of our board could have the effect of making it more difficult
than otherwise for a third party to acquire control of us, because it would
typically take more than a year for a majority of the stockholders to elect a
majority of our board. In addition, our certificate of incorporation and bylaws
will provide that any action required or permitted to be taken by our
stockholders at an annual or special meeting may be taken only if it is properly
brought before the meeting, and may not be taken by written action in lieu of a
meeting. The bylaws will also limit who may call a special meeting of the
stockholders. Under our bylaws, stockholders wishing to propose business to be
brought before a meeting of stockholders will be required to comply with various
advance notice requirements. Finally, our certificate of incorporation and
bylaws will not permit stockholders to take any action without a meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC. The transfer agent's address is 235 Montgomery Street,
23rd floor, San Francisco, CA 94104.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since no shares will
be available for sale shortly after this offering because of contractual and
legal restrictions on resale as described below. Sales of substantial amounts of
our common stock in the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have 20,192,194 outstanding shares
of common stock, assuming no exercise of the overallotment option and no
exercises of outstanding options after December 31, 1999. Of these shares, all
of the shares sold in the public offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 14,692,194 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the 5,500,000 shares sold in the public
offering will be freely tradable upon completion of the offering;
- 8,436,113 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- 273,250 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
LOCK-UP AGREEMENTS
All of our directors, officers, employees and other stockholders, who
together hold all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements generally provide that
these holders will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
may not be sold until these agreements expire or are waived by the
representatives of the underwriters of this offering.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately 201,922 shares immediately after this
offering; and
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
58
<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144, but without compliance
with certain restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 90 days after effectiveness without complying
with the holding period requirement and that non-affiliates may sell such shares
in reliance on Rule 144 90 days after effectiveness without complying with the
holding period, public information, volume limitation or notice requirements of
Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 13,656,361 shares of our
common stock, or their transferees, will be entitled to rights with respect to
the registration of their shares under the Securities Act. Registration of their
shares under the Securities Act would result in these shares becoming freely
tradeable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of such
registration.
STOCK OPTIONS
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee and director benefit plans. As a result, any options or rights
exercised under the 1999 equity incentive plan, the 2000 equity incentive plan,
the 2000 employee stock purchase plan and the 2000 non-employee directors' stock
option plan will also be freely tradable in the public market. However, shares
held by affiliates will still be subject to the volume limitation, manner of
sale, notice and public information requirements of Rule 144, unless otherwise
resalable under Rule 701. As of January 31, 2000, we had granted options to
purchase 728,500 shares of common stock that had not been exercised, of which
options to purchase 273,250 shares were both exercisable and not subject to a
right of repurchase in our favor. In addition, as of that date we had reserved
386,500 shares for possible future issuance under our 1999 equity incentive
plan.
59
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
We have entered into an underwriting agreement with the underwriters named
below. Warburg Dillon Read LLC, Chase Securities Inc., and Prudential Securities
Incorporated are acting as representatives of the underwriters.
The underwriting agreement will provide for the purchase of a specific
number of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specific number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
Chase Securities Inc........................................
Prudential Securities Incorporated..........................
-------
Total...................................................
=======
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow to dealers, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 825,000 additional shares of
our common stock to cover over-allotments. If the underwriters exercise all or
part of this option, they will purchase shares covered by the option at the
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the underwriters
will purchase shares from us, the total price to the public will be
, and the total proceeds to us will be . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
each of the underwriters will purchase a number of additional shares
proportionate to its initial amount reflected in the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us:
<TABLE>
<CAPTION>
PAID BY US
---------------------------------------------
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
<S> <C> <C>
Per Share.............................. $ $
Total.................................. $ $
</TABLE>
60
<PAGE>
We estimate that the total expenses of this offering, excluding the
underwriter discount, will be approximately $ .
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act.
We and our directors, executive officers, and all of the holders of our
common stock and securities convertible into or exercisable or exchangeable for
common stock issued prior to this offering, have agreed pursuant to certain
"lock-up" agreements with the underwriters that we and they will not offer,
sell, contract to sell, pledge, grant any option to sell, or otherwise dispose
of, directly or indirectly, any shares of common stock or securities convertible
into or exercisable or exchangeable for common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Warburg Dillon Read LLC, in its sole discretion, may release
the shares subject to the lock-up agreements in whole or in part at any time
with or without notice. However, Warburg Dillon Read LLC has no current plan to
do so.
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of our common stock for our officers,
directors, employees, clients, friends and related persons who express an
interest in purchasing these shares. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
persons purchase these reserved shares. The underwriters will offer any shares
not so purchased by these persons to the general public on the same basis as the
other shares in this initial public offering.
Prior to his offering, there has been no public market for our common stock.
Consequently, the offering price for our common stock will be determined by
negotiations between us and the underwriters and will not necessarily be related
to our asset value, net worth or other established criteria of value. The
factors to be considered in these negotiations, in addition to prevailing market
conditions, will include the history of and prospects for the industry in which
we compete, an assessment of our management, our prospects, our capital
structure and certain other factors as are deemed relevant.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of shares is
completed. However, the underwriters may engage in the following activities in
accordance with the rules:
- STABILIZING TRANSACTIONS--The representatives may make bids for or
purchases of the shares for the purpose of pegging, fixing or maintaining
the price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
- OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTIONS--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with this offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
- PENALTY BIDS--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither us nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the
61
<PAGE>
Nasdaq National Market or otherwise. If these transactions are commenced, they
may be discontinued without notice at any time.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
In January 2000, we issued an aggregate of 4,966,361 shares of our Series B
preferred stock, including the shares issued to Chase Securities Inc. at a per
share price of $5.59. Chase Securities Inc. acted as the placement agent for
this private placement for which it received a customary cash fee for its
services and 120,000 shares of Series B preferred stock.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the shares of our common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, certain partners and associates of Cooley Godward LLP own an
aggregate of 17,889 shares of common stock through an investment partnership.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
- --------------------------------------------------------------------------------
Our financial statements as of December 31, 1998 and 1999 and for the period
from February 25, 1998 (inception) to December 31, 1998, the year ended
December 31, 1999 and for the period from February 25, 1998 (inception) through
December 31, 1999 included in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as stated in their
report appearing in this prospectus and registration statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedule thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the registration
statement, including the exhibits and schedules thereto. Statements contained in
this prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where any contract is an exhibit to the
registration statement, each statement with respect to the contract is qualified
in all respects by the provisions of the relevant exhibit, to which reference is
hereby made. You may read and copy any document we file at the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and the Securities and Exchange Commission's
Regional Offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information about the operation of the
public reference rooms.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
62
<PAGE>
statements and other information may also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, D.C.
20006.
The Securities and Exchange Commission maintains a World Wide Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the Securities and Exchange Commission's website is
http://www.sec.gov.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTERMUNE PHARMACEUTICALS, INC.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, independent auditors........... F-2
Balance sheets as of December 31, 1998 and 1999............. F-3
Statements of operations for the period from February 25,
1998 (inception) to December 31, 1998, the year ended
December 31, 1999, and for the period from February 25,
1998 (inception) to December 31, 1999..................... F-4
Statements of cash flows for the period from February 25,
1998 (inception) to December 31, 1998, the year ended
December 31, 1999, and for the period from February 25,
1998 (inception) to December 31, 1999..................... F-5
Statements of redeemable convertible preferred stock and
stockholders' equity (deficit) for the period from
February 25, 1998 (inception) to December 31, 1999........ F-6
Notes to financial statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
InterMune Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of InterMune
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1998 and
1999 and the related statements of operations, redeemable convertible preferred
stock and stockholders' equity (deficit), and cash flows for the period from
February 25, 1998 (inception) to December 31, 1998, the year ended December 31,
1999, and for the period from February 25, 1998 (inception) to December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterMune
Pharmaceuticals, Inc. (a development stage company) at December 31, 1998 and
1999, and the results of its operations and its cash flows for the period from
February 25, 1998 (inception) to December 31, 1998, the year ended December 31,
1999, and for the period from February 25, 1998 (inception) to December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Palo Alto, California
January 28, 2000
F-2
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1999
1998 1999 (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $2,314,781 $ 3,772,110
Short-term investments, available for sale......................... 2,405,050 442,184
Accounts receivable, net........................................... -- 409,392
Inventories........................................................ -- 831,145
Notes receivable from officer...................................... -- 103,750
Other current assets and prepaid expenses.......................... -- 18,696
---------- -------------
Total current assets................................................. 4,719,831 5,577,277
Office equipment, net.............................................. -- 27,901
Restricted cash balance............................................ -- 250,000
---------- -------------
Total assets......................................................... $4,719,831 $ 5,855,178
========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.............................. $ 120,626 $ 1,809,028
Accrued payroll.................................................... 70,073 93,652
Payable to Connetics............................................... 347,837 538,434
Royalty payable to Genentech....................................... -- 1,913,785
---------- -------------
Total current liabilities............................................ 538,536 4,354,899
Long-term obligations payable to Connetics........................... -- 1,624,343
Redeemable convertible preferred stock............................... -- 7,773,877 $ --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, no par value:
Authorized shares--14,870,000 at December 31, 1999
Issued and outstanding shares--11,200,000 at December 31, 1998
and 1,835,000 at December 31, 1999; no shares pro forma........ 10,253,000 4,506,804 --
Common stock, no par value;
Authorized shares--30,000,000 at December 31, 1999
Issued and outstanding shares--none at December 31, 1998 and
1,890,833 at December 31, 1999; 9,725,833 shares pro forma..... -- 3,049,664 15,330,345
Deferred compensation related to stock options..................... -- (3,172,926) (3,172,926)
Accumulated other comprehensive income............................. 16 41 41
Deficit accumulated during the development stage................... (6,071,721) (12,281,524) (12,281,524)
---------- ------------- -------------
Total stockholders' equity (deficit)................................. 4,181,295 (7,897,941) $ (124,064)
---------- ------------- =============
Total liabilities and stockholders' equity (deficit)................. $4,719,831 $ 5,855,178
========== =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
FEBRUARY 25, PERIOD FROM
1998 FEBRUARY 25,
(INCEPTION) 1998
TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------- ------------- --------------
<S> <C> <C> <C>
Product sales, net................................................. $ -- $556,401 $556,401
Costs and expenses:
Cost of goods sold............................................... -- 239,802 239,802
Research and development......................................... 1,234,957 2,934,695 4,169,652
General and administrative....................................... 892,295 2,551,793 3,444,088
Acquired pre-FDA approval rights................................. 4,000,000 1,093,750 5,093,750
----------- ------------- --------------
Total costs and expenses........................................... 6,127,252 6,820,040 12,947,292
Loss from operations............................................... (6,127,252) (6,263,639) (12,390,891)
Other income (expense):
Interest income.................................................. 55,531 239,778 295,309
Interest expense................................................. -- (185,942) (185,942)
----------- ------------- --------------
Net loss........................................................... (6,071,721) (6,209,803) (12,281,524)
Preferred stock accretion.......................................... -- (656,765) (656,765)
----------- ------------- --------------
Net loss applicable to common stockholders......................... $(6,071,721) $ (6,866,568) $ (12,938,289)
=========== ============= ==============
Historical basic and diluted net loss per share.................... $ (8.94)
=============
Weighted average shares outstanding, basic and diluted............. 768,333
=============
Pro forma basic and diluted net loss per share..................... $ (0.80)
=============
Pro forma basic and diluted weighted average shares outstanding.... 7,770,000
=============
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
FEBRUARY 25, FEBRUARY 25,
1998 (INCEPTION) YEAR ENDED 1998 (INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1998 1999 1999
---------------- -------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................... $(6,071,721) $(6,209,803) $(12,281,524)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred compensation....................... -- 205,895 205,895
Accretion of long-term obligations payable to Parent
Connetics................................................. -- 110,674 110,674
Stock issued for acquired pre-FDA approval rights........... 4,000,000 1,093,750 5,093,750
Forgiveness of related party obligation..................... 253,000 -- 253,000
Depreciation................................................ -- 2,564 2,564
Changes in operating assets and liabilities:
Accounts receivable....................................... -- (409,392) (409,392)
Inventories............................................... -- (831,145) (831,145)
Notes receivable from officer............................. -- (103,750) (103,750)
Restricted cash........................................... -- (250,000) (250,000)
Other assets.............................................. -- (18,696) (18,696)
Accounts payable and accrued expenses..................... 120,626 1,688,402 1,809,028
Accrued payroll........................................... 70,073 23,579 93,652
Payable to Connetics...................................... 347,837 (309,403) 38,434
Royalty payable to Genentech.............................. -- 1,913,785 1,913,785
-------------- -------------- --------------
Net cash used in operating activities......................... (1,280,185) (3,093,540) (4,373,725)
INVESTING ACTIVITIES
Purchase of office equipment................................ -- (30,465) (30,465)
Purchase of marketable securities........................... (11,408,960) (24,197,543) (35,606,503)
Maturities of marketable securities......................... 9,003,926 26,160,434 35,164,360
-------------- -------------- --------------
Net cash (used) provided in investing activities.............. (2,405,034) 1,932,426 (472,608)
FINANCING ACTIVITIES
Contributed capital for preferred stock..................... 6,000,000 395,600 6,395,600
Return of capital to Parent (Connetics)..................... -- (5,221,877) (5,221,877)
Proceeds from redeemable preferred stock.................... -- 7,117,112 7,117,112
Proceeds from issuance of common stock...................... -- 305,900 305,900
Proceeds from exercise of stock options..................... -- 22,500 22,500
Repurchase of restricted stock.............................. -- (792) (792)
-------------- -------------- --------------
Net cash provided by financing activities..................... 6,000,000 2,618,443 8,618,443
-------------- -------------- --------------
Net increase in cash and cash equivalents..................... 2,314,781 1,457,329 3,772,110
Cash and cash equivalents at beginning of period.............. -- 2,314,781 --
Short-term investments, available for sale.................... 2,405,050 442,184 442,184
-------------- -------------- --------------
Cash, cash equivalents and short-term investments at end of
period...................................................... $4,719,831 $4,214,294 $4,214,294
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Return of capital on obligation to Parent (Connetics)....... -- $(2,013,669) $(2,013,669)
Long-term obligation on return of capital................... -- $1,513,669 $1,513,669
Short-term obligation on return of capital.................. -- $500,000 $500,000
Deferred stock compensation................................. -- $3,378,821 $3,378,821
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM FEBRUARY 25, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders................... -- $ -- -- $ -- 1,600,000 $ 1,600
Repurchase of common stock............................. -- -- -- -- (1,600,000) (1,600)
Capital transactions with Parent (Connetics):
Issuance of Series A convertible
preferred stock for contributed capital:...........
Intellectual capital contributed by Parent
(Connetics).................................... -- -- 4,369,453 4,000,000 -- --
Cash............................................. -- -- 6,830,547 6,253,000 -- --
Gain on investments.................................... -- -- -- -- -- --
Net loss............................................... -- -- -- -- -- --
--------- ----------- ----------- ------------ ----------- ----------
BALANCE AT DECEMBER 31, 1998........................... -- -- 11,200,000 10,253,000 -- --
Issuance of restricted common stock to founders for
cash................................................. -- -- -- -- 815,000 8,150
Capital transactions with Parent (Connetics):
Exchange of convertible preferred shares
Return of Series A................................. -- -- (11,200,000) -- -- --
Issuance of Series A-1............................. -- -- 960,000 -- -- --
Contributed capital from Parent (Connetics) (cash)... -- -- -- 395,600 -- --
Return of capital to Parent (Connetics) (cash)....... -- -- -- (4,721,877) -- --
Return of capital to Parent (Connetics) (cash and
stock)............................................. -- -- -- (2,513,669) -- --
Issuance of Series A-1 convertible preferred stock for
license rights....................................... -- -- 875,000 1,093,750 -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash, net of issuance costs of $94,888..... 4,800,000 5,617,112 -- -- -- --
Issuance of common stock for cash...................... -- -- -- -- 975,000 297,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... 800,000 1,000,000 -- -- -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... 400,000 500,000 -- -- -- --
Repurchase of common stock............................. -- -- -- -- (79,167) (792)
Exercise of stock options.............................. -- -- -- -- 180,000 22,500
Gain on investments.................................... -- -- -- -- -- --
Deferred compensation.................................. -- -- -- -- -- 3,378,821
Amortization of deferred compensation.................. -- -- -- -- -- --
Preferred stock accretion.............................. -- 656,765 -- -- -- (656,765)
Net loss............................................... -- -- -- -- -- --
--------- ----------- ----------- ------------ ----------- ----------
BALANCE AT DECEMBER 31, 1999........................... 6,000,000 $ 7,773,877 1,835,000 $ 4,506,804 1,890,833 $3,049,664
========= =========== =========== ============ =========== ==========
<CAPTION>
DEFICIT
DEFERRED ACCUMULATED TOTAL
COMPENSATION GAIN OR DURING THE STOCKHOLDERS'
RELATED TO LOSS ON DEVELOPMENT EQUITY
STOCK OPTIONS INVESTMENTS STAGE (DEFICIT)
------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock to founders................... $ -- $ -- $ -- $ 1,600
Repurchase of common stock............................. -- -- -- (1,600)
Capital transactions with Parent (Connetics):
Issuance of Series A convertible
preferred stock for contributed capital:...........
Intellectual capital contributed by Parent
(Connetics).................................... -- -- -- 4,000,000
Cash............................................. -- -- -- 6,253,000
Gain on investments.................................... -- 16 -- 16
Net loss............................................... -- -- (6,071,721) (6,071,721)
----------- --------- ------------- -----------
BALANCE AT DECEMBER 31, 1998........................... -- 16 (6,071,721) 4,181,295
Issuance of restricted common stock to founders for
cash................................................. -- -- -- 8,150
Capital transactions with Parent (Connetics):
Exchange of convertible preferred shares
Return of Series A................................. -- -- -- --
Issuance of Series A-1............................. -- -- -- --
Contributed capital from Parent (Connetics) (cash)... -- -- -- 395,600
Return of capital to Parent (Connetics) (cash)....... -- -- -- (4,721,877)
Return of capital to Parent (Connetics) (cash and
stock)............................................. -- -- -- (2,513,669)
Issuance of Series A-1 convertible preferred stock for
license rights....................................... -- -- -- 1,093,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash, net of issuance costs of $94,888..... -- -- -- --
Issuance of common stock for cash...................... -- -- -- 297,750
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... -- -- -- --
Issuance of Series A-2 redeemable convertible preferred
stock for cash....................................... -- -- -- --
Repurchase of common stock............................. -- -- -- (792)
Exercise of stock options.............................. -- -- -- 22,500
Gain on investments.................................... -- 25 -- 25
Deferred compensation.................................. (3,378,821) -- -- --
Amortization of deferred compensation.................. 205,895 -- -- 205,895
Preferred stock accretion.............................. -- -- -- (656,765)
Net loss............................................... -- -- (6,209,803) (6,209,803)
----------- --------- ------------- -----------
BALANCE AT DECEMBER 31, 1999........................... $(3,172,926) $ 41 $ (12,281,524) $(7,897,941)
=========== ========= ============= ===========
</TABLE>
F-6
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OVERVIEW
InterMune Pharmaceuticals, Inc. ("InterMune" or the "Company") develops and
commercializes innovative products for the treatment of serious pulmonary and
infectious diseases and congenital disorders. The Company has the exclusive
license rights in the United States to ACTIMMUNE (interferon gamma-1b injection)
for a range of indications, chronic granulomatous disease, osteopetrosis,
including idiopathic pulmonary fibrosis, mycobacterial infections, systemic
fungal infections and cystic fibrosis. The Company has active development
programs underway for these indications, several of which are in mid- or
advanced-stage human testing, or clinical trials. The FDA has approved ACTIMMUNE
for the treatment of chronic granulomatous disease, and the Company currently
markets and sells ACTIMMUNE in the United States for this disease. In
August 1999, the Company filed a supplement to its biologics license
application, or BLA, with the FDA for the expanded use of ACTIMMUNE for the
treatment of osteopetrosis.
The Company was incorporated on February 25, 1998 in the State of California
and commenced operations as a wholly-owned subsidiary of Connetics in May of
1998. Beginning in May 1998, Connetics contributed certain development rights
and intellectual property valued at $4 million, cash of $6 million and
unreimbursed operating costs of $0.3 million to InterMune, then its wholly-owned
subsidiary. The value of the development rights and intellectual property
contributed was determined by the amount Connetics had paid Genentech for those
same rights in May 1998. The entire value of these rights had been allocated to
in-process research and development by Connetics and has also been reflected in
InterMune's statement of operations for the period from February 25, 1998
(inception) through December 31, 1998, as acquired pre-FDA approval rights with
a corresponding increase to capital contributed by parent. The determination of
the portion of the value of the rights allocable to in-process research and
development was made based upon the discounted cash flows of the rights acquired
projected over a ten year period, and included the costs of research and
development efforts necessary to prove efficacy of the molecule to which the
rights pertain.
On April 27, 1999, the Company obtained venture capital funding and was
reorganized pursuant to the Series A-1 and A-2 Preferred Stock Purchase
Agreement (See note 3). At the time of the reorganization, approximately
$4.7 million of the $10.3 million of capital originally contributed by Connetics
to InterMune, its wholly owned subsidiary, was returned to Connetics in the form
of cash. The Company also recorded a liability for $3.0 million to be paid to
Connetics over the next several years in cash and stock (see note 3), the
present value of which was recorded as a return of capital to Connetics. The
Company cancelled all of the 11.2 million shares of Series A preferred stock it
had originally issued to Connetics. Connetics also received 960,000 shares of
InterMune's Series A-1 preferred stock and net sales of ACTIMMUNE (as well as
incurring associated costs and expenses) up to a baseline amount through
December 2001, both in exchange for the remaining $3.4 million of Connetics'
contributed capital. See note 3 for a more complete description of the
April 27, 1999 agreements. At that time, Connetics retained approximately 9.0%
ownership in the Company.
BASIS OF ACCOUNTING
The accompanying financial statements include the operations of InterMune
for the period from February 25, 1998 to April 27, 1999 as a wholly-owned
subsidiary of Connetics. Separate accounting records for the Company were
maintained, but were included in the consolidated financial statements of
Connetics for this period. Prior to the date of InterMune's incorporation,
February 25, 1998,
F-7
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Connetics had licensed certain rights to ACTIMMUNE for dermatological
indications from Genentech and has retained an option to such dermatological
rights. In April 1998, after the incorporation of InterMune, Connetics licensed
the rights to ACTIMMUNE from Genentech for different indications, including the
treatment of serious infectious and pulmonary diseases and congenital disorders,
for $4 million of Connetics stock. Those rights were subsequently sublicensed to
InterMune in exchange for InterMune convertible preferred stock. On April 27,
1999, InterMune issued to Genentech 875,000 shares of InterMune Series A
preferred stock valued at $1,093,750 in exchange for additional ACTIMMUNE
development rights in Japan and a reduction of future royalties on potential
ACTIMMUNE net product revenues through its sublicense agreement with Connetics.
Through the date of these financial statements, the Company is considered to
be a development stage company. Since inception, the Company has incurred
significant losses and, as of December 31, 1999, had an accumulated deficit of
$12,281,524.
LIQUIDITY AND FINANCIAL VIABILITY
In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue for at least the
next several years. The Company's future capital uses and requirements depend on
numerous factors, including the progress of its research and development
programs, the progress of clinical and advanced-stage clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, and enforcing patent claims and other intellectual property rights,
competing technological and market developments, the ability of the Company to
establish collaborative arrangements, the level of product sales of ACTIMMUNE,
the possible acquisition of new products and technologies, and the initiation of
significant commercialization activities. Therefore, such capital uses and
requirements may increase in future periods. As a result, the Company may
require substantial additional funds prior to reaching profitability and plans
to continue to finance its operating activities with a combination of stock
sales, product revenue, bank loans and/or debt financing. The inability to
obtain sufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs, limit
the marketing of its product, or license to third parties the rights to
commercialize products or technologies that the Company would otherwise seek to
develop and market itself.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of highly liquid investments with original
maturities when purchased of less than three months. Investments with maturities
beyond three months at the date of acquisition and that mature within one year
from the balance sheet date are considered to be short-term investments. Cash
equivalents and short-term investments are carried at fair value, with
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. The cost of securities sold is based on the specific
identification method.
Management of the Company believes it has established guidelines for
investment of its excess cash relative to diversification and maturities that
maintain safety and liquidity.
F-8
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, the
Company's investment securities are classified as available-for-sale and
unrealized holding gains or losses are included in comprehensive income (loss).
Realized gains or losses, calculated based on the specific identification
method, were not material for any period.
INVENTORIES
Inventories consist principally of finished good products and are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method.
OFFICE EQUIPMENT
Equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets, generally 3 to 5 years.
NOTES RECEIVABLE
In connection with Dr. Harkonen's transition from Connetics to InterMune,
the Company assumed his outstanding loan of $100,000 by Connetics to
Dr. Harkonen pursuant to a secured loan agreement and promissory note dated
July 1, 1999. The interest rate on the promissory note is 7.5% per annum. The
principal and accrued interest are due on October 30, 2000.
RESTRICTED CASH
On December 18, 1999, the Company entered into a facility-operating lease
requiring a letter of credit secured by a restricted cash balance with the
Company's bank. The amount of the letter of credit approximates 12 months of
operating rent payable to the landlord of the facility.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated,
the Company will measure the amount of such impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset. To date, no such indicators of impairment
have been identified.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities, and long-term royalty
payable, are carried at cost, which management believes approximates fair value
because of the short-term maturity of these instruments.
F-9
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment, net of allowances
for estimated returns, rebates and chargebacks. The Company is obligated to
accept from customers the return of pharmaceuticals that have reached their
expiration date. The Company has not experienced any significant returns of
expired product.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.
INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax
assets will be realized.
PATENT COSTS
Costs related to patent prosecution are expensed as incurred as
recoverability of such expenditures is uncertain.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related Interpretations
in accounting for stock-based employee compensation. Under APB 25, if the
exercise price of the Company's employee and director stock options equals or
exceeds the deemed fair value of the underlying stock on the date of grant, no
compensation expense is recognized.
When the exercise price of the employee or director stock options is less
than the deemed fair value of the underlying stock on the grant date, the
Company records deferred compensation for the difference. Deferred compensation
is being amortized on an accelerated basis over the vesting period of the
original award, generally five years. Options or stock awards issued to
non-employees are recorded at their fair value as determined in accordance with
SFAS No. 123 and recognized over the related service period.
COMPREHENSIVE INCOME (LOSS)
As of July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income (loss).
SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, during 1998. SFAS No. 131 requires the use
of a management approach in identifying segments of an enterprise. Management
has determined that the Company operates in one business segment.
F-10
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff
Accounting Bulletin (or SAB) No. 98, basic net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common and common equivalent shares
outstanding during the period. Potentially dilutive securities composed of
incremental common shares issuable upon the exercise of stock options and common
shares issuable on conversion of preferred stock, were excluded from historical
diluted loss per share because of their anti-dilutive effect.
The Company's capital structure during 1998 was that of a wholly owned
subsidiary. Earnings per share data for 1998 has not been presented as the
capital structure changes that took place in 1999 made such presentation less
meaningful.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. Founders shares of 735,833 were
issued for nominal consideration but are subject to repurchase by the Company.
Shares for which repurchase rights have lapsed have been included in the per
share calculations.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the closing of the initial public offering
contemplated by this prospectus (using the as-if converted method from the
original date of issuance). For the year ended December 31, 1999, the pro forma
shares also reflect the common equivalent shares of preferred and common stock
issued on April 27, 1999 in connection with the reorganization as though they
had been outstanding for the entire year.
F-11
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Historical:
Net loss...................................................................... $6,866,568
==========
Weighted average shares of common stock outstanding........................... 1,201,736
Less: weighted average shares of common stock that may be repurchased......... (433,403)
----------
Weighted average shares of common stock outstanding used in computing basic
and diluted net loss per share.............................................. 768,333
==========
Basic and diluted net loss per share.......................................... $ (8.94)
==========
Pro forma:
Net loss (before preferred stock accretion)................................... $6,209,803
==========
Weighted average shares used in computing basic and diluted net loss per share
(from above)................................................................ 768,333
Adjustment to reflect the effect of the assumed conversion of preferred stock
to common stock from the date of issuance................................... 4,790,000
Adjustment to reflect the effect of the stock issued on April 27, 1999 and the
assumed conversion of the related preferred stock to common stock from the
beginning of the period through the date of issuance........................ 2,211,667
----------
Weighted average shares used in computing pro forma basic and diluted net loss
per share................................................................... 7,770,000
==========
Pro forma basic and diluted net loss per share................................ $ (0.80)
==========
</TABLE>
F-12
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 260,612 common equivalent shares related to the outstanding stock
options not included above (determined using the treasury method) for the period
ended December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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.
NEW ACCOUNTING PRONOUNCEMENTS
The Company expects to adopt SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective January 1, 2001. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of the SFAS No. 133
will have a significant effect on its results of operations or financial
position.
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
SUBLICENSE AND COLLABORATION AGREEMENTS
On August 21, 1998, the Company and Connetics entered into an exclusive
sublicense agreement (the sublicense agreement), pursuant to which:
(a) Connetics granted an exclusive sublicense to InterMune under the Genentech
License for ACTIMMUNE for specific indications; (b) InterMune granted to
Connetics the exclusive option to practice such sublicensed rights in the
dermatology field and; (c) InterMune agreed to pay all amounts owed by Connetics
to Genentech related to ACTIMMUNE net sales except with respect to sales made by
Connetics in the event Connetics exercises its option. Under the sublicense
agreement, InterMune agreed to be responsible for all costs of development and
commercialization of ACTIMMUNE in the specified indications, to pay specified
payments to Genentech upon completion of certain development and
commercialization milestones, and to pay future royalties on net annual
ACTIMMUNE sales annually.
On April 27, 1999, Connetics amended the terms of its license agreement with
Genentech and obtained additional rights to ACTIMMUNE which it simultaneously
sublicensed to InterMune.
On April 27, 1999, InterMune and Connetics also signed a Collaboration
Agreement. As a result of the sublicense, transition, service, and collaboration
agreements between InterMune and Connetics, Connetics received 960,000 shares of
InterMune's Series A-1 preferred stock, rights to net sales of ACTIMMUNE up to a
baseline amount through December 2001, less associated cost of goods sold and
marketing expenses, a nominal royalty on ACTIMMUNE net sales, and the following
payments of cash and stock, all of which represent the return of a portion of
Connetics' invested capital: $4.7 million of cash on April 27, 1999; an
additional $500,000 cash payment on April 27, 1999; $500,000 cash due on
March 31, 2001; $1.5 million payable in installments of cash or stock beginning
on March 31, 2002 and due in full by March 31, 2004; and an additional
$1.5 million payable in stock and cash. Of the additional $1.5 million, $500,000
has been accrued in the accompanying financial statements as a
F-13
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
(CONTINUED)
reduction of capital contributed by parent. This amount was paid to Connetics in
Series B preferred stock on January 7, 2000. The Company also agreed to issue an
additional $1 million in cash or InterMune stock contingent upon a subsequent
closing of a round of financing, an initial public offering or the acquisition
of the Company. This $1 million contingent return of capital has not been
reflected in the accompanying financial statements.
SERVICE AGREEMENT
On October 12, 1998, the Company entered into a five year agreement, as
amended, whereby Connetics will provide to the Company certain information
services, accounting activities, facilities, employee benefit administration and
research and development services. The agreement may be terminated by either
party with 90 days prior written notice. The Company has paid Connetics a total
of $362,108 and $1,189,920 for the period from February 25, 1998 (inception) to
December 31, 1998 and for the year ended December 31, 1999, respectively, under
this agreement.
TRANSITION AGREEMENT
On April 27, 1999, the Company and Connetics entered into a 3-year
Transition Agreement. This agreement effectively transferred certain ACTIMMUNE
distribution, sales and marketing responsibilities from Connetics to InterMune.
Under the terms of the agreement InterMune will:
- Provide to Connetics certain order entry, packaging, shipping, invoicing
and credit and collection activities related to the sales of ACTIMMUNE
units. Total costs reimbursed from Connetics totaled $73,056 and $347,731
for the period from February 25, 1998 (inception) to December 31, 1998 and
for the year ended December 31, 1999, respectively.
- Pay Connetics each month the net sales of ACTIMMUNE up to a predetermined
baseline for the period from January 15, 1999 through December 31, 2001
less associated cost of goods sold and marketing expenses. The
predetermined baseline is preset for each calendar year under the
agreement. The Company paid to Connetics $1,357,436 under this arrangement
for the year ended December 31, 1999. After December 31, 2001, the net
sales for ACTIMMUNE will fully revert to the Company.
- Transition manufacturing of ACTIMMUNE from Genentech to a third-party
alternative manufacturer. In order to expedite and effect this transfer of
manufacturing, Connetics will pay a percentage of all actual costs, up to
a pre-determined cap, to complete the transfer of manufacturing of
ACTIMMUNE to a third party alternative manufacturer. Approximately
$100,000 has been incurred by InterMune from inception through
December 31, 1999.
ACQUIRED PRE-FDA APPROVAL RIGHTS
InterMune sublicenses its development and marketing rights for ACTIMMUNE
from Connetics. Connetics obtained these rights for ACTIMMUNE through its
License Agreement with Genentech in May 1998 as amended in April 1999.
Connetics' associated rights to ACTIMMUNE include uses in chronic granulomatous
disease, osteopetrosis, pulmonary fibrosis, infectious diseases, and cystic
fibrosis, (see Transition Agreement). Connetics sublicensed the rights to all of
these disease indications, except for net sales of ACTIMMUNE up to a baseline
amount through December 2001, to InterMune.
F-14
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COLLABORATION, LICENSE AND SERVICE AGREEMENTS WITH RELATED PARTIES
(CONTINUED)
ACTIMMUNE has been approved by the FDA for use in the treatment of CGD. For
other indications ACTIMMUNE is in development. The Company will incur
significant costs to develop and prove efficacy in each of the other
indications.
Connetics paid Genentech $4 million for these rights in May 1998. The
Company has valued its sublicensed rights at $4 million based on this amount
paid by the Company's then parent company, Connetics. A discounted cash flow
analysis of the projected revenues and costs based on the potential market, the
estimated costs to obtain the required approvals and costs to manufacture and
market ACTIMMUNE for each indication shows a negative cash flow for the chronic
granulomatous disease indication and positive cash flows for several of the
other indications with larger patient populations. Negative cash flows from
chronic granulomatous disease result from a small U.S. market of only
400 patients, high costs of manufacturing due to small quantities, a royalty
payable to Genentech and significant costs to market the product. In addition,
InterMune does not capture revenues associated with chronic granulomatous
disease for the first three years of the sublicense, which has further adverse
impact on the discounted cash flow analysis of the projected revenues for
chronic granulomatous disease as it relates to InterMune specifically. Because
realization of the non-chronic granulomatous disease indications' revenue
streams is uncertain, due to the early stages of development and the high costs
to develop, the Company has expensed the $4 million acquisition cost.
On April 27, 1999, InterMune acquired additional ACTIMMUNE development
rights in Japan as well as reduction of future royalties of potential ACTIMMUNE
annual net sales above a certain threshold. For these rights, InterMune issued
Genentech 875,000 shares of Series A-1 convertible preferred stock. The acquired
rights were valued at $1.1 million, the purchase price of the stock issued, as
paid by new investors in the then most recent round of financing. The acquired
development rights were estimated to have no immediate realizable value, as no
approvals for ACTIMMUNE have been obtained in Japan and significant costs will
be incurred to obtain such approvals. The reduction of the royalty rate was
similarly deemed to have no current realizable value because sales of ACTIMMUNE
for chronic granulomatous disease (the only FDA approved use of ACTIMMUNE) were
not likely to exceed the annual sales threshold due to the small U.S. market
size of 400 patients. Accordingly, a $1.1 million charge to acquired pre-FDA
approval rights was recorded.
4. SHORT--TERM INVESTMENTS AVAILABLE FOR SALE
At December 31, 1999, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
---------- ---------- -------------
<S> <C> <C> <C>
Obligations of U.S. government agencies.................. $ -- $ -- $ --
Corporate debt securities................................ 442,143 442,184 41
---------- ---------- ---------
Total short-term investments............................. $ 442,143 $ 442,184 $ 41
========== ========== =========
</TABLE>
F-15
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHORT--TERM INVESTMENTS AVAILABLE FOR SALE (CONTINUED)
At December 31, 1998, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN
------------ ------------ -------------
<S> <C> <C> <C>
Obligations of U.S. government agencies............... $ -- $ -- $ --
Corporate debt securities............................. 2,405,034 2,405,050 16
------------ ------------ ---------
Total short-term investments.......................... $ 2,405,034 $ 2,405,050 $ 16
============ ============ =========
</TABLE>
The net unrealized holding gain (loss) on available-for-sale investments
included as a separate component of stockholders' equity at December 31, 1998
and 1999, totaled $16 and $41, respectively. The gross realized losses on sales
of available-for-sale investments for the period from February 25, 1998
(inception) to December 31, 1998, and for the year ended December 31, 1999,
totaled $400 and $910, respectively. Realized gains and losses were calculated
based on the specific identification method.
5. OFFICE EQUIPMENT
Office equipment and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computer equipment............................................... $ -- $ 5,657
Office furniture and fixtures.................................... -- 24,808
---------- ----------
-- 30,465
---------- ----------
Less accumulated depreciation.................................... -- (2,564)
---------- ----------
$ -- $ 27,901
========== ==========
</TABLE>
Total depreciation expense amounted to $2,564 for the year ended
December 31, 1999.
F-16
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable convertible preferred stock and convertible preferred stock are
issuable in series, with rights and preferences designated by series. As of
December 31, 1999, the shares designated and outstanding are as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
NUMBER OF ----------------------------------------
SHARES CUMULATIVE
-------------------------- AGGREGATE UNDECLARED
ISSUED AND LIQUIDATION CARRYING PREFERRED
DESIGNATED OUTSTANDING PREFERENCE AMOUNT DIVIDENDS
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A-2................................... 6,000,000 6,000,000 $ 7,500,000 $ 7,117,112 $ 364,603
Series B..................................... 5,200,000 -- -- -- --
------------ ------------ ------------ ------------- ---------
11,200,000 6,000,000 7,500,000 7,117,112 364,603
Accretion of preferred stock................. -- -- -- 656,765 --
------------ ------------ ------------ ------------- ---------
11,200,000 6,000,000 7,500,000 7,773,877 364,603
Convertible preferred stock:
Series A-1................................... 1,835,000 1,835,000 2,293,750 4,506,804 125,182
Series A-3................................... 6,000,000 -- -- -- --
Series A-4................................... 1,835,000 -- -- -- --
Series B-1................................... 5,200,000 -- -- -- --
------------ ------------ ------------ ------------- ---------
14,870,000 1,835,000 2,293,750 4,506,804 125,182
------------ ------------ ------------ ------------- ---------
Total........................................ 26,070,000 7,835,000 $ 9,793,750 $ 11,623,916 $ 489,785
============ ============ ============ ============= =========
</TABLE>
CONVERSION
Redeemable convertible preferred stock and convertible preferred stock are
collectively referred to as "preferred stock." Each share of preferred stock
automatically converts into one share of common stock in the event of an initial
public offering of the Company's common stock in which gross offering proceeds
exceed $15,000,000 and the offering price is at least $7.50 per share or: for
Series B and B-1 preferred stock upon affirmative vote of each of the holders of
not less than a majority of the outstanding shares of Series B and B-1 preferred
stock voting as a separate class; for Series A-2 and A-3 upon affirmative vote
of each of the holders of not less than 65% of the outstanding shares of
Series A-2 and A-3 preferred stock, voting together as a separate class; and for
Series A-1 and A-4 preferred stock, upon affirmative vote of the holders of not
less than 55% of the outstanding shares of Series A-1 and A-4 preferred stock,
voting together as a separate class.
No dividends will be declared or paid to the holders of Series A-1 or A-2
preferred stock or common stock unless the holders of Series B, Series B-1,
Series A-2, and Series A-3 preferred stock have been paid in full for all of the
dividends to which they are entitled. After full cumulative dividends have been
declared and paid to holders of preferred stock, the board of directors may
declare additional dividends to be prorated to all holders of the Company stock
based on the number of common shares held assuming full conversion of preferred
stock.
F-17
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
LIQUIDATION
Upon any liquidation, dissolution, or winding up of the Company, the holders
of Series B and B-1 preferred and Series A-2 and A-3 preferred stock shall be
entitled to be paid out of any assets of the Company legally available, an
amount per share of $5.59 and $1.25, respectively, plus all declared and unpaid
dividends on such shares of Series B and B-1 preferred and Series A-2 and A-3
preferred (subject to certain adjustments) held. If the assets of the Company
are insufficient to permit payment in full, the entire assets of the Company
available for distribution will be distributed ratably among the holders of the
Series B and B-1 preferred and Series A-2 and A-3 preferred in proportion to the
full amount to which they would otherwise be respectively entitled.
After full payment of the holders of Series B, B-1, A-2 and A-3 as described
above, upon liquidation, dissolution or winding up of the Company, holders of
Series A-1 and A-4 are entitled to $1.25 per share plus all declared and unpaid
dividends. If the assets and funds are insufficient for a full $1.25 per share
payment, the entire assets and funds legally available shall be distributed
ratably among the holders of Series A-1 and A-4 in proportion to the full amount
to which they would otherwise be entitled. After full payment of preferred
shareholders, the remaining assets of the Company shall be distributed ratably
among the holders of the common stock.
REDEMPTION
Series A-1, A-3, A-4 and B-1 preferred shares are not redeemable. After
April 15, 2004, any outstanding shares of Series A-2 and Series B may be
redeemed upon vote or written consent of at least 75% of the outstanding shares
of Series A-2 and B, provided that the Company had revenues of at least
$20 million for twelve full months immediately preceding the redemption.
Redemption will be completed in four annual installments of cash for a total of
$11.18 per share of Series B and $2.50 per share of Series A-2, plus declared
and unpaid dividends. Accretion of redemption value from the date of issuance of
the Series A-2 redeemable convertible preferred stock (April 27, 1999) through
December 31, 1999 was $656,765.
COMMON STOCK SUBJECT TO REPURCHASE
In connection with the issuance of common stock to founders and the exercise
of options pursuant to the Company's 1999 Stock Option/Stock Issuance Plan,
employees entered into restricted stock purchase agreements with the Company.
Under the terms of these agreements, the Company has a right to repurchase any
unvested shares at the original exercise price of the shares. With continuous
employment with the company, the repurchase rights lapse at a rate of 20% at the
end of the first year and at a rate of 1/48th of the remaining purchased shares
for each continuous month of service thereafter. As of December 31, 1999,
675,501 shares were subject to repurchase by the Company.
STOCK COMPENSATION PLANS
In May 1999, the Company adopted the 1999 Stock Option/Stock Issuance Plan
("1999 Plan"). The 1999 Plan provides for the granting of options to purchase
common stock and the issuance of shares of common stock, subject to Company
repurchase rights, to directors, employees and consultants. Certain options are
immediately exercisable, at the discretion of the board of directors. Shares
issued pursuant to the exercise of an unvested option are subject to the
Company's right of
F-18
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
repurchase which lapses over periods specified by the board of directors,
generally five years from the date of grant. At December 31, 1999 the number of
shares issuable under the 1999 Plan was 2,000,000.
The stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
---------- -----------
<S> <C> <C>
Balance at February 25, 1998........................................... -- --
---------- ---------
Granted.............................................................. -- --
Cancelled............................................................ -- --
Exercised............................................................ -- --
---------- ---------
Balance at December 31, 1998........................................... -- --
---------- ---------
Granted.............................................................. 1,170,000 $ 0.125
Cancelled............................................................ -- --
Exercised............................................................ (180,000) $ 0.125
---------- ---------
Balance at December 31, 1999........................................... 990,000 $ 0.125
========== =========
</TABLE>
At December 31, 1999, 830,000 shares were available for future option
grants. The weighted average grant-date fair value of options granted in 1999
was $0.125.
In December 1999, the Company repurchased 79,167 shares of common stock at
$0.01 per share from one of its founders pursuant to a stock repurchase
agreement.
The following table summarizes information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OF SHARES LIFE PRICE OF SHARES PRICE
- ----------- ---------- ----------- ----------- ---------- -----------
<C> <C> <S> <C> <C> <C>
0$.125..... 990,000 9.5 years $ 0.125 990,000 $ 0.125
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option valuation model with the following weighted average
assumptions for 1999: risk-free interest rate of 6%; dividend yield of 0%;
volatility of 70% and a weighted-average life of the options of five years. The
Company recorded deferred stock compensation based upon deemed fair value of the
options which exceeded the Black-Scholes valuation. Therefore, pro forma
disclosure of earnings (loss) per share is not required under SFAS 123.
DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees for the
year ended December 31, 1999, the Company recorded deferred stock compensation
within stockholders' deficit of approximately $3.4 million, representing the
difference between the deemed fair value of the common stock for accounting
purposes and the option exercise price of these options at the date of grant.
The
F-19
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Company recorded amortization of deferred compensation of approximately
$206,000, for the year ended December 31, 1999.
In connection with the grant of options to employees in January 2000, the
Company will record an additional $1.7 million of deferred stock compensation
during January 2000. The deferred stock compensation expense is being amortized
on an accelerated basis over the vesting period of the individual award,
generally five years. This method is in accordance with Financial Accounting
Standards Board Interpretation No. 28. Accordingly, at December 31, 1999, the
remaining deferred compensation of approximately $4.9 million will be amortized
as follows: $2.4 million during fiscal 2000, $1.3 million during fiscal 2001,
$0.7 million during fiscal 2002, $0.4 million during fiscal 2003 and
$0.1 million during fiscal 2004. The amortization expense relates to options
awarded to employees in all operating expense categories. The amortization of
deferred stock compensation has not been separately allocated to these
categories. The amount of deferred compensation expense to be recorded in future
periods could decrease if options for which accrued but unvested compensation
has been recorded are forfeited.
In November 1999 and January 2000, the Company issued 133,000 options to
purchase shares of common stock at a weighted average exercise price of $0.37
per share to consultants in exchange for research and development consulting
services. Compensation expense is recorded as the options vest based upon the
fair value of the option, determined quarterly using the Black-Scholes pricing
model.
COMMON STOCK
InterMune's Articles of Incorporation provide for issuance up to 30,000,000
shares of common stock. The holder of each share of common stock shall have one
right to one vote.
At December 31, 1999, common stock subject to future issuance is as follows:
<TABLE>
<S> <C>
Conversion of convertible redeemable preferred stock............. 7,835,000
Outstanding common stock options................................. 990,000
Common stock available for grant under stock option plan......... 830,000
---------
9,655,000
=========
</TABLE>
7. INCOME TAXES
At December 31, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $7,400,000 and $7,300,000, respectively. The
Company also had federal and state research and development tax credit
carryforwards of approximately $100,000. The federal net operating loss and
credit carryforwards will expire at various dates beginning in the year 2018
through 2019 if not utilized. The state of California net operating losses will
expire in the year 2006, if not utilized.
Utilization of the federal and state net operating loss and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
F-20
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 900,000 $ 2,900,000
Research and development credits.............................. -- 100,000
In-process research........................................... 1,500,000 1,800,000
------------- -------------
Total deferred tax assets....................................... 2,400,000 4,800,000
------------- -------------
Valuation allowance........................................... (2,400,000) (4,800,000)
------------- -------------
Net deferred tax assets......................................... $ -- $ --
============= =============
</TABLE>
Due to the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,400,000 and $2,400,000 during the period from February 25, 1998
(inception) to December 31, 1998, and for the year ended December 31, 1999,
respectively.
8. COMMITMENTS
LEASES
The Company currently utilizes facilities from Connetics Corporation based
upon the Service Agreement signed April 27, 1999. In December 1999, the Company
entered into a lease of additional office space and will relocate during the
first quarter of 2000, approximately 20 miles from the current location, to
Burlingame, California. This office space lease extends through December 2004.
Total rent expense under this lease was approximately $18,609 in 1999.
The following is a schedule by year of future minimum lease payments at
December 31, 1999:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- ------------------------------------------------------------------------------------ ------------
<S> <C>
2000................................................................................ $ 223,988
2001................................................................................ 232,108
2002................................................................................ 240,229
2003................................................................................ 248,349
2004................................................................................ 234,477
------------
$ 1,179,151
============
</TABLE>
CONSULTING AGREEMENTS
Beginning in January 2000 the Company has entered into consulting agreements
with a number of individuals for scientific advisory services. Each individual
receives a certain number of nonqualified stock options. In certain cases, the
options vest ratably over the duration of the contract. In other
F-21
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS (CONTINUED)
cases, the options vest ratably over a specified period, generally two years.
Compensation expense is measured and recorded as the service is completed in
accordance with EITF 96-18.
9. ACTIMMUNE PRODUCT SALES AND LONG-TERM ROYALTY PAYABLE TO GENENTECH
Product sales consist of ACTIMMUNE unit sales in excess of the annual
predetermined baseline for the year ended December 31, 1999. In connection with
the Genentech License and the Sublicense with Connetics, InterMune is obligated
to pay royalties on ACTIMMUNE sales to Genentech beginning January 15, 1999.
Under the terms of the Genentech License, the accrued royalties are payable the
earlier of March 31, 2002 or upon the completion of an initial public offering.
Interest accrues on unpaid quarterly royalties at prime plus 2% from the end of
each quarter. Genentech may, at their option, convert any or all unpaid
royalties plus accrued interest into InterMune equity securities at a per share
price equal to the Company's last equity financing. As of December 31, 1999,
accrued royalties and related interest of $1,913,785 are classified as
long-term.
10. SPONSORED RESEARCH AND LICENSE AGREEMENTS
LICENSE AGREEMENT WITH MCW RESEARCH FOUNDATION
Under an agreement with MCW Research Foundation, Inc. dated March 25, 1999,
the Company acquired an exclusive worldwide license to develop, manufacture and
sell the Pseudomonas V Antigen in the field of human disease therapy. The
Company paid a license fee of $50,000, agreed to make future milestone payments
upon the completion of specified developmental milestones and to pay a royalty
on net sales of licensed product. The Company can terminate the agreement at any
time upon giving at least 90 days written notice.
SPONSORED RESEARCH AND LICENSE AGREEMENT
Under a three year agreement with Panorama Research, Inc. dated January 1,
2000, the Company acquired an exclusive worldwide license to develop and
commercialize peptides that block staphylococcus aureus infections. The Company
agreed to fund research as incurred, make future milestone payments upon
completion of specified developmental milestones and to pay a royalty on net
sales of licensed product. The Company can terminate the agreement at any time
upon giving at least 30 days written notice.
11. SAVINGS PLAN
On May 1, 1999, the Company adopted a 401(k) defined contribution plan that
covers all full time employees, as defined, who meet certain length-of-service
requirements. Employees may contribute up to a maximum of 15% of their annual
compensation (subject to a maximum limit imposed by federal tax law). The
Company makes no matching contributions.
12. SUBSEQUENT EVENTS
On January 7 and January 27, 2000, the Company issued 4,876,916 aggregate
shares of Series B redeemable convertible preferred stock at $5.59 per share for
aggregate proceeds of $26,600,000. The Company incurred approximately
$1.5 million of issuance costs, including 120,000 additional shares of Series B
redeemable convertible preferred stock valued at $5.59 per share.
F-22
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
On January 7, 2000, pursuant to the terms of the collaboration agreement
with Connetics, the Company also issued to Connetics 89,445 shares of
series B-1 convertible preferred stock. This stock issuance has been reflected
as a return of capital to Connetics in the accompanying December 31, 1999
financial statements as the Company had concluded that the event triggering the
issuance (the closure of the Series B financing) was probable at December 31,
1999.
At the dates of issuance of Series B redeemable convertible preferred stock
in January 2000, the Company believed the per share price of $5.59 represented
the fair value of the preferred stock and was in excess of the deemed fair value
of its common stock. Subsequent to the commencement of the Company's initial
public offering process, the Company re-evaluated the deemed fair market value
of its common stock as of January 2000 and determined it to be $7.50 per share.
Accordingly, the incremental fair value of $9,300,000 is deemed to be the
equivalent of a redeemable preferred stock "dividend". The Company will reflect
that beneficial conversion feature as a deemed dividend on its redeemable
convertible preferred stock in its first quarter 2000 financial statements.
PROPOSED PUBLIC OFFERING OF COMMON STOCK AND PRO FORMA DECEMBER 31, 1999
STOCKHOLDERS' EQUITY (DEFICIT)
In January 2000, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, each share of outstanding convertible
preferred stock will automatically convert into one share of common stock. The
effects of the conversion of preferred stock are reflected in the unaudited pro
forma balance sheet at December 31, 1999. The Company plans to reincorporate in
Delaware prior to the closing of the initial public offering.
STOCK OPTION GRANTS
In January 2000, the Board of Directors granted options to purchase 443,500
common shares at a weighted average exercise price of $2.82 per share.
F-23
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF INTERMUNE PHARMACEUTICALS, INC. COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE INTERMUNE COMMON
STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Forward-Looking Statements........... 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Dilution............................. 17
Capitalization....................... 18
Selected Financial Data.............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 24
Management........................... 38
Related Party Transactions........... 50
Principal Stockholders............... 52
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 58
Underwriting......................... 60
Legal Matters........................ 62
Experts.............................. 62
Where You Can Find More Information.. 62
Index to Financial Statements........ F-1
</TABLE>
PRELIMINARY PROSPECTUS
5,500,000 Shares
[LOGO]
Common Stock
Warburg Dillon Read LLC
Chase H&Q
Prudential Vector Healthcare
a unit of Prudential Securities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates except
for the registration fee, the Nasdaq National Market listing fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 26,717
Nasdaq National Market listing fee.......................... 17,500
NASD filing fee............................................. 10,620
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 400,000
Transfer agent and registrar fees........................... 10,000
Directors' and Officers' Insurance.......................... 400,000
Miscellaneous............................................... $ 30,163
Total..................................................... $1,500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for some expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any of these persons in any action or
proceeding, including any action by or in the right of InterMune, arising out of
person's services as our director or officer, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request.
The underwriting agreement will provide for indemnification by the
underwriters of InterMune, our directors, our officers who sign the registration
statement, and our controlling persons for some liabilities, including
liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception in February 1998, we have sold and issued the following
unregistered securities:
(1) From June 1999 through January 2000, we have granted stock options to
purchase 1,613,500 shares of the our common stock to employees, consultants
and directors pursuant to our 1999 equity incentive plan. Of these stock
options, 885,000 shares have been exercised, none have been repurchased and
728,500 shares remain outstanding.
(2) In March 1998, we issued an aggregate of 1,600,000 shares of common stock to
two purchasers at a purchase price of $0.001 per share for an aggregate
purchase price of $1,600.00.
(3) In October 1998, we issued 11,200,000 shares of Series A preferred stock to
a single purchaser at a purchase price of $1.00 per share for an aggregate
purchase price of $11,200,000.00.
(4) In April 1999, we issued an aggregate of 1,790,000 shares of common stock to
ten purchasers at a purchase price of $0.01 per share for an aggregate
purchase price of $17,900.00.
(5) In April 1999, we issued an aggregate of 4,800,000 shares of Series A-2
preferred stock to nine purchasers at a purchase price of $1.25 per share
for an aggregate purchase price of $6,000,000.00. We simultaneously issued
an aggregate of 1,835,000 shares of Series A-1 preferred stock to two
purchasers at a purchase price of $1.25 per share for an aggregate purchase
price of $2,293,750.00. Shares of Series A-1 and A-2 preferred stock are
convertible into shares of common stock at the rate of one share of common
stock for each share of Series A-1 and A-2 preferred stock owned.
(6) In August 1999, we issued an aggregate of 800,000 shares of Series A-2
preferred stock to two purchasers at a purchase price of $1.25 per share for
an aggregate purchase price of $1,000,000.00.
(7) In September 1999, we issued an aggregate of 400,000 shares of Series A-2
preferred stock to two purchasers at a purchase price of $1.25 per share for
an aggregate purchase price of $500,000.00.
(8) In January 2000, we issued an aggregate of 4,846,361 shares of Series B
preferred stock to 50 purchasers at a purchase price of $5.59 per share for
an aggregate purchase price of $27,091,157.99. Shares of Series B preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series B preferred stock owned.
(9) In January 2000, we issued 120,000 shares of Series B preferred stock to a
placement agent as partial consideration for services rendered.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701. The sales and
issuances of securities described in paragraphs (2) through (9) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 4(2), Regulation D or Regulation S promulgated thereunder.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2 Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
3.3 Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2** Amended and Restated Investor Rights Agreement, dated
January 7, 2000, between Registrant and holders of the
Registrant's Series A-1 Preferred Stock, Series A-2
Preferred Stock and Series B Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1** Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan and related documents.
10.3 2000 Equity Incentive Plan and related documents.
10.4 2000 Employee Stock Purchase Plan and related documents.
10.5 2000 Non-Employee Directors' Stock Option Plan and related
documents.
10.6** Lease Agreement, dated November 9, 1999, between Registrant
and American Heart Association, Western States Affiliate.
10.7** Employment Agreement, dated April 27, 1999, between
Registrant and W. Scott Harkonen.
10.8** Employment Offer Letter, dated October 28, 1999, between
Registrant and Timothy P. Lynch.
10.9** Employment Offer Letter, dated October 22, 1999, between
Registrant and Peter Van Vlasselaer.
10.10** Employment Offer Letter, dated December 19, 1999, between
Registrant and Christine Czarniecki.
10.11** Secured Loan Agreement, Secured Promissory Note, and
Security Agreement, dated July 1, 1999, between Registrant
and W. Scott Harkonen.
10.12+** Amended and Restated Exclusive Sublicense Agreement, dated
April 27, 1999, between Registrant and Connetics
Corporation.
10.13** Collaboration Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.14** Transition Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.15 Amended and Restated Service Agreement, dated April 7, 1999,
between the Registrant and Connetics Corporation.
10.16** Supply Agreement, dated May 5, 1998, between Registrant (as
successor in interest to Connetics Corporation by
assignment) and Genentech, Inc. (incorporated by reference
from Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the Period Ended June 30, 1998 as filed August 13, 1998 by
Connetics Corporation).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.17+** Sponsored Research and License Agreement, dated January 1,
2000, between Registrant and Panorama Research, Inc.
10.18+** License Agreement, dated March 25, 1999, between Registrant
and MCW Research Foundation, Inc.
10.19+ Data Transfer, Clinical Trial, and Market Supply Agreement,
dated January 27, 1999, between the Registrant and
Boehringer Ingleheim.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1** Power of Attorney. Reference is made to the signature page.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act, the
information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission this indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against these liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by a director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether the
indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of
this issue.
(4) To provide to the Underwriters at the closing specified in the Underwriting
Agreement certificates in the denomination and registered in the names
required by the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Santa Clara, State of
California, on the 18th day of February, 2000.
<TABLE>
<S> <C>
INTERMUNE PHARMACEUTICALS, INC.
By: /s/ TIMOTHY P. LYNCH
--------------------------------------------
Timothy P. Lynch
PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
President and Chief
* Executive Officer and
------------------------------------------- Director (principal February 18, 2000
W. Scott Harkonen executive officer)
Vice President and Chief
/s/ TIMOTHY P. LYNCH Financial Officer
------------------------------------------- (principal financial February 18, 2000
Timothy P. Lynch and accounting officer)
*
------------------------------------------- Director February 18, 2000
James I. Healy
*
------------------------------------------- Director February 18, 2000
Edgar Engleman
*
------------------------------------------- Director February 18, 2000
John L. Higgins
*
------------------------------------------- Director February 18, 2000
Jonathan S. Leff
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director February 18, 2000
Nicholas J. Simon
*
------------------------------------------- Director February 18, 2000
Michael F. Powell
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ TIMOTHY P. LYNCH
-----------------------------------------
Timothy P. Lynch
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2 Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
3.3 Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2** Amended and Restated Investor Rights Agreement, dated
January 7, 2000, between Registrant and holders of the
Registrant's Series A-1 Preferred Stock, Series A-2
Preferred Stock and Series B Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1** Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan and related documents.
10.3 2000 Equity Incentive Plan and related documents.
10.4 2000 Employee Stock Purchase Plan and related documents.
10.5 2000 Non-Employee Directors' Stock Option Plan and related
documents.
10.6** Lease Agreement, dated November 9, 1999, between Registrant
and American Heart Association, Western States Affiliate.
10.7** Employment Agreement, dated April 27, 1999, between
Registrant and W. Scott Harkonen.
10.8** Employment Offer Letter, dated October 28, 1999, between
Registrant and Timothy P. Lynch.
10.9** Employment Offer Letter, dated October 22, 1999, between
Registrant and Peter Van Vlasselaer.
10.10** Employment Offer Letter, dated December 19, 1999, between
Registrant and Christine Czarniecki.
10.11** Secured Loan Agreement, Secured Promissory Note, and
Security Agreement, dated July 1, 1999, between Registrant
and W. Scott Harkonen.
10.12+** Amended and Restated Exclusive Sublicense Agreement, dated
April 27, 1999, between Registrant and Connetics
Corporation.
10.13** Collaboration Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.9 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.14** Transition Agreement, dated April 27, 1999, between
Registrant and Connetics Corporation (incorporated by
reference from Exhibit 10.7 to the Quarterly Report on
Form 10-Q for the Period Ended March 31, 1999 as filed
May 13, 1999 by Connetics Corporation).
10.15 Amended and Restated Service Agreement, dated April 7, 1999,
between the Registrant and Connetics Corporation.
10.16** Supply Agreement, dated May 5, 1998, between Registrant (as
successor in interest to Connetics Corporation by
assignment) and Genentech, Inc. (incorporated by reference
from Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the Period Ended June 30, 1998 as filed August 13, 1998 by
Connetics Corporation).
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17+** Sponsored Research and License Agreement, dated January 1,
2000, between Registrant and Panorama Research, Inc.
10.18+** License Agreement, dated March 25, 1999, between Registrant
and MCW Research Foundation, Inc.
10.19+ Data Transfer, Clinical Trial and Market Supply Agreement,
dated January 27, 1999, between Registrant and Boehringer
Ingleheim.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1.
24.1** Power of Attorney. Reference is made to the signature page.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested with respect to certain portions of the
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
** Previously filed.
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "INTERMUNE PHARMACEUTICALS MERGER CORPORATION", FILED IN THIS
OFFICE ON THE TENTH DAY OF FEBRUARY, A.D. 2000, AT 9 0'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-------------------------------------------
[SEAL] EDWARD J. FREEL, SECRETARY OF STATE
3174542 8100 0251032
AUTHENTICATION:
001068483 02-10-00
DATE:
<PAGE>
CERTIFICATE OF INCORPORATION OF
INTERMUNE PHARMACEUTICALS MERGER CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is InterMune Pharmaceuticals Merger
Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is Corporate Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle, and the name of the registered agent of the corporation in
the State of Delaware at such address is the Corporate Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock."
B. The total number of shares which the Corporation is authorized
to issue is fifty six million seventy thousand shares (56,070,000) shares,
thirty million (30,000,000) shares of which shall be Common Stock (the "Common
Stock") and twenty six million seventy thousand (26,070,000) shares of which
shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall have
a par value of one tenth of one cent ($0.001) per share, and the Common Stock
shall have a par value of one tenth of one cent ($0.001) per share.
C. One million eight hundred thirty-five thousand (1,835,000)
shares of the authorized shares of Preferred Stock are designated Series A-1
Preferred Stock, all of which are issued and outstanding, six million
(6,000,000) shares of which are designated Series A-2 Preferred Stock, all of
which are issued and outstanding, six million (6,000,000) shares of which are
designated Series A-3 Preferred Stock, none of which is issued and outstanding,
one million eight hundred thirty-five thousand (1,835,000) shares of which are
designated Series A-4 Preferred Stock, none of which is issued and outstanding,
five million two hundred
1
<PAGE>
thousand (5,200,000) shares of which are designated Series B Preferred Stock,
four million nine hundred sixty-six thousand three hundred sixty-one (4,966,361)
of which are issued and outstanding, and five million two hundred thousand
(5,200,000) shares of which are designated Series B-1 Preferred Stock, none of
which is issued and outstanding.
D. The rights, preferences, privileges, restrictions and other
matters relating to the Series A-1, A-2, A-3 and A-4 Preferred and Series B and
B-1 Preferred (together, the "Series Preferred") are as follows:
1. DIVIDEND RIGHTS.
a. SERIES B AND B-1 PREFERRED AND SERIES A-2
AND A-3 PREFERRED DIVIDEND RIGHTS. Holders of shares of Series B and B-1
Preferred and Series A-2 and A-3 Preferred shall be entitled to receive, on a
pro rata basis, dividends, out of any assets legally available therefor, prior
and in preference to any declaration or payment of any dividend on the Series
A-1 and A-4 Preferred or the Common Stock of the Corporation (collectively,
"Junior Stock") (payable other than in Common Stock or other securities or
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the Corporation), at the rate
of eight percent (8%) of their respective "Original Issue Price" per share per
annum (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) payable quarterly
when, as and if declared by the Board of Directors. Such dividends shall be
cumulative. The Original Issue Price of the Series A-1 Preferred shall be One
Dollar and Twenty Five Cents ($1.25) (the "Series A-1 Original Issue Price").
The Original Issue Price of the Series A-2 Preferred shall be One Dollar and
Twenty Five Cents ($1.25) (the "Series A-2 Original Issue Price"). The Original
Issue Price of the Series A-3 Preferred shall be One Dollar and Twenty Five
Cents ($1.25) (the "Series A-3 Original Issue Price"). The Original Issue Price
of the Series A-4 Preferred shall be One Dollar and Twenty Five Cents ($1.25)
(the "Series A-4 Original Issue Price"). The Original Issue Price of the Series
B Preferred shall be Five Dollars and Fifty Nine Cents ($5.59) (the "Series B
Original Issue Price"). The Original Issue Price of the Series B-1 Preferred
shall be Five Dollars and Fifty Nine Cents ($5.59) (the "Series B-1 Original
Issue Price").
b. SERIES A-1 AND A-4 PREFERRED DIVIDEND
RIGHTS. After the full cumulative dividends described in Section A.1 above have
been declared and paid (or after funds sufficient for payment thereof are set
aside for payment), the holders of shares of Series A-1 and A-4 Preferred shall
be entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend on the
Common Stock of the Corporation (payable other than in Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation), at the rate of eight percent (8%) of their original issue price
per share per annum (as adjusted for any stock dividends, combinations, splits
2
<PAGE>
recapitalizations and the like with respect to such shares), payable quarterly
when, as and if declared by the Board of Directors. Such dividends shall be
cumulative.
c. SUBSEQUENT DIVIDEND RIGHTS. After the full
cumulative dividends described in Sections A.1 and A.2 above have been declared
and paid (or after funds sufficient for payment thereof are set aside for
payment), the holders of shares of Series B and B-1 Preferred, Series A-2 and
A-3 Preferred, Series A-1 and A-4 Preferred and Common Stock shall be entitled
to receive, on a pro rata basis, dividends, out of any assets legally available
therefor, when, as and if declared by the Board of Directors, based on the
number of shares of Common Stock held by each (assuming full conversion to
Common Stock of all such shares of Series B and B-1 Preferred, Series A-2 and
A-3 Preferred and Series A-1 and A-4 Preferred).
2. VOTING RIGHTS.
a. GENERAL RIGHTS. Except as otherwise provided
herein or as required by law, the Series Preferred shall be voted together with
the shares of the Common Stock of the Corporation and not as a separate class at
any annual or special meeting of stockholders of the Corporation, and may act by
written consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series Preferred shall be entitled to
such number of votes as shall be equal to the whole number of shares of Common
Stock into which such holder's aggregate number of shares of Series Preferred
are convertible (pursuant to Section E hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
b. PROTECTIVE PROVISIONS OF SERIES PREFERRED.
For so long as at least one million (1,000,000) shares of Series Preferred
(subject to adjustment for any stock split, reverse stock split or other similar
event affecting the Series Preferred) remain outstanding, in addition to any
other vote or consent required herein or by law, the vote or written consent of
each of (i) the holders of at least a majority of the outstanding Series B and
B-1 Preferred, voting together as a separate class, and (ii) the holders of at
least sixty five percent (65%) of the outstanding Series A-2 and A-3 Preferred,
voting together as a separate class shall be necessary for authorizing the
following actions:
(i) CHANGE OF RIGHTS. Any amendment,
alteration, or repeal of any provision of this Certificate of Incorporation or
the Bylaws of the Corporation that affects adversely the voting powers,
preferences, or other special rights or privileges, qualifications, limitations,
or restrictions of any series of the Series Preferred, including, without
limitation, the anti-dilution provisions set forth herein;
(ii) AUTHORIZED SHARES.
(a) Any increase or decrease in the
number of authorized shares of Common Stock or Preferred Stock;
3
<PAGE>
(b) Any authorization or any
designation, whether by reclassification or otherwise, of any new class or
series of stock, or any other securities convertible into equity securities of
the Corporation ranking on a parity with or senior to any series of Series
Preferred in rights of redemption, liquidation preference, voting or dividends;
(iii) REDEMPTION OF SHARES. Any
redemption, repurchase, or other acquisition of Junior Stock (except for
acquisitions of Common Stock by the Corporation pursuant to agreements which
permit the Corporation to repurchase such shares upon termination of services to
the Corporation or in exercise of the Corporation's right of first refusal upon
a proposed transfer);
(iv) CORPORATION SALE. Any agreement by the
Corporation regarding a Corporation Sale (as defined in Section C.4);
(v) DIVIDENDS. Any action that results in
the payment or declaration of a dividend on any shares of Common Stock or
Preferred Stock;
(vi) LIQUIDATION. Any voluntary dissolution
or liquidation of the Corporation;
(vii) BOARD OF DIRECTORS. Any increase or
decrease in the authorized number of members of the Board of Directors;
(viii) DEBT OBLIGATION. Unless unanimously
approved by the Board of Directors, any action that would result in a debt
obligation of the Corporation in excess of Two Million Five Hundred Thousand
Dollars ($2,500,000) or any debt obligation(s) that exceed, in a single
transaction or series of related transactions within a twelve (12) month period,
Two Million Five Hundred Thousand Dollars ($2,500,000) in total consideration;
or
(ix) CHANGE OF PROTECTIVE PROVISIONS. Any
alteration or amendment of the protective provisions set forth in this Section
B.2.
c. PROTECTIVE PROVISIONS OF SERIES A-1 AND A-4
PREFERRED. For so long as at least two hundred fifty thousand (250,000) shares
of Series A-1 and A-4 Preferred (subject to adjustment for any stock split,
reverse stock split or other similar event affecting the Series A-1 and A-4
Preferred) remain outstanding, in addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least
fifty-five percent (55%) of the outstanding Series A-1 and A-4 Preferred shall
be necessary for authorizing the following actions:
(i) Change of Rights. Any alteration or
change of the rights, preferences or privileges of the shares of Series A-1 and
A-4 Preferred so as to affect adversely such shares;
4
<PAGE>
(ii) Authorized Shares. Any increase or
decrease in the number of authorized shares of Series A-1 and A-4 Preferred;
(iii) Change of Protective Provisions. Any
alteration or amendment of the protective provisions set forth in this Section
B.3; or
(iv) Dividends for Series A-2 and A-3
Preferred. Any action that results in the payment or declaration of a dividend
on any shares of Series B and B-1 Preferred or Series A-2 and A-3 Preferred.
d. ELECTION OF BOARD OF DIRECTORS. The holders
of Common Stock, voting as a separate class, shall be entitled to elect one (1)
member of the Board of Directors at each meeting or pursuant to each consent of
the Corporation's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death or
removal of any such director. The holders of Series A-2 and A-3 Preferred,
voting as a separate class, shall be entitled to elect two (2) members of the
Corporation's Board of Directors at each meeting or pursuant to each consent of
the Corporation's stockholders for the election of directors, and to remove from
office such directors and to fill any vacancy caused by the resignation, death
or removal of any such director. The holders of Series B and B-1 Preferred,
voting as a separate class, shall be entitled to elect one (1) member of the
Corporation's Board of Directors at each meeting or pursuant to each consent of
the Corporation's stockholders for the election of directors, and to remove from
office such directors and to fill any vacancy caused by the resignation, death
or removal of any such director. Thereafter, the holders of Common Stock and
Series Preferred, voting together as a single class, shall be entitled to elect
all remaining members of the Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary, before any
distribution or payment shall be made to the holders of any Junior Stock, the
holders of the Series B and B-1 Preferred and Series A-2 and A-3 Preferred shall
be entitled to be paid, respectively, out of any assets of the Corporation
legally available therefor an amount per share of Five Dollars and Fifty-Nine
Cents ($5.59) and One Dollar Twenty-Five Cents ($1.25) plus all declared and
unpaid dividends on such shares of Series B and B-1 Preferred and Series A-2 and
A-3 Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each share of
Series B and B-1 Preferred and Series A-2 and A-3 Preferred held by them (such
sum, the "Series B, B-1, A-2 and A-3 Preference"). If upon the occurrence of
such event, the assets and funds to be distributed among the holders of the
Series B and B-1 Preferred and Series A-2 and A-3 Preferred shall be
insufficient to permit the payment to such holders of the full Series B, B-1,
A-2 and A-3 Preference, then, the entire
5
<PAGE>
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series B and B-1 Preferred and
Series A-2 and A-3 Preferred in proportion to the full amount to which they
would otherwise be respectively entitled.
b. Subject to the payment in full of the Series
B, B-1, A-2 and A-3 Preference set forth in Section C.1. above, upon any
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, before any distribution or payment shall be made to the holders of
any Common Stock, the holders of the Series A-1 and A-4 Preferred shall be
entitled to be paid out of any assets of the Corporation legally available
therefor an amount per share of One Dollar Twenty-Five cents ($1.25) plus all
declared and unpaid dividends on such shares of Series A-1 and A-4 Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of Series A-1 and A-4
Preferred held by them (such sum, the "Series A-1 and A-4 Preference"). If upon
the occurrence of such event, the assets and funds to be distributed among the
holders of the Series A-1 and A-4 Preferred shall be insufficient to permit the
payment to such holders of the full Series A-1 and A-4 Preference, then, subject
to the payment in full of the Series B, B-1, A-2 and A-3 Preference, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A-1 and A-4 Preferred in
proportion to the full amount to which they would otherwise be respectively
entitled.
c. After the payment of the full Series B, B-1,
A-2 and A-3 Preference and the Series A-1 and A-4 Preference set forth in
Sections C.1 and C.2, the remaining assets of the Corporation legally available
for distribution, if any, shall be distributed ratably among the holders of the
Common Stock.
d. For purposes of Sections C.1 through C.3
above, a liquidation, dissolution or winding up of the Corporation shall be
deemed to be occasioned by, or to include, a "Corporation Sale" (as hereafter
defined). A "Corporation Sale" means (a) the acquisition of the Corporation by
another entity or the acquisition by the Corporation of another entity by means
of any transaction or series of related transactions (including, without
limitation, any reorganization, reclassification, merger or consolidation, but
excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); or (b) a sale of all or substantially all of the
assets of the Corporation; unless the Corporation's stockholders of record as
constituted immediately prior to the transaction described in (a) and (b) in
this sentence will, immediately after such acquisition or sale, hold at least
fifty percent (50%) of the voting power of the surviving or acquiring entity.
(i) In the event of a Corporation Sale,
if the consideration received by the Corporation is other than cash, its value
will be deemed its fair market value. Any securities shall be valued as follows:
(ii) For securities not subject to
investment letter or other similar restrictions on free marketability covered by
(iii) below:
6
<PAGE>
(a) If traded on a securities
exchange or through the Nasdaq National Market, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty (30) day period ending three (3) days prior to the closing of any such
acquisition or sale transaction;
(b) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing of any such acquisition or sale transaction;
and
(c) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the Corporation and each of (i) the holders of at least a majority of the
voting power of all then outstanding shares of Series B and B-1 Preferred,
voting as a separate class, (ii) the holders of at least sixty five percent
(65%) of the voting power of all then outstanding shares of Series A-2 and A-3
Preferred, voting together as a separate class, and (iii) the holders of at
least fifty five percent (55%) of the voting power of all then outstanding
shares of Series A-1 and A-4 Preferred, voting together as a separate class.
(iii) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A)(1), (2) or
(3) to reflect the approximate fair market value thereof, as mutually determined
by the Corporation and each of (a) the holders of at least a majority of the
voting power of all then outstanding shares of Series B and B-1 Preferred,
voting as a separate class, (b) the holders of at least sixty five percent (65%)
of the voting power of all then outstanding shares of the Series A-2 and A-3
Preferred, voting together as a separate class, and (c) the holders of at least
fifty five percent (55%) of the voting power of all then outstanding shares of
Series A-1 and A-4 Preferred, voting together as a separate class.
4. REDEMPTION.
a. The Series A-1 and A-4 Preferred, the Series
A-3 Preferred, and Series B-1 Preferred are not redeemable. After April 15,
2004, any outstanding shares of Series B Preferred and Series A-2 Preferred may
be redeemed by the vote or written consent of the holders of at least
three-fourths of the outstanding shares of Series B Preferred and Series A-2
Preferred, voting together as a single class (a "Notice of Redemption");
provided that the Corporation had revenues of at least Twenty Million Dollars
($20,000,000) for the twelve (12) full calendar months immediately preceding the
receipt by the Corporation of the Notice of Redemption. The Corporation shall
redeem to the extent it may lawfully do so the number of shares of Series B
Preferred and Series A-2 Preferred designated in the Notice of Redemption in
four (4) annual installments beginning on the first anniversary of the date of
receipt by the Corporation of the Notice of Redemption and ending on the third
anniversary from such first
7
<PAGE>
redemption date (each a "Redemption Date"). As more particularly provided in
Section D.2 below, the Corporation shall effect such redemptions on the
applicable Redemption Date (i) by paying in cash in exchange for the shares of
Series B Preferred to be redeemed a sum equal to Eleven Dollars Eighteen Cents
($11.18) per share of Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) plus declared and unpaid dividends with respect to such shares through
such Redemption Date, and (ii) by paying in cash in exchange for the shares of
Series A-2 Preferred to be redeemed a sum equal to Two Dollars Fifty Cents
($2.50) per share of Series A-2 Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) plus declared and unpaid dividends with respect to such shares through
such Redemption Date. The total amount to be paid on a particular Redemption
Date to a holder for the redemption of the shares of Series B Preferred and
Series A-2 Preferred such holder has requested be redeemed is hereinafter
referred to as the "Redemption Price." The number of shares of Series B
Preferred and Series A-2 Preferred that the Corporation shall be required to
redeem on any one Redemption Date shall be equal to the amount determined by
dividing (A) the aggregate number of shares of Series B Preferred and Series A-2
Preferred outstanding immediately prior to the Redemption Date by (B) the number
of remaining Redemption Dates (including the Redemption Date for which such
calculation is made). Shares subject to redemption pursuant to this Section
III.D shall be redeemed from each holder of Series B Preferred and Series A-2
Preferred on a pro rata basis.
b. On or prior to each Redemption Date, each
holder of shares of Series B Preferred and Series A-2 Preferred to be redeemed
shall surrender such holder's certificates representing such shares to the
Corporation or to the transfer agent for the Series Preferred, if any, and
provided the certificates have been so surrendered the Redemption Price of such
shares shall be payable on the Redemption Date (or such later date as the
certificates are surrendered if they are surrendered after the Redemption Date)
to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled. In the event less than all the shares represented by such certificates
are redeemed, a new certificate shall be issued representing the unredeemed
shares. From and after such Redemption Date, unless there shall have been a
default in payment of the Redemption Price or the Corporation is unable to pay
the Redemption Price due to not having sufficient legally available funds, all
rights of the holders of such shares as holders of Series B Preferred and Series
A-2 Preferred (except the right to receive the Redemption Price without interest
upon surrender of their certificates), shall cease and terminate with respect to
such shares, provided that in the event that shares of Series B Preferred and
Series A-2 Preferred are not redeemed due to a default in payment by the
Corporation or because the Corporation does not have sufficient legally
available funds, such shares of Series B Preferred and Series A-2 Preferred
shall remain outstanding and shall be entitled to all of the rights and
preferences provided herein.
c. Any failure of the Corporation to redeem the
Series B Preferred and Series A-2 Preferred in accordance with this Section D
shall give rise to a right of the Series B Preferred to elect one-half of the
members of the Corporation's Board of Directors
8
<PAGE>
and of the Series A-2 Preferred stockholders to elect one-half of the members of
the Corporation's Board of Directors.
5. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following
rights with respect to the conversion of the shares of such Series Preferred
into shares of Common Stock (the "Conversion Rights"):
a. RIGHT TO CONVERT. Each share of Series
Preferred shall be convertible into shares of Common Stock without the payment
of any additional consideration by the holder thereof and, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for the Series Preferred. Each
share of Series Preferred shall be convertible into the number of fully-paid and
nonassessable shares of Common Stock which results from multiplying the Series
A-1 Conversion Rate, Series A-2 Conversion Rate, Series A-3 Conversion Rate,
Series A-4 Conversion Rate, Series B Conversion Rate, or Series B-1 Conversion
Rate (each as defined below) per share in effect for such shares by the number
of shares of Series A-1 Preferred, Series A-2 Preferred, Series A-3 Preferred,
Series A-4 Preferred, Series B Preferred, and Series B-1 Preferred being
converted. The conversion rate in effect at any time for conversion of each of
the Series A-1 Preferred (the "Series A-1 Conversion Rate"), Series A-2
Preferred (the "Series A-2 Conversion Rate"), Series A-3 Preferred (the "Series
A-3 Conversion Rate"), Series A-4 Preferred (the "Series A-4 Conversion Rate"),
Series B Preferred (the "Series B Conversion Rate"), and Series B-1 Preferred
(the "Series B-1 Conversion Rate") shall be the quotient obtained by dividing
the Series A-1 Original Issue Price, Series A-2 Original Issue Price, Series A-3
Original Issue Price, Series A-4 Original Issue Price, Series B Original Issue
Price, or Series B-1 Original Issue Price by the "Series A-1 Preferred
Conversion Price", "Series A-2 Preferred Conversion Price", "Series A-3
Preferred Conversion Price", "Series A-4 Preferred Conversion Price", "Series B
Preferred Conversion Price", and Series B-1 Preferred Conversion Price",
respectively, calculated as provided below. As of the date of the filing of this
Certificate of Incorporation (the "Filing Date"), the initial conversion price
per share for the Series A-1 Preferred shall be the Series A-1 Original Issue
Price (the "Series A-1 Preferred Conversion Price"), the initial conversion
price for the Series A-2 Preferred shall be the Series A-2 Original Issue Price
(the "Series A-2 Preferred Conversion Price"), the initial conversion price for
the Series A-3 Preferred shall be the Series A-3 Original Issue Price (the
"Series A-3 Preferred Conversion Price"), the initial conversion price for the
Series A-4 Preferred shall be the Series A-4 Original Issue Price (the "Series
A-4 Preferred Conversion Price"), the initial conversion price for the Series B
Preferred shall be the Series B Original Issue Price (the "Series B Preferred
Conversion Price"), and the initial conversion price for the Series B-1
Preferred shall be the Series B-1 Original Issue Price (the "Series B-1
Preferred Conversion Price"). Such initial Series A-1 Preferred Conversion
Price, Series A-2 Preferred Conversion Price, Series A-3 Preferred Conversion
Price, Series A-4 Preferred Conversion Price, Series B
9
<PAGE>
Preferred Conversion Price, and Series B-1 Preferred Conversion Price shall be
subject to adjustment from time to time as provided below.
b. AUTOMATIC CONVERSION. Each share of Series
Preferred shall automatically be converted into shares of Common Stock at its
then-effective Conversion Rate (i) immediately upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock in which (a) the public offering price equals or exceeds
Seven Dollars Fifty Cents per share ($7.50) (adjusted to reflect stock
dividends, stock splits or recapitalizations subsequent to Filing Date) and (b)
the aggregate proceeds raised by the Corporation (before underwriting discounts,
commissions and fees), equal or exceed Fifteen Million Dollars ($15,000,000), or
(ii) upon the date specified by written consent or the affirmative vote of each
of (i) the holders of not less than a majority of the outstanding shares of
Series B and B-1 Preferred, voting as a separate class, and (ii) the holders of
not less than sixty five percent (65%) of the outstanding shares of Series A-2
and A-3 Preferred, voting together as a separate class, and (iii) the holders of
not less than fifty five percent (55%) of the outstanding shares of Series A-1
and A-4 Preferred, voting together as a separate class. Upon such automatic
conversion, any declared and unpaid dividends shall be paid in accordance with
the provisions of Section E.3.
c. MECHANICS OF CONVERSION. Before any holder
of Series Preferred shall be entitled to convert the same into shares of Common
Stock, it shall surrender the certificate(s) therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series Preferred and
shall give written notice to the Corporation at such office that it elects to
convert the same (except that no such written notice of election to convert
shall be necessary in the event of an automatic conversion pursuant to Section
E.3 (i) hereof). The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Series Preferred certificate(s) for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid and the Corporation shall promptly pay in cash, or to the extent
sufficient funds are not legally available therefor, in Common Stock (at the
Common Stock's fair market value determined by the Board of Directors as of the
date of such conversion), any declared and unpaid dividends on the shares of
Series Preferred being converted. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series Preferred to be converted, except that in the case of an
automatic conversion pursuant to Section E.2(i) hereof such conversion shall be
deemed to have been made immediately prior to the closing of the offering
referred to in Section E.2(i) and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
d. FRACTIONAL SHARES. In lieu of any fractional
shares of Common Stock to which the holder of Series Preferred would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the fair market value of one share of Common Stock as determined by the Board of
Directors of the Corporation. Whether or not
10
<PAGE>
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series Preferred of each holder at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
e. ADJUSTMENT OF CONVERSION PRICE.
(i) For purposes of this Section E.5,
the following definitions shall apply:
(a) "EXCLUDED STOCK" shall mean:
(1) all shares of Common Stock
issued and outstanding on the date this document is filed with the Delaware
Secretary of State and shares of Common Stock issuable pursuant to any options,
warrants or other rights that are exercisable for shares of Common Stock as of
such date;
(2) all shares of Series
Preferred and the Common Stock into which such shares are convertible;
(3) up to 2,000,000 shares of
Common Stock, warrants or options to purchase Common Stock, or other securities
convertible into or exchangeable for Common Stock, previously issued or issuable
to officers, directors, consultants or employees of the Corporation pursuant to
any plan or arrangement approved by the Board of Directors of the Corporation;
(4) any warrants, options or
other securities exercisable for or convertible into Common Stock that are
issued in connection with any equipment leasing arrangement or debt financing
from a bank or similar financial institution;
(5) up to 200,000 shares of
Common Stock issued in connection with strategic transactions involving the
Corporation and other entities, including joint ventures, manufacturing,
marketing, distribution, technology transfer or development arrangements;
(6) any other shares of Common
Stock issued with the unanimous consent of the Board of Directors; and
(7) Common Stock issued in a
transaction described in Section E.5(d) below.
(8) All outstanding shares of
Excluded Stock (including any shares issuable upon conversion of the Series
Preferred) shall be deemed to be outstanding for all purposes of the
computations of Section E.5(c) below.
(b) "FINANCING" shall mean any
issuance of Common Stock (including securities exercisable for or convertible
into Common Stock) in a transaction
11
<PAGE>
where the holders of Series Preferred are offered an opportunity to purchase
their Preferred Pro Rata Share of the additional shares of Common Stock
(including securities exercisable for or convertible into Common Stock) issued
in such transaction.
(c) "PREFERRED PRO RATA SHARE"
shall mean the amount determined by multiplying the total number shares of
Common Stock (including securities exercisable for or convertible into Common
Stock) offered for sale by the Corporation in a transaction to the holders of
the Series B and B-1 Preferred, Series A-2 and A-3 Preferred and Series A-1 and
A-4 Preferred by a fraction, (x) the numerator of which is the total number of
shares of Series B and B-1 Preferred, Series A-2 and A-3 Preferred or Series A-1
and A-4 Preferred (on an as-converted basis) held by such holder, and (y) the
denominator of which is the total number of shares of Common Stock (including
securities convertible into Common Stock) then outstanding.
(d) "SERIES B DILUTIVE ISSUANCE"
shall mean an issuance of Common Stock (including securities exercisable for or
convertible into Common Stock) in a Financing for a consideration per share less
than the Series B Preferred Conversion Price in effect on the date of and
immediately prior to such issue. "Series A Dilutive Issuance" shall mean an
issuance of Common Stock (including securities exercisable for or convertible
into Common Stock) in a Financing for a consideration per share less than the
Series A-1 Preferred Conversion Price or Series A-2 Preferred Conversion Price
in effect on the date of and immediately prior to such issue.
(e) "PARTICIPATING HOLDER" shall
mean any holder of Series A-1 Preferred that, together with any affiliate of
such holder, purchases at least twenty-five percent (25%) of its Preferred Pro
Rata Share of a Series A Dilutive Issuance, any holder of Series A-2 Preferred
that, together with any affiliate of such holder, purchases at least fifty
percent (50%) of its Preferred Pro Rata Share of a Series A Dilutive Issuance,
and any holder of Series B Preferred that, together with any affiliate of such
holder, purchases at least fifty percent (50%) of its Preferred Pro Rata Share
of a Series B Dilutive Issuance.
(f) "NON-PARTICIPATING HOLDER"
shall mean any holder of Series A-1 Preferred, Series A-2 Preferred, or Series B
Preferred that is not a Participating Holder.
(ii) SHADOW PREFERRED. In the event the
Corporation issues additional shares of Common Stock (including securities
exercisable for or convertible into Common Stock) other than Excluded Stock in a
Series B Dilutive Issuance or Series A Dilutive Issuance, as the case may be (i)
each share of Series B Preferred held by each and every Non-Participating Holder
shall, immediately prior to the closing of the applicable Series B Dilutive
Issuance, be automatically converted into one fully-paid and nonassessable share
of Series B-1 Preferred, (ii) each share of Series A-2 Preferred held by each
and every Nonparticipating Holder shall, immediately prior to the closing of the
applicable Series A Dilutive Issuance, be automatically converted into one
fully-paid and nonassessable share of
12
<PAGE>
Series A-3 Preferred, and (iii) each share of Series A-1 Preferred held by each
and every Nonparticipating Holder shall, immediately prior to the closing of the
applicable Series A Dilutive Issuance, be automatically converted into one
fully-paid and nonassessable share of Series A-4 Preferred. The Series B-1
Preferred Conversion Price will not be adjusted in the Series B Dilutive
Issuance. The Series A-3 Preferred Conversion Price and the Series A-4 Preferred
Conversion Price will not be adjusted in the Series A Dilutive Issuance. The
Series B-1 Preferred Conversion Price shall be equal to the Series B Preferred
Conversion Price in effect immediately prior to their conversion to Series B
Preferred. The Series A-3 Preferred Conversion Price shall be equal to the
Series A-2 Preferred Conversion Price in effect immediately prior to their
conversion to Series A-3 Preferred. The Series A-4 Preferred Conversion Price
shall be equal to the Series A-1 Preferred Conversion Price immediately prior to
their conversion to Series A-4 Preferred. Upon the conversion of the Series A-1
Preferred, Series A-2 Preferred, and Series B Preferred held by a
Nonparticipating Holder as set forth herein, such shares of Series A-1, Series
A-2 Preferred, and Series B Preferred shall no longer be outstanding on the
books of the Corporation and the Nonparticipating Holder shall be treated for
all purposes as the record holder of such shares of Series A-4 Preferred, Series
A-3 Preferred, and Series B-1 Preferred, respectively. The Corporation shall, as
soon as practicable following the delivery of certificates representing such
converted shares of Series A-3 Preferred, Series A-4 Preferred, and Series B-1
Preferred issue and deliver to such holder of such converted shares of Series
A-3 Preferred, Series A-4 Preferred, and Series B-1 Preferred a certificate or
certificates for the number of shares of Series A-3 Preferred, Series A-4
Preferred, and Series B-1 Preferred to which such holder shall be entitled as
aforesaid.
(iii) ADJUSTMENT OF CONVERSION PRICE FOR
ISSUANCE OF COMMON STOCK. No adjustment in the Series A-3 Preferred Conversion
Price, Series A-4 Preferred Conversion Price, or Series B-1 Preferred Conversion
Price shall be made in respect of the issuance of additional shares of Common
Stock (other than in the event of stock dividends, subdivisions, split-ups,
combinations or recapitalizations which are covered by Sections E.5(d),(e), (f)
and (g) below). The Series A-1 Preferred Conversion Price, Series A-2 Preferred
Conversion Price, and Series B Preferred Conversion Price shall be subject to
adjustment from time to time as follows:
If the Corporation shall issue, or is deemed by express provisions
herein to issue, any Common Stock other than Excluded Stock, for a consideration
per share less than the Series A-1 Preferred Conversion Price, Series A-2
Preferred Conversion Price, or Series B Preferred Conversion Price, as the case
may be, in effect immediately prior to the issuance of such Common Stock (other
than in the event of stock dividends, subdivisions, split-ups, combinations or
recapitalizations which are covered by Sections E.5(d),(e), (f) and (g) below),
the Series A-1 Preferred Conversion Price, Series A-2 Preferred Conversion
Price, and Series B Preferred Conversion Price, for such affected Series
Preferred alone, in effect immediately after each such issuance shall forthwith
(except as provided in this Section E.5(c)) be adjusted to a price equal to the
quotient obtained by dividing:
13
<PAGE>
a) an amount equal to the sum of:
(1) the total number of shares of
Common Stock outstanding (including any shares of Common Stock issuable upon
conversion of Series Preferred or exercise or conversion of all other rights,
options or convertible or exchangeable securities) immediately prior to such
issuance multiplied by the Series A-1 Preferred Conversion Price, Series A-2
Preferred Conversion Price, and Series B Preferred Conversion Price, as the case
may be, in effect immediately prior to such issuance, plus
(2) the consideration received by the
Corporation upon such issuance, by
b) the total number of shares of Common stock
outstanding (including any shares of Common Stock issuable upon conversion of
the Series Preferred or exercise or conversion of all other rights, options or
convertible or exchangeable securities) immediately prior to issuance plus the
additional shares of Common Stock issued in such issuance (but not including any
additional shares of Common Stock deemed to be issued as a result of any
adjustment in the Series A-1 Preferred Conversion Price, Series A-2 Preferred
Conversion Price, or Series B Preferred Conversion Price, as the case may be,
resulting from such issuance or resulting from the adjustment in the conversion
price of any series of Series Preferred).
For purposes of any adjustment of the Series A-1 Preferred Conversion
Price, Series A-2 Preferred Conversion Price, or Series B Preferred Conversion
Price pursuant to this clause (b), the following provisions shall be applicable:
(1) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor after deducting any discounts or commissions paid or incurred
by the Corporation in connection with the issuance and sale thereof.
(2) In the case of the issuance of
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined by the Board of Directors of the Corporation, in
accordance with generally accepted accounting treatment; provided, however, that
if, at the time of such determination, the Corporation's Common Stock is traded
in the over-the-counter market or on a national or regional securities exchange
such fair market value as determined by the Board of Directors shall not exceed
the aggregate "Current Market Price" (as defined below) of the shares of Common
Stock being issued. For the purpose of any computation pursuant to this Section
E.5(c), the "Current Market Price" at any date of one share of Common Stock,
shall be deemed to be the average of the highest reported bid and the lowest
reported offer prices on the preceding business day as furnished by the National
Quotation Bureau, Incorporated (or equivalent recognized source of quotations);
provided, however, that if the Common Stock is not traded in such manner that
the quotations referred to
14
<PAGE>
in this section are available for the period required hereunder, Current Market
Price shall be determined in good faith by the Board of Directors of the
Corporation.
(3) In the case of the issuance of (i)
options to purchase or rights to subscribe for Common Stock (other than Excluded
Stock), (ii) securities by their terms convertible into or exchangeable for
Common Stock (other than Excluded Stock), or (iii) options to purchase or rights
to subscribe for such convertible or exchangeable securities:
(a) the aggregate maximum number
of shares of Common Stock deliverable upon exercise of such options to purchase
rights to subscribe for Common Stock, to the extent then exercisable, shall be
deemed to have been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the manner
provided in subsections a. and b. above), if any, received by the Corporation
upon the issuance of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock covered thereby;
(b) the aggregate maximum number
of shares of Common Stock deliverable, to the extent then exercisable, upon
conversion of or in exchange, to the extent then convertible or exchangeable,
for any such convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration received
by the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
the Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections a. and b. above);
(c) on any change in the number
of shares of Common Stock deliverable upon exercise of any such options or
rights or conversion of or exchange for such convertible or exchangeable
securities, or on any change in the minimum purchase price of such options,
rights or securities, other than a change resulting from the antidilution
provisions of such options, rights or securities, the Series A-1 Preferred
Conversion Price, Series A-2 Preferred Conversion Price, or Series B Preferred
Conversion Price shall forthwith be readjusted to such Series A-1 Preferred
Conversion Price, Series A-2 Preferred Conversion Price, or Series B Preferred
Conversion Price as would have obtained had the adjustment made upon (x) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change, as the case may be, been made upon the basis of
such change, or (y) the options or rights related to such securities not
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change; and
15
<PAGE>
(d) on the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Series A-1 Preferred Conversion Price, Series
A-2 Preferred Conversion Price, or Series B Preferred Conversion Price shall
forthwith be readjusted to such the Series A-1 Preferred Conversion Price,
Series A-2 Preferred Conversion Price, or Series B Preferred Conversion Price as
would have been obtained had the adjustment made upon the issuance of such
options, rights, convertible or exchangeable securities or options or rights
related to such convertible or exchangeable securities, as the case may be, been
made upon the basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such convertible or exchangeable securities or upon the exercise
of the options or rights related to such convertible or exchangeable securities,
as the case may be.
(iv) If the number of shares of Common Stock
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, Series A-1 Preferred Conversion Price, Series A-2 Preferred
Conversion Price, the Series A-3 Preferred Conversion Price, the Series A-4
Preferred Conversion Price, Series B Preferred Conversion Price and Series B-1
Preferred Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of any shares of such series of
Series Preferred shall be increased in proportion to such increase of
outstanding shares.
(v) If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of Common Stock, then, on the effective date of such
combination, the Series A-1 Preferred Conversion Price, Series A-2 Preferred
Conversion Price, the Series A-3 Preferred Conversion Price, the Series A-4
Preferred Conversion Price, Series B Preferred Conversion Price and Series B-1
Preferred Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of any shares of such series of
Series Preferred shall be decreased in proportion to such decrease in the
outstanding shares.
(vi) In case the Corporation shall declare a cash
dividend upon its Common Stock payable otherwise than out of retained earnings
or shall distribute to holders of its Common Stock shares of this capital stock
(other than Common Stock), stock or other securities of other persons, evidences
of indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights (excluding options to purchase and rights
to subscribe for Common Stock or other securities of the Corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Series A-1 and A-4 Preferred and Series A-2 and A-3 Preferred shall,
concurrent with the distribution to holders of Common Stock, receive a like
distribution based upon the number of shares of Common Stock into which such
series of Series Preferred is convertible.
16
<PAGE>
(vii) In case, at any time after the date hereof,
of any capital reorganization, or any reclassification of the stock of the
Corporation (other than as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Corporation
with or into any person (other than a consolidation or merger in which the
Corporation is the continuing entity and which does not result in any change in
the Common Stock), or of the sale or other disposition of all or substantially
all the properties and assets of the Corporation, the shares of Series Preferred
shall, after such reorganization, reclassification, consolidation, merger, sale
or other disposition, be convertible into the kind and number of shares of stock
or other securities or property of the Corporation or otherwise to which such
holder would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition it had
converted its shares of Series Preferred into Common Stock. The provisions of
this subsection (g) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(viii) All calculations under this Section E shall
be made to the nearest cent or to the nearest one hundredth (1/100) of a share,
as the case may be..
f. MINIMAL ADJUSTMENTS. No adjustment in the Series A-1
Preferred Conversion Price, Series A-2 Preferred Conversion Price, the Series
A-3 Preferred Conversion Price, the Series A-4 Preferred Conversion Price,
Series B Preferred Conversion Price or Series B-1 Preferred Conversion Price
need be made if such adjustment would result in a change in such Series A-1
Preferred Conversion Price, Series A-2 Preferred Conversion Price, the Series
A-3 Preferred Conversion Price, the Series A-4 Preferred Conversion Price,
Series B Preferred Conversion Price and Series B-1 Preferred Conversion Price of
less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in the Series A-1 Preferred Conversion Price, Series A-2 Preferred
Conversion Price, the Series A-3 Preferred Conversion Price, the Series A-4
Preferred Conversion Price, Series B Preferred Conversion Price and Series B-1
Preferred Conversion Price.
g. NO DILUTION OR IMPAIRMENT. Without the consent of
each of (i) the holders of the then outstanding Series B and B-1 Preferred,
voting as a separate class, and (ii) the holders of the then outstanding Series
A-1 and A-4 Preferred and Series A-2 and A-3 Preferred, voting together as a
separate class, if and as required under Section B.2, the Corporation shall not
amend this Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or take any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but shall at all times in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of the
Series Preferred against dilution or other impairment.
17
<PAGE>
h. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Series A-1 Preferred Conversion Price,
Series A-2 Preferred Conversion Price, the Series A-3 Preferred Conversion
Price, the Series A-4 Preferred Conversion Price, Series B Preferred Conversion
Price and Series B-1 Preferred Conversion Price pursuant to this Section E, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Series Preferred, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Series A-1 Preferred Conversion Price, Series A-2 Preferred Conversion
Price, the Series A-3 Preferred Conversion Price, the Series A-4 Preferred
Conversion Price, Series B Preferred Conversion Price and Series B-1 Preferred
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversions of such holder's shares of Series Preferred.
i. NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property or to receive any other right, the Corporation
shall mail to each holder of Series Preferred at least ten (10) days prior to
such record date, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution or right, and the amount
and character of such dividend, distribution or right.
j. REISSUANCE OF CONVERTED SHARES. No shares of Series
Preferred which have been converted into Common Stock after the original
issuance thereof shall ever again be reissued.
k. NOTICES. Any notice required by the provisions of
this Section E shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(iv) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
l. PAYMENT OF TAXES. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series Preferred, excluding any tax or other charge
imposed in connection with any transfer involved
18
<PAGE>
in the issue and delivery of shares of Common Stock in a name other than that in
which the shares of Series Preferred so converted were registered.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. MANAGEMENT.
1. The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS.
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section B.1. of this
Article V shall become effective and be applicable only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A.2.a.
of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
19
<PAGE>
c. No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless, at
the time of such election, the corporation (i) is subject to Section 2115(b) of
the CGCL AND (ii) is not or ceases to be a "listed" corporation under Section
301.5 of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
b. At any time or times that the corporation is not
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, the Board of Directors or any individual director may be removed from
office at any time without cause by the affirmative vote of the holders of at
least a majority of the outstanding shares entitled to vote on such removal.
4. VACANCIES.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from
20
<PAGE>
any increase in the number of directors, shall, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders, except as otherwise provided by law, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
c. At any time or times that the corporation is subject
to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of
five percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. BYLAW AMENDMENTS. Subject to paragraph (h) of Section 43 of
the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
C. BALLOTS. The directors of the corporation need not be elected
by written ballot unless the Bylaws so provide.
D. ACTION BY STOCKHOLDERS. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with the Bylaws or by written consent of
stockholders in accordance with the Bylaws prior to the
21
<PAGE>
closing of the Initial Public Offering and following the closing of the Initial
Public Offering no action shall be taken by the stockholders by written consent.
E. ADVANCE NOTICE. Advance notice of stockholder nominations for
the election of directors and of business to be brought by stockholders before
any meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the CGCL) for breach of duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or through shareholder resolutions, or otherwise, in excess of
the indemnification otherwise permitted by Section 317 of the CGCL, subject, at
any time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
VIII.
The rights, preferences, privileges, restrictions and other matters
relating to the Common Stock are as follows:
22
<PAGE>
A. DIVIDEND RIGHTS. Subject to the provisions of Article IV.A.,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
B. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Article IV.C.
C. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one (1) vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law
IX.
The name and the mailing address of the Sole Incorporator is as
follows:
Heather Gorman
Cooley Godward LLP
3000 El Camino Real
Five Palo Alto Square
Palo Alto, CA 94306
IN WITNESS WHEREOF, this Certificate has been subscribed this 10th day
of February, 2000 by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Heather Gorman
----------------------------
HEATHER GORMAN
Sole Incorporator
23
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERMUNE PHARMACEUTICALS, INC.
W. Scott Harkonen and Alan C. Mendelson hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of InterMune Merger Corporation, a Delaware corporation.
TWO: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of this corporation is InterMune Pharmaceuticals, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware
at such address is the Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
IV.
A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is fifty million (50,000,000) shares. Forty five million
(45,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($0.001). Five million (5,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent ($0.001).
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation
Law ("DGCL"), to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be decreased in accordance
with the foregoing sentence, the shares constituting such
1.
<PAGE>
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A. MANAGEMENT.
1. The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"1993 Act"), covering the offer and sale of Common Stock to the public (the
"Initial Public Offering"), the directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall
be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term
of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders
following the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), this Section A.2.a of this
Article V shall become effective and be applicable only when the corporation
is a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section
A.2.a of this Article V shall not apply and all directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting.
c. No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless,
at the time of such election, the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not or ceases to be a "listed" corporation
under Section 301.5 of the CGCL. During this time, every stockholder entitled
to
2.
<PAGE>
vote at an election for directors may cumulate such stockholder's votes and give
one candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
b. At any time or times that the corporation is not subject
to Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A.3.a above shall no longer apply and the Board of Directors or any
individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal.
4. VACANCIES.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of directors,
shall, unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote
of a majority of the directors then in office, even though less than a quorum
of the Board of Directors, and not by the stockholders. Any director elected
in accordance with the preceding sentence shall hold office for the
3.
<PAGE>
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been elected and
qualified.
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a
special meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any
director shall terminate upon that election of a successor.
B. BYLAW AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the voting stock of
the corporation entitled to vote. The Board of Directors shall also have the
power to adopt, amend, or repeal Bylaws.
C. BALLOTS. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
D. ACTION BY STOCKHOLDERS. No action shall be taken by the stockholders
of the corporation except at an annual or special meeting of stockholders
called in accordance with the Bylaws or by written consent of stockholders in
accordance with the Bylaws prior to the closing of the Initial Public
Offering and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
E. ADVANCE NOTICE. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before
any meeting of the stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation.
VI.
4.
<PAGE>
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at
any time or times the corporation is subject to Section 2115(b) to the limits
on such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time
of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, except as provided in paragraph B. of
this Article VII, and all rights conferred upon the stockholders herein are
granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the voting stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI, and VII.
THREE: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
FOUR: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware by the Board of
Directors and the stockholders of the Corporation. The total number of
outstanding shares entitled to vote or act by written consent was 15,397,194
shares of Common Stock, 1,835,000 shares of Series A-1 Preferred Stock,
6,000,000 shares of Series A-2 Preferred Stock, and 4,966,361 shares of
Series B Preferred Stock.
5.
<PAGE>
IN WITNESS WHEREOF, INTERMUNE PHARMACEUTICALS, INC. has caused this
Amended and Restated Certificate of Incorporation to be signed by the President
and the Secretary in Palo Alto, California this ____ day of ____________, 2000.
INTERMUNE PHARMACEUTICALS, INC.
By:
----------------------------------
President
W. Scott Harkonen
ATTEST:
By:
-----------------------------------
Secretary
Alan C. Mendelson
1.
<PAGE>
Exhibit 3.3
BYLAWS
OF
INTERMUNE PHARMACEUTICALS MERGER CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES.............................................................................1
Section 1. Registered Office................................................................1
Section 2. Other Offices....................................................................1
ARTICLE II CORPORATE SEAL......................................................................1
Section 3. Corporate Seal...................................................................1
ARTICLE III STOCKHOLDERS' MEETINGS..............................................................1
Section 4. Place Of Meetings................................................................1
Section 5. Annual Meetings..................................................................1
Section 6. Special Meetings.................................................................4
Section 7. Notice Of Meetings...............................................................5
Section 8. Quorum...........................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings.....................................5
Section 10. Voting Rights....................................................................6
Section 11. Joint Owners Of Stock............................................................6
Section 12. List Of Stockholders.............................................................6
Section 13. Action Without Meeting...........................................................6
Section 14. Organization.....................................................................7
ARTICLE IV DIRECTORS...........................................................................8
Section 15. Number And Term Of Office........................................................8
Section 16. Powers...........................................................................8
Section 17. Classes of Directors.............................................................8
Section 18. Vacancies........................................................................9
Section 19. Resignation.....................................................................10
Section 20. Removal.........................................................................10
Section 21. Meetings........................................................................10
Section 22. Quorum And Voting...............................................................11
Section 23. Action Without Meeting..........................................................12
Section 24. Fees And Compensation...........................................................12
Section 25. Committees......................................................................12
Section 26. Organization....................................................................13
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE V OFFICERS...........................................................................13
Section 27. Officers Designated.............................................................13
Section 28. Tenure And Duties Of Officers...................................................14
Section 29. Delegation Of Authority.........................................................15
Section 30. Resignations....................................................................15
Section 31. Removal.........................................................................15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION.........................................................................15
Section 32. Execution Of Corporate Instruments..............................................15
Section 33. Voting Of Securities Owned By The Corporation...................................16
ARTICLE VII SHARES OF STOCK....................................................................16
Section 34. Form And Execution Of Certificates..............................................16
Section 35. Lost Certificates...............................................................17
Section 36. Transfers.......................................................................17
Section 37. Fixing Record Dates.............................................................17
Section 38. Registered Stockholders.........................................................18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION................................................18
Section 39. Execution Of Other Securities...................................................18
ARTICLE IX DIVIDENDS..........................................................................19
Section 40. Declaration Of Dividends........................................................19
Section 41. Dividend Reserve................................................................19
ARTICLE X FISCAL YEAR........................................................................19
Section 42. Fiscal Year.....................................................................19
ARTICLE XI INDEMNIFICATION....................................................................20
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees
And Other Agents................................................................20
ARTICLE XII NOTICES............................................................................23
Section 44. Notices.........................................................................23
ARTICLE XIII AMENDMENTS.........................................................................24
Section 45. Amendments......................................................................24
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XIV LOANS TO OFFICERS..................................................................24
Section 46. Loans To Officers...............................................................24
</TABLE>
iii.
<PAGE>
BYLAWS
OF
INTERMUNE PHARMACEUTICALS MERGER CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle. (Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may
be designated from time to time by the Board of Directors.
1.
<PAGE>
Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders: (i) pursuant to the
corporation's notice of meeting of stockholders; (ii) by or at the direction
of the Board of Directors; or (iii) by any stockholder of the corporation who
was a stockholder of record at the time of giving of notice provided for in
the following paragraph, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in Section 5. (Del. Code Ann.,
tit. 8, Section 211(b)).
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of
these Bylaws, (i) the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation, (ii) such other business must be
a proper matter for stockholder action under the Delaware General Corporation
Law ("DGCL"), (iii) if the stockholder, or the beneficial owner on whose
behalf any such proposal or nomination is made, has provided the corporation
with a Solicitation Notice (as defined in this Section 5(b)), such
stockholder or beneficial owner must, in the case of a proposal, have
delivered a proxy statement and form of proxy to holders of at least the
percentage of the corporation's voting shares required under applicable law
to carry any such proposal, or, in the case of a nomination or nominations,
have delivered a proxy statement and form of proxy to holders of a percentage
of the corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed
to be nominated by such stockholder, and must, in either case, have included
in such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must
not have solicited a number of proxies sufficient to have required the
delivery of such a Solicitation Notice under this Section 5. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the ninetieth (90th) day nor earlier than the close of business on the one
hundred twentieth (120th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced more than thirty (30) days prior to or delayed
by more than thirty (30) days after the anniversary of the preceding year's
annual meeting, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the one hundred twentieth (120th)
day prior to such annual meeting and not later than the close of business on
the later of the ninetieth (90th) day prior to such annual meeting or the
tenth (10th) day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice shall
set forth: (A) as to each person whom the stockholder proposed to nominate
for election or reelection as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (B) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting
2.
<PAGE>
such business at the meeting and any material interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, and (iii) whether either such
stockholder or beneficial owner intends to deliver a proxy statement and form
of proxy to holders of, in the case of the proposal, at least the percentage
of the corporation's voting shares required under applicable law to carry the
proposal or, in the case of a nomination or nominations, a sufficient number
of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholders' meeting, stockholders
must provide notice as required by the regulations promulgated under the 1934
Act. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
3.
<PAGE>
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption). At any time or times that the corporation
is subject to Section 2115(b) of the California General Corporation Law
("CGCL"), stockholders holding ten percent (10%) or more of the outstanding
shares shall have the right to call a special meeting of stockholders only as
set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice
provided for in these Bylaws who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 6(c). In
the event the corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by Section 5(b) of these Bylaws
shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting and not later than the
close of business on the later of the ninetieth (90th) day prior to such
meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as
described above.
4.
<PAGE>
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to
time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned
5.
<PAGE>
meeting shall be given to each stockholder of record entitled to vote at the
meeting. (Del. Code Ann., tit. 8, Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents (but only prior to the Initial
Public Offering) shall have the right to do so either in person or by an agent
or agents authorized by a proxy granted in accordance with Delaware law. An
agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8,
Section 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
6.
<PAGE>
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within
sixty (60) days of the earliest dated consent delivered to the corporation in
the manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. (Del. Code Ann., tit. 8, Section
228)
(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents
signed by a sufficient number of stockholders to take action were delivered
to the corporation as provided in Section 228 (c) of the DGCL. If the action
which is consented to is such as would have required the filing of a
certificate under any section of the DGCL if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence,
an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders
as it shall deem necessary, appropriate or convenient. Subject to such rules
and regulations of the Board of Directors, if any, the chairman of the
meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by
7.
<PAGE>
the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b),
211(b), (c))
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, this Section 17(a) shall become
effective and apply only when the corporation is a "listed" corporation within
the meaning of Section 301.5 of the CGCL.
(b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless,
at the time of the election, the corporation (i) is subject to Section2115(b)
of the CGCL AND (ii) is not or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to
vote at an election for directors may cumulate such stockholder's votes and
give one candidate a number of votes
8.
<PAGE>
equal to the number of directors to be elected multiplied by the number of
votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting
and (ii) the stockholder has given notice at the meeting, prior to the
voting, of such stockholder's intention to cumulate such stockholder's votes.
If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. Under cumulative voting, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed to
exist under this Section 18 in the case of the death, removal or resignation
of any director. (Del. Code Ann., tit. 8, Section 223(a), (b))
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL. (Del. Code Ann., tit. 8, Section 223(c)).
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders;
or
9.
<PAGE>
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any
director shall terminate upon that election of a successor. (CGCL Section
305(c).
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
Sections 141(b), 223(d))
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, the Board of Directors or any individual director may be removed from
office at any time without cause by the affirmative vote of the holders of at
least a majority of the outstanding shares entitled to vote on such removal.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of
10.
<PAGE>
Directors and publicized among all directors. No formal notice shall be
required for regular meetings of the Board of Directors. (Del. Code Ann.,
tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors
(Del. Code Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person
at such meeting. (Del. Code Ann., tit. 8, Section 141(I))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the
11.
<PAGE>
directors present, unless a different vote be required by law, the
Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
Section 141(b))
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, Section
141(c))
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members
12.
<PAGE>
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member. (Del. Code Ann., tit. 8,
Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one
13.
<PAGE>
person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors. (Del. Code Ann., tit. 8,
Sections 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8,
Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers, as the Board
of Directors shall designate from time to time. If there is no President,
then the Chairman of the Board of Directors shall also serve as the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8,
Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time. (Del. Code Ann., tit.
8, Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers,
as the Board of Directors shall designate from time to time. The President
may direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform
14.
<PAGE>
other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time. (Del. Code Ann., tit. 8, Section
142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into
15.
<PAGE>
contracts on behalf of the corporation, except where otherwise provided by
law or these Bylaws, and such execution or signature shall be binding upon
the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full
or in summary, all of the powers, designations, preferences, and rights, and
the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences
16.
<PAGE>
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, Section 201, tit. 6, Section 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the DGCL. (Del. Code Ann., tit. 8, Section 160(a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall, subject to applicable law, not be more than sixty
(60) nor less than ten (10) days before the date of such meeting. If no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record
17.
<PAGE>
date is adopted by the Board of Directors. Any stockholder of record seeking
to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has
been fixed by the Board of Directors within ten (10) days of the date on
which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty (60) days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8,
Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate
18.
<PAGE>
security shall be authenticated by the manual signature, or where permissible
facsimile signature, of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signatures
of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person.
In case any officer who shall have signed or attested any bond, debenture or
other corporate security, or whose facsimile signature shall appear thereon
or on any such interest coupon, shall have ceased to be such officer before
the bond, debenture or other corporate security so signed or attested shall
have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8, Sections 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
19.
<PAGE>
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the DGCL or any
other applicable law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the DGCL or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its employees and other agents as set forth in the DGCL or
any other applicable law. The Board of Directors shall have the power to
delegate the determination of whether indemnification shall be given to any
such person to such officers or other persons as the Board of Directors shall
determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or officer, of the corporation, or is or was serving at the request
of the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
20.
<PAGE>
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Section 43 to a director or officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also
the expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to
any such action that the claimant has not met the standards of conduct that
make it permissible under the DGCL or any other applicable law for the
corporation to indemnify the claimant for the amount claimed. In connection
with any claim by an officer of the corporation (except in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to
the best interests of the corporation, or with respect to any criminal action
or proceeding that such person acted without reasonable cause to believe that
his conduct was lawful. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the DGCL or any other
applicable law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that claimant has not met the
applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision
of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Section 43.
21.
<PAGE>
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the
full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this
Section 43 shall be invalid due to the application of the indemnification
provisions of another jurisdiction, then the corporation shall indemnify each
director and officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving
of testimony in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section 43 with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
22.
<PAGE>
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the
name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(Del. Code Ann., tit. 8, Section 222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
23.
<PAGE>
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the DGCL, the certificate shall state, if
such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom
communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the DGCL, the
certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph. (Del. Code
Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other
24.
<PAGE>
assistance may be with or without interest and may be unsecured, or secured
in such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these
Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute. (Del. Code
Ann., tit. 8, Section 143)
25.
<PAGE>
EXHIBIT 10.2
INTERMUNE PHARMACEUTICALS, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED JUNE 1, 1999, AMENDED DECEMBER 31, 1999
APPROVED BY SHAREHOLDERS JUNE 1, 1999, AND JANUARY 3, 2000
TERMINATION DATE: MAY 31, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to
receive Stock Awards are the Employees, Directors and Consultants of the Company
and its Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide
a means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means InterMune Pharmaceuticals, Inc., a California
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated
1
<PAGE>
by the Company for their services as Directors or Directors of the Company who
are merely paid a director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means (i) before the Listing Date, the
inability of a person, in the opinion of a qualified physician acceptable to the
Company, to perform the major duties of that person's position with the Company
or an Affiliate of the Company because of the sickness or injury of the person
and (ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in THE WALL STREET JOURNAL
or such other source as the Board deems reliable.
2
<PAGE>
(ii) In the absence of such markets for the Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common
Stock shall be determined in a manner consistent with Section 260.140.50 of
Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company or its parent or
a subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing Date,
a person who is an officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory
Stock Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
3
<PAGE>
(w) "OUTSIDE DIRECTOR" means a Director of the Company who either
(i) is not a current employee of the Company or an "affiliated corporation"
(within the meaning of Treasury Regulations promulgated under Section 162(m) of
the Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently receiving direct or
indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this InterMune Pharmaceuticals, Inc. 1999 Equity
Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT SHAREHOLDER" means a person who owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
4
<PAGE>
(ii) To construe and interpret the Plan and Stock
Awards granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (1) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (2) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, the stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate two million
(2,000,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full
5
<PAGE>
(or vested in the case of Restricted Stock), the stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan. If any Common Stock acquired pursuant to the exercise of an Option shall
for any reason be repurchased by the Company under an unvested share repurchase
option provided under the Plan, the stock repurchased by the Company under such
repurchase option shall not revert to and again become available for issuance
under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no
time shall the total number of shares issuable upon exercise of all outstanding
Options and the total number of shares provided for under any stock bonus or
similar plan of the Company exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title 10
of the California Code of Regulations, based on the shares of the Company which
are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT SHAREHOLDERS. No Ten Percent Shareholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Shareholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Shareholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of
Section 11 relating to adjustments upon changes in stock, no employee shall be
eligible to be granted Options covering more than two hundred fifty thousand
(250,000) shares of the Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing Date,
this subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares reserved for issuance under the Plan in accordance with Section 4); (2)
the issuance of all of the shares of Common Stock reserved for issuance under
the Plan; (3) the expiration of the Plan; or (4) the first meeting of
shareholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an
6
<PAGE>
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding
Ten Percent Shareholders, no Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by (1) delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or (3) in any
other form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
7
<PAGE>
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing provisions
of this subsection 6(e), the Optionholder may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory
Stock Option granted on or after the Listing Date shall be transferable to the
extent provided in the Option Agreement. If the Nonstatutory Stock Option does
not provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the
8
<PAGE>
date three (3) months following the termination of the Optionholder's Continuous
Service (or such longer or shorter period specified in the Option Agreement,
which, for Options granted prior to the Listing Date, shall not be less than
thirty (30) days, unless such termination is for cause), or (ii) the expiration
of the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares subject to the Option prior to the full vesting of the
Option. Subject to the "Repurchase Limitation" in subsection 10(h), any unvested
9
<PAGE>
shares so purchased may be subject to an unvested share repurchase option in
favor of the Company or to any other restriction the Board determines to be
appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares acquired by the Optionholder pursuant to the exercise of the
Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include
a provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionholder of the intent to transfer all or any part of the shares exercised
pursuant to the Option. Except as expressly provided in this subsection 6(o),
such right of first refusal shall otherwise comply with any applicable
provisions of the Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a "Re-Load
Option") in the event the Optionholder exercises the Option evidenced by the
Option Agreement, in whole or in part, by surrendering other shares of Common
Stock in accordance with this Plan and the terms and conditions of the Option
Agreement. Any such Re-Load Option shall (i) provide for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) have an expiration date which is the same as the expiration
date of the Option the exercise of which gave rise to such Re-Load Option; and
(iii) have an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Re-Load Option on the date
of exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and
10
<PAGE>
conditions of separate stock bonus agreements need not be identical, but each
stock bonus agreement shall include (through incorporation of provisions hereof
by reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in
consideration for past services actually rendered to the Company for its
benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor
of the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. For a stock bonus award made
before the Listing Date, rights to acquire shares under the stock bonus
agreement shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a stock bonus award made on or after
the Listing Date, rights to acquire shares under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions
as are set forth in the stock bonus agreement, as the Board shall determine
in its discretion, so long as stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of
subsection 5(b) regarding Ten Percent Shareholders, the purchase price under
each restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. For
restricted stock awards made prior to the Listing Date, the purchase price shall
not be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated. For
restricted stock awards made on or after the Listing Date, the purchase price
shall not be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
11
<PAGE>
(ii) CONSIDERATION. The purchase price of stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares under the restricted stock
purchase agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares under the restricted stock
purchase agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the restricted stock purchase agreement, as
the Board shall determine in its discretion, so long as stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
12
<PAGE>
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will vest
in accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant or other holder of Stock Awards any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Stock Award was granted or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant,
as a condition of exercising or acquiring stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring the stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements,
13
<PAGE>
shall be inoperative if (iii) the issuance of the shares upon the exercise or
acquisition of stock under the Stock Award has been registered under a then
currently effective registration statement under the Securities Act or (iv) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the participant as a result of the exercise or acquisition
of stock under the Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the
extent required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option
shall be specified in the Stock Award and may be either at Fair Market Value at
the time of repurchase or at not less than the original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives
the Company the right to repurchase the shares upon termination of employment
at not less than the Fair Market Value of the shares to be purchased on the
date of termination of Continuous Service, then (i) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness
for the shares within ninety (90) days of termination of Continuous Service
(or in the case of shares issued upon exercise of Stock Awards after such
date of termination, within ninety (90) days after the date of the exercise)
or such longer period as may be agreed to by the Company and the Participant
(for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code regarding "qualified small business stock") and (ii)
the right terminates when the shares become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option
gives the Company the right to repurchase the shares upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at
14
<PAGE>
least twenty percent (20%) of the shares per year over five (5) years from the
date the Stock Award is granted (without respect to the date the Stock Award was
exercised or became exercisable) and (ii) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Options after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
(i) CANCELLATION AND RE-GRANT OF OPTIONS.
(i) AUTHORITY TO REPRICE. The Board shall have the
authority to effect, at any time and from time to time, (i) the repricing of any
outstanding Options under the Plan and/or (ii) with the consent of any adversely
affected holders of Options, the cancellation of any outstanding Options under
the Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock. The exercise
price per share shall be not less than that specified under the Plan for newly
granted Stock Awards. Notwithstanding the foregoing, the Board may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which Section 424(a) of the Code applies.
(ii) EFFECT OF REPRICING UNDER SECTION 162(m) OF THE CODE.
Shares subject to an Option which is amended or canceled in order to set a lower
exercise price per share shall continue to be counted against the maximum award
of Options permitted to be granted pursuant to subsection 5(c). The repricing of
an Option under this subsection 10(i) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 10(i)(b) shall be applicable only to the extent required by Section
162(m) of the Code.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of stock subject to such outstanding Stock Awards. The
Board, the determination of which shall be final, binding and conclusive, shall
make such adjustments. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
15
<PAGE>
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of
a dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR
REVERSE MERGER. In the event of (i) a sale of substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the shareholders in the transaction
described in this subsection 11(c) for those outstanding under the Plan. In the
event any surviving corporation or acquiring corporation refuses to assume such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for shareholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
16
<PAGE>
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from
time to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the shareholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
17
<PAGE>
INTERMUNE PHARMACEUTICALS INC.
EARLY EXERCISE STOCK PURCHASE AGREEMENT
UNDER THE 1999 EQUITY INCENTIVE PLAN
THIS AGREEMENT is made by and between INTERMUNE PHARMACEUTICALS INC., a
California corporation (the "Company"), and ____________________ ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option dated _________________________
to purchase shares of common stock ("Common Stock") of the Company (as amended,
the "Option") pursuant to the Company's 1999 Equity Incentive Plan (the "Plan");
and
WHEREAS, the Option consists of a Stock Option Grant Notice and a Stock
Option Agreement; and
WHEREAS, Purchaser desires to exercise the Option on the terms and
conditions contained herein; and
WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Purchaser's Option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. INCORPORATION OF PLAN AND OPTION BY REFERENCE. This Agreement
is subject to all of the terms and conditions as set forth in the Plan and the
Option. If there is a conflict between the terms of this Agreement and/or the
Option and the terms of the Plan, the terms of the Plan shall control. If there
is a conflict between the terms of this Agreement and the terms of the Option,
the terms of the Option shall control. Defined terms not explicitly defined in
this Agreement but defined in the Plan shall have the same definitions as in the
Plan. Defined terms not explicitly defined in this Agreement or the Plan but
defined in the Option shall have the same definitions as in the Option.
2. PURCHASE AND SALE OF COMMON STOCK.
(a) AGREEMENT TO PURCHASE AND SELL COMMON STOCK.
Purchaser hereby agrees to purchase from the Company, and the Company hereby
agrees to sell to Purchaser, an aggregate of ________________ (__________)
shares of Common Stock at $______ per share, for an aggregate purchase price
of $____________, payable as follows:
Cash ...............................................................$
-1-
<PAGE>
(b) CLOSING. The closing hereunder, including payment
for and delivery of the Common Stock, shall occur at the offices of the
Company immediately following the execution of this Agreement, or at such
other time and place as the parties may mutually agree; PROVIDED, HOWEVER,
that if shareholder approval of the Plan is required before the Option may be
exercised, then the Option may not be exercised, and the closing shall be
delayed, until such shareholder approval is obtained. If such shareholder
approval is not obtained within the time limit specified in the Plan, then
this Agreement shall be null and void.
3. UNVESTED SHARE REPURCHASE OPTION
(a) REPURCHASE OPTION. In the event Purchaser's
Continuous Service terminates, then the Company shall have an irrevocable
option (the "Repurchase Option") for a period of ninety (90) days after said
termination (or in the case of shares issued upon exercise of the Option
after such date of termination, within ninety (90) days after the date of the
exercise), or such longer period as may be agreed to by the Company and the
Purchaser, to repurchase from Purchaser or Purchaser's personal
representative, as the case may be, those shares that Purchaser received
pursuant to the exercise of the Option that have not as yet vested as of such
termination date in accordance with the Vesting Schedule indicated on
Purchaser's Stock Option Grant Notice (the "Unvested Shares"). The Vesting
Schedule is set forth, in addition, in the "Vesting Schedule" attached hereto
as an exhibit and incorporated herein by reference.
(b) SHARES REPURCHASABLE AT PURCHASER'S ORIGINAL
EXERCISE PRICE. The Company may repurchase all or any of the Unvested Shares
at a price ("Option Price") equal to the Purchaser's Exercise Price for such
shares of _______________________ ($______) per share as indicated on
Purchaser's Stock Option Grant Notice.
4. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall
be exercised by written notice signed by an Officer of the Company and
delivered or mailed as provided herein. Such notice shall identify the number
of shares of Common Stock to be purchased and shall notify Purchaser of the
time, place and date for settlement of such purchase, which shall be
scheduled by the Company within the term of the Repurchase Option set forth
above. The Company shall be entitled to pay for any shares of Common Stock
purchased pursuant to its Repurchase Option at the Company's option in cash
or by offset against any indebtedness owing to the Company by Purchaser
(including without limitation any Note given in payment for the Common
Stock), or by a combination of both. Upon delivery of such notice and payment
of the purchase price in any of the ways described above, the Company shall
become the legal and beneficial owner of the Common Stock being repurchased
and all rights and interest therein or related thereto, and the Company shall
have the right to transfer to its own name the Common Stock being repurchased
by the Company, without further action by Purchaser.
5. CAPITALIZATION ADJUSTMENTS TO COMMON STOCK. In the event of
a "Capitalization Adjustment" affecting the Company's outstanding Common
Stock as a class as designated in the Plan, then any and all new, substituted
or additional securities or other property to which Purchaser is entitled by
reason of Purchaser's ownership of Common Stock shall be immediately subject
to the Repurchase Option and be included in the word "Common Stock" for all
purposes of the Repurchase Option with the same force and effect as the
shares of the
-2-
<PAGE>
Common Stock presently subject to the Repurchase Option, but only to the extent
the Common Stock is, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per share of Common Stock upon exercise of the Repurchase Option shall be
appropriately adjusted.
6. CHANGE IN CONTROL. In the event of a "Change in Control" as
designated in the Plan, then the Repurchase Option may be assigned by the
Company to the successor of the Company (or such successor's parent company),
if any, in connection with such Change in Control. To the extent the
Repurchase Option remains in effect following such Change in Control, it
shall apply to the new capital stock or other property received in exchange
for the Common Stock in consummation of the Change in Control, but only to
the extent the Common Stock was at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Option to reflect the Change in Control upon the
Company's capital structure; provided, however, that the aggregate Option
Price shall remain the same.
7. ESCROW OF UNVESTED COMMON STOCK. As security for
Purchaser's faithful performance of the terms of this Agreement and to insure
the availability for delivery of Purchaser's Common Stock upon exercise of
the Repurchase Option herein provided for, Purchaser agrees, at the closing
hereunder, to deliver to and deposit with the Secretary of the Company or the
Secretary's designee ("Escrow Agent"), as Escrow Agent in this transaction,
three (3) stock assignments duly endorsed (with date and number of shares
blank) in the form attached hereto as an exhibit, together with a certificate
or certificates evidencing all of the Common Stock subject to the Repurchase
Option; said documents are to be held by the Escrow Agent and delivered by
said Escrow Agent pursuant to the Joint Escrow Instructions of the Company
and Purchaser set forth in an exhibit, attached hereto and incorporated by
this reference, which instructions shall also be delivered to the Escrow
Agent at the closing hereunder.
8. RIGHTS OF PURCHASER. Subject to the provisions of the
Option, Purchaser shall exercise all rights and privileges of a shareholder
of the Company with respect to the shares deposited in escrow. Purchaser
shall be deemed to be the holder of the shares for purposes of receiving any
dividends that may be paid with respect to such shares and for purposes of
exercising any voting rights relating to such shares, even if some or all of
such shares have not yet vested and been released from the Company's
Repurchase Option.
9. LIMITATIONS ON TRANSFER. In addition to any other
limitation on transfer created by applicable securities laws, Purchaser shall
not sell, assign, hypothecate, donate, encumber or otherwise dispose of any
interest in the Common Stock while the Common Stock is subject to the
Repurchase Option. After any Common Stock has been released from the
Repurchase Option, Purchaser shall not sell, assign, hypothecate, donate,
encumber or otherwise dispose of any interest in the Common Stock except in
compliance with the provisions herein and applicable securities laws.
Furthermore, the Common Stock shall be subject to any right of first refusal
in favor of the Company or its assignees that may be contained in the
Company's Bylaws.
-3-
<PAGE>
10. RESTRICTIVE LEGENDS. All certificates representing the
Common Stock shall have endorsed thereon legends in substantially the
following forms (in addition to any other legend which may be required by
other agreements between the parties hereto):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE
REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED
TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR
EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS
ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate blue sky
officials.
11. INVESTMENT REPRESENTATIONS. In connection with the purchase
of the Common Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Common Stock. Purchaser is acquiring the Common Stock for investment for
Purchaser's own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the
Securities Act.
(b) Purchaser understands that the Common Stock has
not been registered under the Securities Act by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands
that the Common Stock must be held indefinitely unless the Common Stock is
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser further acknowledges and understands
that the Company is under no obligation to register the Common Stock.
Purchaser understands that the certificate evidencing the Common Stock will
be imprinted with a legend that prohibits the transfer of the Common Stock
unless the Common Stock is registered or such registration is not required in
the opinion of counsel for the Company.
-4-
<PAGE>
(d) Purchaser is familiar with the provisions of Rules
144 and 701, under the Securities Act, as in effect from time to time, which,
in substance, permit limited public resale of "restricted securities"
acquired, directly or indirectly, from the issuer thereof (or from an
affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of issuance of the securities, such
issuance will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the securities exempt under
Rule 701 may be sold by Purchaser ninety (90) days thereafter, subject to the
satisfaction of certain of the conditions specified by Rule 144 and the
market stand-off provision described in Section 12 below.
In the event that the sale of the Common Stock does not qualify under
Rule 701 at the time of purchase, then the Common Stock may be resold by
Purchaser in certain limited circumstances subject to the provisions of Rule
144, which requires, among other things: (i) the availability of certain public
information about the Company and (ii) the resale occurring following the
required holding period under Rule 144 after the Purchaser has purchased, and
made full payment of (within the meaning of Rule 144), the securities to be
sold.
(e) Purchaser further understands that at the time
Purchaser wishes to sell the Common Stock there may be no public market upon
which to make such a sale, and that, even if such a public market then
exists, the Company may not be satisfying the current public current
information requirements of Rule 144 or 701, and that, in such event,
Purchaser would be precluded from selling the Common Stock under Rule 144 or
701 even if the minimum holding period requirement had been satisfied.
12. MARKET STAND-OFF AGREEMENT. By exercising the Option
Purchaser agrees that the Company (or a representative of the underwriters)
may, in connection with any underwritten registration of the offering of any
securities of the Company under the Securities Act, require that the
Purchaser not sell, dispose of, transfer, make any short sale of, grant any
option for the purchase of, or enter into any hedging or similar transaction
with the same economic effect as a sale, any shares of Common Stock or other
securities of the Company held by Purchaser, for a period of time specified
by the underwriter(s) (not to exceed one hundred eighty (180) days) following
the effective date of the registration statement of the Company filed under
the Securities Act. Purchaser further agrees to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary
to give further effect thereto. In order to enforce the foregoing covenant,
the Company may impose stop-transfer instructions with respect to Purchaser's
Common Stock until the end of such period.
13. SECTION 83(b) ELECTION. Purchaser understands that Section
83(a) of the Code, taxes as ordinary income the difference between the amount
paid for the Common Stock and the fair market value of the Common Stock as of
the date any restrictions on the Common Stock lapse. In this context,
"restriction" includes the right of the Company to buy back the Common Stock
pursuant to the Repurchase Option set forth above. Purchaser understands that
Purchaser may elect to be taxed at the time the Common Stock is purchased,
rather than when
-5-
<PAGE>
and as the Repurchase Option expires, by filing an election under Section 83(b)
(an "83(b) Election") of the Code with the Internal Revenue Service within
thirty (30) days from the date of purchase. Even if the fair market value of the
Common Stock at the time of the execution of this Agreement equals the amount
paid for the Common Stock, the 83(b) Election must be made to avoid income under
Section 83(a) in the future. Purchaser understands that failure to file such an
83(b) Election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that Purchaser must file an additional
copy of such 83(b) Election with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Common Stock hereunder, and does
not purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death. Purchaser assumes all responsibility for filing an 83(b)
Election and paying all taxes resulting from such election or the lapse of the
restrictions on the Common Stock.
14. REFUSAL TO TRANSFER. The Company shall not be required (a)
to transfer on its books any shares of Common Stock of the Company which
shall have been transferred in violation of any of the provisions set forth
in this Agreement or (b) to treat as owner of such shares or to accord the
right to vote as such owner or to pay dividends to any transferee to whom
such shares shall have been so transferred.
15. NO EMPLOYMENT RIGHTS. This Agreement is not an employment
contract and nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Company (or a parent or subsidiary of the Company)
to terminate Purchaser's employment for any reason at any time, with or
without cause and with or without notice.
16. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted
hereunder shall be given in writing and shall be deemed effectively given
upon personal delivery or sent by telegram or fax or upon deposit in the
United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at such party's address
hereinafter shown below its signature or at such other address as such party
may designate by ten (10) days' advance written notice to the other party
hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of the successors and assigns of the Company and, subject to
the restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors, and assigns. The Company may assign the Repurchase
Option hereunder at any time or from time to time, in whole or in part.
(c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser
shall reimburse the Company for all costs incurred by the Company in
enforcing the performance of, or protecting its rights under, any part of
this Agreement, including reasonable costs of investigation and attorneys'
fees. It is the intention of the parties that the Company, upon exercise of
the
-6-
<PAGE>
Repurchase Option and payment of the Option Price, pursuant to the terms of this
Agreement, shall be entitled to receive the Common Stock, in specie, in order to
have such Common Stock available for future issuance without dilution of the
holdings of other shareholders. Furthermore, it is expressly agreed between the
parties that money damages are inadequate to compensate the Company for the
Common Stock and that the Company shall, upon proper exercise of the Repurchase
Option, be entitled to specific enforcement of its rights to purchase and
receive said Common Stock.
(d) GOVERNING LAW; VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California. The parties agree that any action brought by either party to
interpret or enforce any provision of this Agreement shall be brought in, and
each party agrees to, and does hereby, submit to the jurisdiction and venue
of, the appropriate state or federal court for the district encompassing the
Company's principal place of business.
(e) FURTHER EXECUTION. The parties agree to take all
such further action(s) as may reasonably be necessary to carry out and
consummate this Agreement as soon as practicable, and to take whatever steps
may be necessary to obtain any governmental approval in connection with or
otherwise qualify the issuance of the securities that are the subject of this
Agreement.
(f) INDEPENDENT COUNSEL. Purchaser acknowledges that
this Agreement has been prepared on behalf of the Company by Cooley Godward
LLP, counsel to the Company and that Cooley Godward LLP does not represent,
and is not acting on behalf of, Purchaser. Purchaser has been provided with
an opportunity to consult with Purchaser's own counsel with respect to this
Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes and merges all prior agreements or
understandings, whether written or oral. This Agreement may not be amended,
modified or revoked, in whole or in part, except by an agreement in writing
signed by each of the parties hereto.
(h) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good faith. In the event that the
parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of the Agreement shall be interpreted as if such
provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
(i) COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
INTERMUNE PHARMACEUTICALS, INC.
By:
----------------------------------
Title:
-------------------------------
Address: 294 West Bayshore Road
Palo Alto, CA 94303
-------------------------------------
Address:
ATTACHMENTS:
Exhibit A Assignment Separate from Certificate
Exhibit B Joint Escrow Instructions
Exhibit C Vesting Schedule
-8-
<PAGE>
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto InterMune Pharmaceuticals, Inc., a California corporation (the
"Company"), pursuant to the Repurchase Option under that certain Early Exercise
Stock Purchase Agreement, dated _____________________ by and between the
undersigned and the Company (the "Agreement"), _______________ (_______________)
shares of Common Stock of the Company standing in the undersigned's name on the
books of the Company represented by Certificate No(s). _______________ and does
hereby irrevocably constitute and appoint the Company's Secretary attorney to
transfer said Common Stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Repurchase Option under the Agreement.
Dated: _______________ (do not date now)
--------------------------------------------
(Signature)
--------------------------------------------
(Print Name)
[INSTRUCTION: Please do not fill in the date or any other blanks other than the
"Signature" line and the "Print Name" line. The purpose of this Assignment is to
enable the Company to exercise its Repurchase Option set forth in the Agreement
without requiring additional signatures on the part of Purchaser.]
1.
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto InterMune Pharmaceuticals, Inc., a California corporation (the
"Company"), pursuant to the Repurchase Option under that certain Early Exercise
Stock Purchase Agreement, dated _____________________ by and between the
undersigned and the Company (the "Agreement"), _______________ (_______________)
shares of Common Stock of the Company standing in the undersigned's name on the
books of the Company represented by Certificate No(s). _______________ and does
hereby irrevocably constitute and appoint the Company's Secretary attorney to
transfer said Common Stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Repurchase Option under the Agreement.
Dated: _______________ (do not date now)
--------------------------------------------
(Signature)
--------------------------------------------
(Print Name)
[INSTRUCTION: Please do not fill in the date or any other blanks other than the
"Signature" line and the "Print Name" line. The purpose of this Assignment is to
enable the Company to exercise its Repurchase Option set forth in the Agreement
without requiring additional signatures on the part of Purchaser.]
2.
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers unto InterMune Pharmaceuticals, Inc., a California corporation (the
"Company"), pursuant to the Repurchase Option under that certain Early Exercise
Stock Purchase Agreement, dated ______________________ by and between the
undersigned and the Company (the "Agreement"), _______________ (_______________)
shares of Common Stock of the Company standing in the undersigned's name on the
books of the Company represented by Certificate No(s). _______________ and does
hereby irrevocably constitute and appoint the Company's Secretary attorney to
transfer said Common Stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Repurchase Option under the Agreement.
Dated: _______________ (do not date now)
--------------------------------------------
(Signature)
--------------------------------------------
(Print Name)
[INSTRUCTION: Please do not fill in the date or any other blanks other than the
"Signature" line and the "Print Name" line. The purpose of this Assignment is to
enable the Company to exercise its Repurchase Option set forth in the Agreement
without requiring additional signatures on the part of Purchaser.]
1.
<PAGE>
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
<PAGE>
JOINT ESCROW INSTRUCTIONS
Secretary of Intermune Pharmaceuticals, Inc.
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
Dear Sir or Madam:
As Escrow Agent for both INTERMUNE PHARMACEUTICALS, INC., a California
corporation ("Company"), and the undersigned purchaser of Common Stock of the
Company ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Early Exercise
Stock Purchase Agreement ("Agreement"), dated ____________________, to which a
copy of these Joint Escrow Instructions is attached as Exhibit B, in accordance
with the following instructions:
1. In the event the Company or an assignee shall elect to
exercise the Repurchase Option set forth in the Agreement, the Company or its
assignee will give to Purchaser and you a written notice specifying the number
of shares of Common Stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock
assignments necessary for the transfer in question, (b) to fill in the number of
shares being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of Common Stock to be transferred, to the Company against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) of the number of shares
of Common Stock being purchased pursuant to the exercise of the Repurchase
Option.
3. Purchaser irrevocably authorizes the Company to deposit with
you any certificates evidencing shares of Common Stock to be held by you
hereunder and any additions and substitutions to said shares as specified in the
Agreement. Purchaser does hereby irrevocably constitute and appoint you as the
Purchaser's attorney-in-fact and agent for the term of this escrow to execute
with respect to such securities and other property all documents of assignment
and/or transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in
full of the Repurchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have
in your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of same
-1-
<PAGE>
to Purchaser and shall be discharged of all further obligations hereunder;
PROVIDED, HOWEVER, that if at the time of termination of this escrow you are
advised by the Company that the property subject to this escrow is the subject
of a pledge or other security agreement, you shall deliver all such property to
the pledgeholder or other person designated by the Company.
6. Except as otherwise provided in these Joint Escrow
Instructions, your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties or their assignees. You shall not be personally liable for any act you
may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for
Purchaser while acting in good faith and any act done or omitted by you pursuant
to the advice of your own attorneys shall be conclusive evidence of such good
faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
any statute of limitations with respect to these Joint Escrow Instructions or
any documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be Secretary of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company may appoint any officer or assistant officer of the Company as
successor Escrow Agent and Purchaser hereby confirms the appointment of such
successor or successors as the Purchaser's attorney-in-fact and agent to the
full extent of your appointment.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and
-2-
<PAGE>
directed to retain in your possession without liability to anyone all or any
part of said securities until such dispute shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:
COMPANY: Intermune Pharmaceuticals, Inc.
3294 West Bayshore Road
Palo Alto, CA 94303
PURCHASER:
ESCROW AGENT: Secretary
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306
15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Company shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns. It
is understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
18. This Agreement shall be governed by and interpreted and
determined in accordance with the laws of the State of California, as such laws
are applied by California courts to contracts made and to be performed entirely
in California by residents of that state.
-3-
<PAGE>
Very truly yours,
INTERMUNE PHARMACEUTICALS, INC.
By:
---------------------------------
Title:
------------------------------
PURCHASER:
------------------------------------
ESCROW AGENT:
- ------------------------------------------
-4-
<PAGE>
EXHIBIT C
VESTING SCHEDULE
<PAGE>
VESTING SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF UNVESTED SHARES
SUBJECT
IF PURCHASER'S NUMBER OF SHARES TO THE COMPANY'S
CONTINUOUS SERVICE ENDS; VESTED REPURCHASE OPTION:
- ------------------------------------- ----------------- -------------------------
<S> <C> <C>
On or before __shares
After ____________ but on or before
___________
After ____________ but on or before
________________
</TABLE>
____________ shall vest monthly thereafter. The number of shares in the
foregoing schedule is subject to adjustment in the event of stock splits,
combinations, and the like.
-1-
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to the Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, InterMune Pharmaceuticals, Inc. (the "Company") has
granted you an option under its 1999 Equity Incentive Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in the
Grant Notice at the exercise price indicated in the Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your
option will vest as provided in the Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares
subject to your option and your exercise price per share referenced in the Grant
Notice may be adjusted from time to time for Capitalization Adjustments, as
provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to
cover first vested shares of Common Stock and then the earliest vesting
installment of unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from
installments that have not vested as of the date of exercise shall be subject to
the purchase option in favor of the Company as described in the Company's form
of Early Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early
Exercise Stock Purchase Agreement with a vesting schedule that will result in
the same vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold
1
<PAGE>
are exercisable for the first time by you during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), your option(s) or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in
full upon exercise of all or any part of your option. You may elect to make
payment of the exercise price in cash or by check or in any other manner
PERMITTED BY THE GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your
option is exercised and provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds.
(b) Provided that at the time of exercise the Common
Stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL, by
delivery of already-owned shares of Common Stock that either have been held for
the period required to avoid a charge to the Company's reported earnings
(generally six months) or were not acquired, directly or indirectly from the
Company, that are owned free and clear of any liens, claims, encumbrances or
security interests, and that are valued at Fair Market Value on the date of
exercise. "Delivery" for these purposes, in the sole discretion of the Company
at the time your option is exercised, shall include delivery to the Company of
your attestation of ownership of such shares of Common Stock in a form approved
by the Company. Notwithstanding the foregoing, your option may not be exercised
by tender to the Company of Common Stock to the extent such tender would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock.
5. WHOLE SHARES. Your option may only be exercised for whole
shares.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing the option, and the option
may not be exercised if the Company determines that the exercise would not be in
material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant
and expires upon the EARLIEST of the following:
(a) immediately upon the termination of your Continuous
Service for Cause;
2
<PAGE>
(b) three (3) months after the termination of your
Continuous Service for any reason other than Cause, Disability or death,
provided that if during any part of such three- (3-) month period the option is
not exercisable solely because of the condition set forth in paragraph 6, the
option shall not expire until the earlier of the Expiration Date or until it
shall have been exercisable for an aggregate period of three (3) months after
the termination of your Continuous Service;
(c) twelve (12) months after the termination of your
Continuous Service due to Disability;
(d) eighteen (18) months after your death if you die
either during your Continuous Service or within three (3) months after your
Continuous Service terminates for reason other than Cause;
(e) the Expiration Date indicated in the Grant Notice; or
(f) the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, "Cause" means your misconduct, including
but not limited to: (i) your conviction of any felony or any crime involving
moral turpitude or dishonesty, (ii) your participation in a fraud or act of
dishonesty against the Company, (iii) your conduct that, based upon a good faith
and reasonable factual investigation and determination by the Board,
demonstrates your gross unfitness to serve, or (iv) your intentional, material
violation of any contract between the Company and you or any statutory duty of
yours to the Company that you do not correct within thirty (30) days after
written notice to you thereof. Your physical or mental disability shall not
constitute "Cause."
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of the option and
ending on the day three (3) months before the date of the option's exercise, you
must be an employee of the Company or an Affiliate, except in the event of your
death or your Disability. The Company has provided for extended exercisability
of your option under certain circumstances for your benefit, but cannot
guarantee that your option will necessarily be treated as an "incentive stock
option" if you provide services to the Company or an Affiliate as a Consultant
or Director or if you exercise your option more than three (3) months after the
date your employment with the Company or an Affiliate terminates.
8. TERMS OF EXERCISE.
(a) You may exercise the vested portion of your option
during its term by delivering a Notice of Exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
3
<PAGE>
(b) By exercising your option you agree that, as a
condition to any exercise of your option, the Company may require you to enter
an arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise, or (3) the disposition of shares
acquired upon such exercise.
(c) If your option is an incentive stock option, by
exercising your option you agree that you will notify the Company in writing
within fifteen (15) days after the date of any disposition of any of the shares
of the Common Stock issued upon exercise of your option that occurs within two
(2) years after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company
(or a representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your Common Stock
until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you
acquire upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the Listing Date.
11. RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.
12. OPTION NOT A SERVICE CONTRACT. Your option is not an
employment or service contract, and nothing in your option shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment. In addition, nothing in your option shall obligate the
Company or an Affiliate, their respective shareholders, Boards of Directors,
Officers
4
<PAGE>
or Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, you hereby
authorize withholding from payroll and any other amounts payable to you, and
otherwise agree to make adequate provision for (including by means of a
"cashless exercise" pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in
connection with your option.
(b) Upon your request and subject to approval by the
Company, in its sole discretion, and compliance with any applicable conditions
or restrictions of law, the Company may withhold from fully vested shares of
Common Stock otherwise issuable to you upon the exercise of your option a number
of whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) Your option is not exercisable unless the tax
withholding obligations of the Company and/or any Affiliate are satisfied.
Accordingly, you may not be able to exercise your option when desired even
though your option is vested, and the Company shall have no obligation to issue
a certificate for such shares or release such shares from any escrow provided
for herein.
14. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
15. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of
your option, and is further subject to all interpretations, amendments, rules
and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
your option and those of the Plan, the provisions of the Plan shall control.
5
<PAGE>
NOTICE OF EXERCISE
InterMune Pharmaceuticals, Inc.
3294 W. Bayshore Road Date of Exercise:
Palo Alto, CA 94303
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to
purchase the number of shares for the price set forth below.
Type of option (check one):
Stock option dated:
Number of shares as
to which option is
exercised:
Certificates to be
issued in name of:
Total exercise price: $
Cash payment delivered
herewith: $
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1999 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and "control securities" under
Rule 144 promulgated under the Securities Act. I warrant and represent to the
Company that I have no present intention of distributing or selling said Shares,
except as permitted under the Securities Act and any applicable state securities
laws.
1.
<PAGE>
I further acknowledge that I will not be able to resell the Shares for
at least ninety days (90) after the stock of the Company becomes publicly traded
(I.E., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. I further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
Very truly yours,
-------------------------------
2.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
STOCK OPTION GRANT NOTICE
1999 EQUITY INCENTIVE PLAN
InterMune Pharmaceuticals, Inc. (the "Company"), pursuant to its 1999 Equity
Incentive Plan (the "Plan"), hereby grants to Optionholder an option to purchase
the number of shares of the Company's Common Stock set forth below. This option
is subject to all of the terms and conditions as set forth herein and in the
Stock Option Agreement, the Plan and the Notice of Exercise, all of which are
attached hereto and incorporated herein in their entirety.
Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price Per Share:
Total Exercise Price:
Expiration Date:
TYPE OF GRANT:
EXERCISE SCHEDULE: / / Same as Vesting Schedule / / Early Exercise Permitted
VESTING SCHEDULE:
PAYMENT: By one or a combination of the following items (described
in the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares
are publicly traded
By delivery of already-owned shares if the Shares
are publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: ----------------------------------
INTERMUNE PHARMACEUTICALS, INC. OPTION HOLDER:
By:
---------------------------------- ----------------------------------
Signature Signature
Title: Date:
------------------------------- ------------------------------
Date:
--------------------------------
ATTACHMENTS: Stock Option Agreement, 1999 Equity Incentive Plan and Notice
of Exercise
<PAGE>
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE>
ATTACHMENT II
1999 EQUITY INCENTIVE PLAN
<PAGE>
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE>
Exhibit 10.3
INTERMUNE PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
ADOPTED JANUARY 31, 2000
APPROVED BY STOCKHOLDERS _______________, ______
TERMINATION DATE: JANUARY 30, 2010
1. PURPOSES.
(a) The Plan is intended to supersede and replace the Company's 1999
Equity Incentive Plan.
(b) The persons eligible to receive Stock Awards are the Employees,
Directors and Consultants of the Company and its Affiliates.
(c) The purpose of the Plan is to provide a means by which eligible
recipients of Stock Awards may be given an opportunity to benefit from increases
in value of the Common Stock through the granting of the following Stock Awards:
(i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock
bonuses and (iv) rights to acquire restricted stock.
(d) The Company, by means of the Plan, seeks to retain the services of
the group of persons eligible to receive Stock Awards, to secure and retain the
services of new members of this group and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means InterMune Pharmaceuticals, Inc., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company
1.
<PAGE>
for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's service. For example, a change in status without interruption
from an Employee of the Company to a Consultant of an Affiliate or a Director
will not constitute an interruption of Continuous Service. The Board or the
chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to Stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
2.
<PAGE>
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
Employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former Employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this InterMune Pharmaceuticals, Inc. 2000 Equity
Incentive Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3.
<PAGE>
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; the exercise price and acceptable types of
consideration for payment of the exercise price for each Stock Award; what
type or combination of types of Stock Award shall be granted; the provisions
of each Stock Award granted (which need not be identical), including the time
or times when a person shall be permitted to receive Common Stock pursuant to
a Stock Award; and the number of shares of Common Stock with respect to which
a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
(iv) To terminate or suspend the Plan as provided in
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
4.
<PAGE>
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate two million
(2,000,000) shares of Common Stock plus an annual increase to be added each
January 1, commencing with January 1, 2001, equal to three percent (3%) of the
total number of shares of Common Stock outstanding (on a fully diluted, as
converted basis) on such January 1. Notwithstanding the foregoing, the Board may
designate a smaller number of shares of Common Stock to be added to the share
reserve as of a particular January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
(d) INCENTIVE STOCK OPTION SHARES. Subject to the provisions of Section
11 relating to adjustments upon changes in Common Stock, the aggregate number of
shares of Common Stock issued under the Plan pursuant to the exercise of all
Incentive Stock Options granted under the Plan shall not exceed ten million
(10,000,000) shares of Common Stock.
5.
<PAGE>
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than one million
(1,000,000) shares of Common Stock during any calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (E.G.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and
advisors only if (i) they are natural persons; (ii) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's parent; and (iii) the services are
not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
6.
<PAGE>
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than fifty percent (50%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board (1) by delivery to the Company of other Common
Stock, (2) according to a deferred payment or other similar arrangement with the
Optionholder or (3) in any other form of legal consideration that may be
acceptable to the Board. Unless otherwise specifically provided in the Option,
the purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to the Company's earnings for
financial accounting purposes). At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Option Agreement does not provide for transferability, then
the Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the
7.
<PAGE>
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the Option Agreement or (ii)
the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the
8.
<PAGE>
Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option
or a Nonstatutory Stock Option, as the Board may designate at the time of the
grant of the original Option; PROVIDED, HOWEVER, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on the exercisability of Incentive
Stock Options described in subsection 10(d) and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a)
9.
<PAGE>
and the "Section 162(m) Limitation" on the grants of Options under subsection
5(c) and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each
restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. The
purchase price shall not be less than fifty percent (50%) of the Common
Stock's Fair Market Value on the date such award is made or at the time the
purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar
10.
<PAGE>
arrangement with the Participant; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its discretion;
PROVIDED, HOWEVER, that at any time that the Company is incorporated in
Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; PROVIDED, HOWEVER, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the
11.
<PAGE>
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation
12.
<PAGE>
relating to the exercise or acquisition of Common Stock under a Stock Award
by any of the following means (in addition to the Company's right to withhold
from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Common Stock from the shares of Common Stock
otherwise issuable to the Participant as a result of the exercise or
acquisition of Common Stock under the Stock Award, PROVIDED, HOWEVER, that no
shares of Common Stock are withheld with a value exceeding the minimum amount
of tax required to be withheld by law; or (iii) delivering to the Company
owned and unencumbered shares of Common Stock of the Company that have been
held for more than six (6) months (or such longer or shorter period of time
required to avoid a charge to the Company's earnings for financial accounting
purposes).
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a), the maximum aggregate number of securities that may
be issued pursuant to the exercise of Incentive Stock Options under subsection
4(d), the maximum number of securities subject to award to any person pursuant
to subsection 5(c), and the outstanding Stock Awards will be appropriately
adjusted in the class(es) and number of securities and price per share of Common
Stock subject to such outstanding Stock Awards. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction "without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.
(c) CHANGE IN CONTROL. In the event of (i) a sale, lease or other
disposition of all or substantially all of the securities or assets of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation may assume any Stock Awards outstanding
under the Plan or may substitute similar stock awards (including an award to
acquire the same consideration paid to the Stockholders in the transaction
described in this subsection 11(c)) for those outstanding under the Plan. In the
event any surviving corporation or acquiring corporation does not assume such
Stock Awards or substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable)
13.
<PAGE>
at or prior to such event. With respect to any other Stock Awards outstanding
under the Plan, such Stock Awards shall terminate if not exercised (if
applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the Stockholders of the Company to the extent Stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for Stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; PROVIDED, HOWEVER,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is approved by the Board or the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effective date of the
Company's first registered offering of its Common Stock to the public, but no
Stock Award shall be exercised (or, in the
14.
<PAGE>
case of a stock bonus, shall be granted) unless and until the Plan has been
approved by the Stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
15.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
STOCK OPTION GRANT NOTICE
2000 EQUITY INCENTIVE PLAN
InterMune Pharmaceuticals, Inc. (the "Company"), pursuant to its 2000 Equity
Incentive Plan (the "Plan"), hereby grants to Optionholder an option to purchase
the number of shares of the Company's Common Stock set forth below. This option
is subject to all of the terms and conditions as set forth herein and in the
Stock Option Agreement, the Plan and the Notice of Exercise, all of which are
attached hereto and incorporated herein in their entirety.
Optionholder:
----------------------------------
Date of Grant:
----------------------------------
Vesting Commencement Date:
----------------------------------
Number of Shares Subject to Option:
----------------------------------
Exercise Price Per Share:
----------------------------------
Total Exercise Price:
----------------------------------
Expiration Date:
----------------------------------
TYPE OF GRANT: / / Incentive Stock Option / / Nonstatutory Stock Option
EXERCISE SCHEDULE: Same as Vesting Schedule
VESTING SCHEDULE: _________ of the shares vest one year after the Vesting
Commencement Date.
_________ of the shares vest monthly thereafter over the
next ____ years.
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares
are publicly traded
By delivery of already-owned shares if the
Shares are publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
---------------------------------------------
---------------------------------------------
INTERMUNE PHARMACEUTICALS, INC. OPTIONHOLDER:
By:
--------------------------------------- ------------------------------------
Signature Signature
Title: Date:
------------------------------------ ------------------------------
Date:
------------------------------------
ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise
16.
<PAGE>
ATTACHMENT I
STOCK OPTION AGREEMENT
17.
<PAGE>
ATTACHMENT II
2000 EQUITY INCENTIVE PLAN
18.
<PAGE>
ATTACHMENT III
NOTICE OF EXERCISE
19.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to the Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, InterMune Pharmaceuticals, Inc. (the "Company") has
granted you an option under its 2000 Equity Incentive Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in the
Grant Notice at the exercise price indicated in the Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease upon
the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares subject to
your option and your exercise price per share referenced in the Grant Notice may
be adjusted from time to time for Capitalization Adjustments, as provided in the
Plan.
3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY THE GRANT
NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option
is exercised and provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock that either have been held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or were not acquired, directly or indirectly from the Company, that are
owned free and clear of any liens, claims, encumbrances or security interests,
and that are valued at Fair Market Value on the date of exercise. "Delivery" for
these purposes, in the sole discretion of the Company at the time your option is
exercised, shall include delivery to the Company of your attestation of
ownership of such shares of Common Stock in a form approved by the Company.
Notwithstanding the foregoing, your option may not be exercised by tender to the
Company of Common Stock to the extent such tender would constitute
20.
<PAGE>
a violation of the provisions of any law, regulation or agreement restricting
the redemption of the Company's stock.
4. WHOLE SHARES. Your option may only be exercised for whole
shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing the option, and the option
may not be exercised if the Company determines that the exercise would not be in
material compliance with such laws and regulations.
6. TERM. The term of your option commences on the Date of Grant
and expires upon the EARLIEST of the following:
(a) immediately upon the termination of your Continuous
Service for Cause;
(b) three (3) months after the termination of your Continuous
Service for any reason other than Cause, Disability or death, provided that if
during any part of such three- (3-) month period the option is not exercisable
solely because of the condition set forth in paragraph 6, the option shall not
expire until the earlier of the Expiration Date or until it shall have been
exercisable for an aggregate period of three (3) months after the termination of
your Continuous Service;
(c) twelve (12) months after the termination of your
Continuous Service due to Disability;
(d) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates for reason other than Cause;
(e) the Expiration Date indicated in the Grant Notice; or
(f) the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, "Cause" means your misconduct, including
but not limited to: (i) your conviction of any felony or any crime involving
moral turpitude or dishonesty, (ii) your participation in a fraud or act of
dishonesty against the Company, (iii) your conduct that, based upon a good faith
and reasonable factual investigation and determination by the Board,
demonstrates your gross unfitness to serve, or (iv) your intentional, material
violation of any contract between the Company and you or any statutory duty of
yours to the Company that you do not correct within thirty (30) days after
written notice to you thereof. Your physical or mental disability shall not
constitute "Cause."
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times
21.
<PAGE>
beginning on the date of grant of the option and ending on the day three (3)
months before the date of the option's exercise, you must be an employee of
the Company or an Affiliate, except in the event of your death or your
Disability. The Company has provided for extended exercisability of your
option under certain circumstances for your benefit, but cannot guarantee
that your option will necessarily be treated as an "incentive stock option"
if you provide services to the Company or an Affiliate as a Consultant or
Director or if you exercise your option more than three (3) months after the
date your employment with the Company or an Affiliate terminates.
7. TERMS OF EXERCISE.
(a) You may exercise the vested portion of your option during
its term by delivering a Notice of Exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition
to any exercise of your option, the Company may require you to enter an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise, or (3) the disposition of shares
acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your Common Stock
until the end of such period.
8. TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.
22.
<PAGE>
9. RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an
employment or service contract, and nothing in your option shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment. In addition, nothing in your option shall obligate the
Company or an Affiliate, their respective shareholders, Boards of Directors,
Officers or Employees to continue any relationship that you might have as a
Director or Consultant for the Company or an Affiliate.
11. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in part,
or at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company,
in its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided for herein.
12. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by
23.
<PAGE>
the Company to you, five (5) days after deposit in the United States mail,
postage prepaid, addressed to you at the last address you provided to the
Company.
13. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
24.
<PAGE>
NOTICE OF EXERCISE
InterMune Pharmaceuticals, Inc.
3294 W. Bayshore Road Date of Exercise:_________
Palo Alto, CA 94303
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory / /
Stock option dated:
Number of shares as
to which option is
exercised:
Certificates to be
issued in name of:
Total exercise price: $
Cash payment delivered
herewith: $
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 2000 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon
appropriate legends, as well as any legends reflecting restrictions pursuant
to the Company's Articles of Incorporation, Bylaws and/or applicable
securities laws.
25.
<PAGE>
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. I further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
Very truly yours,
-------------------------
26.
<PAGE>
Exhibit 10.4
INTERMUNE PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
APPROVED BY THE BOARD OF DIRECTORS JANUARY 31, 2000
APPROVED BY STOCKHOLDERS __________, 2000
1. PURPOSE.
(a) The purpose of this 2000 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of InterMune Pharmaceuticals, Inc. (the
"Company") and its Affiliates, as defined in subparagraph 1(b), that are
designated as provided in subparagraph 2(b), may be given an opportunity to
purchase common stock of the Company (the "Common Stock").
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
1.
<PAGE>
exercise of this power, may correct any defect, omission or inconsistency in
the Plan, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) To terminate or suspend the Plan as provided in paragraph
(vi) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock and subject to the increases in the number of reserved
shares described below, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate two hundred thousand (200,000)
shares of Common Stock (the "Reserved Shares"). As of each January 1, commencing
with January 1, 2001 and including and ending with January 1, 2009, the number
of Reserved Shares will be increased automatically by the LEAST of (i) one
percent (1%) of the total number of shares of Common Stock outstanding (on a
fully-diluted, as converted basis) on each such January 1, (ii) four hundred
thousand (400,000) shares or (iii) a number of shares determined by the Board
prior to a January 1, which number shall be less than (i) above and also less
than (ii) above. If any right granted under the Plan shall for any reason
terminate without having been exercised, the Common Stock not purchased under
such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall
2.
<PAGE>
have the same rights and privileges. The terms and conditions of an Offering
shall be incorporated by reference into the Plan and treated as part of the
Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan
by reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance
of the provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such
3.
<PAGE>
employee may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; PROVIDED, HOWEVER, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
4.
<PAGE>
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's wages (including amounts
thereof elected to be deferred by the employee, that would otherwise have been
paid, under any arrangement established by the Company that is intended to
comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the
Code or that provides non-qualified deferred compensation), which shall include
overtime pay, bonuses, incentive pay, and commissions, but shall exclude profit
sharing or other remuneration paid directly to the employee, the cost of
employee benefits paid for by the Company or an Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Company or
an Affiliate under any employee benefit plan, and similar items of compensation,
as determined by the Board or the Committee. The payroll deductions made for
each participant shall be credited to an account for such participant under the
Plan and shall be deposited with the general funds of the Company. A participant
may reduce (including to zero) or increase such payroll deductions, and an
eligible employee may begin such payroll deductions, after the beginning of any
Offering only as provided for in the Offering. A participant may make additional
payments into his or her account only if specifically provided for in the
Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such
5.
<PAGE>
deductions have been used to acquire stock for the terminated employee),
under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
6.
<PAGE>
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan, due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 3(a) as well as the number of shares set forth under (ii) of
subsection 3(a), and the outstanding rights will be appropriately adjusted in
the class(es) and number of securities and price per share of stock subject to
such outstanding rights. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive.
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the securities or assets of the Company, (2) a merger or
consolidation in which the Company is not the surviving corporation or (3) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then any surviving corporation may assume outstanding rights
or substitute similar rights for those under the Plan. In the event that no
surviving corporation assumes outstanding rights or substitutes similar rights
therefor, participants' accumulated payroll deductions shall be used to purchase
Common Stock immediately prior to the transaction described above and the
7.
<PAGE>
participants' rights under the ongoing Offering shall terminate immediately
following such purchase.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3, or any Nasdaq or securities exchange listing
requirements.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary
8.
<PAGE>
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure
that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness
of the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
9.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED BY THE BOARD OF DIRECTORS ON ___________, 2000
1. GRANT; OFFERING DATE.
(a) The Board of Directors of InterMune Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), pursuant to the Company's Employee
Stock Purchase Plan (the "Plan"), hereby authorizes the grant of rights to
purchase shares of the common stock of the Company ("Common Stock") to all
Eligible Employees (an "Offering"). The first Offering shall begin
simultaneously with the effectiveness of the Company's registration statement
under the Securities Act of 1933, as amended, with respect to the initial
public offering of the Company's Common Stock (the "Effective Date") and end
on April 30, 2002 (the "Initial Offering"). Further, an Offering shall begin
on each May 1 and November 1, commencing with November 1, 2000, and shall end
on the day prior to the second anniversary of each such Offering's Offering
Date unless sooner terminated in accordance with the provisions of this
Offering or the Plan. The first day of an Offering is that Offering's
"Offering Date."
(b) Prior to the commencement of any Offering, the Board of
Directors (or the Committee described in subparagraph 2(c) of the Plan, if
any) may change any or all terms of such Offering and any subsequent
Offerings. The granting of rights pursuant to each Offering hereunder shall
occur on each respective Offering Date unless, prior to such date (a) the
Board of Directors (or such Committee) determines that such Offering shall
not occur, or (b) no shares remain available for issuance under the Plan in
connection with the Offering.
(c) If the Company's accountants advise the Company that the
accounting treatment of purchases under these Offerings has changed in a
manner the Company determines is detrimental to its best interests, then each
Offering commenced under this offering document shall terminate as of the
next Purchase Date (after the purchase of stock on such Purchase Date) under
such Offering.
2. ELIGIBLE EMPLOYEES.
(a) Each employee of either the Company or its designated
Affiliates (as defined in the Plan) incorporated in the United States shall
be eligible to be granted rights to purchase Common Stock under the Offering
on the Offering Date of such Offering, provided that such employee has been
continuously employed by the Company or one of its designated Affiliates
throughout the ten-day period immediately prior to and ending on that
Offering's Offering Date (an "Eligible Employee").
(b) Notwithstanding subparagraph 2(a) above, the following
employees shall NOT be Eligible Employees or be eligible to be granted rights
under an Offering: (i) part-time or seasonal employees whose customary
employment is less than twenty (20) hours per week or five (5) months per
calendar year or (ii) five percent (5%) stockholders (including ownership
through unexercised options) described in subparagraph 5(c) of the Plan.
<PAGE>
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan,
on each Offering Date each Eligible Employee shall automatically be granted
the right to purchase the number of shares of Common Stock purchasable with
up to fifteen percent (15%) of such Eligible Employee's Earnings (defined as
base salary or wages plus overtime) paid during the period of such Offering
beginning after such Eligible Employee first commences participation;
PROVIDED, HOWEVER, that no Eligible Employee may purchase Common Stock on a
particular Purchase Date that would result in more than fifteen percent (15%)
of such Eligible Employee's Earnings paid during the period of time measured
from the later of (i) the Offering Date, (ii) the date the Eligible Employee
first commences participation in the Offering, or (iii) the immediately
preceding Purchase Date, to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other
Company plans intended to qualify as "employee stock purchase plans" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Notwithstanding the foregoing, the maximum number of shares
of Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a fair market value
(determined as of the Offering Date for such Offering) equal to (x) $25,000
multiplied by the number of calendar years in which the right under such
Offering has been outstanding at any time, minus (y) the fair market value of
any other shares of Common Stock (determined as of the relevant Offering Date
with respect to such shares) which, for purposes of the limitation of Section
423(b)(8) of the Code, are attributed to any of such calendar years in which
the right is outstanding. The amount in clause (y) of the previous sentence
shall be determined in accordance with regulations applicable under Section
423(b)(8) of the Code based on (i) the number of shares previously purchased
with respect to such calendar years pursuant to such Offering or any other
Offering under the Plan, or pursuant to any other Company plans intended to
qualify as "employee stock purchase plans" under Section 423 of the Code, and
(ii) the number of shares subject to other rights outstanding on the Offering
Date for such Offering pursuant to the Plan or any other such Company plan.
(c) The maximum aggregate number of shares available to be
purchased by all Eligible Employees under an Offering shall be the number of
shares remaining available under the Plan on the Offering Date. If the
aggregate purchase of shares of Common Stock upon exercise of rights granted
under the Offering would exceed the maximum aggregate number of shares
available, the Board shall make a pro rata allocation of the shares available
in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be
the lesser of eighty-five percent (85%) of the fair market value of the
Common Stock on the Offering Date (eighty-five percent (85%) of the fair
market value of the Common Stock on the first day on which the Company's
Common Stock is actively traded that immediately follows the Offering Date if
an Offering Date does not fall on a day during which the Company's Common
Stock is actively traded) or eighty-five percent (85%) of the fair market
value of the Common Stock on the Purchase Date (eighty-five percent (85%) of
the fair market value of the Common Stock on the
2
<PAGE>
first day on which the Company's Common Stock is actively traded that
immediately precedes the Purchase Date if a Purchase Date does not fall on a
day during which the Company's Common Stock is actively traded), in each case
rounded up to the nearest whole cent per share.
5. PARTICIPATION.
(a) Except as otherwise provided in this paragraph 5, an Eligible
Employee may elect to participate in an Offering at the beginning of the
Offering or in the case of an Offering in which an Eligible Employee was
eligible to participate at such Offering's commencement, as of any day
immediately following a Purchase Date (i.e. April 30 (excluding April 30,
2000), or October 31) during such Offering. An Eligible Employee shall
become a participant in an Offering by delivering an agreement authorizing
payroll deductions. Such deductions must be in whole dollars, with a minimum
dollar amount of ten dollars ($10) per pay period and a maximum amount not
expected to exceed fifteen percent (15%) of such Eligible Employee's Earnings
over the course of an Offering, or in whole percentages, with a minimum
percentage of one percent (1%) and a maximum percentage of fifteen percent
(15%) of such Eligible Employee's Earnings over the course of an Offering. A
participant may not make additional payments into his or her account. In the
absence of the delivery of an agreement authorizing payroll deductions, a
participant's initial participation level shall be zero, provided however,
that for a participant already enrolled in an offering under the Plan, as of
the day prior to the Offering Date of the Initial Offering and similarly as
to Offerings thereafter under this offering document, the initial level of
participation shall be as provided in the most recent agreement authorizing
payroll deductions from the pay of such participant that has been delivered
to the Company. The agreement shall be made on such enrollment form as the
Company provides, and must be delivered to the Company before the Offering
Date to be effective for the remaining portion of that Offering, unless a
later time for filing the enrollment form is set by the Board for all
Eligible Employees with respect to a given Offering Date. Notwithstanding the
foregoing, the time by which an agreement authorizing payroll deductions must
be delivered to the Company for determining a participant's initial level of
participation in the Initial Offering shall be not later than the end of the
second full payroll period following the Offering Date of the Initial
Offering.
(b) By delivering a notice to the Company on such form as the
Company provides, a participant may increase or decrease his or her
participation level during the course of an Offering or withdraw from an
Offering as follows: (i) a participant may decrease (including to zero) his
or her participation level only once (except for a second reduction to zero)
during the period of time from the Effective Date to October 31, 2000, and
thereafter each November 1 to April 30 and May 1 to October 31, at any time
except during the ten (10) day period immediately preceding a Purchase Date,
(ii) during the course of an Offering a participant may increase or decrease
his or her participation level during the period of time from the Effective
Date to October 31, 2000, and thereafter each November 1 to April 30 and May
1 to October 31, with such change not to take effect until after the Purchase
Date that first follows the date such change is delivered to the Company, and
(iii) a participant may withdraw from an Offering and from the Offering
(reduced to the extent, if any, such deductions have been used to acquire
Common Stock for the participant on any prior Purchase Dates), without
interest, at any time prior to the end of the Offering, excluding only each
ten (10) day period immediately preceding a Purchase Date.
3
<PAGE>
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock,
up to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as each April 30 (excluding April 30, 2000)
and October 31 during an Offering. On a Purchase Date each participant's
purchases will first be made under the Offering, for which purchases are made
on such date, that results in stock being purchased for such participant at
the lowest price under all Offerings in which such participant then has been
granted rights and under which stock is purchased on such Purchase Date.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan
shall be given in writing, in a form provided by the Company, and unless
specifically provided for in the Plan or this Offering shall be deemed
effectively given upon receipt or, in the case of notices and agreements
delivered by the Company, five (5) days after deposit in the United States
mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of
the Plan by the stockholders as required for the Plan to obtain treatment as
a tax-qualified employee stock purchase plan under Section 423 of the Code
and as necessary to comply with the requirements of exemption from potential
liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") set forth in Rule 16b-3 promulgated under the
Exchange Act.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of an Offering and those of the Plan
(including interpretations, amendments, rules and regulations which may from
time to time be promulgated and adopted pursuant to the Plan), the provisions
of the Plan shall control.
4
<PAGE>
Exhibit 10.5
INTERMUNE PHARMACEUTICALS, INC.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED FEBRUARY 8, 2000
APPROVED BY STOCKHOLDERS _______________, 2000
EFFECTIVE DATE: _______________, 2000
1. Purposes.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the criteria specified in subsection 6(b) of the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means InterMune Pharmaceuticals, Inc.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
1.
<PAGE>
(h) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's service. For example, a change in status without interruption
from a Non-Employee Director of the Company to a Consultant of an Affiliate or
an Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(i) "DIRECTOR" means a member of the Board of Directors of the Company.
(j) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the criteria specified in subsection 6(a) of the Plan.
(o) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
2.
<PAGE>
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "PLAN" means this InterMune Pharmaceuticals, Inc. 2000 Non-Employee
Directors' Stock Option Plan.
(w) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. Administration.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent
not specified in the Plan.
(ii) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section
(iv) To terminate or suspend the Plan as provided in Section
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company that are not in conflict with the provisions of the Plan.
3.
<PAGE>
(c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. Shares Subject to the Plan.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate one hundred eighty
thousand (180,000) shares of Common Stock plus an annual increase to be added
each January 1, commencing with January 1, 2001, equal to one hundred eighty
thousand (180,000) shares of Common Stock. Notwithstanding the foregoing, the
Board may designate a smaller number of shares of Common Stock to be added to
the share reserve as of a particular January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
(a) INITIAL GRANTS. Without any further action of the Board, each
person who is a Non-Employee Director on the IPO Date, or is elected or
appointed for the first time to be a Non-Employee Director after the IPO Date,
and who has not already been granted a stock option by the Company,
automatically shall, upon the later of the IPO Date or the date of such person's
initial election or appointment to be a Non-Employee Director by the Board or
the Company's stockholders, be granted an Initial Grant to purchase thirty
thousand (30,000) shares of Common Stock on the terms and conditions set forth
herein.
(b) ANNUAL GRANTS. Without any further action of the Board, a
Non-Employee Director who did not receive an Initial Grant shall, on the day
on which such Non-Employee Director is fully vested (other than due to a
change in control event) under all stock options previously granted by the
Company to such Non-Employee Director, automatically be granted an Option to
purchase ten thousand (10,000) shares of Common Stock on the terms and
conditions set forth herein (an "Annual Grant"). A Non-Employee Director who
receives an Initial Grant shall also be granted an Annual Grant on the date
of grant of his or her Initial Grant. A Non-Employee Director who is still a
Non-Employee Director on an anniversary of the date of grant of his or her
first Annual Grant shall automatically be granted an Annual Grant.
4.
<PAGE>
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of the following methods:
(i) By cash or check.
(ii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that the Optionholder has held for
the period required to avoid a charge to the Company's reported earnings
(generally six months) or that the Optionholder did not acquire, directly or
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes shall include delivery to
the Company of the Optionholder's attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
the Optionholder may not exercise the Option by tender to the Company of Common
Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
(iii) Provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the receipt
of cash (or check) by the Company or the receipt of irrevocable instructions to
pay the aggregate exercise price to the Company from the sales proceeds.
(d) TRANSFERABILITY. An Option is transferable by will or by the laws
of descent and distribution. An Option also is transferable (i) by instrument to
an inter vivos or testamentary trust, in a form accepted by the Company, in
which the Option is to be passed to beneficiaries upon the death of the trustor
(settlor) and (ii) by gift, in a form accepted by the Company, to a member of
the "immediate family" of the Optionholder as that term is defined in the
general
5.
<PAGE>
instructions to Form S-8 (promulgated under the Securities Act). An Option
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder and a permitted transferee as provided herein. However, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) EXERCISE SCHEDULE. An Option shall be exercisable only for whole
shares and then only as the shares of Common Stock subject to the Option vest.
(f) VESTING SCHEDULE. Options shall vest as follows:
(i) An Initial Grant shall vest in consecutive monthly
installments at a rate of one thirty-sixth (1/36th) of the total number of
shares subject to such Option. The first such installment shall vest one month
from the date of grant of such Option and shall continue until such Option has
fully vested, provided however, that vesting shall cease on termination of the
Optionholder's Continuous Service.
(ii) An Annual Grant shall vest in consecutive monthly
installments at a rate of one twelfth (1/12th) of the total number of
shares subject to such Option. The first such installment shall vest one month
from the date of grant of such Option and shall continue until such Option has
fully vested, provided however, that vesting shall cease on termination of the
Optionholder's Continuous Service.
(g) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than due to the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date that is
three (3) months after the date of such termination, or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates due to the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date that is twelve (12) months
after the date of such termination, or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the
6.
<PAGE>
earlier of (1) the date that is eighteen (18) months following the date of
death or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the
time specified herein, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. If exercise of the Option following
the termination of the Optionholder's Continuous Service would be prohibited at
any time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of: (i) the expiration of the term of the Option set forth in subsection
7(a), or (ii) the expiration of the applicable period of time after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
8. Covenants of the Company.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any right
to continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
7.
<PAGE>
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and in the classes and maximum number of securities added to the
Plan each January 1 pursuant to subsection 4(a), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. The Board shall
make such adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
8.
<PAGE>
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to such event.
(c) CHANGE IN CONTROL. In the event of (i) a sale, lease or other
disposition of all or substantially all of the securities or assets of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation may assume any Options outstanding under
the Plan or may substitute similar Options (including an option to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection 11(c)) for those outstanding under the Plan, and the vesting of
Options held by Non-Employee Directors shall accelerate in full on the date
immediately preceding the date of such event. In the event no surviving
corporation or acquiring corporation assumes such Options or substitutes similar
Options for those outstanding under the Plan, then with respect to Options held
by Optionholders whose Continuous Service has not terminated, the vesting of
such Options (and the time during which such Options may be exercised) shall
accelerate in full on the date immediately preceding the date of such event, and
the Options shall terminate if not exercised at or prior to such event. With
respect to any other Options outstanding under the Plan, such Options shall
terminate if not exercised prior to such event.
12. Amendment of the Plan and Options.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. Termination or Suspension of the Plan.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
9.
<PAGE>
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Delaware, without
regard to such state's conflict of laws rules.
10.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(ANNUAL GRANT)
[NAME], Optionholder:
INTERMUNE PHARMACEUTICALS, INC. (the "Company"), pursuant to its 2000
Non-Employee Directors' Stock Option Plan (the "Plan") has on _______________,
20___ granted to you, the optionholder named above, an option to purchase shares
of the common stock of the Company ("Common Stock").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
Non-Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
ten thousand (10,000). Subject to the limitations contained herein, this option
shall be exercisable in accordance with the Plan.
2. The exercise price of this option is ____________________
($__________) per share, being the Fair Market Value (as defined in the Plan) of
the Common Stock on the date of grant of this option.
3. This option may be exercised, to the extent specified in the Plan,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require. This
option may not be exercised for any number of shares that would require the
issuance of anything other than whole shares.
4. By exercising this option you agree that the Company may require you
to enter an arrangement providing for the cash payment by you to the Company of
any tax withholding obligation of the Company arising by reason of the exercise
of this option or the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise.
5. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
1.
<PAGE>
6. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 7 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the __________ day of ____, 20___.
Very truly yours,
INTERMUNE PHARMACEUTICALS, INC.
By:
--------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
2000 Non-Employee Directors' Stock Option Plan
2.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionholder and the
Company and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:
NONE
----------------------------------------
(Initial)
OTHER
----------------------------------------
----------------------------------------
----------------------------------------
---------------------------------------
OPTIONHOLDER
---------------------------------------
Address
---------------------------------------
---------------------------------------
3.
<PAGE>
INTERMUNE PHARMACEUTICALS, INC.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(INITIAL GRANT)
[NAME], Optionholder:
INTERMUNE PHARMACEUTICALS, INC. (the "Company"), pursuant to its 2000
Non-Employee Directors' Stock Option Plan (the "Plan") has on _______________,
20___ granted to you, the optionholder named above, an option to purchase shares
of the common stock of the Company ("Common Stock").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
Non-Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
thirty thousand (30,000). Subject to the limitations contained herein, this
option shall be exercisable in accordance with the Plan.
2. The exercise price of this option is ____________________
($__________) per share, being the Fair Market Value (as defined in the Plan) of
the Common Stock on the date of grant of this option.
3. This option may be exercised, to the extent specified in the Plan,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require. This
option may not be exercised for any number of shares that would require the
issuance of anything other than whole shares.
4. By exercising this option you agree that the Company may require you
to enter an arrangement providing for the cash payment by you to the Company of
any tax withholding obligation of the Company arising by reason of the exercise
of this option or the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise.
5. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
1.
<PAGE>
6. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 7 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the __________ day of ____, 20___.
Very truly yours,
INTERMUNE PHARMACEUTICALS, INC.
By:
-------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
2000 Non-Employee Directors' Stock Option Plan
2.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option,
it sets forth the entire understanding between the undersigned optionholder and
the Company and its affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:
NONE
----------------------------------------
(Initial)
OTHER
----------------------------------------
----------------------------------------
----------------------------------------
--------------------------------------
OPTIONHOLDER
--------------------------------------
Address
--------------------------------------
--------------------------------------
3.
<PAGE>
Exhibit 10.15
AMENDED AND RESTATED SERVICE AGREEMENT
DATED
APRIL 7, 1999
BETWEEN
INTERMUNE PHARMACEUTICALS, INC.
AND
CONNETICS CORPORATION
<PAGE>
AMENDED AND RESTATED SERVICE AGREEMENT
THIS AMENDED AND RESTATED SERVICE AGREEMENT ("Agreement") is dated as
of April 7, 1999 between Connetics Corporation, a Delaware corporation
("Connetics"), and InterMune Pharmaceuticals, Inc., a California corporation
("InterMune"). InterMune and Connetics are also referred to as a "Party" or
"Parties" to this Agreement.
A. InterMune requires information services, payroll, facilities,
human resources, accounting, employee benefits administration and R&D related
services; and
B. Connetics is willing to continue to provide to InterMune such
services and InterMune desires to obtain such services and assistance from
Connetics, in each case on the terms and conditions set forth herein.
C. InterMune and Connetics have previously entered into a Service
Agreement dated as of October 12, 1998 (the "Service Agreement") and desire to
amend the Service Agreement.
NOW, THEREFORE, the Parties, intending to be legally bound, hereby agree
as follows:
1. SERVICES PROVIDED.
(a) Connetics hereby agrees to provide or make available the
support and related services that are listed and briefly described in
ATTACHMENT A hereto (the "Services"), to InterMune in accordance with the
terms of this Agreement. In order to provide for the furnishing of additional
services not listed on ATTACHMENT A at the time of execution of this
Agreement, ATTACHMENT A may be amended from time to time with the consent of
each of Connetics and InterMune. All Services shall be performed in a manner,
to the extent and at a time substantially consistent with the manner in which
Connetics performs administrative or other services for its own benefit.
Without limiting the foregoing, Connetics agrees to consult with
representatives of InterMune prior to taking any action material to the
provision of Services pursuant to this Agreement that would constitute a
material departure from past practice.
(b) In addition, Connetics will provide such reasonable
assistance to InterMune as InterMune shall request to efficiently and
expeditiously develop the ability to operate InterMune and to perform the
Services provided for hereunder itself.
(c) Notwithstanding anything to the contrary in this Agreement,
InterMune may, at any time, upon ninety (90) days' prior written notice to
Connetics, elect to discontinue receiving one or more of the Services provided
hereunder. Ninety (90) days following receipt of such notice, Connetics shall
cease to provide such Services to InterMune, and InterMune's right to receive
such Services under this Agreement shall terminate.
PAGE 2
<PAGE>
2. TERM. The term of this Agreement shall continue for the period
beginning as of April 1, 1999 and continuing through the close of business on
March 31, 2004, unless earlier terminated by the Parties. This Agreement may be
renewed by mutual agreement of the Parties.
3. TERMINATION.
(a) Connetics may terminate this Agreement if InterMune
shall fail to satisfy its payment obligations under this Agreement within
thirty (30) days after receipt of written notice from Connetics specifying
the amount previously invoiced and remaining due and unpaid and stating its
intent to terminate this Agreement if such amount is not paid within thirty
(30) days of receipt of such notice.
(b) InterMune may terminate this Agreement at any time upon
ninety (90) days prior written notice to Connetics.
(c) Connetics may terminate this Agreement at any time upon
not less than six (6) months prior written notice.
(d) The Parties will provide each other mutual assistance to
ensure a smooth transition of each Service upon termination. Notwithstanding
the foregoing, neither Party may terminate this Agreement before October 31,
1999.
4. COMPENSATION. InterMune shall pay Connetics for bundled
services, overhead and project-related headcount costs. The formula for
compensation is written on ATTACHMENT B. The Parties commit to meet and
review ATTACHMENT B at least once every three months for the purpose of
re-evaluating the allocation of bundled services and itemized costs.
5. INVOICING AND PAYMENT. Connetics shall invoice InterMune
monthly for costs pursuant to Section 4 and payment shall be due within ten
(10) days of when invoice is delivered.
6. RIGHT TO AUDIT. For the purposes of verifying the proper
performance of services by Connetics and its agents hereunder, InterMune
shall be entitled, on reasonable notice and during normal business hours to
inspect and copy the records of Connetics and its agents providing services
hereunder as may be reasonably necessary for such purpose. All such records
shall be retained by Connetics and made available to InterMune for three
years following the date to which such records relate and shall remain the
property of Connetics. Notwithstanding the foregoing, InterMune shall not
have access to personnel records of Connetics relating to individual
performance or revaluation records or medical histories.
7. INDEPENDENT CONTRACTOR STATUS. Connetics and its agents shall
be independent contractors with respect to services they provide to InterMune
hereunder. Connetics
PAGE 3
<PAGE>
and its agents shall not hold themselves out to third parties as having the
power to contractually bind InterMune with respect to any matter, and shall
be responsible for their own employees, and such employees shall not be
deemed to have an employment relationship with InterMune. Notwithstanding the
above, InterMune hereby appoints Wendy Wee, or her replacement mutually
acceptable to InterMune and Connetics, as agent for InterMune with respect to
issuing accounts payable checks, filing tax returns, authorizing payroll, and
authorizing the investment of InterMune's proceeds in accounts or instruments
maintained by Silicon Valley Bank, and authorizing the disbursement of funds
related thereto.
8. BOOKS AND RECORDS. Connetics' books and records with respect
to the Services ("Books and Records") shall be kept at Connetics' offices
located at 3400 West Bayshore Road, Pale Alto, California 94303. The Books
and Records shall be made available for InterMune or its representatives'
inspection and copying at all times during regular office hours. Connetics
shall not be required to maintain the Books and Records for more than three
years after termination of this Agreement.
9. TRANSFER OF RECORDS. Connetics shall deliver to InterMune,
within a reasonably prompt time, all of InterMune's corporate records and
files held by Connetics upon termination of this Agreement.
10. COMPLIANCE WITH LAWS. Each of InterMune and Connetics shall
comply with any and all applicable statutes, rules, regulations, orders or
restrictions of any domestic or foreign government, or instrumentality or
agency thereof, in respect of the conduct of their activities in the
fulfillment of their obligations under this Agreement.
11. CONFIDENTIALITY, RECORDS.
(a) PROPRIETARY INFORMATION. All information furnished or
disclosed by one party (a "Disclosing Party") to the other party (a
"Receiving Party") in connection with the negotiation or performance of this
Agreement, including but not limited to trade secrets, cost and pricing
information, computer program, technique, design, drawing, prototype, formula
or test data, relating to any research project, work in process, future
development, engineering, manufacturing, marketing, servicing, financing or
personnel matter shall be deemed "Proprietary Information"; PROVIDED,
HOWEVER, that the term "Proprietary Information" shall not be deemed to
include information which the Receiving Party can demonstrate by competent
written proof: (i) is now, or hereafter becomes, through no act or failure to
act on the part of the Receiving Party, generally known or available; (ii) is
known by the Receiving Party at the time of receiving such information, as
evidenced by its records; (iii) is hereafter furnished to the Receiving Party
by a third party, as a matter of right and without restriction on disclosure;
or (iv) is the subject of a written permission to disclose by the Disclosing
Party.
PAGE 4
<PAGE>
(b) USE AND HANDLING OF PROPRIETARY INFORMATION. The
Receiving Party shall maintain all Proprietary Information in trust and
confidence and shall use at least the same degree of care regarding this
information as it uses with respect to its own Proprietary information to
prevent it unauthorized disclosure, use or publication. The Receiving Party
may use such Proprietary Information only to the extent required to
accomplish the intent of this Agreement. The Receiving Party shall not use
the Proprietary Information for any purpose or in any manner which would
constitute a violation of any laws or regulations.
(c) OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary
Information (including all copies thereof) of a Party shall at all times
remain the property of such Disclosing Party. No rights or licenses to
trademarks, inventions, copyrights or patents are implied or granted under
this Agreement.
(d) PERMITTED DISCLOSURE. A Party may disclose Proprietary
Information to its professional advisors, and may disclose such information
if such disclosure is in response to a valid order of a court or other
governmental body of the United States for any political subdivision thereof,
provided, however, that the Receiving Party shall first have given notice to
the Disclosing Party and shall have made a reasonable effort to obtain a
protective order requiring that the Proprietary Information so disclosed be
used only for the purposes for which the order was issued; or is otherwise
required by law.
(e) INJUNCTIVE RELIEF. Each party acknowledges and agrees
that in the event of any breach of this Agreement by a Receiving Party,
including, without limitation, the actual or threatened disclosure of
Proprietary Information without the prior express written consent of the
Disclosing Party, the Disclosing Party will suffer an irreparable injury,
such that no remedy at law will afford it adequate protection against, or
appropriate compensation for, such injury. Accordingly, in the event of any
breach or threatened breach by a Receiving Party of any provisions of this
Section 11, the Disclosing Party shall, in additional to all other remedies
available to it be entitled to specific performance of the Receiving Party's
obligations under this Agreement.
12. DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties to this Agreement, the
Parties shall try to settle their differences amicably between themselves by
referring the disputed matter to the President of InterMune and the Chief
Executive Officer of Connetics for discussion and resolution. Either Party
may initiate such informal dispute resolution by sending written notice of
the dispute to the other Party, and within ten (10) days after such notice
such representatives of the Parties shall meet for attempted resolution by
good faith negotiations. If such personnel are unable to resolve such
dispute within thirty (30) days of initiating such negotiations, either
Party may seek to have such dispute resolved by binding arbitration under
this Section 12. The arbitration shall be held in Palo Alto, California
according to the Commercial Arbitration Rules of the American Arbitration
PAGE 5
<PAGE>
Association (the "Rules"). The arbitration will be conducted by a panel of
three (3) arbitrators who are knowledgeable in the subject matter that is at
issue in the dispute, are not affiliated directly or indirectly with either
Party, and are selected by mutual agreement of the Parties. Failing such
agreement, the arbitrators shall be selected appointed as provided in the
Rules. During the arbitration, the Parties shall have such discovery rights
as the arbitrators may allow, consistent with the discovery permitted by the
Federal Code of Civil Procedure. In conducting the arbitration, the
arbitrators shall apply the rules of evidence applicable in California, and
shall be able to decree any and all relief of an equitable nature, including
but not limited to such relief as a temporary restraining order, a
preliminary injunction, a permanent injunction, or replevin of property, as
well as specific performance. The arbitrators shall also be able to award
direct and indirect damages, but shall not award any other form of damage
(E.G., punitive or exemplary damages). The reasonable fees and expenses, of
the arbitrators, along with the reasonable legal fees and expenses of the
prevailing Party (including all expert witness fees and expenses), the fees
and expenses of a court reporter, and any expenses for a hearing room, shall
be paid as follows: If the arbitrators rule in favor of one Party on all
disputed issues in the arbitration, the losing Party shall pay 100% of such
fees and expenses; if the arbitrators rule in favor of one Party on some
issues and the other Party on other issues, the arbitrators shall issue with
the rulings a written determination as to how such fees and expenses shall be
allocated between the Parties. The arbitrators shall allocate fees and
expenses in a way that bears a reasonable relationship to the outcome of the
arbitration, with the Party prevailing on more issues, or on issues of
greater value or gravity, recovering a relatively larger share of its legal
fees and expenses. The decision of the arbitrators shall be final and may be
entered, sued on or enforced by the Party in whose favor it runs in any court
of competent jurisdiction at the option of such Party. Whether a claim,
dispute or other matter in question would be barred by the applicable statute
of limitations, which statute of limitations also shall apply to any claim or
disputes subject to arbitration under this Section, shall be determined by
binding arbitration pursuant to this Section.
13. NONASSIGNMENT; PARTIES IN INTEREST. Neither Party may assign
its rights or its duties under this Agreement without the prior written
consent of the other Party; PROVIDED, HOWEVER, that Connetics may delegate
its duties hereunder to any of its agents or affiliates. This Agreement shall
inure to the benefit of and be binding upon Connetics, InterMune and their
successors and assigns.
14. SURVIVAL. The provisions of Sections 4, 5, 6, 8 and 11 shall
survive the any termination of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California, without giving effect to conflicts of
law principles.
16. FORCE MAJEURE. In the event that a party's performance under
this Agreement, other than InterMune's obligations to make payments, shall be
interrupted or delayed by the
PAGE 6
<PAGE>
occurrence of any event beyond the reasonable control of such party, then
such a party shall be excused from performance during the period of time when
the interruption occurred.
17. NOTICES. All notices, requests, and other communications to any
party hereunder shall be in writing (including telecopy or similar writing)
and shall be given:
IF TO CONNETICS:
Connetics Corporation
3400 West Bayshore Road
Palo Alto, CA 94303
Attn: Chief Executive Officer
Fax: (650) 843-2899
IF TO INTERMUNE:
InterMune Pharmaceuticals, Inc.
3294 West Bayshore Road
Palo Alto, CA 94303
Attn: President
Fax: (650) 858-2937
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effective (a) if
personally delivered, at the time delivered by hand, (b) if delivered by
facsimile transmission, upon confirmation of transmission, (c) if by courier,
on the business day such courier guarantees delivery, and (d) if delivered by
U.S. Mail, seven business days after deposit in the U.S. Mail, postage
prepaid.
18. INTEGRATION. This Agreement supersedes all prior negotiations,
commitments and rights pertaining to the subject matter of this Agreement.
19. AMENDMENTS. This Agreement may not be modified or amended
except by a written agreement signed by the Parties.
20. INDEMNIFICATION. Connetics hereby agrees to indemnify and hold
InterMune harmless from and against any and all claims, liabilities, damages,
costs and expense, of whatever kind or nature (each a "Loss"), incurred or
suffered by InterMune as a result of performance by Connetics or its agents
constituting negligence or willful misconduct of any of its obligations under
this Agreement. InterMune agrees to indemnify and hold Connetics harmless
from and against any loss incurred or suffered by Connetics arising out of
claims or lawsuits by third parties relating to the services provided by
Connetics hereunder, except to the
PAGE 7
<PAGE>
extent that any such Loss results from Connetics' or its agents' gross
negligence or willful misconduct.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument. This Agreement shall become
effective when each party to this Agreement has received a counterpart of this
Agreement signed by the other parties.
[INTENTIONALLY LEFT BLANK - SIGNATURE PAGE FOLLOWS]
PAGE 8
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective authorized officers as of the date first written
above.
CONNETICS CORPORATION
By /s/ Thomas G. Wiggans
----------------------------------------
Thomas G. Wiggans
President and Chief Executive Officer
INTERMUNE PHARMACEUTICALS, INC.
By /s/ W. Scott Harkonen, M.D.
----------------------------------------
W. Scott Harkonen, M.D.
President
PAGE 9
<PAGE>
ATTACHMENT A
Description of Services to be Provided
HUMAN RESOURCES
Compensation Base Salary Components:
job descriptions
titles
codes
salary structure
job analysis
Benefits Benefit Plans:
medical
dental
vision
STD
LTD
Section 125
life
AD&D
Plan Administration and Employee Coverage
Cost of Benefits/Billing
HR Operations Employee Record Keeping and Services:
workers' compensation
recruiting
performance review process
employee verification
employment records and files
payroll system interface
policies & procedures as currently
exist/legal guidelines
FINANCE/ACCOUNTING
Benefits 401(k) Plan (ADMINISTERED BY FIDELITY):
administration
record keeping
analysis
Incentive Stock Option Plan:
administration
record keeping
analysis
reporting
Insurance/Risk Mgmt. General Liability (TO BE ADMINISTERED AND
BILLED BY SEDGWICK)
Key Management
Accounting Policy & Procedures (AS CURRENTLY
EXIST)
<PAGE>
ATTACHMENT A
Accounting Centers Accounting:
general ledger
accounts receivable
employee receivables
accounts payable
employee expense reimbursement
fixed assets
BSA support
payroll
schedules & support for annual financial
audit
documentation to CPA necessary to prepare tax
filings
Operations Planning Budgeting Support
Sales Forecasting
Monthly Reporting
Financial Modeling
Inventory/Distribution Coordination
Cash Management (SUB BY MONTGOMERY SECURITIES)
INFORMATION SYSTEMS System Maintenance
General Consulting
Y2K Support
Website Maintenance
FACILITIES Supplies
Facility Maintenance
Security
Receiving
Purchasing
Telecom services
Mail services
Equipment Maintenance
GENERAL ADMINISTRATION Consultation
REGULATORY Consultation
LEGAL Consultation
PROCESS DEVELOPMENT Consultation
QA/QC Consultation
ANIMAL SERVICES Consultation
<PAGE>
ATTACHMENT B
<TABLE>
<S> <C> <C>
A) Monthly FTE Cost $8,500
B) Monthly Per Person Overhead Charge $5,100
C) FTE Allocation For Bundled Services
Finance/Accounting 1.00
QA/QC 0.50
Regulatory 0.10
Legal 0.10
General Administration 0.10
Process Development 0.10
Information Systems 0.05
Human Resources 0.20
Facilities 0.05
Animal Services 0.05
---------
2.25
D) InterMune Employees
Scott Harkonen 1.00
Woody Emlen 0.20
Ann Hanham 1.00
Mary Fermi 1.00
Sue Lee 1.00
Stacey Ellis 1.00
New Hires/Consultants 0.00
---------
5.20
E) Full-time Equivalent of Contracted MONTHLY COMPENSATION
Headcount
Ernst Rinderknecht $ XXX
Claire Lockey $ XXX
Russ Kawahata $ XXX
Joel Henner $ XXX
MONTHLY INVOICE FORMULA
BUNDLED SERVICES C-A
+ OVERHEAD (C + D + E)-B
+ CONTRACTED HEADCOUNT E [% of Monthly Compensation]
=============================
Monthly Invoice Amount
</TABLE>
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.19
DATA TRANSFER,
CLINICAL TRIAL AND MARKET SUPPLY
AGREEMENT
THIS DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT (the
"Agreement"), is made effective as of the 27th day of January, 2000 (the
"Effective Date") by and between InterMune Pharmaceuticals, Inc. ("InterMune"),
a California corporation, having an address at 3400 West Bayshore Road, Palo
Alto, California 94303-4227, USA, and Boehringer Ingelheim Austria GmbH ("BI
Austria"), an Austrian corporation, having its registered office at Dr.
Boehringer-Gasse 5 - 11, A-1121 Vienna, Republic of Austria. InterMune and BI
Austria may be referred to herein each individually as a "Party" and jointly as
the "Parties."
WHEREAS, pursuant to the terms of a Confidential Non-Disclosure Agreement dated
June 5, 1998, between InterMune and Bender+Co Ges mbH (now BI Austria) the
Parties have discussed and evaluated the feasibility of providing manufacturing
services regarding a recombinant gamma-interferon product for InterMune and
Bender (now BI Austria) has submitted a price quotation for these services; and
WHEREAS, InterMune holds an exclusive sublicense from Connetics Corporation
under Connetics' license from Genentech Inc., a company organized under the
laws of Delaware, ("Genentech") to manufacture, use and sell recombinant
human gamma-interferon ("INTERFERON GAMMA 1b", as further described herein)
products in the USA and certain other territories. INTERFERON GAMMA 1b is
approved by the FDA for the indication Chronic Granulomatous Disease, and is
sold in the USA under the trade-mark ACTIMMUNE-Registered Trademark- (the
"GENENTECH PRODUCT", as further described herein), and InterMune intends to
seek approval for additional indications; and
WHEREAS, Boehringer Ingelheim International GmbH (BII), an affiliate of BI
Austria and BI Pharma KG, holds an exclusive license from Genentech to
manufacture, use and sell INTERFERON GAMMA 1b in the BI Territory (as further
described herein), and is the registration-holder for an INTERFERON GAMMA 1b
product in certain countries of the BI Territory for the indication Chronic
Granulomatous
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
1 of 66
<PAGE>
Disease. The trade-mark for INTERFERON GAMMA 1b product in Europe is
IMUKIN-Registered Trademark- (the "BI PRODUCT", as further described herein);
and
WHEREAS, BI Austria and its affiliate BI Pharma KG (as defined hereinafter) own
facilities specialized for cGMP manufacture of biopharmaceuticals and employ
personnel who have experience in the production, quality control as well as in
the registration of biopharmaceuticals; and
WHEREAS, InterMune wishes BI Austria, and BI Austria agrees, to (a) compare the
technical and analytical documentation of GENENTECH PRODUCT and BI PRODUCT, (b)
carry out conformance / qualification runs for the cGMP manufacture of a
finished INTERFERON GAMMA 1b product; (c) conduct an analytical comparison of
the GENENTECH PRODUCT and the BI PRODUCT in order to show comparability between
the GENENTECH PRODUCT and the BI PRODUCT; and (d) prepare for an FDA inspection
in order for BI Austria to be registered with the FDA as a cGMP-compliant
manufacturer for an INTERFERON GAMMA 1b product to be sold under the ACTIMMUNE
trademark for the US market and other territories controlled by InterMune; and
WHEREAS, InterMune wishes BI Austria, and BI Austria agrees, to manufacture and
supply InterMune with finished INTERFERON GAMMA 1b product for its conduct of
clinical trials and supply of market needs for a period of six (6) years in
accordance with the terms and conditions of this Agreement; and
WHEREAS, InterMune wishes BI Austria, and BI Austria agrees, to increase its
manufacturing capability for bulk and finished INTERFERON GAMMA 1b product in
accordance with a mutually agreed-upon plan and timeline as further described
herein.
NOW, THEREFORE, the Parties hereto agree as follows:
1. DEFINITIONS
The following capitalized definitions will apply throughout this Agreement:
1.1. AFFILIATE means (i) any corporation or business entity fifty percent
(50%) or more of the voting stock of which is and continues to be
owned directly or indirectly by any party hereto; (ii) any corporation
or business entity which directly or indirectly owns fifty percent
(50%) or more of the voting stock of any party hereto; or (iii) any
corporation or business entity under the direct or indirect control of
such corporation or business entity as described in (i) or (ii).
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
2 of 66
<PAGE>
1.2. APPROVAL means a regulatory approval required from a HEALTH AUTHORITY
in order to manufacture BBS or PRODUCT for use in clinical trials or
market supply as applicable, in the applicable jurisdiction.
1.3. ATS means the Austrian Shilling.
1.4. BI AUSTRIA'S IMPROVEMENTS shall mean all INFORMATION comprising any
inventions, modifications and/or improvements to the INTERMUNE
TECHNOLOGY or to the GENENTECH TECHNOLOGY, that BI Austria or BI
Pharma KG conceive of or reduce to practice pursuant to this
Agreement, either individually or in conjunction with one or more
third parties or BI Affiliates, including all patent and patent
applications covering any of the foregoing.
1.5. BI AUSTRIA'S TECHNOLOGY means all INFORMATION in the field of
manufacturing and testing of biopharmaceuticals, including without
limitation the MANUFACTURING PROCESS but only to the extent that it
relates solely to BI PRODUCT, and including all patents and patent
applications covering any of the foregoing, that are owned or
CONTROLLED by BI Austria or BI Pharma KG during the term of this
Agreement and that are related to or useful in BI Austria's carrying
out its obligations under this Agreement, but specifically excluding
INTERMUNE'S TECHNOLOGY and BI AUSTRIA'S IMPROVEMENTS.
1.6. BI TERRITORY means the territory described in EXHIBIT 1 hereto.
1.7. BII means Boehringer Ingelheim International GmbH, an AFFILIATE of BI
Austria GmbH and BI Pharma KG.
1.8. BI PHARMA KG means BI Austria's AFFILIATE BI Pharma KG, FRG-88397
Biberach an der Riss, Birkendorfer Strasse 65, Germany, owning an
FDA inspected and cGMP-certified facility.
1.9. BI PRODUCT means the liquid formulation of INTERFERON GAMMA 1b
approved in various countries of the BI Territory for the treatment of
Chronic Granulomatous Disease, and manufactured by BI Austria and BI
Pharma KG for sale. In Europe the BI PRODUCT is sold under the
trademark IMUKIN-Registered Trademark-.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
3 of 66
<PAGE>
1.10. BLA means a Biologics License Application, as defined by the
regulations promulgated under the FD&C ACT, and any equivalent
application with respective HEALTH AUTHORITIES.
1.11. BULK BIOLOGICAL SUBSTANCE (BBS) means a bulk form of the PRODUCT. This
bulk form is the [ * ].
1.12. BULK SPECIFICATIONS mean the specifications for BBS listed in EXHIBIT
2.
1.13. cGMP means the current Good Manufacturing Practices of all applicable
HEALTH AUTHORITIES, including without limitation the FDA, and
including without limitation all applicable rules, regulations, guides
and guidance, such as 21C.F.R. parts 210 and 211 and parts 600 and
610.
1.14. CMC means the Chemistry, Manufacturing, and Controls content of a
submission to a HEALTH AUTHORITY.
1.15. COA means a Certificate of Analysis, a document listing testing
parameters, specifications and test results (in a format and detail as
listed in EXHIBIT 3).
1.16. COC means a Certificate of Compliance confirming compliance with cGMP
regulations and signed by BI Austria's authorized Qualified Person,
the Head of Production and the Head of Quality Assurance (in a format
and such detail as listed in EXHIBIT 4).
1.17. CONFIDENTIAL INFORMATION means any proprietary INFORMATION (a)
disclosed by one Party to the other (including without limitation,
such INFORMATION as was disclosed under the Confidential
Non-Disclosure Agreement dated June 5, 1998, between InterMune and
Bender+Co Ges mbH (now BI Austria), or (b) developed by either Party
pursuant to this Agreement, except for INFORMATION which (i) is
already in the public domain at the time of its disclosure to the
receiving Party; (ii) becomes part of the public domain through no
wrongful action or omission of the receiving Party after disclosure to
the receiving Party; (iii) is already known to the receiving Party at
the time of disclosure as evidenced by the receiving Party's written
records; or (iv) is independently developed by the receiving Party
without the use or application of the disclosing Party's proprietary
information.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
4 of 66
<PAGE>
1.18. CONTROLLED means, with respect to any material, INFORMATION or
intellectual property right, possession of the ability by a Party to
grant access, a license, or a sublicense to such material, INFORMATION
or intellectual property right as provided for herein without
violating an agreement with a Third Party as of the time such Party
would be first required hereunder to grant the other Party such
access, license or sublicense.
1.19. FDA means the United States Food and Drug Administration and any
successor agency thereto.
1.20. FD&C ACT means the United States Food, Drug & Cosmetic Act as amended
from time to time and any supplements thereunder, and any equivalent
regulation of any HEALTH AUTHORITIES.
1.21. FILLING SITE CHANGE means the transfer of the filling and finishing
part of the MANUFACTURING PROCESS from BI Austria to BI Pharma KG.
1.22. FINAL RELEASE means the release of PRODUCT by InterMune or its
licensees for clinical trial use or market supply, as applicable.
1.23. GENENTECH PRODUCT means the formulation of INTERFERON GAMMA 1b
manufactured in the US by Genentech for sale under the trademark
ACTIMMUNE and approved by the FDA for the treatment of Chronic
Granulomatous Disease.
1.24. GENENTECH TECHNOLOGY means all INFORMATION relating to the
manufacture, use or sale of INTERFERON GAMMA 1b that is licensed to
either Party pursuant to an agreement with Genentech, including
without limitation the MANUFACTURING PROCESS, and all patents and
patent applications covering such INFORMATION.
1.25. HEALTH AUTHORITIES mean all regulatory authorities having jurisdiction
over the manufacture, use and/or sale of the PRODUCT in the TERRITORY,
including but not limited to the FDA.
1.26. INFORMATION means (a) techniques, data, inventions, practices,
methods, knowledge, know-how, skill, experience, test data (including
pharmacological, toxicological and clinical test data), analytical and
quality control data, regulatory submissions, correspondence and
communications, marketing, pricing, distribution, cost, sales,
manufacturing, patent and legal
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
5 of 66
<PAGE>
data or descriptions, compositions of matter, assays and biological
materials, and (b) all intellectual property rights in and to any of
the foregoing.
1.27. INTERFERON-GAMMA 1B means the recombinant human Interferon-Gamma 1b
derived from a [ * ], and that is the active ingredient in
ACTIMMUNE-Registered Trademark-. The relevant amino acid sequence is
set forth in EXHIBIT 5.
1.28. INTERMUNE'S TECHNOLOGY means all INFORMATION that is CONTROLLED by
INTERMUNE during the term of this Agreement that is related to or
useful in BI Austria's manufacture of PRODUCT hereunder, and all
patents and patent applications covering any of the foregoing;
provided that "INTERMUNE'S TECHNOLOGY" shall not include any
INFORMATION (i) owned or CONTROLLED by BI Austria prior to the
Effective Date, (ii) conceived of, or reduced to practice or acquired
by BI Austria outside of this Agreement during the term of this
Agreement, or (iii) the GENENTECH TECHNOLOGY.
1.29. MCB means the original Master Cell Bank derived from the [ * ] and
established by Genentech.
1.30. MANUFACTURING PROCESS means the process for fermentation,
purification, filling, labeling and packaging of BBS and PRODUCT, as
described in EXHIBIT 6.
1.31. MATERIAL SUPPLY BREACH means a failure of BI Austria: (a) to supply to
InterMune at least [ * ] of InterMune's binding forecasted
requirements of PRODUCT (or actual orders, if less) that are due for
delivery by the designated delivery date during the then-current
calendar quarter; or (b) to repeatedly [ * ] materially violate
against cGMP, as described in Sections 5.6 and 5.7.
1.32. PRODUCT shall mean a finished product consisting of formulated
INTERFERON GAMMA 1b filled into the designated containers for clinical
supply and for market supply, as described in EXHIBIT 7, or shall mean
a finished product of formulation buffer filled into the designated
containers for clinical supply (placebo).
1.33. PROJECT MANAGER means the responsible person designated by each Party
to be responsible for the communication of all information concerning
this Agreement. As of the Effective Date, the person designated as
InterMune's PROJECT MANAGER and the person designated as BI Austria's
PROJECT MANAGER are listed in EXHIBIT 8. Either Party may
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
6 of 66
<PAGE>
change its own designated PROJECT MANAGER by providing written notice
thereof to the other Party.
1.34. PRODUCT SPECIFICATIONS mean the specifications for the PRODUCT as set
forth in EXHIBIT 9, or as otherwise agreed by the Parties in writing.
1.35. PROJECT TEAM means the team as listed in EXHIBIT 8 and described in
Section 6.1.
1.36. QUALITY ASSURANCE REQUIREMENTS mean InterMune's quality assurance
requirements as set forth in EXHIBIT 10, as may be amended from time
to time by written agreement of the Parties.
1.37. RELEASE means the release of the PRODUCT by BI Austria to InterMune or
its designee.
1.38. SERVICES mean the services to be performed by BI Austria and BI Pharma
KG in connection with establishing comparability between the GENENTECH
PRODUCT and the BI PRODUCT for cGMP purposes, and preparing BI Austria
to be approved by the FDA as a cGMP manufacturer of the PRODUCT, as
further described in EXHIBIT 11. EXHIBIT 11 also includes the costs
for the SERVICES. The timeline within which BI Austria and BI Pharma
KG intend to perform the SERVICES is described in EXHIBIT 12.
1.39. STEERING COMMITTEE means the committee as listed in EXHIBIT 13 and as
further described in Section 6.2.
1.40. TERRITORY means the US, Japan and all additional territories,
including but not limited to Canada, as to which InterMune has or may
acquire the right to manufacture, use or sell INTERFERON GAMMA 1b
products during the term of this Agreement.
1.41. US means the United States of America.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
7 of 66
<PAGE>
2. DATA TRANSFER AND PRODUCT COMPARISON
2.1. INTERMUNE'S TASKS AND RESPONSIBILITIES
2.1.1. DOCUMENTATION
InterMune shall provide BI Austria with the relevant
documentation that is reasonably available to InterMune
concerning the GENENTECH PRODUCT and its manufacture by
Genentech, including amendments and currently used batch
records and testing procedures and all material correspondence
with the HEALTH AUTHORITIES in the US as listed in EXHIBIT 14.
The Parties acknowledge that BI Austria is already in receipt
of most of the relevant documentation.
2.1.2. MATERIAL
InterMune shall provide BI Austria with original [ * ]
vials from Genentech and samples of BBS manufactured by
Genentech, as well as of the final labeled product
ACTIMMUNE-Registered Trademark-, in such reasonable amounts
and at such times as agreed by the Project Team. InterMune
shall also supply BI Austria, as reasonably requested and
in reasonable amounts, with reference material, antibodies
and reagents for analytical testing, and all other material
reasonably available to InterMune and reasonably requested
by BI Austria that may be suitable as a basis for
comparison between the GENENTECH PRODUCT and the BI PRODUCT.
2.1.3. DATA
InterMune shall also provide to BI Austria, as reasonably
requested, all technical data and equipment specifications
reasonably available to InterMune that are used in the
manufacture of the GENENTECH PRODUCT in the US.
2.1.4. SUPPORT
InterMune shall timely send all documentation, and otherwise
timely provide all information and other assistance,
reasonably requested by BI Austria for use under this
Agreement. InterMune shall provide such reasonable technical
support at its own
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
8 of 66
<PAGE>
expense, which support shall include access to InterMune's
expert personnel upon reasonable notice and at such reasonable
times as the Parties may agree.
2.1.5. CONTACT WITH HEALTH AUTHORITIES
2.1.5.1. InterMune, as the license holder for the
GENENTECH PRODUCT in the US, shall have the
overall responsibility regarding all contacts
with the HEALTH AUTHORITIES and shall be solely
responsible for filing all regulatory documents
required by any HEALTH AUTHORITIES, such as any
amendments to the BLA for the GENENTECH PRODUCT.
BI Austria shall support InterMune in all
matters regarding the manufacturing and quality
control of PRODUCT as reasonably requested by
InterMune, but InterMune shall be the leading
Party, responsible for co-ordination of all
regulatory matters.
2.1.5.2. InterMune will notify BI Austria in due time,
but in no event later than five (5) business
days in advance of any meeting with any HEALTH
AUTHORITIES with regard to manufacture, supply
and quality control of the PRODUCT manufactured
by BI Austria or BI Pharma KG under this
Agreement. BI Austria shall have the right to
participate in such meetings with such HEALTH
AUTHORITIES during the portion of such meetings
relating to BI Austria's or BI Pharma KG's
manufacture, supply and quality control of the
PRODUCT.
2.1.5.3. BI Austria will be responsible for drawing up
the annual report required by the HEALTH
AUTHORITIES reasonably in advance of the due
date, and will be responsible of matters
regarding the manufacture of PRODUCT. InterMune
shall submit such report to the HEALTH
AUTHORITIES and shall provide BI Austria with a
copy of the finally submitted report.
2.1.6. SHIPMENT OF MATERIAL BY INTERMUNE
All material, e.g. samples, sent by InterMune to BI Austria
shall be made by shipment from InterMune's or Genentech's
facility to BI Austria's facility in Vienna. Shipping costs
including insurance will be borne by InterMune, and risk of
loss in transit shall lie with InterMune.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
9 of 66
<PAGE>
2.2. BI AUSTRIA'S TASKS AND RESPONSIBILITIES
2.2.1. COMPARISON OF DOCUMENTATION AND MATERIALS
2.2.1.1. BI Austria shall evaluate and compare all
documentation and other materials relating to
the manufacture and testing of the GENENTECH
PRODUCT with all relevant documentation and
other materials relating to the manufacture and
testing of the BI PRODUCT that is necessary to
demonstrate comparability between such Genentech
documentation, as listed in EXHIBIT 14, and such
BI Austria documentation.
2.2.1.2. BI Austria shall also carry out an analytical
comparison of BBS and GENENTECH PRODUCT
manufactured by Genentech and of BBS and BI
PRODUCT manufactured by BI Austria and BI Pharma
KG based on a mutually agreed protocol as listed
in EXHIBIT 15.
2.2.2. PRODUCTION RUNS
Subject to Section 2.2.3, BI Austria shall carry out three (3)
production runs of PRODUCT in order to obtain APPROVAL in the
US as a cGMP manufacturer of BBS, and to have BI Pharma KG
obtain APPROVAL in the US as a cGMP manufacturer of PRODUCT.
BBS and PRODUCT derived from these runs shall be used for
evidencing comparability between the GENENTECH PRODUCT and the
BI PRODUCT. The costs of these runs are listed in EXHIBIT 11
and shall be borne by InterMune.
2.2.3. ADDITIONAL RUNS
If any HEALTH AUTHORITIES request further analytical testing
and/or production runs in addition to those described in
EXHIBIT 11, BI Austria shall perform such testing and/or
production runs as requested by InterMune. The cost of such
additional testing and/or production runs will be borne by
InterMune, subject to InterMune's prior written approval of
such costs, unless the additional analytical testing and/or
production runs are due to negligence on BI Austria's or BI
Pharma KG's part.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
10 of 66
<PAGE>
2.2.4. ADDITIONAL DOCUMENTATION
If any HEALTH AUTHORITIES request that InterMune or BI Austria
provide, in connection with BI Austria's and/or BI Pharma KG's
receipt of approval as a manufacturer of PRODUCT hereunder,
further documentation regarding the manufacture of PRODUCT in
addition to the documentation as foreseen under the SERVICES
(e.g. certain reports), BI Austria will provide such
documentation to InterMune for provision to such HEALTH
AUTHORITIES as soon as reasonably possible. Such additional
documentation may be either (a) product and/or process-related
or (b) facility-related (e.g. infrastructure, utilities,
personnel, training etc.). The cost of such additional product
and/or process-related documentation shall be borne by
InterMune unless such additional documentation is due to
negligence on BI Austria's or BI Pharma KG's part. The cost of
such additional facility-related documentation shall be borne
by BI Austria.
2.2.5. REGULATORY SUPPORT
2.2.5.1. BI Austria shall provide all site-relevant
documentation (both from itself and from BI
Pharma KG) and all data relevant for compiling
the CMC section necessary for InterMune's
drafting of the BLA supplement required by the
FDA due to the change of manufacturer for the
GENENTECH PRODUCT. BI Austria agrees to
co-operate with InterMune in obtaining and
maintaining all US governmental approvals and
registrations relevant to the CMC section of the
registration dossier (and their foreign
equivalents) as requested by InterMune.
2.2.5.2. The Parties shall consult with each other
concerning the scope and content of all
regulatory filings, and shall jointly define the
requirements for the necessary PRODUCT
registration with the FDA so that BI Austria
shall be able to fulfill its obligations under
this Agreement with respect to the CMC portion
of such PRODUCT registration.
2.2.6. FORMAT AND CONTENT OF DOCUMENTS
BI Austria's Quality Management System demands a special
format for certain documents (i.e. batch records, testing
procedures, technical reports) which is binding.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
11 of 66
<PAGE>
For those documents where a binding format is not obligatory
the Parties shall agree in writing on a master format. With
respect to the dates contained in these documents, and in
particular in all reports and when dates occur in connection
with signatures, the European writing style shall apply. The
order shall be as follows: dd / mm / yy (day/month/year).
2.2.7. STANDARD OF PERFORMANCE
BI Austria shall diligently perform the SERVICES, and shall
ensure that BI Pharma KG diligently performs the SERVICES, in
a manner consistent with good scientific / regulatory /
business practices. InterMune acknowledges that the SERVICES
are of biological nature and therefore neither success nor
commercial exploitability can be guaranteed by BI Austria.
3. MANUFACTURE AND SUPPLY
3.1. GENERAL
3.1.1. [ * ] for use and sale in the TERRITORY, BBS or PRODUCT for
use in the treatment or prevention of any human disease or
condition except for the treatment or prevention of any
type of cardiac or cardiovascular disease or condition.
[ * ] BBS or PRODUCT for use in the treatment of any human
disease or condition, except for the treatment or
prevention of any type of cardiac or cardiovascular
condition, [ * ]for use and/or sale in the TERRITORY [ * ]
InterMune's clinical trial supply, and from the time BI
Austria and BI Pharma KG are approved by the HEALTH
AUTHORITIES also [ * ] for PRODUCT in the TERRITORY for the
term of this Agreement, subject to Section 3.7.
3.1.2. All BBS manufactured by BI Austria hereunder, and all
PRODUCT manufactured and supplied to InterMune by BI
Austria hereunder, shall be manufactured and supplied in
accordance with the BBS SPECIFICATIONS and PRODUCT
SPECIFICATIONS, the cGMP requirements, the QUALITY
ASSURANCE REQUIREMENTS as listed in EXHIBIT 10 and all
applicable laws, regulations and ordinances of the
jurisdiction in which such manufacture occurs.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
12 of 66
<PAGE>
3.1.3. BI Austria shall manufacture BBS according to the BULK
SPECIFICATIONS. Until the FILLING SITE CHANGE is complete,
BI Austria shall manufacture PRODUCT according to PRODUCT
SPECIFICATIONS for clinical supply only. Upon completion of
the FILLING SITE CHANGE and upon receipt of FDA APPROVAL of
BI Austria's facility as well as BI Pharma KG's facility,
BI Austria shall also manufacture PRODUCT for market
supply. BBS for clinical and market supply shall be
manufactured at BI Austria and transferred to BI Pharma KG
for vialing, labeling (but only for market supply) and
packaging. Manufacturing and filling of vials, labeling
(but only for market supply) as well as the packaging and
storing of PRODUCT shall be in accordance with the PRODUCT
SPECIFICATIONS, the cGMP requirements, the QUALITY
ASSURANCE REQUIREMENTS as listed in EXHIBIT 10 and all
applicable laws, regulations and ordinances of the
jurisdiction in which such manufacturing and/or filling
occurs. Notwithstanding the fact that BI Austria takes BI
Pharma KG as a toll manufacturer for filling, labeling (for
market supply) and packaging of PRODUCT, BI Austria takes
responsibility for the manufacture and supply of PRODUCT to
InterMune in accordance with the terms and conditions of
this Agreement.
3.2. FORECASTS
3.2.1. [ * ] prior to the first delivery date of PRODUCT for
market supply and [ * ] prior to the first delivery date of
PRODUCT for clinical supply, unless otherwise agreed,
InterMune shall provide a rolling forecast for the next
[ * ]. The first [ * ] of such forecast shall be firm
(EXHIBIT 16, [ * ]). For [ * ] InterMune can reduce its
forecast by [ * ], and may increase its forecast [ * ] will
constitute a non-binding forecast [ * ]. After the first
forecast has been submitted by InterMune to BI Austria,
successive forecasts shall be submitted on a quarterly
basis at the latest on every first day of every new
calendar quarter. InterMune agrees to order the PRODUCT in
filling lot quantities or multiples thereof (available lot
sizes are [ * ], or any other then available lot sizes).
Following BI Austria's and BI Pharma KG's FDA approval to manufacture
PRODUCT for market supply, InterMune shall order the requested amounts
of PRODUCT. In any case the [ * ].
3.2.2. If InterMune requires more PRODUCT than is set forth in the
current firm forecast, BI Austria shall use commercially
reasonable efforts in good faith to supply InterMune with
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
13 of 66
<PAGE>
PRODUCT as requested; PROVIDED THAT for the amounts of
PRODUCT in excess of such forecast which BI Austria is
unable to supply, despite such commercially reasonable
efforts, InterMune may use a secondary source manufacturer
in accordance with the procedures set forth in Section 3.7.
3.2.3. If InterMune reduces the forecast for [ * ]by an amount in
excess of [ * ] percent (net of any increases in actual
orders for these [ * ]), then InterMune shall be [ * ]
which was [ * ] of the [ * ] at the [ * ] of the [ * ] of
the [ * ].
3.2.4. Notwithstanding the provisions stated in 3.2.1. for
planning purposes at BI Pharma KG InterMune shall provide
BI Austria [ * ]prior to the first delivery date of PRODUCT
as not agreed otherwise a rolling forecast for the next
[ * ] upon completion of the FILLING SITE CHANGE. InterMune
will be immediately informed by BI Austria of date of
completed FILLING SITE CHANGE. For all further requirements
all terms and conditions as stated in 3.2.1. shall apply.
3.2.5. In the event that the FDA approval process for the PRODUCT
is unexpectedly delayed, and/or the PRODUCT fails to pass
clinical trials, InterMune shall have no further ordering
and purchase obligations under Sections 3.2.1. and 3.2.3.
Only in this event even firm forecasts can be canceled,
provided that InterMune shall remain responsible for those
reasonable, documented, financial obligations which BI
Austria and/or BI Pharma KG have incurred due to (a) the
timely allocation of resources for the manufacture of BBS
and PRODUCT, (b) equipment for manufacture of BBS / PRODUCT
already ordered and not otherwise cancelable, or (c) other
non-refundable amounts already expended by BI Austria
and/or BI Pharma KG in good faith reliance on the cancelled
forecast.
3.3. PURCHASE ORDERS
3.3.1. All purchases of PRODUCT hereunder shall be made pursuant
to written purchase orders provided to BI Austria by
InterMune. To the extent that the terms of a purchase order
or of BI Austria's or BI Pharma KG's "GENERAL CONDITIONS OF
SALE" are inconsistent with the terms of this Agreement,
this Agreement shall prevail.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
14 of 66
<PAGE>
3.3.2. BI Austria shall guarantee that at the date of FINAL
RELEASE all PRODUCT supplied to InterMune shall have a
minimum residual shelf life of not less than [ * ] of
PRODUCT shelf life, provided that InterMune shall strictly
fulfill its contractual timelines regarding FINAL RELEASE
as set forth in Sections 3.5 and 5.3.
3.3.3. BI Austria shall ship all PRODUCT as set forth in Section
3.4 by the date and in the quantities specified in the
applicable purchase order. BI Austria shall be obligated to
accept any purchase order within the range of permitted
variation in the forecasted quantities as set forth in
Section 3.2.1. and 3.2.2. Any other purchase order shall be
binding on BI Austria only if it is accepted by BI Austria,
which acceptance shall not be unreasonably withheld. If BI
Austria does not accept such a purchase order, then
InterMune may use a secondary source manufacturer for such
purchase order in accordance with the procedures set forth
in Section 3.7.
3.3.4. InterMune shall be obligated to buy and BI Austria shall be
obligated to sell only the quantities of PRODUCT which are
subject to a purchase order accepted by BI Austria. Any
purchase order (or portion thereof) for which InterMune has
not received a written rejection from BI Austria within
fifteen (15) business days of BI Austria's receipt of such
purchase order shall be deemed accepted by BI Austria.
3.4. SHIPMENT OF PRODUCT AND MATERIAL BY BI AUSTRIA
3.4.1. The PRODUCT and all material (e.g. samples) shall be
shipped [ * ] either BI Pharma KG, FRG-88397 Biberach an
der Riss, Germany or BI Austria's facility in Vienna,
Austria, as the case may be, to InterMune or as directed by
InterMune, in accordance with Incoterms 1990 as published
by the International Chamber of Commerce. InterMune's
designated carrier shall be used to ship PRODUCT to the
site designated by InterMune. Risk of loss in transit by
InterMune's designated contract carrier shall lie with
InterMune, except where such loss is caused by BI Austria's
or BI Pharma KG's negligence.
3.4.2. BI Austria will provide or will have provided assistance to
InterMune regarding necessary procedures for exportation
and/or importation of PRODUCT.
3.5. TESTING AND REJECTION
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
15 of 66
<PAGE>
3.5.1. Within [ * ] business days of its receipt of PRODUCT at
such destination as may be designated by InterMune,
InterMune may perform such tests and samplings as are
appropriate to determine whether such PRODUCT meets the
applicable PRODUCT SPECIFICATIONS. If InterMune refuses
acceptance of PRODUCT, then InterMune shall inform BI
Austria in writing within [ * ]further business days of any
aspect in which such PRODUCT fails to conform to the
PRODUCT SPECIFICATIONS. If BI Austria does not receive such
a notice within [ * ] business days of InterMune's receipt
of such PRODUCT, then InterMune shall be deemed to have
accepted the PRODUCT; provided that InterMune shall have
the right to revoke its acceptance of such goods if it
later discovers latent defects not reasonably discoverable
at the time of receipt.
3.5.2. If BI Austria receives a notice from InterMune pursuant to
Section 3.5.1 that InterMune does not accept any PRODUCT
supplied hereunder, then BI Austria shall immediately start
re-testing the PRODUCT using the retained samples in order
to evaluate process issues and other reasons for such
non-compliance.
3.5.3. Regardless of whether BI Austria agrees with InterMune's
rejection of such PRODUCT, if requested in writing by
InterMune, BI Austria shall use reasonable efforts to
promptly replace such allegedly defective PRODUCT, the
costs of which shall be borne as set forth in Section 3.5.4.
3.5.4. In the event that BI Austria's re-testing does not verify
InterMune's reasons for rejecting such PRODUCT, the Parties
shall mutually agree on an independent laboratory that
shall determine by applying validated product-specific
analytical methods whether such PRODUCT meets the PRODUCT
SPECIFICATIONS. The conclusions of this independent
laboratory shall be binding upon both Parties. If such
laboratory determines that such PRODUCT does meet the
PRODUCT SPECIFICATIONS, then InterMune shall bear the costs
for such independent laboratory and for any replacement
PRODUCT manufactured and supplied to InterMune by BI
Austria pursuant to Section 3.5.3. If such laboratory
determines that such PRODUCT does not meet the PRODUCT
SPECIFICATIONS, then BI Austria shall bear the costs for
such independent laboratory and for any such replacement of
PRODUCT.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
16 of 66
<PAGE>
3.5.5. Neither Party may destroy any PRODUCT alleged not to meet
the PRODUCT Specifications until the independent laboratory
determines whether such PRODUCT meets the applicable
PRODUCT SPECIFICATIONS and provides written notification to
the Parties with respect to such determination, unless BI
Austria accepts InterMune's basis for such rejection.
Thereafter, BI Austria shall have the obligation to destroy
or have destroyed, at its cost, all such rejected PRODUCT.
Upon BI Austria's written request and at BI Austria's cost,
InterMune shall either destroy or return to BI Austria any
rejected PRODUCT. The Parties agree that in the event of
destruction of PRODUCT, the method of such destruction
shall be in compliance with all applicable laws, rules and
regulations.
3.5.6. Claims on account of quantity, loss or damages to PRODUCT
(other than claims that such PRODUCT does not meet the
PRODUCT SPECIFICATIONS and latent defects not reasonably
detectable upon inspection) will be dispatched by InterMune
in writing within [ * ] business days following receipt
thereof. BI Austria shall use reasonable efforts to replace
the quantity of goods which such claims apply, which
replacement shall be at InterMune's expense unless such
claims are due to the negligence of BI Austria.
3.6. INCREASE OF MANUFACTURING CAPACITY
3.6.1. At BI Austria's facility an additional production line is
currently under construction. Validation of this separated
cGMP fermentation production lines within a completely
separated containment is intended to be completed by [ * ]
for any reason including but not limited to the amount of
BBS to be manufactured, when to have the [ * ].
3.6.2. BI Austria guarantees to have manufactured at BI Pharma KG
a minimum of [ * ] vials per year. InterMune presumes that
the amount of vials requested per year might exceed [ * ]
vials. Should it become at any time apparent that a higher
PRODUCT demand is necessary InterMune will notify BI
Austria thereof. BI Austria shall inform as soon as
reasonably possible InterMune of the respective costs for
guaranteeing the appropriate reserved capacity for
manufacturing the amount exceeding [ * ] vials. Upon
agreement on the costs BI Austria shall reserve the
capacity needed for the increased demand of PRODUCT.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
17 of 66
<PAGE>
Should it become at any time apparent that manufacturing
capacity at BI Austria for cell paste and BBS equivalent to
at least [ * ] vials per year would not be feasible, BI
Austria will notify InterMune thereof.
3.7. SECOND SOURCE MANUFACTURER
3.7.1. BI Austria acknowledges that it is critical that InterMune
be ensured continuity of supply of PRODUCT for use in
clinical trials and market supply. BI Austria shall ensure
continuity of supply of PRODUCT for use in clinical trials
and market supply. Nevertheless, due to the potentially
growing market demand of PRODUCT, BI Austria's ability to
manufacture and supply PRODUCT shall be carefully observed.
Should at any time BI Austria have any indication that
continuity of supply can not be ensured, BI Austria shall
immediately inform InterMune thereof in writing. In this
event the matter would be immediately forwarded to the
STEERING COMMITTEE to discuss second source manufacture of
PRODUCT reasonably and in good faith.
3.7.2. In the event the STEERING COMMITTEE decides that it is
appropriate for InterMune to establish a second source
manufacturer, InterMune agrees to provide the first
opportunity to qualify as a second source manufacturer for
PRODUCT to a BI Austria AFFILIATE. If such an AFFILIATE is
- as foreseeable - unable to supply InterMune's PRODUCT
requirements then InterMune shall be free to choose an
alternate supplier. In this case BI Austria shall assist
InterMune in transferring the MANUFACTURING PROCESS to a
third party supplier by providing reasonable technical
assistance and documentation as necessary for a transfer to
a party well skilled in the manufacture of such biotech
products at InterMune's cost.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
18 of 66
<PAGE>
3.8. MATERIAL SUPPLY BREACH
3.8.1. In the event of a MATERIAL SUPPLY BREACH, InterMune shall
provide BI Austria written notification of such MATERIAL
SUPPLY BREACH. Upon BI Austria's receipt of such notice and
failure to cure such MATERIAL SUPPLY BREACH within the
timetable and activity plan agreed upon the Parties to cure
such MATERIAL SUPPLY BREACH, InterMune shall have the right
to purchase from a second source manufacturer, to be agreed
upon within the STEERING COMMITTEE in accordance with
Section 3.7, such amounts of PRODUCT as necessary to offset
BI Austria's shortfall in fulfilling InterMune's purchase
orders for such PRODUCT (or the anticipated shortfall, in
the event of repeated [ * ]material violation against cGMP).
In the event, that
i) a BI Austria AFFILIATE can not qualify as a
second source manufacturer for PRODUCT or
ii) in the event such a BI Austria AFFILIATE is - as
foreseeable -unable to supply InterMune's
PRODUCT requirements and
iii) provided that PRODUCT supply as requested by
InterMune by a different second source
manufacturer, a company experienced in
manufacturing of biopharmaceuticals derived from
[ * ], and selected by InterMune could
demonstrably take place earlier than a MATERIAL
SUPPLY BREACH by BI Austria could be remedied,
BI Austria shall assist InterMune as requested
in transferring the MANUFACTURING PROCESS to
such a second source supplier, to be selected by
InterMune by providing reasonable technical
assistance and documentation relating to the
manufacture, testing and supply of BBS and the
PRODUCT as necessary at BI Austria's cost. Such
second source manufacturer would bear
responsibility for putting the MANUFACTURING
PROCESS in place. The [ * ]reasonable technical
assistance shall [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
19 of 66
<PAGE>
3.8.2. In the event that BI Austria reasonably anticipates that
there is a substantial likelihood that a MATERIAL SUPPLY
BREACH will occur, BI Austria shall promptly notify
InterMune in writing thereof. Upon receipt of such notice,
the Parties shall promptly confer to discuss the
circumstances and magnitude of such potential MATERIAL
SUPPLY BREACH, and to determine in good faith whether there
are any reasonable steps that BI Austria could take to
avoid such MATERIAL SUPPLY BREACH. If InterMune is not
reasonably satisfied that BI Austria will be able to avoid
such MATERIAL SUPPLY BREACH, then InterMune shall forward
this issue to the STEERING COMMITTEE to determine whether
it is necessary or desirable to establish a second source
manufacturer in accordance with Section 3.7.
4. PRICES AND PAYMENT
4.1. The prices to be paid by InterMune for the SERVICES and PRODUCT
provided hereunder have been agreed to by the Parties and are listed
in EXHIBIT 11 and EXHIBIT 17, respectively. The price for the
SERVICES and PRODUCT will be adjusted year by year in accordance
with the [ * ]. (By way of example, the [ * ].) All payments
hereunder shall be made in Austrian Shilling or in Euro. If the
Austrian Shilling is replaced by the Euro and therefore no longer
available, payments becoming due thereafter shall be made in Euro
calculated at the official exchange rate.
4.2. [ * ] will be [ * ] which are [ * ] at the time such [ * ] to have
any such [ * ] selected by [ * ] which [ * ] shall [ * ]on
verification concerning the [ * ] shall provide [ * ] with [ * ]
days' notice of any [ * ].
4.3. The price for the SERVICES and purchase price for PRODUCT shall be
paid to BI Austria no later than [ * ] days after the date that BI
Austria's invoice is received by InterMune.
4.3.1. Payment of the invoice amounts shall be made in Austria,
[ * ], into an account with such Austrian credit
institution as shall be notified by BI Austria to InterMune
from time to time.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
20 of 66
<PAGE>
4.3.2. All payments owed to BI Austria by InterMune on the basis of
accounts rendered shall be made in such a way that [ * ] shall
be [ * ] that are [ * ] on such [ * ]. In the event of a
default in payment for whatever reason, default interest at a
rate of [ * ] p.a. shall be payable on the outstanding amount
due. BI Austria reserves the right to claim any damage
exceeding such amount that shall have been caused by such
delay, subject to Section 11.1.
4.4. As [ * ] for [ * ] for the [ * ] shall [ * ] within [ * ]business
days of the Effective Date an [ * ] by a [ * ] with a [ * ] in the
[ * ] which is in accordance with a [ * ] of the [ * ] for the [ * ]
as listed in [ * ] shall provide such [ * ] at its [ * ] shall be
entitled to [ * ] arising with respect to the [ * ].
5. QUALITY ASSURANCE AND COMPLIANCE WITH LAW
5.1. RELEASE OF PRODUCT
5.1.1. BI Austria shall be responsible for the RELEASE of PRODUCT
according to the PRODUCT SPECIFICATIONS, the cGMP
requirements, the QUALITY ASSURANCE REQUIREMENTS as listed in
EXHIBIT 10 and all applicable Austrian and German laws. BI
Austria shall certify in writing that each shipment lot of
PRODUCT was produced and tested in compliance with (i) the
SPECIFICATIONS, (ii) the cGMP requirements (iii) QUALITY
ASSURANCE REQUIREMENTS and (iv) all applicable laws,
regulations and ordinances of the jurisdiction in which such
manufacture occurs.
5.1.2. BI Austria shall provide to InterMune, through BI Pharma KG,
QUALITY ASSURANCE REQUIREMENTS as listed in EXHIBIT 10
including but not limited to a COA and COC signed by the
appropriate personnel as defined in BI Austria's Quality
Management System for each shipment lot of PRODUCT from BI
Pharma KG's manufacture site in Biberach, Germany, in order to
prove BI Austria's compliance with the Article 5.1.1.
5.2. STORAGE OF RECORDS AND BATCH SAMPLES
5.2.1. BI Austria shall maintain in compliance with cGMP standards
all batch samples and all records required by law or as
otherwise mutually agreed in writing by the Parties (i.e.
batch records, analytical raw data) necessary to evidence
compliance with all its
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
21 of 66
<PAGE>
obligations under this Agreement and relating to the
manufacture of the BBS and of PRODUCT. The documentation
concerning manufacture of BBS shall be stored at BI Austria
and concerning manufacture of PRODUCT shall be stored in
Biberach upon completion of FILLING SITE CHANGE. Storage of
retained samples of BBS as well as PRODUCT shall be at BI
Austria.
5.2.2. Copies of all documentation and information relating to the
manufacture, processing, packaging and shipping of PRODUCT
and/or required to support InterMune's BLA or other regulatory
submissions, including but not limited to information relating
to batch records, methods, equipment and the facility, will be
provided by BI Austria to InterMune for review and inclusion
as necessary in InterMune's regulatory submissions.
5.2.3. All such samples and records shall be maintained for a period
not less than five (5) years from the date of expiration of
each batch of PRODUCT to which such samples and records
pertain, or such longer period as may be required by local law
and the rules or regulations of the FDA or other applicable
HEALTH AUTHORITIES. Following the expiration of such required
retention period, prior to the destruction of any such sample
or record, BI Austria shall give written notice thereof to
InterMune, and InterMune shall have the right to request,
receive and retain such samples and records with no further
compensation to BI Austria.
5.3. FINAL RELEASE
FINAL RELEASE of PRODUCT supplied by BI Austria and/or BI Pharma KG
hereunder for use in humans shall solely be made by and under the
responsibility of InterMune.
5.4. THIRD PARTY SERVICES
Except as specifically provided for herein, BI Austria will not
contract out to any third party any part of the SERVICES or the
manufacture and testing of BBS or PRODUCT, without prior written
approval from InterMune, which shall not be unreasonably withheld.
5.5. CONSENT TO CHANGES
BI Austria will not make any changes to BI Austria's, and shall ensure
that BI Pharma KG shall not make any changes to BI Pharma KG's,
respective manufacturing facilities, equipment,
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
22 of 66
<PAGE>
testing procedures, validation, suppliers of raw materials and
components or documentation systems that are solely related to
the PRODUCT and having a non-trivial impact on the PRODUCT,
without the prior written consent of InterMune and solely as
is permitted by cGMP. In the event that a supplier of raw
material is unable to deliver the respective raw material in
time for scheduled manufacturing BI Austria is free to choose
another supplier, provided that such supplier supplies such
raw material that fully meets the respective raw material
specification, and subject to BI Austria's providing InterMune
prior written notice thereof.
5.6. INSPECTIONS BY HEALTH AUTHORITIES
5.6.1. BI Austria shall secure that during APPROVAL inspections at BI
Austria's and/or BI Pharma KG's facilities by any applicable
HEALTH AUTHORITIES, BI Austria shall give InterMune prior
written notice thereof promptly following BI Austria's receipt
of notice of such inspection, so that representatives of
InterMune may attend and participate in such inspections, for
example, to answer PRODUCT and clinical trial related
questions.
5.6.2. BI Austria shall advise, and shall ensure that BI Pharma KG
shall advise, InterMune in writing immediately of any requests
by any applicable HEALTH AUTHORITIES for inspections at either
of BI Austria's or BI Pharma KG's facilities, but in any
event, no later than ten (10) business days prior to the
scheduled date of such inspection. Upon reasonable notice,
InterMune or its representatives may attend only such portions
of such inspections or audits that deal with PRODUCT related
issues, due to BI Austria's other secrecy obligations. Access
to such facilities may be subject to reasonable restrictions
customarily placed upon visitors to the site.
5.6.3. BI Austria also agrees to notify InterMune within four (4)
business days of any written or oral inquiries, notifications,
or inspection activity by any HEALTH AUTHORITIES (or any third
party authorized by the HEALTH AUTHORITIES) in regard to
PRODUCT. BI Austria shall provide a reasonable description to
InterMune of any such inquiries, notifications or inspections
promptly (but in no event later than ten (10) business days)
after such visit or inquiry. BI Austria shall furnish to
InterMune (a) within four (4) business days after receipt, any
report or correspondence issued by the HEALTH AUTHORITIES (or
a third party authorized by a HEALTH AUTHORITIES)
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
23 of 66
<PAGE>
in connection with such visit or inquiry, including but not
limited to, any FDA Form 483 (List of Inspectional
Observations) or warning letter, and (b) not later than five
(5) business days prior to the time it provides to a HEALTH
AUTHORITY, copies of any and all proposed written responses or
explanations relating to items set forth above (each, a
"Proposed Response"), in each case purged only of trade
secrets or other confidential or proprietary information of BI
Austria that are unrelated to its obligations under this
Agreement or are unrelated to PRODUCT. BI Austria shall
discuss with InterMune any comments provided by InterMune on
the Proposed Response; provided that InterMune shall have the
final decision with respect to those portions of the final
written response or explanation to be provided to the HEALTH
AUTHORITIES that relate to PRODUCT manufactured hereunder.
After the filing of a response with the appropriate HEALTH
AUTHORITIES, BI Austria will notify InterMune of any further
contacts with the HEALTH AUTHORITIES relating to BI Austria's
manufacture of PRODUCT hereunder.
5.6.4. BI Austria shall promptly correct, and shall ensure that BI
Pharma KG shall promptly correct, any facility-related
violations or deficiencies promptly at its own expense.
Equipment, system and process-related violations or
deficiencies that are solely PRODUCT-related shall be
corrected promptly by BI Austria or BI Pharma KG,
respectively, at InterMune's cost.
In the event such corrections will not only be necessary for
PRODUCT but as well for BI PRODUCT the appropriate allocation
of the related costs between the Parties shall be determined
by the PROJECT TEAM.
5.7. AUDITS BY INTERMUNE
5.7.1. InterMune shall have the right to inspect and audit both of BI
Austria's and BI Pharma KG's manufacturing facilities and
records for regulatory compliance. These audits shall occur
annually upon reasonable notice, and more frequently for good
and reasonable cause. BI Austria shall respond in writing to
InterMune regarding any items of non-compliance with cGMP
identified by InterMune during such audits, whether with
respect to the BI Austria or the BI Pharma KG facility, within
[ * ] business days of InterMune's
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
24 of 66
<PAGE>
notice thereof, and without delay remedy any such agreed upon
items of non-compliance with cGMP.
5.7.2. If BI Austria can not remedy such non-compliance, whether with
respect to the BI Austria or the BI Pharma KG facility, within
[ * ] business days of notice thereof BI Austria's response
shall include a written plan and timetable including
reasonable timelines. Considering the fact that BI Austria is
dependent on certain third parties to supply services to it,
BI Austria shall use best efforts to assign such timelines to
these third parties accordingly in order to meet all timelines
for such remedy. Such plan and timetable shall be subject to
InterMune's approval, which shall not unreasonably be
withheld. In the event that BI Austria does not respond with a
plan and timetable as described above within such [ * ] day
period, or InterMune does not approve such proposed plan and
timetable for good reason, the issue shall be forwarded to the
STEERING COMMITTEE for resolution. In the event InterMune
approves such plan and timetable, but BI Austria fails to
remedy such non-compliance in accordance with such plan and
timetable, then InterMune shall have the right to terminate
this Agreement pursuant to Section 13.2.1.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
25 of 66
<PAGE>
5.8. MANUFACTURING FACILITIES
BI Austria represents and warrants that it and BI Pharma KG shall
obtain all relevant APPROVALS required by the relevant HEALTH
AUTHORITIES for each of their respective manufacturing facilities and
that each of their respective manufacturing facilities conform, and
will during the term of this Agreement conform, to the cGMP.
5.9. COMPLIANCE WITH LAW
5.9.1. BI Austria shall comply, and shall ensure that its
subcontractor BI Pharma KG shall comply with, all local
applicable rules, laws and regulations (including without
limitation cGMP) in performing its obligations under this
Agreement. InterMune shall comply with all applicable rules,
laws and regulations in performing its obligations under this
Agreement.
5.9.2. All costs in connection with maintaining BI Austria's and BI
Pharma KG's compliance with all applicable local regulatory
requirements and cGMP in performing under this Agreement,
including but not limited to the maintenance and upgrading of
all technical facilities and infrastructure and the training
of personnel, shall be borne by BI Austria. BI Austria shall
obtain and maintain, and shall ensure that BI Pharma KG
obtains and maintains, all permits and licenses necessary to
its performance under this Agreement at their own expense. All
costs resulting out of the SERVICES carried out at BI Austria
or BI Pharma KG, respectively, related to compliance with
regulatory requirements that were not in effect as of the
Effective Date concerning equipment and systems solely
PRODUCT-related shall be at InterMune's expense.
5.10. ENVIRONMENTAL
BI Austria shall, and shall ensure that BI Pharma KG shall, properly
dispose of any and all hazardous waste materials involved with the
manufacture of BBS and PRODUCT that are generated or resulting from the
activities performed hereunder, if any, in full compliance with all
applicable local laws and regulations at BI Austria's sole liability
and expense.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
26 of 66
<PAGE>
6. CO-OPERATION AND CO-ORDINATION BETWEEN THE PARTIES
6.1. PROJECT TEAM
6.1.1. The day-to-day responsibilities of the Parties with respect to
the SERVICES shall be overseen by the PROJECT TEAM, which
shall be responsible for deciding operational and scientific
issues arising out of the SERVICES and unanimously agreeing in
good faith with respect to the monitoring of the SERVICES.
6.1.2. The PROJECT TEAM shall consist of a team consisting of equal
numbers of people, if feasible, each appointed by InterMune
and BI Austria and notified to the other, which appointees may
be changed from time to time by the appointing Party on
written notice to the other Party. Each member of the PROJECT
TEAM shall be a person of appropriate skill and experience.
Either Party may change its own designated PROJECT TEAM
members provided, however that the total number of members of
the PROJECT TEAM may not be changed if feasible, nor the
number of members representing InterMune decreased, without
the Parties' prior written agreement. InterMune's and BI
Austria's respective members of the PROJECT TEAM as of the
Effective Date are listed in EXHIBIT 8.
6.1.3. During the term of this Agreement, the PROJECT TEAM shall meet
regularly to communicate updates and provide a forum for
decision-making and rapid resolution of issues arising under
this Agreement. Meetings of the PROJECT TEAM may be conducted
by telephone conference, videoconference or face-to-face
meetings as agreed by the PROJECT TEAM, provided that the
PROJECT TEAM shall meet at least once a year in a face-to-face
meeting at a mutually agreed location.
6.1.4. Decisions of the PROJECT TEAM shall be reflected in the
approved minutes. Meeting minutes shall be prepared jointly by
the PROJECT MANAGERS to record all issues discussed and
decisions. Minutes that have not been objected to in writing
by a Party within six (6) business days of receipt thereof
shall be deemed approved by such Party and followed by
issuance of two (2) copies of the minutes duly executed by the
Parties' PROJECT MANAGER.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
27 of 66
<PAGE>
6.1.5. In the event that the PROJECT TEAM is unable to reach
agreement on any issue and is unable to make decisions arising
out of operational and scientific issues within ten (10)
business days, each Party may call in an expert of its own
choice to render advice to the PROJECT TEAM. Based on the
advice of such expert(s) and the team members' know-how, the
PROJECT TEAM will try to resolve such issue. In the event that
the PROJECT TEAM fails to reach agreement on an issue within
thirty (30) business days of first undertaking resolution of
such issue, such issue shall then be referred to the STEERING
COMMITTEE for immediate resolution.
6.2. STEERING COMMITTEE
6.2.1. The Parties shall create a STEERING COMMITTEE consisting of
the PROJECT MANAGER of each Party and authorized
representatives who shall be appointed by InterMune and by BI
Austria in equal numbers, if feasible, and notified to the
other Party. The STEERING COMMITTEE shall be responsible for
unanimously agreeing in good faith all issues on which the
PROJECT TEAM has been unable to reach agreement and, where
possible, make decisions arising out of such issues as well as
carry out the specific functions, including but not limited to
decisions with an impact on costs and timelines of the
SERVICES to be carried out under this Agreement. Each Party
may change its own designated STEERING COMMITTEE members by
providing written notice thereof to the other Party; provided,
however that the total number of members of the STEERING
COMMITTEE may not be changed, if feasible, nor the number of
members representing InterMune decreased, without the Parties'
prior written agreement. The members of the STEERING COMMITTEE
are listed in EXHIBIT 13.
6.2.2. The STEERING COMMITTEE shall attempt in good faith to
expeditiously and fairly resolve all issues before it. In the
event that the STEERING COMMITTEE is unable to resolve any
issue before it within fifteen (15) business days from the
date that such issue is referred to it, such issue shall be
referred to the Chief Executive Officer of InterMune and the
Chief Executive Officer of BI Austria for prompt, good faith
resolution. If such individuals do not reach agreement on such
issue within fifteen (15) days of such referral, then each
Party shall be free to pursue all available legal and/or
equitable remedies.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
28 of 66
<PAGE>
6.3. LIMITATION OF POWERS
The powers of the PROJECT TEAM and the STEERING COMMITTEE are limited
to those expressly set forth in this Agreement. Without limiting the
generality of the foregoing, neither the PROJECT TEAM nor the STEERING
COMMITTEE shall have the right to amend this Agreement. The actions of
the PROJECT TEAM and/or the STEERING COMMITTEE shall not substitute for
either Party's ability to exercise any right, nor excuse the
performance of any obligation, set forth herein.
7. INTELLECTUAL PROPERTY AND LICENSES
7.1. The ownership of INTERMUNE'S TECHNOLOGY shall remain with InterMune
and shall not vest in BI Austria.
7.2. The ownership of BI AUSTRIA'S TECHNOLOGY shall remain with BI Austria
and shall not vest in InterMune.
7.3. BI Austria shall retain ownership of BI AUSTRIA'S IMPROVEMENTS. BI
Austria hereby grants to InterMune a non-exclusive, perpetual,
sublicenseable, royalty-free license under BI AUSTRIA'S IMPROVEMENTS to
develop, use, make, have made, import, offer for sale and sell products
containing INTERFERON GAMMA 1b in the TERRITORY, whereby InterMune
shall assume the costs to be paid by BI Austria for awards to inventors
of BI AUSTRIA'S IMPROVEMENTS, as such awards are set forth in written
agreements between BI Austria and such inventor or in an applicable
industry labor contract.
7.4. The Parties shall each have an undivided one-half ownership interest in
any INFORMATION jointly conceived of or reduced to practice by the
Parties pursuant to this Agreement ("JOINT INFORMATION"). InterMune
shall [ * ] of any JOINT INFORMATION that comprises (a) any regulatory
filing (or documentation and raw data relating thereto) relating to
PRODUCT manufactured hereunder, or (b) any manufacturing documentation
(including without limitation batch records) relating to PRODUCT
manufactured hereunder ("PRODUCT INFORMATION"). Upon request by
InterMune, without additional consideration, BI Austria agrees to
promptly execute documents, testify and take other acts at InterMune's
expense as
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
29 of 66
<PAGE>
InterMune may deem necessary or desirable to procure, maintain,
perfect, and enforce the full benefits, enjoyment, rights, title and
interest of the PRODUCT INFORMATION, on a worldwide basis. In the event
InterMune is unable for any reason, after reasonable effort, to secure
BI Austria's signature on any document needed in connection with the
actions specified in this Section 7.4, BI Austria hereby irrevocably
designates and appoints InterMune and its duly authorized officers and
agents as its agent and attorney in fact, which appointment is coupled
with an interest, to act for and in its behalf to execute, verify and
file any such documents and to do all other lawfully permitted acts to
further the purposes of this Section 7.4 with the same legal force and
effect as if executed by BI Austria.
7.5. InterMune hereby grants to BI Austria (with the right to sublicense
solely to BI Pharma KG) a non-exclusive, nontransferable license to use
INTERMUNE'S TECHNOLOGY solely for the purpose of (a) comparison of
PRODUCT documentation and comparison of BBS and PRODUCT and (b)
manufacturing PRODUCT for InterMune, as provided in this Agreement. The
license granted under this Section shall automatically terminate upon
the expiration or termination of this Agreement.
7.6. NEW INDICATIONS
7.6.1. In the event that InterMune receives approval in the TERRITORY
to commercially sell PRODUCT for indications other than
Chronic Granulomatous Disease, and provided that InterMune has
the right to grant a license to BII in the BI TERRITORY to
make, use and sell PRODUCT for such additional indications (a
"NEW INDICATIONS LICENSE"), InterMune shall provide BII
written notice thereof.
7.6.2. BII shall notify InterMune in writing within thirty (30) days
of InterMune's notice (the "NOTIFICATION PERIOD") whether BII
desires to obtain a NEW INDICATIONS LICENSE. If InterMune does
not receive written notice from BII during the NOTIFICATION
PERIOD that BII desires to obtain a NEW INDICATIONS LICENSE,
then InterMune shall have no further obligations under this
Section 7.6. If InterMune does receive written notice from BII
that BII desires to obtain a NEW INDICATIONS LICENSE, then BII
and InterMune shall engage in good faith negotiations for
sixty (60) business days thereafter regarding the reasonable
commercial terms upon which InterMune would be willing to
grant such a license. If at the end of such sixty (60)
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
30 of 66
<PAGE>
business day period, BII and InterMune have not entered into a
written agreement under which InterMune grants a NEW
INDICATIONS LICENSE to BII, then InterMune shall have no
further obligation under this Section 7.6.
8. COMPLAINTS; ADVERSE EVENTS; RECALLS
8.1. InterMune shall inform BI Austria of any complaints, adverse
reaction reports, safety issues or toxicity issues relating to any
PRODUCT of which it becomes aware, regardless of the origin of such
information, within the time frame required by cGMP but in no event
later than two (2) days from the initial complaint or report.
8.1.1. InterMune shall retain and manage complaints in accordance
with cGMP. The Parties hereby agree to cooperate with one
another and with any HEALTH AUTHORITY in the evaluation and
investigation of any complaint, claim or adverse reaction
report related to the manufacture of such PRODUCT with the
intention of complying with cGMP.
8.1.2. If any such event occurs, BI Austria shall retain any unused
supplies of such PRODUCT and its associated components, and
all associated batch and other production records in such
manner as InterMune may reasonably direct, and at InterMune's
expense, except to the extent such event is caused by BI
Austria's wrongful act or omission. BI Austria agrees to
respond to InterMune in respect to such complaint
investigations involving BI Austria's manufacturing of a
PRODUCT or SERVICES rendered hereunder as soon as reasonably
possible but in any case within thirty (30) days from receipt
by BI Austria of the report of such complaint and sample (if
available), or in the case of a serious adverse event, within
ten (10) days from receipt of the report of such complaint and
sample (if available). InterMune and/or its designee shall
serve as the sole point of contact with the FDA or other
applicable HEALTH AUTHORITY concerning any complaints, adverse
reaction reports, safety issues or toxicity issues with
respect to PRODUCT.
8.2. If either Party becomes aware at any time of any defect or the
possibility of any defect associated with any PRODUCT manufactured by
BI Austria hereunder, such Party will notify the other Party
immediately and confirm the notification as soon as possible in
writing.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
31 of 66
<PAGE>
8.3. InterMune shall notify BI Austria promptly if any PRODUCT manufactured
by BI Austria hereunder is the subject of a recall, market withdrawal
or correction, and InterMune and/or its designee shall have the sole
responsibility for the handling and disposition of such recall, market
withdrawal or correction. In the event that a recall is required in
connection with BI Austria's breach of any of its warranties set forth
in Section 10.2 hereof, BI Austria shall reimburse InterMune for the
purchase price of such PRODUCT and all other reasonable costs and
expenses associated with such PRODUCT recall, market withdrawal or
correction, but only to the extent that the foregoing costs and
expenses are attributable to BI Austria's breach of its warranties
hereunder. In all other events of a recall, all costs and expenses
incurred in connection with such PRODUCT recall shall be borne by
InterMune. InterMune and/or its designee shall serve as the sole point
of contact with the FDA or other applicable HEALTH AUTHORITY concerning
any recall, market withdrawal or correction with respect to the
PRODUCT.
8.4. INSURANCE
During the term of this Agreement, the Parties shall maintain product
liability insurance in such amounts and with such scope of coverage as
are adequate to cover the Parties' obligations under this Agreement
and as appropriate for companies of like size, taking into account the
scope of activities contemplated herein. Notwithstanding the foregoing
the Parties shall maintain minimum limits of liability of [ * ] US$
per occurrence and in the aggregate annually. The Parties shall
provide to each other within ten (10) business days of execution of
this Agreement and thereafter, once a year upon the other Party's
request, a certificate of insurance evidencing the respective Party's
product liability insurance. In addition to the foregoing coverage,
the Parties shall maintain Comprehensive General Liability Insurance
for limits of not less than [ * ] US$ combined single limit for bodily
injury and broad form property damage.
9. REPRESENTATIONS AND WARRANTIES
9.1. Each Party hereby represents and warrants to the other Party that: (a)
the person executing this Agreement is authorized to execute this
Agreement; (b) this Agreement is legal and valid and the obligations
binding upon such Party are enforceable by their terms; and (c) the
execution, delivery and performance of this Agreement does not
conflict with any agreement, instrument
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
32 of 66
<PAGE>
or understanding, oral or written, to which such Party may be bound,
nor violate any law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it.
9.2. BI Austria represents and warrants that:
9.2.1. All BBS manufactured hereunder shall conform to BULK
SPECIFICATIONS;
9.2.2. All PRODUCT manufactured and supplied hereunder shall - at the
date of shipment - conform to the PRODUCT SPECIFICATIONS;
9.2.3. All BBS and PRODUCT manufactured and supplied hereunder shall
be manufactured in accordance with the MANUFACTURING PROCESS;
9.2.4. All BBS and PRODUCT manufactured hereunder shall be
manufactured, handled, stored, labeled, packaged and
transported (from BI Austria to BI Pharma KG) in accordance
with the cGMP requirements, the QUALITY ASSURANCE REQUIREMENTS
as listed in EXHIBIT 10 and all applicable laws, regulations
and ordinances of the jurisdiction in which such manufacture
occurs.
9.2.5. No PRODUCT manufactured and supplied to InterMune hereunder
shall be (i) adulterated or misbranded by BI Austria within
the meaning of the FD&C Act, or (ii) an article that may not
be introduced into interstate commerce under the provisions of
Sections 404 or 505 of the FD&C Act; and
9.2.6. BI Austria shall not use and shall secure that BI Pharma KG
shall not use in any capacity the services of any persons
debarred under 21 U.S.C. sections 335 (a) and 335 (b) in
connection with the manufacture of the PRODUCT under this
Agreement.
9.3. BI Austria represents and warrants that it has in place, and that BI
Pharma KG has in place, a program designed to ensure that each will be
Year 2000 Compliant (as defined below) or that its failure to be Year
2000 Compliant will not materially affect its performance under this
Agreement. For purposes of this Section, "Year 2000 Compliant" means
that the computer systems used in connection with the performance of
work under this Agreement shall operate and function without (i) any
failure of such computer systems properly to record, store, process,
calculate or present calendar dates falling after (and if applicable,
spans of time including)
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
33 of 66
<PAGE>
January 1, 2000 as a result of the occurrence, or use of data
consisting of, such dates; (ii) any failure of such computer systems to
calculate any information dependent on or relating to dates after
January 1, 2000 in the same manner, and with the same functionality,
data integrity and performance, as such computer system records,
stores, processes, calculates and presents calendar dates on or before
December 31, 1999, or information dependent on or relating to such
dates; or (iii) any loss of functionality or performance with respect
to the introduction of records or processing of data containing dates
falling after January 1, 2000. Upon Effective Date of this Agreement BI
Austria and BI Pharma KG have not observed any Year 2000 incompliance.
9.4. Except as expressly provided for herein, BI Austria makes no further
warranties of the merchantability or fitness of the PRODUCT or any
warranties of any other nature, express or implied.
10. INDEMNIFICATION
10.1. Subject to Section 10.3., BI Austria shall indemnify, defend and hold
harmless InterMune and its officers, directors, employees and agents
from and against all third party costs, claims, (including death and
bodily injury) suits, expenses (including reasonable attorneys' fees),
liabilities and damages (collectively, "LIABILITIES") arising out of
or resulting from any willful or negligent act or omission by BI
Austria or BI Pharma KG relating to the subject matter of this
Agreement, or any defect in the manufacture or any failure to deliver
PRODUCT in accordance with BI Austria's warranties (except to the
extent such LIABILITIES arose or resulted from any negligent act or
omission by InterMune).
10.2. Subject to Section 10.3, InterMune shall indemnify, defend and hold
harmless BI Austria and its officers, directors, employees and agents
from and against all LIABILITIES arising out of or resulting from any
willful or negligent act or omission by InterMune relating to the
subject matter of this Agreement, or the use by or administration to
any person of a PRODUCT that arises out of this Agreement (except to
the extent such LIABILITIES arose or resulted from any negligent act
or omission by BI Austria or BI Pharma KG or any defect in the
manufacture of PRODUCT or any failure to deliver PRODUCT in accordance
with BI Austria's warranties).
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
34 of 66
<PAGE>
10.3. A Party and its directors, officers, employees and agents which intends
to claim indemnification under this Article 10 (each, an "INDEMNITEE")
shall promptly notify the other Party (the "INDEMNITOR") in writing of
any action, claim or other matter in respect of which the INDEMNITEE
intend to claim such indemnification; PROVIDED, HOWEVER, that the
failure to provide such notice within a reasonable period of time shall
not relieve the INDEMNITOR of any of its obligations hereunder except
to the extent that the INDEMNITOR is prejudiced by such failure. The
INDEMNITEE shall permit the INDEMNITOR at its discretion to settle any
such action, claim or other matter, and the INDEMNITEE agrees to the
complete control of such defense or settlement by the INDEMNITOR.
Notwithstanding the foregoing, the INDEMNITOR shall not enter into any
settlement that would adversely affect the INDEMNITEE's rights
hereunder, or impose any obligations on the INDEMNITEE in addition to
those set forth herein in order for it to exercise such rights, without
INDEMNITEE's prior written consent, which shall not be unreasonably
withheld or delayed. No such action, claim or other matter shall be
settled without the prior written consent of the INDEMNITOR, which
shall not be unreasonably withheld or delayed. The INDEMNITOR shall not
be responsible for any attorneys' fees or other costs incurred other
than as provided herein. The INDEMNITEE shall cooperate fully with the
INDEMNITOR and its legal representatives in the investigation and
defense of any action, claim or other matter covered by the
indemnification obligations of this Article 10. The INDEMNITEE shall
have the right, but not the obligation, to be represented in such
defense by counsel of its own selection and at its own expense.
11. LIMITATIONS ON LIABILITY
11.1. Except with respect to each Party's indemnification obligations under
Article 10, in no event shall either Party be liable to the other
Party for any consequential, incidental, special or indirect damages
arising in connection with this Agreement.
11.2. Except with respect to [ * ] under this Agreement shall [ * ] under
this Agreement.
12. CONFIDENTIALITY
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
35 of 66
<PAGE>
12.1. Each Party shall treat confidentially all CONFIDENTIAL INFORMATION of
the other Party, and shall not use or disclose such CONFIDENTIAL
INFORMATION other than it is expressly permitted under this Agreement.
Each Party will take steps to protect the other Party's CONFIDENTIAL
INFORMATION that are at least as stringent as the steps such Party
uses to protect its own CONFIDENTIAL INFORMATION, but in no event
shall be less than reasonable. Each Party may disclose the other
Party's CONFIDENTIAL INFORMATION to employees, contractors and agents
who are bound by written obligations of confidentiality and non-use
consistent with those set forth in this Agreement.
12.2. Each Party may disclose Confidential Information of the other Party
hereunder to the extent that such disclosure is reasonably necessary
for prosecuting or defending litigation, complying with applicable
government regulations, conducting preclinical or clinical trials or
obtaining marketing approval for the PRODUCT, provided that if a Party
is required by law or regulation to make any such disclosure of the
other Party's CONFIDENTIAL INFORMATION it will, except where
impracticable for necessary disclosures, for example in the event of
medical emergency, give reasonable advance notice to the other Party of
such disclosure requirement and will use its best efforts assist such
other Party to secure a protective order or confidential treatment of
such CONFIDENTIAL INFORMATION required to be disclosed.
12.3. Neither Party shall disclose CONFIDENTIAL INFORMATION of the other
Party in any patent filings without the prior written consent of such
other Party.
12.4. The Parties agree that, except as may otherwise be required by
applicable laws, regulations, rules, or orders, including without
limitation the rules and regulations promulgated by the US Securities
and Exchange Commission, and except as may be authorized in Section
12.2, no material information concerning this Agreement and the
transactions contemplated herein shall be made public by either Party
without the prior written consent of the other. The Parties agree that
the public announcement of the execution of this Agreement shall be by
one or more press releases mutually agreed to by the Parties. A failure
of a Party to return a draft of a press release with its proposed
amendments or modifications to such press release to the other Party
within five (5) business days of such Party's receipt of such press
release shall be deemed as such Party's approval of such press release
as received by such Party. Each Party agrees that it shall cooperate
fully and in a timely manner with the other with respect to all
disclosures to the Securities and Exchange Commission and any other
governmental and regulatory agencies,
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
36 of 66
<PAGE>
including requests for confidential treatment of CONFIDENTIAL
INFORMATION of either Party included in any such disclosure.
12.5. This confidentiality obligations of this Article 12 shall survive the
termination or expiration of this Agreement for a period of five (5)
years.
13. DURATION AND TERMINATION
13.1. DURATION
This Agreement shall be effective as of the Effective Date and shall
continue in force until December 31, 2006. This Agreement shall
automatically renew for successive [ * ] periods, provided, however,
that either Party may elect not to renew this Agreement by providing
the other Party written notice of such election at least [ * ] prior to
the date of expiration of the then-current term.
13.2. EARLY TERMINATION
13.2.1. In the event that a Party materially breaches its obligations
under this Agreement (including without limitation a MATERIAL
SUPPLY BREACH), the non-breaching Party may terminate this
Agreement upon thirty (30) days prior written notice to the
breaching Party, unless the breaching Party cures such breach
to the non-breaching Party's reasonable satisfaction during
such thirty day period. Notwithstanding the preceding
sentence, in the event that a Party materially breaches its
obligations under this Agreement more than two (2) times in
any consecutive twenty-four (24) month period, the
non-breaching Party may terminate this Agreement immediately
without providing the breaching Party an opportunity to cure
such breach, by giving the breaching Party written notice
thereof.
13.2.2. Each Party may terminate this Agreement by notice in writing
to the other Party, for cause, if such other Party is
adjudicated to be insolvent or files a petition in bankruptcy.
13.2.3. InterMune may immediately terminate this Agreement by notice
in writing if InterMune should be prevented by the HEALTH
AUTHORITIES from using PRODUCT in clinical
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
37 of 66
<PAGE>
trials or from distributing PRODUCT on the market. In such
event, InterMune shall be liable to BI Austria for the
reasonable, non-cancelable costs which BI Austria has already
incurred in fulfilling any firm order from InterMune (e.g.
costs in connection with manufacture of intermediate products
like inactivated cell paste, BBS and PRODUCT) that are not
otherwise recoverable by BI Austria through the manufacture of
INTERFERON GAMMA 1b for its own use; provided that InterMune
shall have no liability to BI Austria under this Section
13.2.3 in the event that such HEALTH AUTHORITY action is
solely due to any breach of BI Austria's warranties under this
Agreement or any negligence or willful misconduct by BI
Austria or BI Pharma KG.
13.2.4. Either Party may terminate this Agreement upon twelve (12)
months written notice in the event that the other Party
assigns this Agreement pursuant to Section 14.3.
13.2.5. All payments in connection with early termination shall be
due within thirty (30) days after receipt by BI Austria of
the notice of early termination from InterMune and receipt
by InterMune of the respective invoice from BI Austria.
13.3. EFFECT OF TERMINATION
13.3.1. In the event of any termination of this Agreement (other than
for BI Austria's material breach):
13.3.1.1. InterMune agrees to purchase, and BI Austria agrees
to sell, any PRODUCT manufactured by BI Austria and
held by BI Austria against the requirements of a
binding purchase order on the effective date of
termination at the applicable purchase price, subject
to InterMune's acceptance of such PRODUCT pursuant to
Section 3.5.
13.3.1.2. At the request of InterMune, BI Austria shall
fulfill any outstanding binding purchase orders for
PRODUCT using, at BI Austria's option, materials on
hand or on order by BI Austria for such purchase
order, in accordance with the terms of this
Agreement. In such event, such PRODUCT shall be
purchased by InterMune at the applicable purchase
price, subject to InterMune's acceptance of such
PRODUCT pursuant to Section 3.5. Alternatively,
InterMune agrees to purchase any raw materials and
components which have been ordered by BI
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
38 of 66
<PAGE>
Austria pursuant to a non-cancelable purchase order
and unutilized for such purchase order, at cost only
if they can not be used by BI Austria otherwise.
13.3.2. In the event of any termination or expiration of this
Agreement, at the request of InterMune, BI Austria shall
either (i) destroy all material, including but not limited to
samples and all documentation received from InterMune under
this Agreement, or (ii) deliver the same to InterMune or a
party nominated by InterMune, at InterMune's cost (except in
the case of termination by InterMune for BI Austria's material
breach, in which case such destruction or delivery shall be at
BI Austria's expense).
13.3.3. BI Austria shall promptly return all of InterMune's
CONFIDENTIAL INFORMATION to InterMune, except for a single
copy and/or sample of each item for documentation purposes
only. BI Austria's responsibility to keep and store all other
materials provided by InterMune in the course of this
Agreement shall terminate six (6) months after expiration or
termination of this Agreement (except as otherwise provided in
Section 5.2).
13.3.4. InterMune shall promptly return all of BI Austria's
CONFIDENTIAL INFORMATION to BI Austria, except for a single
copy and/or sample for documentation purposes only.
13.3.5. The following provisions shall survive termination of this
Agreement: Sections 3.8.1, 5.2.3, 7.1, 7.2, 7.3, 7.4, 7.5, 8,
10, 11, 12, 13.2.3, 13.2.5, 13.3 and 14. Termination of this
Agreement shall not relieve either Party of any liability
which accrued hereunder prior to the effective date of such
termination, nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement, nor
prejudice either Party's right to obtain performance of any
obligation.
14. MISCELLANEOUS
14.1. PERFORMANCE BY AFFILIATES
`
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
39 of 66
<PAGE>
The Parties recognize that each Party may perform some or all of its
obligations under this Agreement through one or more of its AFFILIATES,
provided, however, that each Party shall remain responsible for such
performance by its AFFILIATES and shall cause its AFFILIATES to comply
with the provisions of this Agreement in connection with such
performance. Each Party hereby expressly waives any requirement that
the other Party exhaust any right, power or remedy, or proceed against
an AFFILIATE, for any obligation or performance hereunder prior to
proceeding directly against such Party.
14.2. FORCE MAJEURE
Neither Party shall be liable for any failure or delay in performance
or non-performance caused by circumstances beyond the reasonable
control of such Party, including but not limited to acts of God,
explosion, fire, flood, labor strike or labor disturbances, sabotage,
order or decree of any court or action of any governmental authority
(except where such order, decree or action is a direct result of BI
Austria's breach of its obligations hereunder), or other causes,
whether similar or dissimilar to those specified which cannot
reasonably be controlled by the Party who failed to perform (each such
event, a "FORCE MAJEURE EVENT"). A Party affected by a FORCE MAJEURE
EVENT shall give notice of such to the other Party as soon as is
reasonably possible, and shall resume performance hereunder as soon as
is reasonably possible. Each Party shall have the right to terminate
this Agreement in the event that a FORCE MAJEURE EVENT continues for
more than thirty (30) business days upon written notice thereof.
14.3. ASSIGNMENT
14.3.1. Except as expressly provided for herein neither this Agreement
nor any rights or obligations hereunder may be assigned by
either Party except to an AFFILIATE of either one of the
Parties without the prior written consent of the other Party
which shall not be unreasonably withheld or delayed. Any
subsequent assignee or transferee shall be bound by the terms
of this Agreement. Any assignment of this Agreement that is
not in conformance with this Section 14.3 shall be null, void
and of no legal effect.
14.3.2. Notwithstanding the foregoing, InterMune shall have the right
to assign this Agreement in case of a merger, acquisition or
sale of substantially all of its assets that relate to this
Agreement after due written notification of BI Austria.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
40 of 66
<PAGE>
14.3.3. In the event that either Party assigns this Agreement as
permitted under this Section, the other Party shall have the
right to terminate this Agreement upon twelve (12) months
written notice.
14.4. NOTICES
Any notice required or permitted to be given hereunder by either Party
shall be in writing and shall be (i) delivered personally, (ii) sent by
registered mail, return receipt requested, postage prepaid or (iii)
delivered by facsimile and confirmed by certified or registered mail to
the addresses or facsimile numbers set forth below:
If to InterMune: InterMune Pharmaceuticals, Inc.
3400 West Bayshore Road
Palo Alto, CA 94303 USA
Facsimile: +1 - 650 - 858 - 2937
Attention: Peter Van Vlasselaer
If to BI Austria: Boehringer Ingelheim Austria GmbH
Dr. Boehringer-Gasse 5 - 11
A-1121 Vienna, Republic of Austria
Facsimile: +43 - 1 - 801 05 - 2440
Attention: Monika Henninger
Business Support Biotech
with a copy to: Boehringer Ingelheim GmbH
Binger Strasse 173
D-55 216 Ingelheim am Rhein
Facsimile: +49 - 61 32 77 - 98 287
Attention: Rolf G. Werner
Head of Industrial Biopharmaceuticals
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
41 of 66
<PAGE>
14.5. DISPUTE RESOLUTION; GOVERNING LAW
14.5.1. In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties
hereunder, the Parties first shall try to settle their
differences amicably between themselves by referring the
disputed matter to the Chief Executive Officer of InterMune
and the Chief Executive Officer of BI Austria for discussion
and resolution. Either Party may initiate such informal
dispute resolution by sending written notice of the dispute to
the other Party, and within ten (10) days of such notice the
Chief Executive Officer of InterMune and the Chief Executive
Officer of BI Austria shall meet for attempted resolution by
good faith negotiations. If such personnel are unable to
resolve such dispute within thirty (30) days of initiating
such negotiations, each Party may thereafter pursue any and
all rights and remedies it may have at law or equity. If
mutually agreeable, the Parties may explore alternative forms
of dispute resolution, such as mediation.
14.5.2. This Agreement shall be governed by and construed in
accordance with the laws of the place of domicile of the
defendant party.
14.5.3. The Parties expressly exclude the application of the United
Nations Convention on Contracts for the International Sale of
Goods to this Agreement.
14.6. INDEPENDENT CONTRACTOR
Each of the Parties hereto is an independent contractor and nothing
herein contained shall be deemed to constitute the relationship of
partners, joint venture, nor of principal and agent between the Parties
hereto. Neither Party shall have the authority to bind the other Party.
14.7. WAIVER
Any delay in enforcing a Party's rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute
a waiver of such Party's rights to the future enforcement of its rights
under this Agreement, excepting only as to an express written and
signed waiver as to a particular matter for a particular period of
time.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
42 of 66
<PAGE>
14.8. SEVERABILITY
If any of the provisions of this Agreement or parts thereof should be
or become invalid, the remaining provisions will not be affected. The
Parties shall undertake to replace the invalid provision or parts
thereof by a new provision which will approximate as closely as
possible the intent of the Parties.
14.9. ENTIRE AGREEMENT
This Agreement and the Exhibits set forth the entire agreement between
the Parties, and supersede all previous agreements, negotiation and
understanding, written or oral, regarding the subject matter hereof.
This Agreement may be modified or amended only by an instrument in
writing duly executed on behalf of the Parties.
14.10. HEADINGS
The section headings appearing herein are included solely for
convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
14.11. AMBIGUITIES
Ambiguities, if any, in this Agreement shall not be strictly construed
against either Party, regardless of which Party is deemed to have
drafted the provision at issue.
14.12. COUNTERPARTS
The Agreement may be executed in two or more counterparts, each of
which shall be an original and all of which shall constitute the same
document.
14.13. ENGLISH LANGUAGE
The English language will govern any interpretation of or dispute in
connection with this Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
43 of 66
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the Effective Date.
<TABLE>
<S> <C>
Vienna, Austria Palo Alto, California
BOEHRINGER INGELHEIM INTERMUNE. PHARMACEUTICALS, INC
AUSTRIA GMBH
BY: /s/ Irmfried Aringer BY: /s/ W. Scott Harkonen
----------------------------------- -----------------------------------
NAME: Mag. DI Irmfried Aringer NAME: Scott Harkonen, Ph.D.
TITLE: Head of Production and Engineering TITLE: Chief Executive Officer
DATE: 27 January 2000 DATE: February 3, 2000
BY: /s/ Rolf G. Werner BY: /s/ Peter Van Vlasselaer
----------------------------------- -----------------------------------
NAME: Prof. Dr. Rolf G. Werner NAME: Peter Van Vlasselaer, Ph.D.
TITLE: Head of Industrial Biopharmaceuticals TITLE: Sen. Vice President Techn. Operations
DATE: 27 January 2000 DATE: February 3, 2000
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
44 of 66
<PAGE>
TABLE OF EXHIBITS
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT
Exhibit 1 BI Territory
Exhibit 2 BBS SPECIFICATION
Exhibit 3 COA
Exhibit 4 COC
Exhibit 5 DNA sequence of INTERFERON GAMMA 1 b
Exhibit 6 MANUFACTURING PROCESS
Exhibit 7 PRODUCT
Exhibit 8 PROJECT MANAGER and PROJECT TEAM
Exhibit 9 PRODUCT SPECIFICATION
Exhibit 10 QUALITY ASSURANCE REQUIREMENTS
Exhibit 11 SERVICES
Exhibit 12 Timeline
Exhibit 13 STEERING COMMITTEE
Exhibit 14 Documentation to be supplied from Genentech
Exhibit 15 Protocol comparing BBS and PRODUCT
Exhibit 16 Forecast model
Exhibit 17 Prices for PRODUCT and placebo
Exhibit 18 Payment Schedule
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
45 of 66
<PAGE>
EXHIBIT 1
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
BI TERRITORY:
World-wide except USA, [ * ], Japan
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
46 of 66
<PAGE>
EXHIBIT 2
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
BBS SPECIFICATIONS:
[ * ]
Note: Differences between the specifications are marked in blue
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
47 of 66
<PAGE>
EXHIBIT 3
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
CERTIFICATE OF ANALYSIS (COA):
Each COA shall certify with respect to each shipment and lot (identified by
batch or lot number) that the BBS and/or PRODUCT was manufactured in accordance
with the Specifications and the Master Batch Record and in conformance with
cGMPs.
Attached is a specimen.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
48 of 66
<PAGE>
BOEHRINGER
INGELHEIM
Boehringer Ingelheim Austria GmbH
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
49 of 66
<PAGE>
EXHIBIT 4
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
CERTIFICATE OF COMPLIANCE (COC):
Claudia Gogg
PT
PTS
Company
Attention to:
Address Date 2000
Address
Boehringer Ingelheim
Austria GmbH
Dr. Boehringer-Gasse 5-11
A-1121 Vienna
Phone ++ 43-1-80 105-5130
Telefax ++43-1-80 105-2487
E-Mail claudia.gogg@
Vie.boehringer-Ingelheim.com
Compliance Certificate Product Name
Boehringer Ingelheim Austria (BIA) has manufactured
Product Name
Lot No.: B XXXXXX
In a GMP facility and in accordance with BIA Standard Operating Procedures.
Appropriate cGMP Guidelines were followed and no outstanding non-conformances
or deviations remain un-resolved.
H. Syrowatka K. Wagner C. Gogg
Quality Control Production Quality Assurance
BOEHRINGER INGELHEIM
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
50 of 66
<PAGE>
AUSTRIA GmbH
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
51 of 66
<PAGE>
EXHIBIT 5
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
DNA SEQUENCE OF INTERFERON GAMMA 1b
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
52 of 66
<PAGE>
EXHIBIT 6
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
MANUFACTURING PROCESS
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
53 of 66
<PAGE>
EXHIBIT 7
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
PRODUCT:
[ * ]
LABELING AND PACKAGING:
- - for CLINICAL TRIAL SUPPLY: [ * ]
[ * ]
- - for MARKET SUPPLY: [ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
54 of 66
<PAGE>
EXHIBIT 8
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
PROJECT MANAGER AND PROJECT TEAM:
BI AUSTRIA AND BI PHARMA KG
Project Manager: Dr. Monika Henninger, Business Support Biotech
Project Team: Anton Vollbauer, Fermentation
Piotr Krauze, Purification
Dr. Herbert Syrowatka, QC
Claudia Gogg, QA
Dr. Volker-Ingo Glaesel, Head of Lyophilisation
INTERMUNE
Project Manager: Peter Van Vlasselaer, Ph.D., Senior VP Technical Operations
Project Team: Staci Ellis, Regulatory
(position to be filled), QA/QC
(position to be filled, Jim Cahill), Manufacturing
(position to be filled), Administrative help
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
55 of 66
<PAGE>
EXHIBIT 9
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
PRODUCT SPECIFICATIONS:
[ * ]
EXHIBIT 9 CONTINUING
[ * ]
Note: Differences between the specifications are marked in blue
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
56 of 66
<PAGE>
EXHIBIT 10
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
INTERMUNE'S QUALITY ASSURANCE REQUIREMENTS FOR ACTIMMUNE:
- - FOR THE FIRST THREE CONFORMANCE LOTS:
1. Client copy of manufacturing batch production record
2. Client copy of filling batch production record
3. Client copy of packaging batch production record
4. Client copies of all deviations and their investigations
5. Client copy of certificate of analysis (COA) with the pre-set product
specifications and the lot test results
6. Client copy of analytical test data (one batch only)
7. Certificate of Compliance (COC)
- - AFTER THE FIRST THREE CONFORMANCE LOTS:
All documents listed above (point 1 - 7) are available for InterMune's
inspection upon prior notice or during audits of both BI production sites. The
procedure for manufacturer qualification and the scope of batch related
documentation to be finally submitted to InterMune will be discussed and defined
between the Parties during the course of this Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
57 of 66
<PAGE>
EXHIBIT 11
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
SERVICE FOR US REGISTRATION OF rIFN-GAMMA:
1. CARRIED OUT BY BI AUSTRIA
[ * ]
EXHIBIT 11 continuing
2. CARRIED OUT BY BI PHARMA KG
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
58 of 66
<PAGE>
EXHIBIT 12
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
TIMELINE / PROJECT PLAN:
See attachment
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
59 of 66
<PAGE>
EXHIBIT 13
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
STEERING COMMITTEE
BI Austria: Prof. Rolf Werner (Head Industrial Biopharmaceuticals,
BI Headquarters)
Dr. Kurt Konopitzky (Head of Production and Engineering)
DI. Karl Wagner (Head of Biotech Production)
Dr. Monika Henninger (Project Manager / Reporter)
InterMune: Dr. Scott Harkonen (President and CEO)
(position to be filled)
(position to be filled)
Dr. Peter Van Vlasselaer (Project Manager / Reporter)
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
60 of 66
<PAGE>
EXHIBIT 14
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
DOCUMENTATION, MATERIAL AND DATA:
A. DOCUMENTATION AND DATA SUPPLIED BY GENENTECH
[ * ]
Exhibit 14 continuing
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
61 of 66
<PAGE>
EXHIBIT 15
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
PROTOCOL COMPARING BBS AND PRODUCT
Scope
This protocol is established to show equivalence of rIFN-gamma bulk biological
substance (BBS) and finished product produced by Genentech and the rIFN-gamma
BBS produced by Boehringer Ingelheim Austria, Vienna, and finished product
filled by Boehringer Ingelheim Pharma KG, Germany, Biberach.
Background and History
[ * ]
Production process and quality control
[ * ]
Stability
[ * ]
Structure of the protocol and testing scope
1. COMPARISON OF BBS PRODUCED AT GENENTECH AND BIA
[ * ]
2. COMPARISON OF FINISHED PRODUCT PRODUCED AT GENENTECH AND BI PHARMA KG
[ * ]
3. COMPARISON OF REFERENCE MATERIAL
[ * ]
REMARK:
This protocol will be up-dated in order to include the FDA recommendation given
in the meeting, Washington 7 Dec 99.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
62 of 66
<PAGE>
EXHIBIT 16
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
FORECAST MODEL; FIRM ORDERS AND FORECAST REGULATION
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
63 of 66
<PAGE>
EXHIBIT 17
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
Prices for PRODUCT and placebo
A) Price of PRODUCT
[ * ]
B) Price for placebo
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
64 of 66
<PAGE>
EXHIBIT 18
TO THE DATA TRANSFER, CLINICAL TRIAL AND MARKET SUPPLY AGREEMENT DATED 27 JAN
2000
Between InterMune and BI Austria
PAYMENT SCHEDULE:
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE
SECURITIES ACT OF 1933, AS AMENDED.
65 of 66
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 28,
2000, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-96029)
and related Prospectus of InterMune Pharmaceuticals, Inc. for the registration
of 5,500,000 shares of its common stock.
/S/ ERNST & YOUNG LLP
Palo Alto, California
February 17, 2000
