As filed with the Securities and Exchange Commission on November 14, 1997
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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REGISTRATION STATEMENT ON
FORM S-8
UNDER
THE SECURITIES ACT OF 1933
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INTERNEURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 04-3047911
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(State or other jurisdiction (I.R.S. Employer I.D.
of Incorporation) number)
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INTERNEURON PHARMACEUTICALS, INC.
99 Hayden Avenue
Lexington, MA 02173
(781) 861-8444
(Address and telephone number of Registrant's principal executive offices)
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1997 EQUITY INCENTIVE PLAN
(Full Title of Plan)
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Glenn L. Cooper, M.D., President and Chief Executive Officer
INTERNEURON PHARMACEUTICALS, INC.
99 Hayden Avenue
Lexington, MA 02173
(781) 861-8444
(Address and telephone number of agent for service)
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Copy to:
Jill M. Cohen, Esq.
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
(212) 687-7000
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Registered to be Registered Offering Price Aggregate Offering Price Registration Fee
Per Share (2) (1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value 1,750,000 (1) $11.125 $19,468,750 $5,899.62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416 promulgated under the Securities Act an additional
undeterminable number of shares of Common Stock is being registered to
cover any adjustment in the number of shares of Common Stock pursuant to
the anti-dilution provisions of the 1997 Equity Incentive Plan. Includes
675,000 shares which are also registered for sale by the Selling
Stockholders.
(2) Based on the average of the high and low sales price of the Common Stock as
of November 12, 1997 and estimated solely for purposes of calculating the
registration fee pursuant to Rule 457(a) under the Securities Act.
In addition, pursuant to Rule 416(c) under the Securities Act, this Registration
Statement also covers an indeterminate amount of interests to be offered or sold
pursuant to the employee benefit plan described herein.
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EXPLANATORY NOTE
The first part of this Registration Statement has been prepared in
accordance with the requirements of Form S-8 and is intended to be used to
register shares to be issue and sold pursuant to the Interneuron Pharmaceuticals
Inc. 1997 Equity Incentive Plan (the "Plan"). The Reoffer Prospectus filed as
part of this Registration Statement has been prepared in accordance with the
requirements of Form S-3 and may be used for reofferings or resales of common
stock to be acquired by the participants in the Plan who are deemed control
persons of the Company.
PART I OF FORM S-8
The documents containing the information specified in Part I of Form S-8
will be sent or given to employees as specified by Rule 428(b)(1). In accordance
with the instructions to Part I of Form S-8, such documents will not be filed
with the Commission either as part of this registration statement or as
prospectuses or prospectus supplements pursuant to Rule 424.
REOFFER PROSPECTUS
INTERNEURON PHARMACEUTICALS, INC.
675,000 shares of Common Stock
This Prospectus relates to the resale of 675,000 shares (the "Shares") of
Common Stock, par value $.001 per share (the "Common Stock") of Interneuron
Pharmaceuticals, Inc. ("Interneuron" and the "Company"), which are issuable,
subject to vesting and certain other conditions, pursuant to restricted stock
awards ("Restricted Stock Awards") granted to executive officers of the Company
(the "Selling Stockholders") under the Company's 1997 Equity Incentive Plan (the
"Plan"). The Reoffer Prospectus is being filed as part of a Registration
Statement on Form S-8 to enable the Selling Stockholders to sell the Shares
issuable to them in the public market from time to time. The Shares vest in
installments aggregating 225,000 per year in each of January 1998, 1999 and
2000.
The Plan covers an aggregate of 1,750,000 shares of Common Stock which may
be issued pursuant to Restricted Stock Awards, subject to vesting and certain
other conditions. The Plan was authorized for adoption by the Board of Directors
in October 1997 and, pursuant to Board authorization, approved by the
Compensation Committee of the Board in November 1997, as an integral component
of a management and employee incentive and retention program. The Board
determined that such program, including the Plan, was in the best interests of
the Company in order to retain, motivate and provide incentive to the Company's
management and other employees, particularly in response to the perceived risk
of attrition of key personnel and employee morale issues resulting after the
withdrawal of Redux and related negative media coverage and legal proceedings.
See "Risk Factors".
Restricted Stock Awards to acquire an aggregate of 1,328,704 Shares have
been granted to all current employees of Interneuron in consideration of
services rendered to the Company by such employees. Of these Shares, 675,000 are
subject to awards granted to executive officers, 653,704 are subject to awards
granted to other employees of the Company and 421,296 are reserved for future
grants of Restricted Stock Awards to individuals who are not currently executive
officers of the Company. The number of Shares subject to Restricted Stock Awards
granted to each individual was based primarily on the employee's compensation.
The Selling Stockholders may sell all or a portion of the Shares from time
to time in transactions on the Nasdaq National Market or other exchanges or
markets on which the Shares may be traded, in the over-the-counter market, in
negotiated transactions, through the writing of options on the Shares or a
combination of such methods of sale or through other means. Sales may be
effected at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices.
The Selling Stockholders may effect such transactions by selling the Shares
to or through broker-dealers (including broker-dealers which may be affiliated
with any such Selling Stockholder) and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). See "Selling Stockholders" and "Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended (the "Act").
The Common Stock trades on the Nasdaq National Market under the symbol
IPIC. On November 12, 1997, the last sale price of the Shares was $11.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 14, 1997
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. a Registration Statement on Form S-8 under the
Act covering the securities offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance such statement is qualified by reference to each such contract or
document. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Reports and other information filed by the Company with the Commission can be
inspected and copies at the public reference facilities maintained by the
Commission at the following addresses: New York Regional Office, Seven World
Trade Center, New York, New York 10048; and Chicago Regional Office, 500 West
Madison Street, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding issuers that file electronically with
the Commission.
----------------------
Redux(TM) is a trademark of Les Laboratoires Servier, licensed to the
Company and American Home Products Corp. CerAxon(TM), Bextra(TM), LidodexNS(TM),
Melzone(TM) and PMS Escape(TM) are trademarks owned by or licensed to the
Company or its subsidiaries. All other trademarks or tradenames referred to in
this Prospectus are the property of their respective owners.
-3-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(File No. 0-18728) pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, including any documents or portions thereof incorporated by
reference therein and all amendments thereto;
2. The Company's definitive proxy statement dated January 28, 1997, except
the Compensation Committee Report on executive compensation and the performance
graph included in the proxy statement, filed pursuant to Section 14 of the
Exchange Act;
3. The Company's Reports on Form 10-Q for the quarters ended December 31,
1996, March 31, 1997 and June 30, 1997.
4. The Company's Reports on Form 8-K dated February 18, 1997, March 14,
1997, May 5, 1997, June 19, 1997, July 3, 1997, July 18, 1997, July 25, 1997,
August 29, 1997, September 15, 1997, September 18, 1997 and October 15, 1997.
5. The Company's Registration Statement on Form 8-A declared effective on
March 8, 1990, as amended, registering the Common Stock under the Exchange Act;
and
6. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering, except the Compensation Committee Report on
Executive Compensation and the performance graph included in the Proxy Statement
filed pursuant to Section 14 of the Exchange Act. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to the
Company, 99 Hayden Avenue, Lexington, Massachusetts 02173, Attention: Chief
Financial Officer, telephone (781) 402-3404.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or statements made
by its directors, officers or employees may constitute "forward-looking"
statements under the Private Securities Litigation Reform Act of 1995 and are
subject to numerous risks and uncertainties. Any statements made in this
Registration Statement, including any statements incorporated herein by
reference (see "Incorporation of Certain Documents by Reference"), that are not
statements of historical fact are forward-looking statements. Such
forward-looking statements and other forward- looking statements made by the
Company or its representatives are based on a number of assumptions and involve
a number of risks and uncertainties, and, accordingly, actual results could
differ materially. Factors that may cause such differences include, but are not
limited to those set forth under the heading "Risk Factors."
-4-
THE COMPANY
Interneuron Pharmaceuticals, Inc. ("Interneuron" or the "Company") is a
diversified biopharmaceutical company engaged in the development and
commercialization of a portfolio of products and product candidates primarily
for neurological and behavioral diseases and disorders, including stroke,
anxiety and migraine headache. The Company is also developing products and
technologies, generally outside the central nervous system field, through four
subsidiaries: Intercardia, Inc. ("Intercardia"), a public company which focuses
on cardiovascular disease; Progenitor, Inc. ("Progenitor"), a public company
which focuses on functional genomics using developmental biology; Transcell
Technologies, Inc. ("Transcell"), which focuses on carbohydrate-based drug
discovery; and InterNutria, Inc. ("InterNutria"), which focuses on dietary
supplement products.
Redux for Obesity
The Company's first pharmaceutical product, Redux (dexfenfluramine
hydrochloride) capsules C-IV, received clearance by the Food and Drug
Administration ("FDA") in April 1996 and was commercially launched in June 1996
as a prescription drug for the treatment of obesity. Until September 1997, Redux
was marketed by the Wyeth-Ayerst ("Wyeth-Ayerst") division of American Home
Products Corp. ("AHP"), which obtained from the Company exclusive U.S. marketing
rights, in exchange for royalties and milestone payments. The Company, which
retained co-promotion and certain manufacturing rights, obtained U.S. rights to
Redux to treat abnormal carbohydrate craving and obesity from Les Laboratoires
Servier ("Servier") in exchange for royalties on net sales.
On September 15, 1997, the Company and Wyeth-Ayerst announced a voluntary
withdrawal of Redux and Wyeth-Ayerst announced a simultaneous withdrawal of
Pondimin (fenfluramine hydrochloride) tablets C-IV. This action was taken based
on new, preliminary information regarding possible heart valve abnormalities in
patients using these medications, most often in combination with phentermine,
another medication used for weight loss. The Company has been named, together
with AHP and other pharmaceutical companies, as a defendant in numerous legal
actions involving the use of Redux and other weight loss drugs. Several clinical
studies have been initiated by Wyeth-Ayerst and the Company generally designed
to compare echocardiograms of patients who had taken either Redux or the
combination of fenfluramine and phentermine ("fen-phen") with those of obese
patients who did not receive these medications. Results of certain of these
studies are currently expected during the first half of 1998. In addition, a
number of similar studies have been and may be conducted by others. See "Risk
Factors."
CerAxon for Ischemic Stroke
The Company is preparing, and intends to submit to the FDA during 1997, a
New Drug Application ("NDA") for the use of CerAxon (cytidyl diphosphocholine or
citicoline) to treat
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ischemic stroke. Based on the clinical data to date, the Company believes
citicoline may be a promising acute ischemic therapy, particularly forpatients
with moderate to severe stroke. The Company is also conducting several
additional Phase 3 clinical trials, which will not be completed prior to the NDA
submission, to study CerAxon's effect on reduction in infarct size and
functional improvement in ischemic stroke patients. Under an agreement (the
"Ferrer Agreement") with Ferrer Internacional, SA ("Ferrer"), the Company has
U.S. and Canadian marketing rights to certain uses of citicoline, which has been
approved for marketing in over 20 countries.
Bextra for Congestive Heart Failure
Through Intercardia and CPEC, Inc., the Company is developing Bextra
(bucindolol), which is currently undergoing a Phase 3 clinical trial known as
the Beta-blocker Evaluation of Survival Trial (the "BEST Study"). The BEST Study
is being conducted by a division of the National Institutes of Health (the
"NIH") and the Department of Veterans Affairs (the "VA"), for the treatment of
congestive heart failure. Intercardia obtained worldwide rights to bucindolol
and, in December 1995, entered into an agreement with Astra Merck, Inc. ("Astra
Merck") for the development and commercialization in the U.S. of bucindolol for
the treatment of congestive heart failure. CPEC is owned approximately 80% by
Intercardia and approximately 20% by Interneuron. Intercardia also has an
agreement with BASF Pharma/Knoll AG relating to the development and
commercialization of bucindolol in all countries outside the U.S. and Japan.
Interneuron owns approximately 61% of Intercardia's outstanding Common Stock.
See "Recent Developments".
Other Products
Other product candidates in the Company's pipeline include pagoclone, a
drug under development to treat anxiety/panic disorders which is undergoing a
Phase 2/3 clinical trial in patients with panic disorders aimed at a longer-term
safety and efficacy evaluation, and LidodexNS for acute migraine headache which
is under pre-clinical investigation and for which an Investigational New Drug
Application ("IND") is expected to be filed in early 1998. The Company is also
engaged in discussions relating to the acquisition of other products or
companies having rights to other therapeutic products under development, which
may include the issuance of Company securities and/or cash payments or
commitments.
The Company is also developing additional products and technologies through
its subsidiaries. Progenitor, which completed its initial public offering in
August 1997, is engaged in the discovery and functional characterization of
genes to identify targets for the development of new pharmaceuticals, using
developmental biology and genomic technologies. Through its acquisition of
Mercator Genetics, Inc. ("Mercator") simultaneously with the completion of the
initial public offering, Progenitor obtained complementary technologies in gene
discovery. Interneuron owns approximately 37% of Progenitor's outstanding Common
Stock. Transcell's leading technologies include combinatorial carbohydrate
chemistry methods for the synthesis and development of oligosaccharides and
glycoconjugates libraries.
InterNutria's leading products are PMS Escape, a dietary supplement for
women during the pre-menstrual period, which is currently undergoing a national
launch, and three sports supplement products which are being test marketed. In
addition, Interneuron intends to license to InterNutria Melzone, a low-dose
dietary supplement form of melatonin, a naturally occurring hormone that is
believed to regulate the body's circadian (sleep) rhythm, which may be useful to
induce restful sleep.
-6-
The Company was originally incorporated in New York in October 1988 and in
March 1990 was reincorporated in Delaware. The Company's executive offices are
located at One Ledgemont Center, 99 Hayden Avenue, Lexington, Massachusetts
02173, and its telephone number is (781) 861-8444. Unless the context indicates
otherwise, all references to the Company include Interneuron and its
subsidiaries, Intercardia, Progenitor, Transcell, and InterNutria (the
"Subsidiaries").
Recent Developments
On November 5, 1997, Intercardia, Interneuron and Transcell entered into a
letter of intent relating to the proposed acquisition by Intercardia of
Transcell and related technology rights (the "Proposed Transcell Transaction")
in exchange for Intercardia Common Stock with a current market value of
approximately $15 million and the issuance of Intercardia stock options to
Transcell employees and consultants with an aggregate market value of
approximately $3-4 million. The purchase price will be paid in three
installments, at closing and on the 15th and 21st month anniversaries of the
closing, and includes $3 million to be issued to Interneuron at closing in
connection with the transfer by Interneuron to Intercardia of certain license
and technology rights and Interneuron's continued guaranty of Transcell's lease
obligations. Interneuron will retain a majority interest in Intercardia after
the Proposed Transcell Transaction. Completion of the transaction is subject to
certain conditions including execution of definitive agreements, approval by the
stockholders of Intercardia, and completion of due diligence. In connection with
the Proposed Transcell Transaction, Intercardia and Interneuron will incur
charges to operations during the period in which the closing occurs currently
estimated to range from approximately $6 to $8 million and will incur additional
future charges relating to certain stock options to be issued pursuant the
Proposed Transcell Transaction.
In October 1997 the Board of Directors authorized the Plan for adoption
and, pursuant to Board authorization, the Plan was approved by the Compensation
Committee in November 1997 as part of an integral component of a management and
employee incentive and retention program, which also includes additional option
grants to all employees, designed to motivate, retain and provide incentive to
the Company's management and other employees, particularly in response to the
perceived risk of attrition of key personnel and employee morale issues
resulting after the withdrawal of Redux and related negative media coverage and
legal proceedings. The Plan provides for the grant of Restricted Stock Awards
which entitle the plan participants to receive Shares upon the satisfaction of
specified vesting periods, in consideration of services rendered to the
Corporation or such other consideration as the Board or the Committee may
determine.
An aggregate of 1,328,704 Restricted Stock Awards have been granted to all
employees of the Company, of which 675,000 awards were granted to four executive
officers of the Company, and 653,704 awards were granted to other employees, all
in consideration of services rendered by the employee to the Company. The Shares
are eligible for resale immediately upon vesting. The number of Shares subject
to each employee's award were based primarily on the employee's base
compensation. The Shares subject to the awards granted to the executive officers
vest in installments aggregating 225,000 Shares per year in January 1998, 1999
and 2000 and have been registered for resale herein. See "Selling Stockholders."
The Company will incur compensation expense over the vesting period of the
1,328,704 Shares subject to outstanding Restricted Stock Awards. These charges
are expected to aggregate approximately $15.5 million, of which approximately
$11 million is expected to be incurred in the fiscal year ending September 30,
1998 and the remainder through the quarter ending June 30, 2000.
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. Each prospective investor should carefully
consider the following risk factors, as well as others described elsewhere or
incorporated by reference in this Prospectus, before making an investment.
Prospective investors are cautioned that the statements in this Prospectus that
are not descriptions of historical facts may be forward looking statements that
are subject to risks and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors, including those
identified under "Risk Factors" and elsewhere in this Prospectus or documents
incorporated by reference herein.
Withdrawal of Redux; Safety Issues Relating to Redux; Litigation Risks. On
Monday, September 15, 1997, the Company and Wyeth-Ayerst announced a voluntary
withdrawal of Redux and Wyeth-Ayerst announced a simultaneous withdrawal of
Pondimin. On Friday, September 12, 1997, the FDA provided the Company and
Wyeth-Ayerst with new preliminary information concerning potential abnormal
echocardiogram findings in patients using these drugs. These patients had been
treated with fenfluramine or Redux for up to 24 months, most often in
combination with phentermine. Potential abnormal echocardiogram findings were
reported to the FDA in 92 of 291 subjects evaluated. Two hundred and seventy-one
of the 291 patients had taken fenfluramine in combination with phentermine, and
20 of the 291 patients had taken Redux or a combination of Redux and
phentermine. It was reprinted that of these 20, 11 had taken Redux alone and
nine had taken Redux in combination with phentermine, and of the 11, two had
potential abnormal echocardiogram findings and of the nine, four had potential
abnormal echocardiogram findings.
These observations reflect a preliminary analysis of pooled information
rather than results of a formal clinical investigation, and are difficult to
evaluate because of the absence of matched controls and pretreatment baseline
data for these patients. Nevertheless, the Company believes it was prudent, in
light of this information, to have withdrawn Redux from the market. At the time
of and in connection with the withdrawal of Redux, the Company announced that it
anticipated incurring charges to operations in its fourth quarter and fiscal
year ended September 30, 1997 for expenses relating to the discontinuation of
the operations related to Redux. Based on preliminary estimates, the Company
announced that these charges were anticipated to range from $8 million to $12
million, excluding the costs of echocardiogram studies and any subsequent
charges which may result from legal actions relating to Redux.
In July 1997 the Mayo Clinic reported observations of heart valve
abnormalities in 24 patients taking the combination of Pondimin and phentermine.
The Mayo Clinic cases were subsequently reported in an article appearing in the
August 28, 1997 issue of The New England Journal of Medicine. This article was
accompanied by a letter to the editor from the FDA reporting additional cases of
heart valve disease in 28 patients taking the combination of phentermine and
fenfluramine, two patients taking fenfluramine alone, four patients taking Redux
alone and two patients taking Redux and phentermine. Additional adverse event
reports of abnormal heart valve findings in patients using Redux or fenfluramine
alone or in combination with other weight loss agents continue to be received by
the Company and Wyeth-Ayerst and the FDA. These reports have included symptoms
such as shortness of breath, chest pain, fainting, swelling of the ankles or a
new heart murmur.
Wyeth-Ayerst has stated that it is supporting or conducting studies to
compare echocardiograms of patients who had taken either Redux or the "fen/phen"
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(fenfluramine/phentermine) combination with a matched group of obese patients
who did not receive these medications, including a study of approximately 1,100
patients who were originally in a clinical study comparing Redux to an extended
release formulation of Redux which had been under development prior to the
withdrawal of Redux. The studies are being conducted and will be analyzed by a
blinded panel of cardiologists to determine the association, if any, between the
administration of these drugs and cardiac valve findings and obtain additional
information relating to the clinical significance of these findings. The Company
also intends to conduct an approximately 1,000 patient study comparing
echocardiograms of patients who took only Redux to a control group who did not
take either Redux, Pondimin, phentermine or "fen-phen." The costs of this
Company-supported study are currently estimated at up to $5 million. A number of
similar clinical studies have been and may be conducted by others. The results
of these studies and the impact of such results on the Company cannot currently
be predicted.
On November 13, 1997, the U.S. Department of Health and Human Services
("HHS") issued preliminary recommendations for the medical management of people
who took Pondimin or Redux. HHS recommended, until more complete information is
available, that patients who took either drug should see their physician to
determine whether there are signs or symptoms of heart or lung disease and if
such person has signs or symptoms of heart or lung disease, such as a new heart
murmur or shortness of breath, have an echocardiogram performed and that
physicians strongly consider performing an echocardiogram for such patients
before the patient has any invasive procedure for which antibiotic prophylactic
treatment is recommended to prevent the development of bacterial endocarditis.
Included in the FDA-approved labeling for Redux were references to certain
other risks that may be associated with dexfenfluramine and which were
highlighted during the FDA's review of the drug. One issue relates to whether
there is an association between appetite suppressants, including
dexfenfluramine, and the development of primary pulmonary hypertension ("PPH"),
a rare but serious lung disorder. In the general population, the yearly
occurrence of PPH is estimated to be about one to two cases per million. An
epidemiologic study conducted in Europe examining risk factors for PPH showed
that among other factors, weight reduction drugs including dexfenfluramine,
systemic hypertension, and obesity itself were associated with a higher risk of
PPH. Results of the final study, including a reclassification and inclusion of
certain previously excluded cases by the authors of the study, estimated the
yearly occurrence to be between 23 and 46 cases per million for patients taking
appetite suppressants for greater than three months duration.
A second issue discussed in the FDA-approved labeling for Redux was whether
dexfenfluramine is associated with certain neurochemical changes in the brain.
Certain studies related to this issue, conducted by third parties, purport to
show that very high doses of dexfenfluramine cause prolonged serotonin depletion
in certain animals, which some researchers believe is an indication of
neurotoxicity. The Company presented data relating to the lack of neurocognitive
effects in patients taking Redux and believes that, as demonstrated in human
trials, these animal studies are clinically irrelevant to humans because of
pharmacokinetic differences between animals and humans (resulting in much higher
brain concentrations of dexfenfluramine and its active metabolite in certain
animals than in humans) and because of the high dosages used in animal studies.
The Company had agreed with the FDA to conduct a Phase 4, or post-marketing,
study of Redux, to further evaluate long-term neurocognitive function in
patients taking Redux. However, as a result of the withdrawal of Redux in
September 1997, such study was discontinued.
The Company has been named, together with other pharmaceutical companies,
as a defendant in over 100 legal actions, many of which purport to be class
actions, in federal and state courts relating to the use of Redux. Based on
media reports and other sources, the Company anticipates that it will be named a
defendent in additional Redux-related lawsuits in the future. The actions
generally have been brought by or on behalf of putative classes of persons who
claim to have suffered injury or who claim that they may suffer injury in the
future due to use of one or more weight loss drugs including Pondimin
(fenfluramine), phentermine and Redux. Plaintiff's allegations of liability are
based on various theories of recovery, including, but not limited to, product
liability, strict liability, negligence, various breaches of warranty,
conspiracy, fraud misrepresentation and deceit. These lawsuits typically allege
that the short or long-term use of PONDOMIN and/or REDUX, independently or in
combination (including the combination of PONDOMIN and phentermine popularly
known as "fen/phen"), causes, among other things, primary pulmonary
hypertension, valvular heart disease and/or neurological dysfunction. In
addition, some lawsuits allege severe emotional distress caused by the purported
increased risk of injury in the future. Plaintiffs typically seek relief in the
form of monetary damages (including general damages, medical care and monitoring
expenses, loss of earnings and earnings capacity, compensatory damages and
punitive damages), generally in unspecified amounts, on behalf of the individual
or the class. In addition, some actions seeking class certification ask for
certain types of purportedly equitable relief, including but not limited to,
declaratory judgements and the establishment of a research or medical
surveillance program. The Company and certain directors and/or officers of the
Company have also been named as defendants in several lawsuits filed by alleged
purchasers of the Company's Common Stock, purporting to be class actions,
claiming among other things that the Company publicly disseminated materially
false and misleading statements concerning the prospects and safety of Redux,
resulting in the artificial inflation of the
-9-
Company's Common Stock price during various periods, the earliest commencing
March 1, 1997 through September 17, 1997, in violation of the federal securities
laws. Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company may be required to devote significant management time
and resources to these actions and, in the event of successful uninsured or
insufficiently insured claims, or in the event a successful indemnification
claim was made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. Under certain
circumstances, the Company is required to indemnify Servier, Boehringer
Ingelheim Pharmaceuticals Inc. (the contract manufacturer of Redux capsules) and
AHP, and the Company is entitled to indemnification by AHP, against certain
claims, damages or liabilities incurred in connection with Redux. The cross
indemnification between the Company and AHP generally relates to the activities
and responsibilities of each company.
UNCERTAINTIES RELATING TO CERAXON.
The Company intends to submit to the FDA prior to the end of 1997 an NDA
for the use of CerAxon to treat ischemic stroke. The FDA has 60 days after NDA
submission to accept or reject the NDA for filing and there can be no assurance
the FDA will accept the NDA for filing. The Company believes the two completed
Phase 3 clinical studies, as well as supportive data, show the safety and
beneficial treatment effect of CerAxon in patients with ischemic stroke,
particularly those with moderate to severe strokes. The Company is conducting
additional Phase 3 clinical studies to study CerAxon's effect on reduction in
infarct size and functional improvement in ischemic stroke patients. These
studies will not be completed prior to submission of, and are not believed to be
required for acceptance for filing of, the NDA. There can be no assurance the
FDA will grant authorization to commercialize CerAxon based on the studies
submitted with the NDA. Ferrer may terminate the Ferrer Agreement in the event
FDA approval of citicoline is not obtained by January 1999, which date shall be
extended if the Company provides information to Ferrer which tends to establish
that the Company has carried out the steps for obtaining such approval and if
such approval has not been obtained for reasons beyond the Company's control.
The manufacturing facilities of Ferrer used to produce citicoline as well
as the contract manufacturer of finished product, are required to comply with
all FDA requirements, including current good manufacturing practice ("GMP")
regulations, and are subject to FDA inspection, both before and after NDA
approval, to determine compliance with those requirements. The GMP regulations
are complex and failure to be in compliance could lead to non-approval of the
NDA or, if such approval is obtained, the need for remedial action, penalties
and delays in production of material acceptable to the FDA. There can be no
assurance the manufacturing facilities for citicoline have complied or will
continue to comply with applicable requirements. In addition, the Company
intends to market CerAxon directly and will be required to establish, maintain
and manage sufficient sales and marketing capabilities. Although the Company has
a small sales force which had been engaged in co-promotion of Redux and is
promoting PMS Escape for InterNutria, it has no experience in marketing any
pharmaceutical products directly and there can be no assurance that it will
successfully market CerAxon. Further, the Company may require additional funds
for the manufacturing and marketing of CerAxon and, if such funds are not
available, may be required to delay or reduce such efforts, as well as
activities relating to the development of other products.
HISTORY OF LOSSES; ACCUMULATED DEFICIT AND POTENTIAL FUTURE LOSSES; CHARGES
TO OPERATIONS; POTENTIAL FLUCTUATIONS IN REVENUES.
Through June 30, 1997, the Company had accumulated net losses since
inception of approximately $125 million. Substantially all of the Company's
revenues from operations were derived from Redux, which was withdrawn
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from the market in September 1997. Losses are continuing and cash continues to
be used by operating activities. The Company will be required to conduct
significant development and clinical testing activities and establish marketing,
sales, regulatory and administrative capabilities for many of its proposed
products, including products under development or which may be acquired in the
future, which are expected to result in continued operating losses for the
foreseeable future. The extent of future losses and time required to achieve
profitability are highly uncertain. The Company will incur significant charges
to operations in the fiscal quarter and year ended September 30, 1997 relating
to the acquisition of Mercator by Progenitor, currently estimated to be
approximately $8 million, and relating to the withdrawal of Redux, currently
estimated to range from approximately $8 to $12 million, excluding the costs of
echocardiogram studies and any subsequent charges which may result from legal
returns relating to Redux. In addition, the Company will incur charges to
operations in connection with the proposed acquisition by Intercardia of
Transcell, as disclosed under "Recent Developments," currently estimated to
range from approximately $6 to $8 million, during the period in which the
closing occurs and future charges relating to certain option grants in
connection with the acquisition. In addition, the Company will incur
compensation expense over the vesting period of the 1,328,704 Shares subject to
outstanding Restricted Stock Awards. These charges are expected to aggregate
approximately $15.5 million, of which approximately $11 million is expected to
be incurred in the fiscal year ending September 30, 1998 and the remainder
through the quarter ending June 30, 2000. There can be no assurance that the
Company will be able to achieve profitability on a sustained basis, if at all.
The Company has experienced, and may continue to experience, fluctuations in
revenues as a result of the timing of license fees, royalties, product
shipments, regulatory approvals, product launches and milestone payments.
UNCERTAINTIES GENERALLY RELATED TO CLINICAL TRIALS.
Before obtaining regulatory approval for the commercial sale of any of its
pharmaceutical products under development, the Company must demonstrate that the
product is safe and efficacious for use in each target indication. The results
of preclinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing or use, and there canbe no
assurance that clinical trials of the products under development by the Company
will demonstrate the safety and efficacy of such products or that, regardless of
clinical trial results, FDA approval will be obtained. A number of companies in
the pharmaceutical industry have suffered significant setbacks in advanced
clinical trials or have not received FDA approval, even after promising results
in earlier trials. If clinical trials do not demonstrate the safety and efficacy
of certain products under development, the Company may be adversely affected.
Citicoline and bucindolol are currently in Phase 3 clinical trials and pagoclone
is undergoing a Phase 2/3 clinical trial. There can be no assurance that these
trials will confirm or demonstrate the safety and efficacy of the respective
drug. The Company also expects to conduct clinical evaluation on certain dietary
supplement products under development to substantiate the claims that are
expected to be made for the products. There can be no assurance that these
clinical evaluations will be successful.
RISK OF PRODUCT LIABILITY.
In addition to the claims and risks summarized under "--Withdrawal of
Redux; Safety Issues Relating to Redux; Litigation Risks", the use of the
Company's other products in clinical trials and the marketing of any products
may expose the Company to substantial product liability claims. Certain of the
Company's agreements require the Company to obtain specified levels of insurance
coverage, naming the other party thereto as an additional insured. There can be
no assurance that the Company will continue to be able to maintain or obtain
such insurance coverage, that such insurance can be acquired in sufficient
amounts to protect the Company or other named parties against such liability, at
a reasonable cost, or at all or that any insurance obtained will cover any
particular liability claim. The Company may also be required to indemnify
licensors or licensees against product liability claims incurred by them as a
result of products developed or marketed by the Company. In the event of
uninsured or insufficiently
-11-
insured product liability claims, or in the event a successful indemnification
claim was made against the Company, the Company's business and financial
condition could be materially adversely affected. There can be no assurance that
the Company will continue to be able to obtain adequate insurance in the future,
at an acceptable cost or at all.
FUNDING REQUIREMENTS.
The Company has expended and will continue to expend substantial funds to
conduct research and development activities and preclinical and clinical testing
on products under development, including products which may be acquired in the
future. In addition, the Company intends to market directly and is establishing
sales and marketing capabilities for CerAxon, is marketing PMS Escape through
InterNutria and intends to market directly or co-promote sports supplement
products and Melzone, assuming applicable regulatory approvals are obtained and
test launches are successful. The Company will therefore be required to
establish and maintain appropriate internal sales forces and functions and will
require additional funds for manufacturing and marketing activities. Although
the Company is devoting significant funding to the national marketing of PMS
Escape, it cannot yet predict whether such product will generate substantial
revenues or be profitable to the Company. The Company may seek additional funds
through corporate collaborations or future equity or debt financings to provide
funding for new business opportunities and future growth.
Interneuron intends to fund $2 million of a $10 million payment intended to
be made by CPEC and/or Intercardia to Astra-Merek in December 1997 (representing
Interneuron's percentage ownership in CPEC). Interneuron is also currently
funding the activities of Transcell and InterNutria, each of which is seeking to
enter into collaborations, business combinations or private or public equity
financings to pursue development and commercialization of their technologies or
products. Although Interneuron may acquire additional equity in a subsidiary
through participation in any such financing or conversion of intercompany debt,
equity financings by a subsidiary will likely reduce Interneuron's percentage
ownership of that subsidiary and funds raised by the Subsidiaries will generally
not be available to Interneuron. Although certain of the Subsidiaries are
engaged in discussions relating to potential business combinations or private or
public equity financings, except as set forth or incorporated by reference
herein, none of the Subsidiaries has any commitments for additional financing
and there can be no assurance that any such financing will be available on
acceptable terms, if at all. If adequate funds are not available to these
subsidiaries on acceptable terms, such subsidiaries may be required to delay,
scale back or eliminate some or all of their respective research and product
development programs or product launches. Intercardia, Interneuron and Transcell
have entered into a letter of intent relating to the potential sale of Transcell
to Intercardia, although there is no assurance this acquisition will be
completed. See "Recent Developments."
RISKS RELATING TO MANAGING GROWTH.
Assuming additional proposed product launches occur, the Company
anticipates experiencing a period of rapid growth, which is likely to place
significant demands on the Company's management, operational, financial and
accounting resources. The Company's intention to market certain products
directly, particularly CerAxon, will further strain these resources. In
particular, the Company will be required to establish and maintain a marketing
organization, including a sales force and related management systems. The
Company's future success will depend in part on whether it can expand its
operational, financial and accounting systems and expand, train and manage its
employee base. The Company's inability to manage growth effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS RELATING TO CONTRACTUAL ARRANGEMENTS.
The Company's agreements with licensors and licensees generally provide the
other party with rights to terminate the agreement, in whole or in part, under
certain circumstances. For example, Ferrer has the right to terminate the
-12-
Ferrer Agreement in the event FDA approval of citicoline is not obtained by
January 1999, which date shall be extended if the Company provides information
to Ferrer which tends to establish that the Company has carried out the steps
for obtaining such approval and if such approval has not been obtained for
reasons beyond the Company's control, or in the event an unaffiliated party
acquires 50% of Interneuron's Common Stock. Servier has the right to terminate
the agreements relating to the licensing of Redux to the Company under certain
conditions including an acquisition by a new party of a 20% beneficial ownership
interest in the Company without Servier's consent or certain Company activities
relating to the marketing of certain competitive products, subject to specified
terms and conditions. Termination of certain of these agreements could
substantially reduce the likelihood of successful commercialization of a
particular product which, depending upon the importance to the Company of the
product that is subject to any such agreement, could materially adversely
affect the Company's business.
UNCERTAINTY OF GOVERNMENT REGULATION.
The Company's research, development and pre-clinical and clinical trials
and the manufacturing and marketing of most of its products are subject to an
extensive regulatory approval process by the FDA and other regulatory agencies
in the U.S. and other countries. The process of obtaining FDA and other required
regulatory approvals for drug and biologic products, including required
preclinical and clinical testing, is lengthy, expensive and uncertain. There can
be no assurance that, even after such time and expenditures, the Company will be
able to obtain necessary regulatory approvals for clinical testing or for the
manufacturing or marketing of any products. Even if regulatory clearance is
obtained, post-market evaluation of the products, if required, could result in
restrictions on a product's marketing or withdrawal of the product from the
market as well as possible civil or criminal sanctions. In addition, the Company
will be dependent upon the manufacturers of its products to maintain compliance
with GMP and on laboratories and medical institutions conducting preclinical
studies and clinical trials to maintain both good laboratory and good clinical
practices. There can be no assurance that GMP manufacturers capable of producing
product according to forecasts can be obtained on a timely basis, or at all, for
products under development, including CerAxon and pagoclone, which would
materially adversely affect the Company's ability to commercialize these
products. Certain products are or are proposed to be marketed by the Company as
dietary supplements, such as PMS Escape, the sports supplement products and
Melzone. There can be no assurance that the FDA will not attempt to regulate the
products as drugs, which would require the filing of NDAs and review and
approval by the FDA prior to marketing, or otherwise restrict the marketing of
these products. In addition, classification of these products as dietary
supplements limits the types of claims that can be made in marketing. The
Federal Trade Commission has overlapping jurisdiction with the FDA to regulate
the promotion and advertising of dietary supplements and other special
nutritional products, including those of InterNutria.
In addition to the regulatory framework for product approvals, the Company
and its collaborative partners may be subject to regulation under state and
federal laws, including requirements regarding occupational safety, laboratory
practices, environmental protection and hazardous substance control, and may be
subject to other present and possible future local, state, federal and foreign
regulation. The impact of such regulation upon the Company cannot be predicted
and could be material and adverse.
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS.
The Company's success will depend to a significant extent on its ability to
obtain and enforce patent protection on its products and technologies, to
maintain trade secrets and to operate without infringing on the proprietary
rights of others. There can be no assurance that any Company patents will afford
any competitive
-13-
advantages or will not be challenged or circumvented by third parties or that
any pending patent applications will result in patents being issued. Certain of
the Company's patents and patent applications include biotechnology claims, the
patentability of which generally is highly uncertain and involves complex legal
and factual questions. Because of the extensive time required for development,
testing and regulatory review of a potential product, it is possible that before
a potential product can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent.
The U.S. composition of matter patent on bucindolol expires in November
1997. As a result, assuming FDA approval can be obtained, competitors, including
generic drug manufacturers, may market bucindolol, subject to potential market
exclusivity under the Waxman-Hatch Act. The Company's licensed U.S. patent
covering the administration of citicoline to treat patients afflicted with
conditions associated with the inadequate release of brain acetylcholine expires
in 2003, subject to potential extension under the Waxman-Hatch Act. As described
in the licensed patent, the inadequate release of acetylcholine may be
associated with several disorders, including the behavioral and neurological
syndromes seen after brain traumas and peripheral neuro-muscular disorders,
brain ischemia and post-stroke rehabilitation. Although the claim of the
licensed patent is broadly directed to the treatment of inadequate release of
brain acetylcholine, there can be no assurance this patent will afford
protection against competitors of CerAxon to treat ischemic stroke. The Company
has also filed a patent application relating to the use of citicoline to reduce
the size of the area damaged by the stroke, or infarct size, although there can
be no assurance this patent will issue.
The Company may conduct research on pharmaceutical or chemical compounds or
technologies, the patents or other rights to which may be held by third parties.
Others have filed and in the future may file patent applications covering
certain products or technologies that are similar to those of the Company. If
products based on such technologies are commercialized by the Company, they may
infringe such patents or other rights, licenses to which may not be available to
the Company. Failure to obtain needed patents, licenses or proprietary
information held by others may have a material adverse effect on the Company's
business. There can be no assurance that others will not independently develop
similar technologies or duplicate any technology developed by the Company or, if
patents are issued, successfully design around the patented aspects of any
technology developed by the Company. Furthermore, litigation may be necessary to
enforce any patents issued to the Company, to determine the scope and validity
of the patent rights of others or in response to legal action against the
Company claiming damages for infringement of patent rights or other proprietary
rights or seeking to enjoin commercial activities relating to the affected
product or process. Not only is the outcome of any such litigation highly
uncertain, but such litigation may also result in significant use of management
and financial resources.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's proposed products, disputes may arise as to the proprietary rights to
such information which may not be resolved in favor of the Company. Most of the
Company's consultants are employed by or have consulting agreements with third
parties and any inventions discovered by such individuals generally will not
become property of the Company. There can be no assurance that Company
confidentiality agreements will not be breached or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors.
-14-
COMPETITION.
Competition from other pharmaceutical companies, biotechnology companies,
dietary supplement companies and research and academic institutions is intense
and expected to increase. The Company is aware of products and technologies
under development by its competitors that address diseases being targeted by the
Company and competitors have developed or are in the process of developing
products or technologies that are, or in the future may be, the basis for
competitive products. Activase, a thrombolytic agent, is marketed by Genentech,
Inc. as a treatment for stroke. To the Company's knowledge, Janssen
Pharmaceutical NV has filed an NDA for a stroke treatment known as Prosynap
(lubeluzole) and a number of products are in clinical development pursuing an
indication for stroke which could also compete with CerAxon. In addition, if
regulatory approval is obtained, Bextra will compete with Coreg (carvedilol),
which has been approved and is marketed in the U.S. by SmithKline Beecham for
the treatment of congestive heart failure. In addition, Melzone will compete
with a substantial number of available melatonin dietary supplement products and
PMS Escape competes with a number of products for use by women during the
pre-menstrual period.
UNCERTAINTY REGARDING WAXMAN-HATCH ACT.
Certain provisions of the Waxman- Hatch Act grant market exclusivity for
certain new drugs and dosage forms. The Waxman-Hatch Act provides that a patent
which claims a product, use or method of manufacture covering certain drugs and
certain other products may be extended for up to five years to compensate the
patent holder for a portion of the time required for research and FDA review of
the product. The Waxman-Hatch Act also establishes a period of time from the
date of FDA approval of certain new drug applications during which the FDA may
not accept or approve short-form applications for generic versions of the drug
from other sponsors, although it may accept or approve long-form applications
(that is, other complete NDAs) for such drug. There can be no assurance the
Company will receive marketing exclusivity for any product. The composition of
matter patent for bucindolol expires in November 1997. There can be no assurance
that any of the benefits of the Waxman-Hatch Act or similar foreign laws will be
available to the Company or that such laws will not be amended or repealed.
EARLY STAGE OF PRODUCTS UNDER DEVELOPMENT BY THE COMPANY.
The Company is investigating for therapeutic potential a variety of
pharmaceutical compounds, technologies and other products at various stages of
development. In particular, Progenitor and Transcell each are conducting very
early stage research and all of their proposed products require significant
further research and development, as well as testing and regulatory clearances,
and are subject to the risks of failure inherent in the development of products
or therapeutic procedures based on innovative technologies. The products under
development by the Company are subject to the risk that any or all of these
proposed products are found to be ineffective or unsafe, or otherwise fail to
receive necessary regulatory clearances. The Company is unable to predict
whether any of its products will be successfully manufactured or marketed.
Further, due to the extended testing and regulatory review process required
before marketing clearance can be obtained, the time frames for
commercialization of any products or procedures are long and uncertain.
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT, REGULATORY APPROVALS,
MANUFACTURING AND MARKETING.
The Company expects to rely upon collaborative partners for the
development, manufacturing and marketing of certain of its products, including
products which may be acquired in the future. The Company is therefore dependent
on the efforts of these collaborative partners and the Company may have limited
control over the manufacture and commercialization of such products. For
example, with respect to Bextra, neither the Company nor Intercardia controls
the BEST Study, which is being conducted by the NIH and the VA, and the Company
will be
-15-
substantially dependent upon Astra Merck for the commercial success of the
twice-daily formulation of bucindolol in the U.S., assuming FDA approval is
obtained. In the event certain of the Company's collaborative partners terminate
the related agreements or fail to manufacture or commercialize products, the
Company would be materially adversely affected. Because the Company will
generally retain a royalty interest in sales of products licensed to third
parties, its revenues may be less than if it retained commercialization rights
and marketed products directly. Although the Company believes that its
collaborative partners will have an economic motivation to commercialize the
products that they may license, the amount and timing of resources devoted to
these activities generally will be controlled by each partner. There can be no
assurance that the Company will be successful in establishing any additional
collaborative arrangements, or that any such collaborative partners will be
successful in commercializing products or not terminate their collaborative
agreements with the Company.
Many companies in the pharmaceutical and dietary supplement industries have
substantially greater financial resources and development capabilities than the
Company and have substantially greater experience in undertaking preclinical and
clinical testing of products, obtaining regulatory approvals and manufacturing
and marketing products. In addition to competing with universities and other
research institutions in the development of products, technologies and
processes, the Company may compete with other companies in acquiring rights to
products or technologies. There can be no assurance that the Company will
develop products that are more effective or achieve greater market acceptance
than competitive products, or that the Company's competitors will not succeed in
developing products and technologies that are safer or more effective or less
expensive than those being developed by the Company or that would render the
Company's products and technologies less competitive or obsolete.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS.
The Company is dependent on certain executive officers and scientific
personnel and the Company's business would be adversely affected by the loss of
certain of these individuals. The Company has key person life insurance policies
on the lives of Glenn L. Cooper, M.D., Richard Wurtman, M.D. and Lindsay A.
Rosenwald, M.D. Drs. Wurtman and Rosenwald devote only a portion of their time
to the Company's business. In addition, the Company is dependent upon certain
executive officers of the subsidiaries, each of which has separate management
who are responsible, to a large extent, for the day-to-day operations and the
strategic direction of the respective subsidiary. In addition, the Company
relies on independent consultants to design and supervise clinical trials and
assist in preparation of FDA submissions.
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate highly skilled employees, could adversely affect
the Company's business and prospects. There can be no assurance that the Company
will be able to retain its existing personnel or to attract additional qualified
employees.
UNCERTAINTY REGARDING PHARMACEUTICAL PRICING AND REIMBURSEMENT.
The Company's business will be affected by the efforts of governmental and
third-party payors to contain or reduce the cost of health care. There have
been, and the Company anticipates that there will continue to be, a number of
proposals to implement government control over the pricing or profitability of
prescription pharmaceuticals, as is currently the case in many foreign markets.
The announcement or adoption of such proposals could have an adverse effect on
the Company. Furthermore, the Company's ability to commercialize its products
may be adversely affected to the extent that such
-16-
proposals have a material adverse effect on the business, financial condition
and profitability of companies that are prospective collaborative partners of
the Company. Successful commercialization of many of the Company's products may
depend on the availability of reimbursement for the cost of such products and
related treatment from third-party health care payors, such as the government,
private insurance plans and managed care organizations. There can be no
assurance that such reimbursement will be available. Such third-party payors are
increasingly challenging the price of medical products and services.
CONTROL BY PRESENT STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS.
The executive officers, directors and principal stockholders of the Company
(including individuals or entities related to such stockholders) beneficially
own approximately 47% of the Company's Common Stock. Accordingly, these
officers, directors and stockholders may have the ability to exert significant
influence over the election of the Company's Board of Directors and to determine
corporate actions requiring stockholder approval.
The Board of Directors has the authority, without further approval of the
Company's stockholders, to fix the rights and preferences of and to issue shares
of preferred stock. In addition, Ferrer may terminate the Ferrer Agreement in
the event an unaffiliated third party acquires 50% of Interneuron's Common
Stock. The preferred stock held by AHP provides that AHP's consent is required
prior to the merger of the Company, the sale of substantially all of the
Company's assets or certain other transactions. In addition, vesting of shares
of Common Stock subject to Restricted Stock Awards under the Plan accelerates
and outstanding options under the Plans become immediately exercisable upon
certain changes in control of the Company, except under certain conditions. In
addition, Delaware corporate law imposes limitations on certain business
combinations. These provisions could, under certain circumstances, have the
effect of delaying or preventing a change in control of the Company and,
accordingly, could adversely affect the price of the Company's Common Stock.
No Dividends. The Company has not paid any cash dividends on its Common
Stock since inception and does not expect to do so in the foreseeable future.
Any dividends will be subject to the preferential cumulative dividend of $0.1253
per share and $1.00 per share payable on the outstanding Series B Preferred
Stock and Series C Preferred Stock, respectively, held by AHP and dividends
payable on any other preferred stock issued by the Company.
POSSIBLE VOLATILITY OF STOCK PRICE.
The market prices for securities of emerging growth companies have
historically been highly volatile. Future announcements concerning the Company
or its subsidiaries, including Intercardia and Progenitor, which are publicly
traded, or the Company's competitors, including the initiation and results of
litigation, clinical studies, regulatory filings, technological innovations or
competitive products, developments concerning government regulations,
proprietary rights, the Company's results of operations or public concern as to
the safety or commercial value of the Company's products, may have a significant
impact on the market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS.
As of October 31, 1997, 41,165,810 shares of Common Stock were outstanding,
excluding treasury shares. Substantially all of these shares are eligible for
sale without restriction or under Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated),
including persons who may be deemed to be "affiliates" of the Company as that
term is defined under the Act, is entitled to sell within any three-month period
a number of restricted shares beneficially owned for at least one year that does
not
-17-
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock, or (ii) the average weekly trading volume in the Common Stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. However, a person who is not an
affiliate and has beneficially owned such shares for at least two years is
entitled to sell such shares without regard to the volume or other requirements.
AHP has demand and piggy-back registration rights relating to 622,222
shares of Common Stock issuable upon conversion of preferred stock. Certain
stockholders entitled to receive additional shares of Common Stock in December
1997 with a market value of $1,200,000 at the time of issuance have registration
rights in January 1998 relating to the resale of those shares. In the event up
to a maximum of approximately 232,000 shares of Common Stock are issued in June
1998 pursuant to certain put protection rights, holders of such shares will have
registration rights at that time.
In addition to the registration statement covering 1,750,000 shares of Common
Stock issuable under the Plan, of which this Prospectus forms a part, the
Company has outstanding registration statements on Form S-3 relating to the
resale of shares of Common Stock and on Form S-8 relating to its 1989 Stock
Option Plan, 1994 Long-Term Incentive Plan and its 1995 Stock Purchase Plan (the
"Plans").
All of the shares of Common Stock issuable under the Plan, including the
675,000 Shares offered hereby, can be sold by the recipient thereof immediately
upon vesting of the Shares. Of the 1,328,704 shares of Common Stock issuable
under the Plan pursuant to outstanding Restricted Stock Awards, 112,334 vest in
December 1997, 265,567 vest in January 1998 (including 225,000 of the Shares
offered hereby), 112,334 vest in May 1998, 76,834 vest in December 1998 and the
remainder vest in the same amounts and during the same months from January 1998
through May 2000, subject to extension of each vesting date if it occurs during
a "Black Out Period," generally meaning a period in which the recipient
(including any Selling Stockholder) is unable to sell the Shares subject to the
award at the applicable vesting date due to legal or contractual restrictions.
The vesting dates are also subject to acceleration under certain circumstances,
including certain changes in control of the Company, except under certain
conditions. Sales of the shares of Common Stock subject to Restricted Stock
Awards, including the Shares offered hereby, or the possibility of sales of such
shares may adversely affect the market price of the Company's Common Stock.
Outstanding Options and Warrants. As of October 31, 1997, approximately
7,884,000 shares of Common Stock were issuable upon exercise of outstanding
options and warrants, subject to anti-dilution provisions. As a result of such
provisions, issuance of Shares pursuant to Restricted Stock Awards may result in
additional shares of Common Stock being issuable upon exercise of certain
warrants. In addition, the Company is required to issue additional shares of
Common Stock in connection with technology acquisitions and may issue additional
shares if certain put protection rights are exercised. To the extent such shares
are issued, the interest of holders of Common Stock will be diluted.
USE OF PROCEEDS
To the extent any Shares are sold each Selling Stockholder will receive all
the net proceeds from the sale of his representative Shares; the Company will
not receive any of such net proceeds. See "Plan of Distribution."
18
SELLING STOCKHOLDERS
The following table sets forth the names of each Selling Stockholder and
for each, the number of Shares beneficially owned at the commencement of the
offering, and the number of Shares offered for sale, based on information
provided to the Company by such Selling Stockholders. The Shares are being
registered to permit public secondary trading of the Shares, and the Selling
Stockholders may offer all or any portion of the Shares for resale from time to
time.
The Shares are issuable to the Selling Stockholders, subject to the vesting
as described in Note (2) below, pursuant to Restricted Stock Awards granted
under the Plan in consideration of services rendered (and payment of the par
value of the Shares) to the Company by the Selling Stockholders, each of whom is
an executive officer of the Company.
The Plan covers an aggregate of 1,750,000 shares of Common Stock which may
be issued pursuant to Restricted Stock Awards, subject to vesting and certain
other conditions. The Plan was authorized for adoption by the Board of Directors
in October 1997 and, pursuant to Board authorization, approved by the
Compensation Committee of the Board in November 1997, as an integral component
of a management and employee incentive and retention program. The Board
determined that such program, including the Plan, was in the best interests of
the Company in order to retain, motivate and provide incentive to the Company's
management and other employees, particularly in response to the perceived risk
of attrition of key personnel and employee morale issues resulting after the
withdrawal of Redux and related negative media coverage and legal proceedings.
See "Risk Factors".
Restricted Stock Awards to acquire an aggregate of 1,328,704 Shares have
been granted to all current employees of Interneuron in consideration of
services rendered to the Company by such employees. Of these Shares, 675,000 are
subject to awards granted to executive officers, 653,704 are subject to awards
granted to other employees of the Company and 421,296 are reserved for future
grants of Restricted Stock Awards to individuals who are not currently executive
officers of the Company. The number of Shares subject to Restricted Stock Awards
granted to each individual was based primarily on the employee's compensation.
The Company has agreed, among other things, to bear certain expenses in
connection with the registration and sale of the Shares being offered by the
Selling Stockholders. See "Plan of Distribution."
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Beneficially Owned Shares Beneficially Number of Shares
Selling Stockholders Prior to Offering(1) Owned Being Offered(2)
- -------------------- -------------------- ----- ----------------
<S> <C> <C> <C> <C>
Glenn L. Cooper, M.D. (3) 942,206 2.2% 225,000
Mark S. Butler (4) 520,500 1.2% 150,000
Thomas F. Farb (5) 307,822 * 150,000
Bobby W. Sandage, Jr., Ph.D. (6) 437,228 1% 150,000
</TABLE>
- -------------------------
* Less than 1%
(1) Unless otherwise indicated, each stockholder listed has sole power to vote
and direct disposition of the shares of Common Stock shown as beneficially
owned by such stockholder. Includes (i) Shares which have Initial Vesting
Dates pursuant to the Plan within 60 days of the date of this Prospectus
and (ii) shares of Common Stock issuable upon exercise of
-19-
options which are exercisable within 60 days of the date of this
Prospectus. Excludes (i) Shares which have Initial Vesting Dates which are
not within 60 days (although such Shares are being registered for resale)
and (ii) shares of Common Stock issuable upon exercise of options which
are not exercisable within 60 days.
(2) The Shares are being registered for the account of the Selling
Stockholders, each of whom are entitled to receive Shares in satisfaction
of Restricted Stock Awards granted pursuant to the Plan, subject to
vesting and to the Company's right to repurchase the Shares under certain
conditions. Of the Shares, one-third of the Shares being Offered vest on
staggered dates in each of January 1998, January 1999, and January 2000
(the "Initial Vesting Dates"), provided that each Initial Vesting Date is
subject to extension to a later vesting date under certain circumstances.
See "Description of Securities - Shares Eligible for Future Sale".
(3) Dr. Cooper is President and the Chief Executive Officer and a director of
the Company. Excludes 34,200 Shares subject to Restricted Stock Awards and
shares of Common Stock issuable upon exercise of options held by Dr.
Cooper's spouse, an employee of the Company. Dr. Cooper disclaims
beneficial ownership of such shares.
(4) Includes 3,000 shares of Common Stock owned by Mr. Butler's children. Mr.
Butler is Executive Vice President, Chief Administrative Officer and
General Counsel of the Company.
(5) Mr. Farb is Executive Vice President, Treasurer and Chief Financial
Officer of the Company.
(6) Dr. Sandage is Executive Vice President - Research and Development, Chief
Scientific Officer of the Company.
-20-
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Stockholders may sell Shares
from time to time in transactions on the Nasdaq National Market or on other
exchanges on which the Shares may be traded, in the over-the-counter market, in
negotiated transactions, through the writing of options on the Shares or a
combination of such methods of sale, or through other means. Sales may be
effected at fixed prices which may be changed, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
The Selling Stockholders may effect such transactions by selling the Shares
to or through underwriters, broker-dealers, or agents who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers or
agents who participate in the distribution of Shares hereunder may be deemed to
be "underwriters" as that term is defined in the Act, and any commissions
received by them and profit on any resale of the Shares as principal might be
deemed to be underwriting discounts and commissions under the Act.
The Company has agreed to pay the expenses of registration in connection
with this Offering and to indemnify the Selling Stockholders against certain
liabilities, including certain liabilities under the Act.
At the time a particular offer of Shares is made, to the extent required, a
supplement to this Prospectus will be prepared which will identify and set forth
the aggregate amount of Shares being offered and the terms of the offering.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell their Shares. Sales of Shares or the possibility of sales of
Shares may depress the market price of the Company's Common Stock. The Selling
Stockholders are subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation Regulation M,
which provisions may limit the timing of purchases and sales of the Shares by
the Selling Stockholders.
-21-
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 80,000,000 shares of Common Stock,
$.001 par value. At October 31, 1997, there were 41,165,810 shares of Common
Stock outstanding, excluding treasury shares. Holders of Common Stock are
entitled to one vote at all meetings of stockholders for each share held by
them. Holders of Common Stock have no preemptive rights and have no other rights
to subscribe for additional shares or any conversion right or right of
redemption. Holders of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. Subject to the rights of holders of Preferred Stock, if any, upon
liquidation, all such holders are entitled to participate pro rata in the assets
of the Company available for distribution. All of the outstanding shares of
Common Stock are, and the shares to be issued hereby will be, when issued, fully
paid and nonassessable.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
5,000,000 shares of Preferred Stock. The Board of Directors, within the
limitations and restrictions contained in the Certificate of Incorporation and
without further action by the Company's stockholders, has the authority to issue
Preferred Stock from time to time in one or more series and to fix the number of
shares and the relative rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences and any other preferences, special
rights and qualifications of any such series. To the extent shares of Preferred
Stock with voting rights are issued, such issuance affects the voting rights of
the holders of the Company's Common Stock by increasing the number of
outstanding shares entitled to vote and, if applicable, by the creation of class
or series voting rights. In addition, while the issuance of Preferred Stock can
provide flexibility in connection with acquisitions and other corporate
purposes, any issuance of Preferred Stock could, under certain circumstances,
have the effect of delaying or preventing a change in control of the Company and
may adversely affect the rights of holders of Common Stock. The Company has no
agreements or arrangements to issue any additional shares of Preferred Stock or
to establish or designate any series of Preferred Stock.
In November 1992 and June 1993, the Company sold shares of Series B and
Series C Preferred Stock to AHP pursuant to the AHP Agreements for an aggregate
purchase price of $3,500,000. Holders of the Series B and Series C Preferred
Stock are entitled to vote on all matters submitted to a vote of stockholders
generally, other than the election of directors, holding the number of votes
equal to the number of shares of Common Stock into which the Preferred Stock is
then convertible. The shares of Series B Preferred Stock and the Series C
Preferred Stock are convertible into an aggregate of 622,222 shares of Common
Stock, subject to adjustment. Holders of the Series B and Series C Preferred
Stock are entitled to receive out of funds legally available therefor, mandatory
dividends of $0.1253 and $1.00 per share, respectively, payable at the election
of the Company in cash or Common Stock. Such dividends are payable annually on
April 1 of each year, accrue on a daily basis and are cumulative. In the event
of any liquidation, distribution or sale of all or substantially all of the
assets, dissolution or winding up of the Company, the holders of Series B and
Series C Preferred Stock shall be entitled to receive a preference of $12.53 and
$100 per share, respectively, plus cumulated and unpaid dividends, over the
holders of Common Stock and any other shares.
-22-
Until the date AHP ceases to be the registered holder of all of the
outstanding Preferred Stock of at least one series, the Company will not,
without the approval of the majority of the outstanding shares of all series of
Preferred Stock issued to AHP, (i) issue shares of stock having a preference or,
except shares issued to AHP, ranking pari passu with the outstanding series;
(ii) reclassify any shares of stock to shares having a preference over any such
series; (iii) make any amendment to its Certificate of Incorporation or by-laws
adversely affecting the rights of holders of such series; (iv) merge or
consolidate with any entity or sell or otherwise dispose of all or substantially
all of its assets or liquidate, dissolve, recapitalize or reorganize; (v)
repurchase or redeem any shares of its Common Stock; (vi) pay dividends or make
any other distribution on any Common Stock, except a distribution payable
entirely in Common Stock, unless at the same time, a payment is made to the
holder of such series equal to the amount the holder would have been entitled to
had such holder converted its Series B and Series C Preferred Stock into Common
Stock; or (vii) guarantee any indebtedness of any third party, except a
subsidiary.
Subsidiary Financing Warrants and Put Protection Rights
In connection with certain private placements by the Subsidiaries,
Interneuron issued to the investors (i) three-year warrants to purchase an
aggregate of 218,125 shares of Common Stock and (ii) rights to sell varying
amounts of investors' convertible preferred stock in the Subsidiaries to
Interneuron (the "Put Protection Rights") in exchange for shares of Interneuron
Common Stock in the event certain conditions (including a public offering by the
applicable subsidiary) are not met by June 30, 1998. The shares underlying
certain of these warrants were registered for resale in March 1996 and, at
October 31, 1997 40,000 of such warrants remained outstanding. At October 31,
1997, a maximum of approximately 232,000 shares may be issued upon exercise of
the Put Protection Rights (if Interneuron's Common Stock is $2.00 or less at the
time of exercise).
Other Options and Warrants
At October 31, 1997, approximately 7,884,000 shares of Common Stock were
issuable upon exercise of outstanding options and warrants, subject to
anti-dilution provisions. As a result of such provisions, issuance of Shares
pursuant to Restricted Stock Awards may result in additional shares of Common
Stock being issuable upon exercise of certain warrants.
Business Combination Provisions
The Business Combination provision contained in Section 203 of Delaware's
General Corporation Law ("Section 203") defines an interested shareholder as any
person that (i) owns, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested shareholder; and
the affiliates and the associates of such person. Under Section 203, a resident
domestic corporation may not engage in any business combination with any
interested shareholder for a period of three years following the date such
shareholder became an interested shareholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the shareholder becoming an interested
shareholder or (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced
-23-
(excluding for determining the number of shares outstanding (a) shares owned by
persons who are directors and officers and (b) employee stock plans, in certain
instances) or (iii) on or subsequent to such date the business combination is
approved by the board of directors and authorized at an annual or special
meeting of shareholders by at least 66% of the affirmative voting stock which is
not owned by the interested shareholder. The Company did not "elect-out" of the
statute and, therefore, the restrictions imposed by Section 203 apply to the
Company.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, New York, serves as
transfer agent and registrar for the Company's Common Stock.
Shares Eligible for Future Sale
At October 31, 1997, the Company had 41,165,810 shares of Common Stock
outstanding, excluding treasury shares. Substantially all of these shares are
eligible for sale without restriction or under Rule 144. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated),
including persons who may be deemed to be "affiliates" of the Company as that
term is defined under the Act, is entitled to sell within any three-month period
a number of restricted shares beneficially owned for at least one year that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock, or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. However, a person
who is not an affiliate and has beneficially owned such shares for at least two
years is entitled to sell such shares without regard to the volume or other
requirements.
A stockholder of the Company has demand and piggy-back registration rights
relating to 622,222 shares of Common Stock issuable upon conversion of preferred
stock. Certain stockholders entitled to receive additional shares of Common
Stock to be issued in December 1997 with a market value of $1,200,000 at the
time of issuance have registration rights in January 1998 relating to the resale
of those shares. In the event up to a maximum of approximately 232,000 shares of
Common Stock are issued in June 1998 pursuant to Put Protection Rights, holders
of such shares will have registration rights at that time.
All of the shares of Common Stock issuable under the Plan, including the
675,000 Shares offered hereby, can be sold by the recipient thereof immediately
upon vesting of the Shares. Of the 1,328,704 shares of Common Stock issuable
under the Plan pursuant to outstanding Restricted Stock Awards, 112,334 vest in
December 1997, 265,567 vest in January 1998 (including 225,000 of the Shares
offered hereby), 112,334 vest in May 1998, 76,834 vest in December 1998 and the
remainder vest in the same amounts and during the same months from January 1998
through May 2000, subject to extension of each vesting date if it occurs during
a "Black Out Period," generally meaning a period in which the recipient
(including any Selling Stockholder) is unable to sell the Shares subject to the
award at the applicable vesting date due to legal or contractual restrictions.
The vesting dates are also subject to acceleration under certain circumstances,
including certain changes in control of the Company, except under certain
conditions. Sales of the shares of Common Stock subject to Restricted Stock
Awards, including the Shares
-24-
offered hereby, or the possibility of sales of such shares may adversely affect
the market price of the Company's Common Stock.
In addition to the registration statement of which this Prospectus forms a
part, the Company has outstanding registration statements on Form S-3 relating
to the resale by other stockholders of the Company of shares of Common Stock and
on Form S-8 relating to its Plans in order to permit holders of options and
shares issued pursuant to the Plans, other than affiliates of the Company, to
sell, without restriction, shares of Common Stock issued pursuant to the Plans.
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York. A member of
Bachner, Tally, Polevoy & Misher LLP, who is the secretary of the Company, owns
approximately 17,000 shares of Common Stock.
EXPERTS
The consolidated balance sheets as of September 30, 1996 and 1995 and the
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended September 30, 1996, incorporated by
reference in this registration statement, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
-25-
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the Offering herein contained, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
any of the dates as of which information is furnished herein or since the date
hereof.
TABLE OF CONTENTS
Page
Available Information .................................................. 3
Incorporation of Certain Documents by Reference ........................ 4
The Company............................................................. 5
Risk Factors ........................................................... 8
Use of Proceeds ........................................................ 18
Selling Stockholders ................................................... 19
Plan of Distribution ................................................... 21
Description of Securities .............................................. 22
Legal Matters .......................................................... 25
Experts ................................................................ 25
-26-
PART II
Information Not Required in Prospectus
Item 3. Incorporation of Documents by Reference
The following documents filed with the Commission (File No. 0-18728)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, including any documents or portions thereof incorporated by
reference therein and all amendments thereto;
2. The Company's definitive proxy statement dated January 28, 1997, except
the Compensation Committee Report on executive compensation and the performance
graph included in the proxy statement, filed pursuant to Section 14 of the
Exchange Act;
3. The Company's Reports on Form 10-Q for the quarters ended December 31,
1996, March 31, 1997 and June 30, 1997.
4. The Company's Reports on Form 8-K dated December 19, 1996, February 18,
1997, March 14, 1997, May 5, 1997, June 19, 1997, July 3, 1997, July 18, 1997,
July 25, 1997, August 29, 1997, September 15, 1997, September 18, 1997 and
October 15, 1997.
5.The Company's Registration Statement on Form 8-A declared effective on
March 8, 1990, as amended, registering the Common Stock under the Exchange Act;
and
6. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering, except the Compensation Committee Report on
Executive Compensation and the performance graph included in the Proxy Statement
filed pursuant to Section 14 of the Exchange Act. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to the
Company, 99 Hayden Avenue, Lexington, Massachusetts 02173, Attention: Chief
Financial Officer, telephone (781) 402-3404.
II-1
Item 6. Indemnification of Directors and Officers.
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law.
Reference is hereby made to Section 145 of the Delaware General Corporation
Law relating to the indemnification of officers and directors which Section is
hereby incorporated herein by reference.
The Registrant also has Indemnification Agreements with its officers and
directors and has director and officer liability insurance.
Item 8. Exhibits.
Exhibits
--------
4.8 - 1997 Equity Incentive Plan and form of Restricted Stock Award
Agreement thereunder
5.1 - Opinion of Bachner, Tally, Polevoy & Misher LLP as to legality
23.1 - Consent of Coopers & Lybrand L.L.P. - Included on II - 7
23.2 - Consent of Bachner, Tally, Polevoy & Misher LLP - Included in Exhibit
5.1
24.1 - Power of Attorney - Included on II-4
Item 9. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Act"), each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be initial bona fide
offering thereof.
II-2
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-8 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lexington, County of Middlesex on the 14th day of November, 1997.
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper, M.D.
----------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, severally and not jointly, Glenn L.
Cooper, M.D. and Lindsay Rosenwald, M.D., with full power to act alone, his true
and lawful attorneys-in-fact, with the power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Glenn L. Cooper, M.D. President, Chief Executive November 14,1997
- -------------------------- Officer and Director
Glenn L. Cooper, M.D. (Principal Executive Officer)
/s/ Lindsay Rosenwald, M.D.
- --------------------------
Lindsay Rosenwald, M.D. Chairman of the Board of November 14,1997
Directors
/s/ Harry J. Gray
- -------------------------- November 14,1997
Harry J. Gray Director
/s/ Alexander M. Haig, Jr.
- -------------------------- November 14,1997
Alexander M. Haig, Jr. Director
- -------------------------- November 14,1997
Peter Barton Hutt Director
II-4
/s/ Malcolm Morville, Ph.D.
- -------------------------- November 14, 1997
Malcolm Morville, Ph.D. Director
/s/ Robert K. Mueller
- -------------------------- November 13, 1997
Robert K. Mueller Director
/s/ Lee J. Schroeder
- -------------------------- November 14, 1997
Lee J. Schroeder Director
/s/ David Sharrock
- -------------------------- November 14, 1997
David Sharrock Director
/s/ Richard Wurtman, M.D.
- -------------------------- November 14, 1997
Richard Wurtman, M.D. Director
/s/ Thomas F. Farb
- --------------------------- November 14, 1997
Thomas F. Farb Executive Vice President,
Treasurer and Chief
Financial Officer (Principal
Financial Officer)
/s/ Dale Ritter
- --------------------------- November 14, 1997
Dale Ritter Vice President, Corporate
Controller (Principal Accounting
Officer)
</TABLE>
II-5
Exhibit Index
-------------
4.8 - 1997 Equity Incentive Plan and form of Restricted Stock Award
Agreement thereunder
5.1 - Opinion of Bachner, Tally, Polevoy & Misher LLP as to legality
23.1 - Consent of Coopers & Lybrand L.L.P. - Included on II-7
23.2 - Consent of Bachner, Tally, Polevoy & Misher LLP - Included in
Exhibit 5.1
24.1 - Power of Attorney - Included on II-4
II-6
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of Interneuron Pharmaceuticals, Inc. on Form S-8 of our report dated November 8,
1996 on our audits of the consolidated financial statements of Interneuron
Pharmaceuticals, Inc. as of September 30, 1996 and 1995 and for each of the
three years in the period ended September 30, 1996 appearing in the Annual
Report on Form 10-K for the fiscal year ended September 30, 1996 (SEC File No.
0-18728) of Interneuron Pharmaceuticals, Inc. filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.
We also consent to the reference to our firm in the Registration Statement
under the caption "Experts".
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 13, 1997
II-7
EXHIBIT 4.8
INTERNEURON PHARMACEUTICALS, INC.
1997 EQUITY INCENTIVE PLAN
1. Purpose.
The purpose of the Interneuron Pharmaceuticals, Inc. 1997
Equity Incentive Plan (the "Plan") is to provide incentives for Interneuron
Pharmaceuticals, Inc. (the "Company") to attract, retain, motivate and provide
incentive to eligible persons whose contributions are important to the success
of the Company by offering them an opportunity to participate in the Company's
future through awards entitling such persons to acquire shares of the Company's
Common Stock, $.001 par value ("Common Stock").
2. Type of Awards and Administration.
(a) Administration. The Plan will be administered by the Board
of Directors or a committee designated by the Board of Directors (the
"Committee"), whose construction and interpretation of the terms and provisions
of the Plan shall be final and conclusive. The delegation of powers to the
Committee shall be consistent with applicable laws or regulations (including,
without limitation, applicable state law and Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule
("Rule 16b-3")). The Board of Directors or the Committee shall have authority,
subject to the express provisions of the Plan, to grant Restricted Stock Awards
(as defined in Section 5 below), to construe the respective award agreements and
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective award agreements,
which need not be identical, and to make all other determinations in the
judgment of the Board of Directors or the Committee necessary or desirable for
the administration of the Plan. The Board of Directors or the Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any award agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the sole and final judge
of such expediency. No director or person acting pursuant to authority delegated
by the Board of Directors or the Committee shall be liable for any action or
determination under the Plan made in good faith. Subject to adjustment as
provided in Section 11 below, the aggregate number of shares of Common Stock
that may be subject to Restricted Stock Awards granted to any person in a
calendar year shall not exceed 250,000 shares.
(b) Applicability of Rule 16b-3. Those provisions of the Plan
which make express reference to Rule 16b-3 shall apply only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
3. Eligibility.
(a) General. Restricted Stock Awards may be granted to persons
who are, at the time of grant, employees or officers of the Company as defined
in Sections 424(e) and 424(f) of the Code ("Participants"). A Participant who
has been granted a Restricted Stock Award may, if he or she is otherwise
eligible, be granted additional Restricted Stock Awards if the Board or the
Committee shall so determine.
(b) Grant of Awards to Reporting Persons. The selection of an
officer who is a Reporting Person (as the term "officer" is defined for purposes
of Rule 16b-3) as a recipient of Restricted Stock Award, the vesting of the
Restricted Stock Award and the number of shares subject to the Restricted Stock
Award shall be determined either (i) by the Board of Directors or (ii) the
Committee.
4. Stock Subject to Plan.
The stock subject to Restricted Stock Awards granted under the
Plan shall be shares of authorized but unissued or reacquired Common Stock.
Subject to adjustment as provided in Section 11 below, the maximum number of
shares of Common Stock of the Company which may be issued and sold under the
Plan is 1,750,000 shares (the "Shares"). Shares that are subject to a Restricted
Stock Award granted under the Plan that terminates or expires without Shares
being issued or Shares that are repurchased by the Company at the original
purchase price shall again be available for grant and issuance in connection
with subsequent Restricted Stock Awards under the Plan.
5. Terms and Conditions of Awards of Restricted Stock.
(a) General Terms. The Board of Directors or the Committee
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant awards entitling the Participant to receive Shares
of Common Stock ("Restricted Stock Award(s)") and to provide the terms and
conditions (which need not be identical among Participants) thereof. Restricted
Stock Awards shall be evidenced by written agreements ("Stock Award Agreements")
in such form as the Board or the Committee from time to time shall approve. In
particular, the Board or the Committee shall have the power to determine:
(i) which of the Participants are eligible to receive
Restricted Stock Awards under the Plan and the number of Shares to be subject to
such awards;
(ii) the vesting period or performance criteria, if
any, applicable to each Restricted Stock Award, which period or criteria need
not be the same for all Restricted Stock Awards;
(iii) the payment, if any, to be made by the
Participant in consideration of the Restricted Stock Award or the Shares subject
to the Restricted Stock Award. Any
-2-
Restricted Stock Award may be made for past services already rendered to the
Company (provided that the Participant pays the Company in cash the par value of
the Shares subject to the award) or may provide for payment of cash or deferred
consideration which is less than the Fair Market Value of the Common Stock
subject to the award at the date of grant. Any such Restricted Stock Award may
be on the basis that the Shares subject to the award may be repurchased by the
Company at a fixed price or at a price established by formula upon specified
circumstances;
(iv) the effect which specific events designated by
the Board of Directors or the Committee are to have on the vesting period, which
shall be incorporated into the related Stock Award Agreement executed by the
Company and the Participant; and
(v) the restrictions on transferability applicable to
each Restricted Stock Award or the Shares subject to such award.
(b) No Rights as a Stockholder. The recipient of a Restricted
Stock Award pursuant to the Plan shall have no rights as a stockholder with
respect to any Shares subject to the Restricted Stock Award until his or her
interest in those Shares is vested pursuant to the provisions of Section 6 of
the Plan and the applicable Stock Award Agreement. In the event required by law
or otherwise deemed by the Board of Directors or the Committee to be in the best
interests of the Company, a recipient of a Restricted Stock Award may be
required to agree to a reduction, restriction or limitation of the voting rights
of the Shares subject to such award, provided that any such reduction,
restriction or limitation terminates upon the public sale of such Shares.
6. Vesting of Stock Subject to Restricted Stock Awards.
(a) Vesting Restrictions. Restricted Stock Awards shall be
subject to the restrictions, which shall be incorporated into the related Stock
Award Agreement executed by the Company and the Participant, that the Shares
subject to such awards:
(i) may be subject to vesting periods based on
continued employment with the Company;
(ii) may be subject to the Company's right to
purchase all or any portion of said Shares at or prior to vesting at the Fair
Market Value on the vesting date which right may be satisfied by the Company's
withholding of issuance of Shares in satisfaction of all or part of the
Restricted Stock Award in exchange for payment of the Fair Market Value thereof.
(b) Vesting Period. Vesting of Shares subject to Restricted
Stock Awards shall be at the times or upon the events determined by the Board or
the Committee at the time of grant and set forth in the applicable Stock Award
Agreement unless such vesting periods are accelerated in accordance with
subsection (c) below or extended in accordance with subsection (d) below.
-3-
(c) Acceleration of Vesting. The vesting periods contained
herein or in the applicable Stock Award Agreement shall accelerate upon the
occurrence of a Trigger Event (as defined in and subject to the terms and
conditions of Section 12) or at such times and in such amounts, if the Board of
Directors or the Committee determines in the exercise of its sole discretion
that the acceleration of vesting at such time or times with respect to all or a
portion of the Shares subject to the Restricted Stock Award is in the best
interest of the Company; provided, however, that no such acceleration shall be
permitted if it would cause the Plan to fail to comply with Rule 16b-3 (if
applicable).
(d) Extension of Vesting. The vesting periods contained herein
or in the applicable Stock Award Agreement shall be subject to extension in the
event the specified vesting period occurs during a "Black-Out Period," as
defined in the next sentence, on the terms and conditions to be set forth in the
applicable Stock Award Agreement. For purposes of the Plan, "Black-Out Period"
shall mean any period of time during which the Participant is unable to sell
Shares as a result of legal or contractual restrictions on such sale, including
but not limited to periods in which (a) the Participant is subject to a
"lock-up" agreement with a third party executed in connection with a public
offering or other financing transaction by the Company prohibiting the sale by
Participant of shares of the Company's Common Stock for a specified period of
time without such third party's consent or (b) the Participant is subject to
"insider-trading" restrictions imposed by the Company or by law.
7. Nontransferability of Award.
(a) No Restricted Stock Award granted under this Plan shall be
assignable or otherwise transferable by the Participant except by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, except as set forth in subsections (b),
(c) and (d) hereof.
(b) The Board of Directors or the Committee may, in its
discretion, authorize all or a portion of any Restricted Stock Awards granted to
a Participant to be on terms which permit transfer by such Participant to (i)
the spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of the Participant
or such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners (individually or collectively, the
"Permitted Transferee(s)"), provided that (w) the Restricted Stock Award must be
held by the Participant for a period of at least one month prior to transfer,
(x) there may be no consideration for any such transfer, (y) the Stock Award
Agreement pursuant to which such Restricted Stock Awards are granted must be
approved by the Board of Directors or the Committee, and must expressly provide
for transferability in a manner consistent with this Section, and (z) subsequent
transfers of transferred Restricted Stock Awards shall be prohibited except by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. Following transfer, any such
Restricted Stock Awards shall continue to be subject to the same terms and
conditions as
-4-
were applicable immediately prior to transfer, provided that for purposes of the
Plan the term "Participant" shall be deemed to refer to the Permitted
Transferee.
(c) The events of termination of employment of Section 8
hereof shall continue to be applied with respect to the original Participant. A
Restricted Stock Award may be exercised during the lifetime of the Participant
only by the Participant or Permitted Transferees. In the event a Participant
dies during his employment by the Company, his Restricted Stock Award shall
thereafter be exercisable, during the period specified in the award agreement,
by his executors or administrators to the full extent to which such Restricted
Stock Award was exercisable by the Participant at the time of his death during
the periods set forth in Section 8.
(d) Transfer or sale of the Restricted Stock Awards and/or
Shares issued upon satisfaction of Restricted Stock Awards is subject to
restrictions on transfer imposed by any applicable state and federal securities
laws.
8. Effect of Termination of Employment or Other Relationship.
Except as otherwise determined by the Board or the Committee
at the date of grant of a Restricted Stock Award, and subject to the provisions
of the Plan, a Restricted Stock Award shall terminate immediately upon the
termination of the Participant's employment with the Company or twelve (12)
months thereafter if such termination was due to the death or disability of the
Participant but, except in the case of the Participant's death, in no event
later than the expiration date of the Restricted Stock Award.
9. Additional Award Provisions.
The Board of Directors or the Committee may, in its sole
discretion, include additional provisions in agreements covering awards granted
under the Plan, including without limitation restrictions on transfer, purchase
or repurchase rights, rights of first refusal, or such other provisions as shall
be determined by the Board of Directors or the Committee; provided, that such
additional provisions shall not be inconsistent with any other term or condition
of the Plan.
10. General Restrictions.
(a) Investment Representations. The Company may require any
person to whom a Restricted Stock Award is granted, as a condition of the
Company issuing Shares upon vesting of such award, to (i) give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Shares subject to the award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or (ii) comply with covenants or representations made by the
Company in connection with any public offering of its
-5-
Common Stock, including executing any "lock-up" agreement or other restriction
on transferability.
(b) Compliance With Securities Law. Each Restricted Stock
Award shall be subject to the requirement that if, at any time, the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or automated quotation system or under any
state or federal law, or the consent or approval of any governmental or
regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance or purchase of Shares thereunder, the Company shall
have no obligation to issue or deliver certificates evidencing such Shares, in
whole or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or obtained
on conditions acceptable to the Committee or the Board of Directors. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification, or to satisfy such condition and the
Company shall have no liability for any inability or failure to do so.
11. Adjustment Provisions for Recapitalizations, and Related
Transactions.
(a) Recapitalizations and Related Transactions. Subject to any
required action by the Company's stockholders, if, through or as a result of any
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of Shares reserved
for issuance under or otherwise referred to in the Plan, (y) the number and kind
of Shares or other securities subject to any then outstanding Restricted Stock
Awards under the Plan, and (z) the price, if any, for each Share subject to any
then outstanding Restricted Stock Awards under the Plan, without changing the
aggregate purchase price as to which such Restricted Stock Awards remain
outstanding. Such adjustment shall be made by the Board or the Committee, whose
determination in that respect shall be final, binding and conclusive.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 11 if such adjustment (i) would cause the Plan to fail to comply with
Rule 16b-3 or (ii) would be considered as the adoption of a new plan requiring
stockholder approval.
12. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale
of all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of the
Company (a "Trigger Event"), the vesting of all or any outstanding Restricted
Stock Awards shall accelerate immediately prior to the specified effective date
of a Trigger Event and upon written notice to the Participants holding
outstanding awards, unless such acceleration of vesting will disqualify the use
of pooling of interests accounting
-6-
treatment for the Trigger Event and such accounting treatment would otherwise be
available and is determined by the Board of Directors to be in the Company's
best interests; provided, however, that the Board of Directors of the Company,
or the board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, provide that, as to outstanding Restricted
Stock Awards, in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), a cash
payment will be made to the Participants equal to the difference between (A) the
Merger Price times the number of shares of Common Stock subject to such
outstanding awards and (B) the aggregate purchase price of all such Shares
subject to outstanding awards in exchange for the termination of such awards.
(b) Substitute Awards. The Company may grant awards under the
Plan in substitution for awards held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation, or
otherwise. Such substitution will be permissible if the holder of the
substituted award would have been eligible to be granted a Restricted Stock
Award under this Plan if the other Company had applied the rules of this Plan to
such grant. The Company may direct that substitute awards be granted on such
terms and conditions as the Committee or the Board of Directors considers
appropriate in the circumstances.
(c) Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of Section 12, in the
event of the occurrence of any Trigger Event, any outstanding Restricted Stock
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
corporate transaction.
13. No Special Employment Rights.
Nothing contained in the Plan or in any Restricted Stock Award
shall confer upon any Participant any right with respect to the continuation of
his or her employment by the Company or interfere in any way with the right of
the Company at any time to terminate such employment or to increase or decrease
the compensation of the Participant.
14. Other Employee Benefits.
Except as to plans which by their terms include such amounts
as compensation, the amount of any compensation deemed to be received by an
employee as a result of the receipt of a Restricted Stock Award or the sale of
Shares issued in satisfaction of such award will not constitute compensation
with respect to which any other employee benefits of such employee are
determined, including, without limitation, benefits under any bonus, pension,
profit-sharing,
-7-
401(k), employee stock purchase plan, life insurance or salary continuation
plan, except as otherwise specifically determined by the Board of Directors.
15. Amendment of the Plan.
(a) The Board of Directors or the Committee may at any time,
and from time to time, modify or amend the Plan in any respect; provided,
however, that if at any time the approval of the stockholders of the Company is
required under Rule 16b-3, the Board of Directors or the Committee may not
effect such modification or amendment without such approval.
(b) The modification or amendment of the Plan shall not,
without the consent of a Participant, affect his or her rights under an award
previously granted to him or her. With the consent of the Participant affected,
the Board of Directors or the Committee may amend outstanding award agreements
in a manner not inconsistent with the Plan. The Board of Directors or the
Committee shall have the right to amend or modify the terms and provisions of
the Plan and of any outstanding award to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
16. Withholding.
(a) The Company shall have the right to deduct from payments
of any kind otherwise due to the Participant any federal, state or local taxes
of any kind required by law to be withheld with respect to any Restricted Stock
Awards granted or Shares vesting under the Plan. Subject to the prior approval
of the Company, which may be withheld by the Company in its sole discretion, the
Participant may request to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable in
satisfaction of Restricted Stock Awards or (ii) by delivering to the Company
shares of Common Stock already owned by the Participant. The shares so delivered
or withheld shall have a Fair Market Value equal to such withholding obligation
as of the date that the amount of tax to be withheld is to be determined (the
"Tax Date"). A Participant who has made a request pursuant to this Section 16(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any unfulfilled vesting, repurchase, forfeiture, or
other similar requirements.
(b) Whenever shares of Common Stock are to be issued in
satisfaction of a Restricted Stock Award under this Plan, the Company may
require the Participant to remit to the Company, at the time of the Tax Date, an
amount sufficient to satisfy federal, state and local withholding tax
obligations prior to the delivery of the certificates for such Shares, whether
or not the Participant is in the employ of the Company at such time.
(c) If requested by the Company, each Participant may be
required to agree that sales of Shares subject to a Restricted Stock Award shall
be sold by Participant only through such broker-dealers, each of which is a
member of the National Association of Securities Dealers, Inc. ("NASD") as have
been designated by the Company (a "Designated NASD Dealer") whereby, upon the
Participant irrevocably electing to sell a portion of the Shares, the
-8-
Designated NASD Dealer irrevocably commits upon receipt of such Shares to
forward directly to the Company an amount sufficient to satisfy the federal,
state and local withholding tax obligation with respect to the vesting of the
Shares.
(d) Notwithstanding the foregoing, in the case of a Reporting
Person whose awards have been granted in accordance with the provisions of
Section 3(b) herein, no election to use Shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3, if applicable.
17. Cancellation and New Grant of Awards, Etc.
The Board of Directors or the Committee shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Participants, (i) the cancellation of any or all outstanding awards
under the Plan and the grant in substitution therefor of new awards under the
Plan covering the same or different numbers of shares of Common Stock or (ii)
the amendment of the terms of any and all outstanding awards under the Plan.
18. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors and approved by the Committee. Amendments to
the Plan not requiring stockholder approval shall become effective when adopted
by the Board of Directors or the Committee. Subject to this limitation, awards
may be granted under the Plan at any time on or after the effective date and
before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the later of the
date of its adoption by the Board of Directors or approval by the Committee, or
(ii) the date on which all Shares available for issuance under the Plan shall
have been issued pursuant to the satisfaction or cancellation of awards granted
under the Plan. If the date of termination is determined under (i) above, then
awards outstanding on such date shall continue to have force and effect in
accordance with the provisions of the agreements evidencing such awards.
19. Provision for Foreign Participants.
The Board of Directors or the Committee may, without amending
the Plan, modify awards granted to Participants who are foreign nationals or
employed outside the United States to recognize differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employee benefit or other matters.
-9-
20. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on October 6, 1997 and,
pursuant to Board authorization, approved by the Committee on November 7, 1997
-10-
EXHIBIT A
EXHIBIT A
INTERNEURON PHARMACEUTICALS, INC.
FORM OF RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT is made between ____________ ("Participant") and
Interneuron Pharmaceuticals, Inc., a Delaware corporation (the "Company"), as of
__________ , 199__.
RECITALS
WHEREAS, Participant is an employee of the Company and the
Participant's continued retention is considered by the Company to be important
for the Company's growth;
WHEREAS, to give Participant an opportunity to acquire an equity
interest in the Company as an incentive for Participant to continue to
participate in the affairs of the Company, the Company is willing to grant to
Participant and Participant desires to acquire an award (a "Restricted Stock
Award") entitling Participant to receive shares of the Company's Common Stock,
$.001 par value ("Common Stock"), according to the terms and conditions
contained herein and in the Company's 1997 Equity Incentive Plan (the "Plan");
and
WHEREAS, pursuant to the Plan, this Agreement grants the Company a
repurchase option exercisable in certain instances on the terms and conditions
set forth herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. Stock Award. Subject to the terms and conditions hereof, the Company
hereby grants Participant a Restricted Stock Award entitling Participant to
receive an aggregate of _____ shares (the "Shares") of the Company's Common
Stock in consideration of services rendered to the Company and payment of the
par value of the Shares ($.001 per share).
2. Vesting.
(a) Shares subject to the Restricted Stock Award granted
hereunder are issuable to Participant only upon satisfaction of the vesting
periods set forth below, based on continued employment services of Participant
with the Company, subject to (i) the provisions of paragraph (b) below and (ii)
earlier termination or expiration of the Restricted Stock Award under Section 3
below.
No. of Shares Initial
Initially Vesting Vesting Date
----------------- --------------
(b) Any or all of the Initial Vesting Dates set forth above
shall be automatically extended to a new date (the "New Vesting Date") without
any action on the part of the Company or the Participant, if the applicable
Initial Vesting Date occurs during a Black-Out Period, as defined in
sub-paragraph (i) below and as determined by the Board of Directors or the
Committee.
(i) "Black-Out Period" shall mean any period of time
during which the Participant is unable to sell Shares as a result of legal or
contractual restrictions on such sale, including but not limited to periods in
which (a) the Participant is subject to a "lock-up" agreement with a third party
executed in connection with a public offering or other financing transaction by
the Company prohibiting the sale by Participant of shares of the Company's
Common Stock for a specified period of time without such third party's consent
or (b) the Participant is subject to "insider-trading" restrictions imposed by
the Company or by law.
(ii) The New Vesting Date shall be the [third]
[insert date not less than third] business day after expiration of the Black-Out
Period related to the applicable Initial Vesting Date.
(c) Participant acknowledges that, subject to the provisions
of (i) subsection (b) above, and (ii) Section 12 of the Plan, the dates for the
vesting of Shares (whether such dates are Initial Vesting Dates or New Vesting
Dates) will be strictly interpreted.
(d) For purposes of this Agreement, "Vested Shares" shall mean
Shares subject to this Restricted Stock Award that have vested under the
preceding paragraphs; "Unvested Shares" shall mean Shares not so vested;
"Vesting Dates" shall mean the Initial Vesting Dates or any New Vesting Dates,
as applicable.
3. Termination of Employment.
(a) If Participant's employment with the Company is terminated
for any reason whatsoever, other than for death or Disability (as defined
below), this Restricted Stock Award will terminate and expire immediately upon
such termination.
(b) If Participant's employment with the Company is terminated
due to death or Disability (as defined below), the Restricted Stock Award shall
terminate and expire on the date twelve (12) months following the effective date
of such termination.
(c) For purposes of this Section, "Disability" means any
disability which, in the opinion of the Board of Directors of the Company,
renders the Participant unable to perform his duties as an employee of the
Company on a full time basis.
-2-
4. Company Right to Repurchase. The Company shall have the right and
option (the "Repurchase Right") to repurchase all or any portion of the Shares
issuable to Participant pursuant to this Restricted Stock Award as follows:
(a) If the Company elects to exercise its Repurchase Right,
the Company shall deliver, not later than the second business day prior to a
Vesting Date, a notice ("Notice") to the Participant stating (i) the Company's
intention to purchase all or any portion of the Shares vesting on the applicable
Vesting Date, (ii) the number of such Shares to be purchased, and (iii) the date
and place for closing, which closing shall occur not more than five (5) days
after the Company's mailing of the Notice.
(b) At the closing, the holder of the certificate for the
Shares to be sold shall deliver the stock certificate or certificates evidencing
such Shares, duly endorsed in blank or with duly endorsed stock powers attached
thereto all in form suitable for the transfer of the Shares to the Company and
the Company shall deliver the purchase price therefor, at a price per Share
equal to the Fair Market Value (as determined in accordance with Section 6). The
Company may elect to exercise the Repurchase Right by withholding issuance of
the number of Shares issuable on the applicable Vesting Date equal to the number
of Shares the Company has elected to purchase pursuant to the Repurchase Right
as set forth in the Notice, in exchange for payment of the purchase price.
(c) The Company shall not be required (i) to transfer on its
books any Vested Shares which shall have been sold or transferred in violation
of any of the provisions set forth in this Agreement, or (ii) 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.
5. Transferability of the Award; Certificates.
(a) This Restricted Stock Award may not be sold, transferred,
pledged, hypothecated or otherwise disposed of, except as provided for in the
Plan and except to (i) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of Participant or such Immediate Family Members, or (iii) a partnership in which
such Immediate Family Members are the only partners (individually or
collectively, "Permitted Transferee(s)"), provided that (w) the award must be
held by the Participant for a period of at least one month prior to transfer,
(x) there may be no consideration for any such transfer, (y) subsequent
transfers of transferred awards shall be prohibited except by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or Title I of the Employee Retirement Income Security
Act, or the rules thereunder, and except in accordance with this Agreement.
Transfer or sale of said Award is subject to restrictions on transfer imposed by
any applicable state and federal securities laws. Any Permitted Transferee shall
hold such award subject to all the provisions hereof and shall acknowledge the
same by signing a copy of this Agreement.
-3-
(b) If requested by the Company or an underwriter of a public
offering of the Company's securities, Participant shall execute and deliver to
the Company a "lock-up" agreement requiring that the Participant not sell,
transfer or dispose of any or all of the Shares subject to this Restricted Stock
Award, during specified periods, in form and substance satisfactory to the
Company. Participant further agrees that the Company may impose stop-transfer
restrictions with respect to the Shares subject to the foregoing restrictions
until the end of such period.
(c) Upon satisfaction of the applicable vesting periods set
forth in Section 2 of this Agreement and compliance with the other terms and
conditions of this Agreement, the Company shall issue to Participant
certificates evidencing the Shares issuable pursuant to this award on the
applicable Vesting Date. The certificate or certificates evidencing the Shares
subject to this award shall be endorsed with legends substantially as follows,
as well as any legend required to reflect a "lock-up" as referred to in
paragraph (b) above, as applicable:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
THE TERMS OF THE RESTRICTED STOCK AWARD
AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE
PURCHASED, A COPY OF WHICH IS ON FILE WITH
THE CORPORATION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE
COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933."
6. Fair Market Value. For purposes of this Agreement, the "Fair Market
Value" of a share of Common Stock of the Company as of a specified date shall
mean the closing price of a share of the Common Stock on the principal
securities exchange (including the Nasdaq National Market) on which such shares
are traded on the day as of which Fair Market Value is being determined, (or, if
Shares are sold on such date, the net sales price per Share) or on the next
preceding date on which such shares are traded if no shares were traded on such
immediately preceding day, or if the Shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the Shares in the over-the-counter market on the day as
of which Fair Market Value is being determined (or, if Shares are sold on such
date, the net sales price per Share) or on the next preceding date on which such
high bid and low asked prices were recorded. If the Shares are not publicly
traded, Fair Market Value of a share of Common Stock shall be determined in good
faith by the Board
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of Directors or the Committee using such factors, in its judgment, as are
relevant in measuring the value of the Common Stock. In no case shall Fair
Market Value be determined with regard to restrictions other than restrictions
which, by their terms, will never lapse.
7. Ownership; Voting Rights. The holder of this Restricted Stock Award
has no rights as a Stockholder with respect to any of the Shares subject to the
Restricted Stock Award until his or her interest in those Shares is vested
pursuant to the provisions of Section 2. The holder of this Restricted Stock
Award hereby agrees to any reduction, restriction or limitation in voting rights
of the Shares which may be imposed by law or by the Board of Directors or the
Committee providing that any such reduction, restriction or limitation
terminates automatically upon the public sale of the Shares.
8. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Participant shown on the records of the
Company, and to the Company at its principal executive offices.
9. Survival of Terms. This Agreement shall apply to and bind
Participant and the Company and their respective permitted assignees and
transferees, heirs, legatees, executors, administrators and legal successors.
10. Withholding. (a) The Participant acknowledges and agrees that the
Company has the right to withhold from payments of any kind otherwise due to the
Participant, or to require the Participant to pay to the Company an amount
sufficient to pay any federal, state or local taxes of any kind required by law
to be withheld by the Company with respect to this award or the issuance to the
Participant of Shares subject to this award. The Company may require the
Participant to remit to the Company, at the time of the Tax Date, an amount
sufficient to satisfy federal, state and local withholding tax obligations prior
to the delivery of the certificates for such Shares, whether or not the
Participant is in the employ of the Company at such time. At the option of the
Committee or the Board of Directors, the Participant may satisfy such tax
obligation in whole or in part by surrendering to the Company shares of Common
Stock, including Shares which are not then Unvested Shares, having a Fair Market
Value on the day prior to the date that the amount of tax to be withheld is to
be determined (the "Tax Date"), equal to the amount of such obligation. All
requests by a Participant to have Shares surrendered for this purpose will be
made in writing in a form acceptable to the Board of Directors or the Committee
and will be subject to the following restrictions:
(i) the request must be made on or prior to the
applicable Tax Date;
(ii) once made, then except as provided below, the
request will be irrevocable as to the particular Shares as to which the election
is made;
(iii) all requests will be subject to the consent or
disapproval of the Board or the Committee;
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(iv) if the Participant is a Reporting Person, the
election to use stock withholding shall be as permitted by Rule 16b-3(e) under
the Exchange Act.
(b) If requested by the Company, Participant hereby agrees
that sales of Shares subject to this award shall be sold by Participant only
through such broker-dealers, each of which is a member of the National
Association of Securities Dealers, Inc. ("NASD") as have been designated by the
Company (a "Designated NASD Dealer") whereby, upon the Participant irrevocably
electing to sell a portion of the Shares the Designated NASD Dealer irrevocably
commits upon receipt of such Shares to forward directly to the Company an amount
sufficient to satisfy the federal, state and local withholding tax obligation
with respect to the issuance of the Shares.
(c) The Participant acknowledges that he has been informed of
the availability of making an election in accordance with Section 83(b) of the
Code; and that the Participant is solely responsible for making such election.
11. Representations. Participant has had an opportunity to review with
his own tax advisors the federal, state, local and foreign tax consequences of
this investment and the transactions contemplated by this Agreement. Participant
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. Participant understands that he (and not
the Company) shall be responsible for his own tax liability that may arise as a
result of this investment or the transactions contemplated by this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware.
Participant represents that he has read the Plan and this Agreement and
is familiar with their terms and provisions. Participant hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
or the Committee upon any questions arising under the Plan or this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
INTERNEURON PHARMACEUTICALS, INC.
By: ______________________________
Title: ___________________________
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[NAME OF PARTICIPANT]
_____________________________________
Social Security No. _________________
Address: ___________________
___________________
___________________
[PERMITTED TRANSFEREE]
_____________________________________
Social Security No. _________________
Address: ___________________
___________________
___________________
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EXHIBIT 5.1
November 14, 1997
Interneuron Pharmaceuticals, Inc.
One Ledgemont Center
99 Hayden Avenue
Lexington, MA 02173
Gentlemen:
You have requested our opinion with respect to the issuance by the Company
of an aggregate of 1,750,000 shares (the "Shares") issuable upon satisfaction of
Restricted Stock Awards of Common Stock, par value $.001 per share (the "Common
Stock"), of Interneuron Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), pursuant to a Registration Statement on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act").
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents and corporate and public records as we deem
necessary as a basis for the opinion hereinafter expressed. With respect to
such, we have assumed the genuineness of all signatures appearing on all
documents presented to us as originals, and the conformity to the originals of
all documents presented to us as conformed or reproduced copies. Where factual
matters relevant to such opinion were not independently established, we have
relied upon certificates of officers and responsible employees and agents of the
Company.
Based upon the foregoing, it is our opinion that the Shares issuable upon
satisfaction of Restricted Stock Awards will be, when sold, paid for and issued
as contemplated by the terms of the Restricted Stock Awards, duly and validly
issued and fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, and to the use of our name under "Legal Matters" in the
Registration Statement. In giving this consent, we do not thereby concede that
we come within the categories of persons whose consent is required by the Act or
the General Rules and Regulations promulgated thereunder.
Very truly yours,
BACHNER, TALLY, POLEVOY & MISHER LLP
JMC:brf
