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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
___________
INHALE THERAPEUTIC SYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3134940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
___________
1060 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA 94303
(415) 354-0700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
___________
ROBERT B. CHESS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INHALE THERAPEUTIC SYSTEMS
1060 EAST MEADOW CIRCLE
PALO ALTO, CALIFORNIA 94303
(415) 354-0700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
___________
COPIES TO:
MARK P. TANOURY, ESQ.
COOLEY GODWARD LLP
3000 SAND HILL ROAD
BUILDING 3, SUITE 230
MENLO PARK, CALIFORNIA 94025
(415) 843-5000
___________
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
___________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value 1,800,000 $18.8125 $33,862,500.00 $10,261.00
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(1) Estimated in accordance with Rule 457(c) solely for the purpose of
computing the amount of the registration fee based on the average of the
high and low prices of the Company's Common Stock as reported on the Nasdaq
National Market on January 27, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 31, 1997
PROSPECTUS
INHALE THERAPEUTIC SYSTEMS
1,800,000 SHARES
COMMON STOCK
___________________
This Prospectus relates to the public offering, which is not being
underwritten, of 1,800,000 shares of Common Stock, no par value (the
"Shares"), of Inhale Therapeutic Systems ("Inhale" or the "Company"). All
of these Shares are held and may be offered by certain shareholders of the
Company (the "Selling Shareholders") who acquired such Shares pursuant to an
exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act") provided by Section 4(2) thereof. The
Shares are being registered by the Company pursuant to the terms of certain
Stock Purchase Agreements dated January 28, 1997 by and between the Company
and the individual Selling Shareholders (the "Purchase Agreements"). See
"Selling Shareholders" and "Plan of Distribution."
The sale of the Shares may be effected by the Selling Shareholders from
time to time in transactions on the Nasdaq National Market, in privately
negotiated transactions or in a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale,
at prices related to such prevailing prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Shareholders and/or the purchasers of the Shares for whom such broker-dealers
may act as agents or to whom they may sell as principals or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). See "Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed, among
other things, to bear certain expenses (other than fees and expenses of
counsel and underwriting discounts and commission and brokerage commissions
and fees) in connection with the registration and sale of the Shares being
offered by the Selling Shareholders. See "Selling Shareholders."
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "INHL." The last reported sales price of the Company's
Common Stock on the Nasdaq National Market on January 30, 1997 was $18.625 per
share.
The Selling Shareholders and any agents, broker-dealers or underwriters
that participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting discounts or commissions
under the Act. The Company will not receive any proceeds from the sale of
shares by the Selling Shareholders. The Company has agreed to indemnify the
Selling Shareholders and certain other persons against certain liabilities,
including liabilities under the Act. See "Selling Shareholders" and "Plan of
Distribution."
____________________
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
_____________________
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.
, 1997
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as at the Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048; and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Common Stock of the Company is quoted on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.
Washington, D.C. 20006.
ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the Shares offered
hereby (the "Registration Statement") has been filed with the Commission
under the Act. This Prospectus does not contain all of the information
contained in such Registration Statement and the exhibits and schedules
thereto, certain portions of which have been omitted pursuant to the rules
and regulations of the Commission. For further information with respect to
the Company and the Shares offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus regarding the contents of any contract or any
other documents are not necessarily complete and, in each instance, reference
is hereby made to the copy of such contract or document filed as an exhibit
to the Registration Statement. The Registration Statement, including
exhibits thereto, may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof
may be obtained from the Public Reference Section, Securities and Exchange
Commission, Washington, D.C., 20549, upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed or to be filed with the Commission under
the Exchange Act are hereby incorporated by reference into this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, including all material incorporated by reference therein;
and
(ii) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, including all material incorporated by reference therein; and
(iii) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, including all material incorporated by reference therein; and
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(iv) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, including all material incorporated by reference therein;
and
(v) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as filed on May 2, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in this Prospectus or in a 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 so modified or superseded, to constitute a
part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or
into such documents). Such request may be directed to Inhale Therapeutic
Systems, Attention: Investor Relations, 1060 East Meadow Circle, Palo Alto,
California 94303, telephone (415) 354-0700.
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THE COMPANY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDING "RISK FACTORS" APPEARING ELSEWHERE IN THIS PROSPECTUS
AND THE FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED IN THE COMPANY'S
ANNUAL REPORT (FORM 10-K) FOR THE YEAR ENDED DECEMBER 31, 1995, INCORPORATED
BY REFERENCE HEREIN (THE "ANNUAL REPORT"). EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" BEGINNING AT PAGE 5 OF THIS
PROSPECTUS AND THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" CONTAINED IN
THE ANNUAL REPORT, AS WELL THOSE DISCUSSED ELSEWHERE IN THE PROSPECTUS, THE
ANNUAL REPORT, AND ANY OTHER DOCUMENT INCORPORATED HEREIN PRIOR TO THE
TERMINATION OF THE OFFERING.
Inhale is developing a pulmonary drug delivery system applicable to a
wide range of peptides, proteins and other molecules currently delivered by
injection or by other routes including existing inhalation systems. As an
alternative to invasive delivery techniques, a pulmonary delivery system
potentially could expand the market for pharmaceutical drug therapies by
increasing patient acceptance and improving compliance, which in turn could
decrease medical complications and the associated costs of disease
management. Pulmonary delivery also may enable new therapeutic uses of
certain drugs. Inhale is focusing development efforts on applying its
pulmonary delivery system primarily to drugs for systemic and local lung
diseases that either have proven efficacy and are approved for delivery by
injection or are in late stage human clinical trials. In addition, the
Company is applying its delivery technology to selected other applications
where its approach may have significant advantages. Several Inhale projects
are in clinical trials, including insulin (currently in a Phase IIb clinical
trial) and numerous other projects are in various stages of research,
feasibility, formulation and preclinical development.
Medical science, health care providers and consumers have been searching
for alternatives to injection as a means of delivering drugs. To date, oral,
transdermal, and nasal routes of delivery have been shown to have low natural
bioavailability (the amount of drug absorbed from the delivery site into the
bloodstream) due to the large size of macromolecules, making these routes
commercially unattractive alternatives for the natural delivery of most
macromolecule drugs.
Inhale approaches pulmonary drug delivery with the objective of
maximizing overall system efficiency while addressing commercial requirements
for reproducibility, formulations stability, safety and convenience. Inhale
is designing its delivery system to integrate customized formulations and
proprietary fine dry powder processing and packaging technology with a
proprietary inhalation device for efficient, reproducible lung delivery of
macromolecule powders. To achieve this goal, Inhale is combining an
understanding of lung biology, aerosol science, chemical engineering,
mechanical engineering, and protein formulations in its system development
efforts. Inhale intends to take bulk drugs supplied by collaborative
pharmaceutical and biotechnology partners, formulate and process these drugs
into fine powders and fill and package the powders into individual dosing
units (blisters). The blisters are designed to be loaded into Inhale's
device, which patients then activate to inhale the aerosolized drugs.
Inhale's strategy is to work with collaborative partners to develop and
commercialize drugs for systemic and local lung indications using its
pulmonary delivery system. Inhale is engaged in early stage feasibility,
research or development collaborations with Pfizer Inc. ("Pfizer"), Baxter
Healthcare Corporation (a subsidiary of Baxter International) ("Baxter"),
Centeon (a company of Armour and Behring), Eli Lilly and Company ("Lilly"),
Immunex Corporation, Genzyme Corporation as well as other major international
pharmaceutical and biotechnology companies. In addition to its
collaborations, Inhale has initiated projects with several drugs (calcitonin,
heparin, Interferon-Alpha, Interferon-Beta and follicle stimulating hormone).
The Company anticipates that any product that might be developed would be
commercialized through a collaborative partner and believes its partnering
strategy will enable it to reduce its cash requirements while developing a
large and diversified potential product portfolio.
4
<PAGE>
The Company was incorporated in California in July 1990. The Company's
executive offices are located at 1060 East Meadow Circle, Palo Alto,
California 94303, and its telephone number is (415) 354-0700.
RISK FACTORS
THE FOLLOWING ARE SIGNIFICANT RISK FACTORS THAT SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMMON STOCK OF INHALE. INVESTMENT IN THE COMMON
STOCK OF INHALE INVOLVES A HIGH DEGREE OF RISK.
EARLY STAGE COMPANY. Inhale is in an early stage of development. There
can be no assurance that the Company's pulmonary delivery technology will
prove to be technically feasible or commercially applicable to a range of
macromolecules and other drugs. Only four of the Company's pulmonary
delivery formulations, insulin, Interleukin-1 Receptor, salmon calcitonin and
a peptide for the treatment of osteoporosis have been subject to any human
clinical testing. Although many of the underlying drug compounds with which
the Company is working have been tested in humans by others using alternative
delivery routes, Inhale's potential products will require extensive research,
development, preclinical and clinical testing, and may involve lengthy
regulatory review. There can be no assurance that any of the Company's
potential products will prove safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable cost or be successfully marketed. Moreover, even if
the Company's products prove to be safe and effective and are approved for
marketing by the United States Food and Drug Administration ("FDA") and other
regulatory authorities, there can be no assurance that health care providers,
payors or patients will accept the Company's products. Any failure of the
Company to achieve technical feasibility, demonstrate safety, achieve
clinical efficacy, obtain regulatory approval or, together with partners,
successfully market products, would have a material adverse effect on the
Company. See "Risk Factors -- No Assurance of Successful Development or
Commercialization of Drugs for Pulmonary Delivery," "-- Government Regulation;
Uncertainty of Obtaining Regulatory Approval" and "-- Uncertainty Related to
Health Care Reform and Third-Party Reimbursement."
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT OR COMMERCIALIZATION OF DRUGS FOR
PULMONARY DELIVERY. The commercial viability of Inhale's pulmonary drug
delivery system for any drugs will depend upon the Company achieving
sufficient system efficiency (measured by the percentage of bulk drug
entering the manufacturing process that eventually is absorbed into the
bloodstream relative to injection for systemic indications, or the amount of
drug delivered to the lung tissue for local lung indications), formulation
stability, safety and dosage reproducibility.
The initial screening determinant for the feasibility of pulmonary
delivery of any systemic drug is pulmonary bioavailability, which measures
the percentage of the drug absorbed into the bloodstream when delivered
directly to the lungs. In addition, a certain percentage of each drug dose
may be lost at various stages of the manufacturing and pulmonary delivery
process -- in drug formulation, dry powder processing, packaging, and in
moving the drug from a delivery device into the lungs. Too much drug loss at
any one stage or cumulatively in the manufacturing and delivery process could
render a drug commercially unfeasible for pulmonary delivery.
Formulation stability (the physical and chemical stability of the
formulated drug over time and under various storage conditions) and safety
will vary with each drug and the type and amount of excipients that are used
in the formulation. Reproducibility (the ability to deliver a consistent and
predictable amount of drug into the bloodstream over time both for a single
patient and across patient groups) will require, among other things, the
development of an inhalation device that consistently delivers predictable
amounts of dry powder formulations to the deep lung.
The Company's integrated approach to systems development relies upon
several different but related technologies, and its business strategy depends
upon collaborations with corporate partners. Development of powder
formulations, processing and packaging technology and the delivery device,
establishing collaborations with partners, laboratory and clinical testing,
and manufacturing scale-up must proceed contemporaneously so as not to delay
any aspect of systems development. Any delay in one component of product or
business development could cause consequential delays in the Company's
ability to develop, obtain approval of or market therapeutic
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products using its system. Further refinement of the Company's device
prototype, further scale-up of the powder processing system and automated
packaging system will need to be accomplished before initiation of later
stage clinical trials.
There can be no assurance that Inhale will be able to demonstrate
pulmonary bioavailability for the drug candidates it has identified or may
identify, will be able to achieve commercial viability of its pulmonary
delivery system or will achieve the total system efficiency needed to be
competitive with alternative routes of delivery. Further, there can be no
assurance that the Company's pulmonary delivery system will prove to be safe,
provide reproducible dosages of stable formulations sufficient to achieve
clinical efficacy, regulatory approval or market acceptance. In addition,
there can be no assurance that Inhale will advance the various aspects of
product and business development on a timely basis that does not cause delays
in overall product development. The failure to demonstrate pulmonary
bioavailability, achieve total system efficiency, provide safe, reproducible
dosages of stable formulations or advance timely the various aspects of
product and business development would have a material adverse effect on the
Company. See "Risk Factors -- Dependence Upon Partners" and "-- Government
Regulation; Uncertainty of Obtaining Regulatory Approval."
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The
Company has not been profitable since inception and, through September 30,
1996, had incurred a cumulative deficit of approximately $24.4 million. The
Company expects to continue to incur substantial and increasing losses over
at least the next several years as the Company's research and development
efforts, preclinical and clinical testing activities and manufacturing
scale-up efforts expand and as the Company plans and builds its late stage
clinical and early commercial production facility. All of the Company's
potential products are in research or in the early stages of development, and
no revenues have been generated from approved product sales. The Company's
revenues to date have consisted primarily of payments under short-term
research and feasibility agreements and development contracts. To achieve
and sustain profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, manufacture, introduce,
market and sell products utilizing its pulmonary drug delivery system. There
can be no assurance that the Company can generate sufficient product or
contract research revenue to become profitable or to sustain profitability.
DEPENDENCE UPON PARTNERS. The Company currently does not possess the
resources necessary to develop, complete the FDA approval process for, or
commercialize any of its potential therapeutic products. The Company's
ability to apply its pulmonary delivery system to a broad range of drugs will
depend upon its ability to establish and maintain collaborative arrangements
since many of the drugs currently approved for sale or in clinical testing
are covered by third party patents. The Company has entered into
collaborative arrangements with certain of its partners to fund clinical
trials, assist in obtaining regulatory approval and commercialize certain
products. Inhale has also entered into agreements with partners to test the
feasibility of its pulmonary delivery system with certain of their
proprietary molecules. There can be no assurance that the Company will be
able to enter into additional collaborations or that its feasibility
agreements will lead to collaborations. There also can be no assurance that
the Company will be able to maintain any such collaborative arrangements or
feasibility agreements or that any such collaborative arrangements or
feasibility agreements will be successful. The failure of the Company to
enter into or maintain such collaborative arrangements and feasibility
agreements would have a material adverse effect on the Company. Moreover, the
inability of the Company to enter into a collaborative arrangement with the
owner of any patented drug may preclude the Company from working with such
drug.
The Company's existing partners have the rights to pursue parallel
development of other drug delivery systems which may compete with the
Company's pulmonary drug delivery system and to terminate their agreements
with the Company at any time without significant penalty. The Company
anticipates that any future partners would have similar rights. Although the
Company intends generally to formulate and manufacture powders for partners
and to supply inhalation devices for such powders, certain partners may
choose to formulate or manufacture their own powders, or to develop or supply
their own device, thereby limiting one or more potential sources of revenue
for Inhale. In addition, the Company anticipates that it may be precluded
from entering into arrangements with companies whose products compete with
products sold by its partners. The Company also will have limited or no
control over the resources that any partner may devote to the Company's
products, over partners' development efforts, including the design and
conduct of clinical trials, and over the pricing of any such
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products. The pharmaceutical and biotechnology industries are consolidating,
and acquisitions by, or of, the Company's existing or potential collaborative
partners may affect the initiation or continuation of any such
collaborations. There can be no assurances that any of the Company's present
or future collaborative partners will perform their obligations as expected,
will devote sufficient resources to the development, clinical testing or
marketing of the Company's potential products or will not terminate their
agreements with the Company prematurely. Any parallel development by a
partner of alternate drug delivery systems, development by a partner rather
than by Inhale of components of the delivery system, preclusion from entering
into competitive arrangements, failure to obtain timely regulatory approvals,
premature termination of an agreement, or failure by a partner to devote
sufficient resources to the development and commercialization of the
Company's products would have a material adverse effect on the Company. See
"Risk Factors -- Dependence Upon Proprietary Technology; Uncertainty of
Obtaining Licenses or Developing Technology."
LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP. To achieve the
levels of production of Inhale's dry powder drug formulations necessary to
support late stage human clinical trials and for early commercialization of
any of such products, the Company will need to scale-up its current powder
processing facilities and automated filling, plan and build a late stage
clinical and early commercial production facility, and comply with the good
manufacturing practices ("GMP") prescribed by the FDA and other standards
prescribed by various federal, state and local regulatory agencies in the
United States and any other country of use.
The Company has no experience manufacturing products for large scale
clinical testing or commercial purposes. To date, the Company has performed
powder processing on the small scale needed for early stage trials and for
testing formulations of certain other potential therapeutic products and
scaled-up powder processing for larger clinical trials. There can be no
assurance that manufacturing and control problems will not arise as the
Company attempts to further scale-up its powder processing facilities or that
such scale-up can be achieved in a timely manner or at a commercially
reasonable cost. Any failure to surmount such problems could delay or
prevent late stage clinical testing and commercialization of the Company's
products and would have a material adverse effect on the Company. To date,
the Company has relied on a particular method of powder processing. There
can be no assurance that this technology will be applicable to all drugs or
that the drug losses in powder processing will not be too high for commercial
viability for certain drugs. In the event that the Company decides to pursue
alternative powder processing methods for some or all of its drugs, there can
be no assurance that these methods will prove commercially practical for
aerosol drugs or that the Company will have or be able to acquire rights to
use such alternative methods. See "Risk Factors -- Dependence Upon Proprietary
Technology; Uncertainty of Obtaining Licenses or Developing Technology."
Fine particle powders and small quantity packaging (such as those to be
used in the Company's delivery system) require special handling. The Company
has designed and qualified small scale automated filling equipment for small
quantity packaging of fine powders. The Company faces significant technical
challenges scaling-up an automated filling system that can accurately and
economically handle the small dose and particle sizes of its powders in
commercial quantities. There can be no assurances that the Company will be
able to scale-up its automated filling equipment in a timely manner or at
commercially reasonable costs. Any failure or delay in such scale-up would
delay product development or bar commercialization of the Company's products
and would have a material adverse effect on the Company.
The Company also faces technical challenges in further developing its
inhalation device to achieve the efficiency necessary to deliver a broad
range of drugs, to produce such a device in quantities sufficient for later
stage clinical trials and early commercialization, and to adapt the device as
may be required for different powder formulations. There can be no assurance
that Inhale will successfully achieve such efficiencies, will be able to
produce such quantities or will be able to adapt the device as required. The
failure of the Company to overcome any such challenges would have a material
adverse effect on the Company. For late stage clinical trials and initial
commercial production, the Company intends to use one or more contract
manufacturers to produce its device. There can be no assurance that Inhale
will be able to enter into or maintain such arrangements. The failure of the
Company to enter into and maintain such arrangements would have a material
adverse effect on the Company. See
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"Risk Factors -- No Assurance of Successful Development or Commercialization
of Drugs for Pulmonary Delivery."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company's
operations to date have consumed substantial and increasing amounts of cash.
The negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future. The development of the Company's
technology and proposed products will require a commitment of substantial
funds to conduct the costly and time-consuming research and preclinical and
clinical testing activities necessary to develop early commercial production
facility and to bring any such products to market. The Company's future
capital requirements will depend on many factors, including continued
progress in the research and development of the Company's technology and drug
delivery system, the ability of the Company to establish and maintain
collaborative arrangements with others and the terms thereof, payments
received from partners under research and development agreements, progress
with preclinical and clinical trials, the time and costs involved in
obtaining regulatory approvals, the cost of development and the rate of
scale-up of the Company's powder processing and packaging technologies, the
timing and costs of its late stage clinical and early commercial production
facility, the cost involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, the need to acquire licenses to new technology
and the status of competitive products.
The Company expects that its existing capital resources, contract
research revenues from collaborations and the net proceeds of this offering
and interest thereon, will enable the Company to maintain its current and
planned operations at least through 1998. Thereafter, the Company may need
to raise substantial additional capital to fund its operations. The Company
intends to seek such additional funding through collaborative or partnering
arrangements, the extension of existing arrangements, or through public or
private equity or debt financings. There can be no assurance that additional
financing will be available on acceptable terms or at all. If additional
funds are raised by issuing equity securities, further dilution to
shareholders may result. If adequate funds are not available, the Company
may be required to delay, reduce the scope of, or eliminate one or more of
its research or development programs or obtain funds through arrangements
with collaborative partners or others that may require the Company to
relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop or commercialize.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF OBTAINING
LICENSES OR DEVELOPING TECHNOLOGY. The Company's success will depend in part
upon protecting its proprietary technology from infringement,
misappropriation, duplication and discovery. The Company intends to rely
principally on a combination of patent law, trade secrets and contract law to
protect its proprietary technology in the United States and abroad. Inhale
has filed patent applications covering certain aspects of its device, powder
processing technology, and powder formulations and pulmonary route of
delivery for certain molecules, and plans to file additional patent
applications. On October 17, 1995 the United States Patent and Trademark
Office ("PTO") issued U.S. Patent No. 5,458,135 to Inhale covering the use of
its device as a method for delivering powder formulations of drugs to the
lung. There can be no assurance that any of the patents applied for by the
Company will issue, or that any patents that issue will be valid and
enforceable. Even if such patents are enforceable, the Company anticipates
that any attempt to enforce its patents could be time consuming and costly.
The patent positions of pharmaceutical, biotechnology and drug delivery
companies, including Inhale, are uncertain and involve complex legal and
factual issues. Additionally, the coverage claimed in a patent application
can be significantly reduced before the patent is issued. As a consequence,
the Company does not know whether any of its patent applications will result
in the issuance of patents or, if any patents issue, whether they will
provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first inventor of inventions
covered by its pending patent applications or that it was the first to file
patent applications for such inventions. Moreover, the Company may have to
participate in interference proceedings declared by the PTO to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome is favorable to the Company. There can be no
assurance that the Company's patents, if issued, would be held valid by a
court of competent jurisdiction. An adverse outcome could subject the
Company to significant
8
<PAGE>
liabilities to third parties, require disputed rights to be licensed from or
to third parties or require the Company to cease using the technology in
dispute.
The Company is aware of numerous pending and issued United States and
foreign patent rights and other proprietary rights owned by third parties
that relate to aerosol devices and delivery, pharmaceutical formulations, dry
powder processing technology and the pulmonary route of delivery for certain
macromolecules. The Company cannot predict with any certainty which, if any,
patents and patent applications will be considered relevant to the Company's
technology by authorities in the various jurisdictions where such rights
exist, nor can the Company predict with certainty which, if any, of these
rights will or may be asserted against it by such third parties. The Company
is aware of an alternate dry powder processing technology which Inhale is not
using for its current products under development but may desire to use for
certain products in the future. The ownership of this powder processing
technology is unclear and the Company is aware that multiple parties,
including Inhale, claim patent, trade secret and other rights in the
technology. If the Company determines that this alternate powder processing
technology is relevant to the development of future products and further
determines that a license to this alternate powder processing technology is
needed, there can be no assurance that the Company can obtain a license from
the relevant party or parties on commercially reasonable terms, if at all.
There can be no assurance that the Company can obtain any license to any
technology that the Company determines it needs, on reasonable terms, if at
all, or that Inhale could develop or otherwise obtain alternate technology.
The failure of the Company to obtain licenses if needed would have a material
adverse effect on the Company.
Third parties from time to time have asserted and may assert that the
Company is employing technology that they believe is based on issued patents,
trade secrets or know-how of others. In addition, future patents may issue
to third parties which the Company's technology may infringe. The Company
could incur substantial costs in defending itself and its partners against
any such claims. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief which could effectively block the
Company's ability to further develop or commercialize some or all of its
products in the United States and abroad, and could result in the award of
substantial damages. In the event of a claim of infringement, the Company and
its partners may be required to obtain one or more licenses from third
parties. There can be no assurances that the Company or its partners will be
able to obtain such licenses at a reasonable cost, if at all. Defense of any
lawsuit or failure to obtain any such license could have a material adverse
effect on the Company.
The Company's ability to develop and commercialize its technology will
be affected by the Company's or its partners' access to the drugs which are
to be formulated. Many drugs, including powder formulations of certain drugs
which are presently under development by the Company, are subject to issued
and pending United States and foreign patent rights which may be owned by
competing entities. There are issued patents and pending patent applications
relating to the pulmonary delivery of macromolecule drugs, including several
for which the Company is developing pulmonary delivery formulations.
Specifically, a patent has been granted in Europe which is directed to
aerosol formulations of serine protease inhibitors, including alpha-1
antitrypsin, for the treatment of the lung. The resulting patent situation
is highly complex, and the ability of any one company to commercialize a
particular biopharmaceutical drug is highly unpredictable. The Company
intends generally to rely on the ability of its partners to provide access to
the drugs which are to be formulated for pulmonary delivery. There can be no
assurance that the Company's partners will be able to provide access to drug
candidates for formulation for pulmonary delivery or that, if such access is
provided, the Company or its partners will not be accused of, or determined
to be, infringing a third party's rights and will not be prohibited from
working with the drug or be found liable for damages that may not be subject
to indemnification. Any such restriction on access or liability for damages
would have a material adverse effect on the Company.
The Company also will rely on trade secrets and contract law to protect
certain of its proprietary technology. There can be no assurance that any
such contract will not be breached, or that if breached, the Company will
have adequate remedies. Furthermore, there can be no assurance that any of
the Company's trade secrets will not become known or independently discovered
by third parties.
The PTO has recently adopted changes to the United States patent law
which change the term of issued patents, subject to certain transition
periods, to 20 years from the date of filing rather than 17 years from date
of
9
<PAGE>
issuance. Beginning in June 1995, the patent term became 20 years from the
earliest effective filing date of the underlying patent application. Such
change may reduce the effective term of protection for patents that are
pending for more than three years in the PTO. In addition, as of January
1996, all inventors who work outside of the United States are able to
establish a date of invention on the same basis as those working in the
United States. Such change could adversely affect the ability of the Company
to prevail in a priority of invention dispute with a third party located or
doing work outside of the United States. While the Company cannot predict
the effect that such changes will have on its business, such changes could
have a material adverse effect on the Company's ability to protect its
proprietary information and sustain the commercial viability of its products.
Furthermore, the possibility of extensive delays in such process, could
effectively further reduce the term during which a marketed product could be
protected by patents. See "Risk Factors -- Dependence Upon Partners,"
"-- Government Regulation; Uncertainty of Obtaining Regulatory Approval."
DEPENDENCE UPON AND NEED TO ATTRACT KEY PERSONNEL. The Company is
highly dependent upon the principal members of its scientific and management
staff. The Company does not have employment contracts with its key employees,
nor does the Company have key man insurance policies on them. The Company
also relies on consultants and advisors to assist the Company in formulating
research and development strategy. To pursue its product development and
commercialization plans, the Company will be required to hire additional
qualified scientific personnel to perform research and development, as well
as personnel with expertise in clinical testing, government regulation and
manufacturing. Expansion in product development and manufacturing also is
expected to require the addition of management personnel and the development
of additional expertise by existing management personnel. Retaining and
attracting qualified personnel, consultants and advisors will be critical to
the Company's success. The Company faces competition for qualified
individuals from numerous pharmaceutical, biotechnology and drug delivery
companies, universities and other research institutions. There can be no
assurance that the Company will be able to retain its current key employees
or attract and retain qualified additional personnel and management when
needed and its failure to do so would have a material adverse effect on the
Company's ability to develop and commercialize products.
GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL.
The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing a new dosage form of any drug, including one developed for use with
the Company's pulmonary drug delivery system, whether or not such drug was
already approved for marketing in another dosage form, the product must
undergo rigorous preclinical and clinical testing and an extensive review
process mandated by the FDA and equivalent foreign authorities. These
processes generally take a number of years and require the expenditure of
substantial resources. None of the Company's proposed products has been
submitted to the FDA for marketing approval. The Company has no experiences
obtaining such regulatory approval, does not have the expertise or other
resources to do so and intends to rely on its partners to fund clinical
testing and to obtain product approvals. See "Risk Factors -- Dependence Upon
Partners."
The time required for completing such testing and obtaining such
approvals is uncertain. Further refinement of the device prototype, further
scale-up of the powder processing system and automated powder filling and
packaging system will need to be accomplished before initiation of later
stage clinical trials. Any delay in any of these components of product
development may delay testing. In addition, delays or rejections may be
encountered based upon changes in FDA policy during the period of product
development. Similar delays may also be encountered in other countries. If
regulatory approval of a product is granted, such approval may entail
limitations on the indicated uses for which the product may be marketed, and
the marketed product, its manufacturer, and its manufacturing facilities
remain subject to continual review and periodic inspections. Later discovery
of previously unknown problems with a product, manufacturer, or facility may
result in restrictions on such product or manufacturer, including withdrawal
of the product from the market. There can be no assurance that regulatory
approval will be obtained for any products developed by the Company on a
timely basis, or at all. The failure to obtain timely regulatory approval of
its products, any product marketing limitations or a product withdrawal would
have a material adverse effect on the Company.
10
<PAGE>
UNCERTAINTY RELATED TO HEALTH CARE REFORM AND THIRD-PARTY REIMBURSEMENT.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation to date, the
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess alternative health care delivery and
payment systems. Potential approaches that have been considered include
mandated basic health care benefits, controls on health care spending, the
creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause Inhale's
collaborative partners or potential partners to limit or eliminate spending
on collaborative drug development projects. Legislative debate is expected to
continue in the future, market forces are expected to demand reduced costs
and Inhale cannot predict what impact the adoption of any federal or state
health care reform measures or future private sector reform may have on its
business.
In both domestic and foreign markets, sales of the Company's potential
products, if any, will depend in part on the availability of reimbursement
from third-party payors such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status
of newly approved health care products. There can be no assurance that the
Company's proposed products will be considered cost effective or that
adequate third-party reimbursement will be available to enable Inhale to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Legislation and regulations affecting the
pricing of pharmaceuticals may change before the Company's proposed products
are approved for marketing and any such changes could further limit
reimbursement for medical products and services.
HIGHLY COMPETITIVE INDUSTRY: RISK OF TECHNOLOGICAL OBSOLESCENCE. The
biotechnology and pharmaceutical industries are highly competitive and
rapidly evolving and significant developments are expected to continue at a
rapid pace. The Company's success depends upon maintaining a competitive
position in the development of products and technologies for pulmonary
delivery of pharmaceutical drugs. If a competing company were to develop or
acquire rights to a better dry powder pulmonary delivery device or fine
powder processing technology, a better system for efficiently and
reproducibly delivering drugs to the deep lung, a non-invasive drug delivery
system which is more attractive for the delivery of drugs than pulmonary
delivery, or an invasive delivery system which overcomes some of the
drawbacks of current invasive systems for chronic or subchronic indications
(such as a sustained release system), the Company's business would be
materially adversely affected.
The Company is in competition with pharmaceutical, biotechnology and
drug delivery companies, hospitals, research organizations, individual
scientists and nonprofit organizations engaged in the development of
alternative drug delivery systems or new drug research and testing, as well
as with entities producing and developing injectable drugs. The Company is
aware of a number of companies currently seeking to develop new products and
non-invasive alternatives to injectable drug delivery, including oral
delivery systems, intranasal delivery systems, transdermal systems and
colonic absorption systems. Several of these companies may have or be
developing dry powder devices that could be used for pulmonary delivery. The
Company is also aware of other companies currently engaged in the development
and commercialization of pulmonary drug delivery systems and enhanced
injectable drug delivery systems. Many of these companies and entities have
greater research and development capabilities, experience, manufacturing,
marketing, financial and managerial resources than the Company and represent
significant competition for the Company. Acquisitions of competing drug
delivery companies by large pharmaceutical companies could enhance
competitors' financial, marketing and other resources. Accordingly, the
Company's competitors may succeed in developing competing technologies,
obtaining FDA approval for products more rapidly than the Company and gaining
market acceptance. There can be no assurance that developments by others
will not render the Company's products or technologies uncompetitive or
obsolete.
PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The design, development
and manufacture of the Company's products involve an inherent risk of product
liability claims and associated adverse publicity. Although the Company
currently maintains general liability insurance, there can be no assurance
that the coverage limits of the
11
<PAGE>
Company's insurance policies will be adequate. The Company obtained clinical
trial product liability insurance of $3.0 million for certain clinical trials
and intends to obtain insurance for future clinical trials of insulin and
other products under development. However, there can be no assurance that
the Company will be able to obtain or maintain insurance for any future
clinical trials. Such insurance is expensive, difficult to obtain and may
not be available in the future on acceptable terms, or at all. A successful
claim brought against the Company in excess of the Company's insurance
coverage would have a material adverse effect upon the Company and its
financial condition.
HAZARDOUS MATERIALS. The Company's research and development involves
the controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company. The
Company may incur substantial costs to comply with environmental regulations.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Restated
Articles of Incorporation and the California General Corporation Law could
discourage a third party from attempting to acquire, or make it more
difficult for a third party to acquire control of the Company without
approval of the Company's Board of Directors. Such provisions could also
limit the price that certain investors might be willing to pay in the future
for shares of Common Stock. Certain of such provisions allow the Board of
Directors to authorize the issuance of Preferred Stock with rights superior
to those of the Common Stock. The Company also will be subject to the
provisions of Section 1203 of the California General Corporation Law which
requires a fairness opinion to be provided to the Company's shareholders in
connection with their consideration of any proposed "interested party"
reorganization transaction.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices for securities
of early stage technology companies have historically been highly volatile
and the market from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products or the
announcement or termination of collaborative relationships by the Company or
its competitors, governmental regulation, clinical trial results,
developments in patent or other proprietary rights, public concern as to the
safety of drug formulations developed by the Company or others and general
market conditions may have a significant effect on the market price of the
Common Stock. The Company securities are subject to a high degree of risk
and volatility.
12
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Shareholders in the offering.
DIVIDEND POLICY
The Company has never paid cash dividends. The Company's Board of
Directors currently intends to retain any earnings for use in the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future.
SELLING SHAREHOLDERS
The Shares covered by this Prospectus were acquired from the Company
pursuant to the Purchase Agreements for an aggregate purchase price of
$32,400,000 ($18.00 per share). The offer and sale by the Company of the
Common Stock to the Selling Shareholders pursuant to the Purchase Agreements
was made pursuant to an exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereof. The Purchase Agreements
contain representations and warranties as to each Selling Shareholder's
status as an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act. Vector Securities International, Inc.,
the placement agent, was paid a fee equal to 5.5% of the aggregate purchase
price in connection with the sale of the Shares by the Company to the Selling
Shareholders pursuant to the Purchase Agreements. In addition, the Company
agreed to reimburse such placement agent for its travel and out-of-pocket
expenses incurred in connection with the sale of the Shares by the Company to
the Selling Shareholders pursuant to the Purchase Agreements up to a maximum
of $100,000.
Pursuant to the Purchase Agreements, each Selling Shareholder has
represented that he, she or it acquired the Shares for investment and with no
present intention of distributing the Shares. The Company agreed, in such
Purchase Agreements, to prepare and file a registration statement as soon as
practicable and to bear all expenses other than fees and expenses of counsel
for the Selling Shareholders and underwriting discounts and commissions and
brokerage commissions and fees. In addition, and in recognition of the fact
that the Selling Shareholders, even though purchasing the Shares without a
view to distribution, may wish to be legally permitted to sell the Shares
when each deems appropriate, the Company filed with the Commission a
Registration Statement on Form S-3, of which this Prospectus forms a part,
with respect to, among other things, the resale of the Shares from time to
time at prevailing prices in the over-the-counter market or in
privately-negotiated transactions and has agreed to prepare and file such
amendments and supplements to the Registration Statement as may be necessary
to keep the Registration Statement effective until all Shares offered hereby
have been sold pursuant thereto or until such Shares are no longer, by reason
of Rule 144 under the Securities Act or any other rule of similar effect,
required to be registered for the sale thereof by the Selling Shareholders.
None of the Selling Shareholders has had a material relationship with the
Company within the past three years except as a result of the ownership of
the Shares or other securities of the Company.
The following table sets forth the name of the Selling Shareholders, the
number of shares of Common Stock owned beneficially by the Selling
Shareholders as of Janaury 28, 1997 and the number of shares which may be
offered pursuant to this Prospectus. This information is based upon
information provided by the Selling Shareholders. There are currently no
agreements, arrangements or understandings with respect to the sale of any of
the Shares. The Shares are being registered to permit public secondary
trading of the Shares, and the Selling Shareholders may offer the Shares for
resale from time to time.
13
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF
NAME SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
---- OWNED PRIOR TO THE BEING OWNED AFTER
OFFERING OFFERED THE OFFERING
-------------------- -------- ------------------------
NUMBER PERCENT(1) NUMBER PERCENT(1)
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Franklin Global 215,000 1.6% 200,000 15,000 *
Health Care Fund
Franklin Small 168,000 1.2 168,000 0 --
Cap Growth Fund
Franklin Valuemark 32,000 * 32,000 0 --
Annuity - Small
Cap Growth Fund
The Global Health 108,550 * 108,550 0 --
Sciences Fund(2)
Invesco Strategic 216,450 1.6 216,450 0 --
Portfolios, Inc.-
Health Sciences(2)
Quantum Partners LDC(3) 750,000 5.5 750,000 0 --
T. Rowe Price New 543,750 4.0 243,750 300,000 2.2%
Horizons Fund, Inc.(4)
T. Rowe Price 81,250 * 81,250 0 --
Health Sciences Fund, Inc.(4)
TOTAL 2,115,000 1,800,000
</TABLE>
- ---------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 11,834,792 shares of Common
Stock outstanding on January 28, 1997, and assumes the sale and issuance of
1,800,000 shares of Common Stock pursuant to the Purchase Agreements.
(2) The above named entities are affiliated with the Invesco Trust Company,
which serves as investment advisor to these entities.
(3) The address for Quantum Partners LDC is: c/o Soros Fund Management LLC,
888 Seventh Avenue, 33rd Floor, New York, New York 10106, Attention:
Michael C. Neus, Esq.
(4) The address for the above named entities is: 100 East Pratt Street,
Baltimore, Maryland 21202. Certain entities affiliated with this Selling
Shareholder beneficially own additional securities of the Company. Such
shares are not included in the information set forth above.
14
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereunder may be sold from time to time by the
Selling Shareholders, or by pledgees, donees, transferees or other successors
in interest. Such sales may be made on the Nasdaq National Market or in the
over-the-counter market or otherwise, at prices and on terms then prevailing
or related to the then-current market price, or in negotiated transactions.
The Shares may be sold to or through one or more broker-dealers, acting as
agent or principal, in underwritten offerings, block trades, agency
placements, exchange distributions, brokerage transactions or otherwise, or
in any combination of transactions.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously
engage in market making activities with respect to the Company's Common Stock
for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules
10b-6 and 10b-7, which provisions may limit the timing of purchases and sales
of shares of Common Stock by the Selling Shareholders.
At the time a particular offer of Shares is made, to the extent
required, a supplemental prospectus will be distributed which will set forth
the number of shares being offered and the terms of the offering including
the name or names of any underwriters, dealers or agents, the purchase price
paid by any underwriter for the Shares purchased from the Selling
Shareholders and any discounts, concessions or commissions allowed or
reallowed or paid to dealers.
In connection with any transaction involving the Shares, broker-dealers
or others may receive from the Selling Shareholders, and/or the purchasers of
the Shares for whom such broker-dealers act as agents or to whom they may
sell as principals or both, compensation in the form of discounts,
concessions or commissions in amounts to be negotiated at the time (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). Broker-dealers and any other persons participating in a
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Act in connection with such distribution, and any such
discounts, concessions or commissions may be deemed to be underwriting
discounts or commissions under the Act.
Any or all of the sales or other transactions involving the Shares
described above, whether effected by the Selling Shareholders, any
broker-dealer or others, may be made pursuant to this Prospectus. In
addition, any Shares that qualify for sale pursuant to Rule 144 under the Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states
the Shares may not be sold unless the Shares have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
All costs associated with this offering, other than fees and expenses of
counsel for the Selling Shareholders and underwriting discounts and
commissions and brokerage commissions and fees, will be paid by the Company.
The Company has agreed to indemnify the Selling Shareholders against certain
liabilities in connection with any offering of the Shares pursuant to this
Prospectus, including liabilities arising under the Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Cooley Godward LLP, Menlo Park, California, ("Cooley
Godward"). Mark P. Tanoury, a partner of Cooley Godward, is Secretary of the
Company.
15
<PAGE>
EXPERTS
The financial statements Inhale Therapeutic Systems appearing
in Inhale Therapeutic Systems' Annual Report (Form 10-K) for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements and schedules are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
16
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such other information and representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer or solicitation by anyone in any
state in which such offer or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation. The
delivery of this Prospectus at any time does not imply that the information
herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
- ------------------------------------------------------------------------------
1,800,000 Shares
Common Stock
INHALE THERAPEUTIC
SYSTEMS
- ------------------------------------------------------------------------------
Prospectus
- ------------------------------------------------------------------------------
_________________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Shares being registered. All the amounts shown
are estimates except for the registration fee. None of these expenses will be
paid by the Selling Shareholders.
Registration fee.................................... $ 10,261
Blue sky qualification fees and expenses............ 5,000
Printing and engraving expenses..................... 15,000
Legal fees and expenses............................. 50,000
Accounting fees and expenses........................ 15,000
Miscellaneous....................................... 4,739
---------
Total............................................ $ 100,000
---------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and executive officers and may indemnify its officers, employees
and other agents to the fullest extent permitted by California law. The
Registrant is also empowered under its Bylaws to enter into indemnification
contracts with its directors and officers and to purchase insurance on behalf
of any person whom it is required or permitted to indemnify. Pursuant to
California law, the Registrant's directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care of the Registrant
and its shareholders. However, this provision does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under California
law. In addition, each director will continue to be subject to liability for
(i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) acts or omissions that a director believes to
be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) any
transaction from which a director derived an improper personal benefit, (iv)
any transaction that constitutes an illegal distribution or dividend under
California law, and (v) any transaction involving an unlawful conflict of
interest between the director and the Registrant under California law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------
<S> <C>
4.1(1) Restated Articles of Incorporation of the Registrant.
4.2(2) Bylaws of the Registrant.
4.3(2) Restated Investor Rights Agreement among the Registrant and certain
other persons named therein, dated April 29, 1993, as amended October 29, 1993
4.4(2) Warrant to purchase 32,727 Shares of Common Stock between the
Registrant and Phoenix Leasing Incorporated, dated October 29, 1993.
4.5(2) Specimen stock certificate.
4.6(3) Stock Purchase Agreement between the Registrant and Pfizer Inc., dated
January 18, 1995.
4.7(2) Warrant to purchase 10,000 shares of Common Stock between the
Registrant and Thomas J. Peirona, dated November 1, 1996.
4.8(2) Warrant to purchase 10,000 shares of Common Stock between the
Registrant and Kiet Nguyen, dated November 1, 1996.
4.9(4) Stock Purchase Agreement between the Registrant and Baxter World Trade
Corporation, dated March 1, 1996.
4.10 Form of Stock Purchase Agreement between the Registrant and the
Selling Shareholders dated January 28, 1997.
5.1 Opinion of Cooley Godward LLP.
10.1 Reference is made to Exhibit 4.10 above.
23.1 Consent of Ernst and Young LLP, Independant Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (included on signature pages).
</TABLE>
- -------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(2) Incorporated by reference to the Company's Registration Statement (No.
33-75942), as amended.
(3) Incorporated by reference to the Company's Registration Statement (No.
33-89502), as amended.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period during which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or any
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low end or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) 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.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for purposes of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities to be offered therein, and
the offering of such securities at that time shall be deemed to be an initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which shall remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 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 the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 15, 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 Securities 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 Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, County of Santa Clara, State of
California, on the 30th day of January, 1997.
INHALE THERAPEUTIC SYSTEMS
/s/ Robert B. Chess
By: -----------------------------------
Robert B. Chess
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Robert B. Chess and Judi R. Lum his or her true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form S-3, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as full to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, each acting alone, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert B. Chess President, Chief Executive January 30, 1997
- ---------------------- Officer and Director
Robert B. Chess (PRINCIPAL EXECUTIVE OFFICER)
/s/ Judi R. Lum Chief Financial Officer January 30, 1997
- ----------------------- (PRINCIPAL FINANCIAL AND
Judi R. Lum ACCOUNTING OFFICER)
/s/ John S. Patton Vice President and Director January 30, 1997
- -----------------------
John S. Patton
/s/ Mark J. Gabrielson Director January 30, 1997
- ----------------------
Mark J. Gabrielson
/s/ James B. Glavin Director January 30, 1997
- -----------------------
James B. Glavin
/s/ Melvin Perelman Director January 30, 1997
- -----------------------
Melvin Perelman
/s/ Terry L. Ondendyk Chairman of the Board January 30, 1997
- -----------------------
Terry L. Opdendyk
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------
<C> <S>
4.1(1) Restated Articles of Incorporation of the Registrant.
4.2(2) Bylaws of the Registrant.
4.3(2) Restated Investor Rights Agreement among the Registrant and certain
other persons named therein, dated April 29, 1993, as amended October 29, 1993
4.4(2) Warrant to purchase 32,727 Shares of Common Stock between the
Registrant and Phoenix Leasing Incorporated, dated October 29, 1993.
4.5(2) Specimen stock certificate.
4.6(3) Stock Purchase Agreement between the Registrant and Pfizer Inc., dated
January 18, 1995.
4.7(2) Warrant to purchase 10,000 shares of Common Stock between the
Registrant and Thomas J. Peirona, dated November 1, 1996.
4.8(2) Warrant to purchase 10,000 shares of Common Stock between the
Registrant and Kiet Nguyen, dated November 1, 1996.
4.9(4) Stock Purchase Agreement between the Registrant and Baxter World Trade
Corporation, dated March 1, 1996.
4.10 Form of Stock Purchase Agreement between the Registrant and the
Selling Shareholders dated January 28, 1997.
5.1 Opinion of Cooley Godward LLP.
10.1 Reference is made to Exhibit 4.10 above.
23.1 Consent of Ernst and Young LLP, Independant Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (included on signature pages).
</TABLE>
- ------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(2) Incorporated by reference to the Company's Registration Statement (No.
33-75942), as amended.
(3) Incorporated by reference to the Company's Registration Statement (No.
33-89502), as amended.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
II-6
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 28th day of January, 1997, by and
among Inhale Therapeutic Systems (the "Company"), a corporation organized
under the laws of the State of California, with its principal offices at 1060
East Meadow Circle, Palo Alto, California, 94303, and the purchaser whose
name and address is set forth on the signature page hereof (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company, and the Purchaser agree as follows:
SECTION 1. AUTHORIZATION OF SALE OF THE SHARES. Subject to the
terms and conditions of this Agreement, the Company has authorized the sale
of up to 1,800,000 shares of the common stock (the "Common Stock"), no par
value per share (the "Shares"), of the Company.
SECTION 2. AGREEMENT TO SELL AND PURCHASE THE SHARES. At the
Closing (as defined in Section 3), the Company will sell to the Purchaser,
and the Purchaser will buy from the Company upon the terms and conditions
hereinafter set forth, the number of Shares (at the purchase price) shown
below:
Price Per
Number to Be Share In Aggregate
Purchased Dollars Price
------------ ---------- ---------
The Company proposes to enter into this same form of purchase
agreement with certain other investors (the "Other Purchasers") and expects
to complete sales of the Shares to them. The Purchaser and the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Purchasers," and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Agreements." The term "Placement Agent" shall mean Vector Securities
International, Inc.
SECTION 3. DELIVERY OF THE SHARES AT THE CLOSING. The completion
of the purchase and sale of the Shares (the "Closing") shall occur as soon as
practicable following notification by the Securities and Exchange Commission
(the "Commission") to the Company of the Commission's willingness to declare
effective the
<PAGE>
registration statement to be filed by the Company pursuant to
Section 7.1 (the "Registration Statement") at a place and time (the "Closing
Date") to be agreed upon by the Company, and the Placement Agent and of which
the Purchasers will be notified by facsimile transmission or otherwise.
At the Closing, the Company shall deliver to the Purchaser one or
more stock certificates registered in the name of the Purchaser, or in such
nominee name(s) as designated by the Purchaser, representing the number of
Shares set forth in Section 2 above. The name(s) in which the stock
certificates are to be registered are set forth in the Stock Certificate
Questionnaire attached hereto as part of Appendix I. The Company's
obligation to complete the purchase and sale of the Shares and deliver such
stock certificate(s) to the Purchaser at the Closing shall be subject to the
following conditions, any one or more of which may be waived by the Company:
(a) receipt by the Company of New York Clearing House funds in the full
amount of the purchase price for the Shares being purchased hereunder; (b)
completion of the purchases and sales under the Agreements with Other
Purchasers; and (c) the accuracy of the representations and warranties made
by the Purchasers and the fulfillment of those undertakings of the Purchasers
to be fulfilled prior to the Closing. The Purchaser's obligation to accept
delivery of such stock certificate(s) and to pay for the Shares evidenced
thereby shall be subject to the following conditions: (a) the Registration
Statement is effective and was first declared effective on or prior to the
60th day after the date such Registration Statement was filed by the Company;
and (b) the accuracy in all material respects of the representations and
warranties made by the Company herein and the fulfillment in all material
respects of those undertakings of the Company to be fulfilled prior to
Closing. The Purchaser's obligations hereunder are expressly not conditioned
on the purchase by any or all of the Other Purchasers of the Shares that they
have agreed to purchase from the Company.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents and warrants to, and covenants with, the Purchaser as
follows:
4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to
conduct its business as currently conducted.
4.2. AUTHORIZED CAPITAL STOCK. Except as disclosed in or
contemplated by the Confidential Private Placement Memorandum dated January
27, 1997 prepared by the Company (the "Private Placement Memorandum"), the
Company had authorized and outstanding capital stock as set forth under the
heading "Capitalization" in the Private Placement Memorandum as of the
-2-
<PAGE>
date set forth therein; the issued and outstanding shares of the Company's
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and conform
to the description thereof contained in or incorporated by reference into the
Private Placement Memorandum. All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Except as disclosed in or
contemplated by the Private Placement Memorandum and the financial statements
of the Company, and the related notes thereto, incorporated by reference into
the Private Placement Memorandum, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its capital
stock or any such options, rights, convertible securities or obligations.
The description of the Company's stock, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised
thereunder, set forth in the Private Placement Memorandum, or incorporated by
reference therein, accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options and rights.
4.3. ISSUANCE, SALE AND DELIVERY OF THE SHARES. The Shares have
been duly authorized and, when issued, delivered and paid for in the manner
set forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform to the description thereof contained
in the Registration Statement. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale of the
Shares by the Company pursuant to this Agreement. No stockholder of the
Company has any right (which has not been waived or has not expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement) to require the Company to register the sale of any
shares owned by such stockholder under the Securities Act of 1933, as
amended, (the "Securities Act") in the Registration Statement. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Shares to be sold
by the Company as contemplated herein.
4.4. DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENTS.
The Company has full legal right, power and authority to enter into the
Agreements and perform the transactions contemplated hereby. The Agreements
have been duly authorized, executed and delivered by the Company and
constitute valid and binding obligations of the Company in accordance with
-3-
<PAGE>
their terms. The making and performance of the Agreements by the Company and
the consummation of the transactions herein contemplated will not violate any
provision of the certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of its subsidiaries, and will
not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default
under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of its respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or
any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its subsidiaries or any of their
respective properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement, except for
compliance with the Blue Sky laws applicable to the offering of the Shares.
Upon their execution and delivery, and assuming the valid execution thereof
by the respective Purchasers, the Agreements will constitute valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and except as the indemnification agreements of the Company in Section
7.3 hereof may be legally unenforceable.
4.5. ACCOUNTANTS. Ernst & Young LLP, who have expressed their
opinion with respect to the financial statements and schedules to be filed
with the Commission as a part of the Registration Statement and included in
the Registration Statement and the Prospectus which forms a part thereof, are
independent accountants as required by the Securities Act and the rules and
regulations promulgated thereunder (the "Rules and Regulations").
4.6. NO DEFAULTS. Except as to defaults, violations and breaches
which individually or in the aggregate would not be material to the Company,
neither the Company nor any of its subsidiaries is in violation or default of
any provision of its certificate of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which it
is a party or by which it or any of its properties are bound; and there does
not exist any state of
-4-
<PAGE>
fact which constitutes an event of default on the part of the Company or
any such subsidiary as defined in such documents or which, with notice or
lapse of time or both, would constitute such an event of default, except such
defaults which individually or in the aggregate would not be material to the
Company.
4.7. CONTRACTS. The contracts so described in the Private
Placement Memorandum or incorporated by reference therein are in full force
and effect on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's knowledge, any other party is
in breach of or default under any of such contracts.
4.8. NO ACTIONS. Except as disclosed in the Private Placement
Memorandum or incorporated by reference therein, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is or may be a part or of which property owned or leased by the
Company or any of its subsidiaries is or may be the subject, or related to
environmental or discrimination matters, which actions, suits or proceedings
might, individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its subsidiaries; and
no labor disturbance by the employees of the Company or any of its
subsidiaries exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any of its subsidiaries is party or
subject to the provisions of any material injunction, judgment, decree or
order of any court, regulatory body administrative agency or other
governmental body.
4.9. PROPERTIES. The Company has good and marketable title to all
the properties and assets reflected as owned in the financial statements
included in the Private Placement Memorandum or incorporated by reference
therein, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except (i) those, if any, reflected in such financial statements, or
(ii) those which are not material in amount and do not adversely affect the
use made and promised to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Private Placement Memorandum or incorporated by reference
therein, the Company owns or leases all such properties as are necessary to
its operations as now conducted or as proposed to be conducted.
-5-
<PAGE>
4.10. NO MATERIAL CHANGE. Since September 30, 1996 and except as
described in or specifically contemplated by the Private Placement
Memorandum, (i) the Company and its subsidiaries have not incurred any
material liabilities or obligations, indirect, or contingent, or entered into
any material verbal or written agreement or other transaction which is not in
the ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries; (ii) the Company
and its subsidiaries have not sustained any material loss or interference
with their respective businesses or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (iii) the
Company has not paid or declared any dividends or other distributions with
respect to its capital stock and the Company and its subsidiaries are not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock other
than the sale of the Shares hereunder, shares issued pursuant to employee
equity incentive plans or purchase plans approved by the Company's Board of
Directors, and 272,456 shares issued to Pfizer Inc., or indebtedness material
to the Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of
operations or prospects of the Company and its subsidiaries.
4.11. INTELLECTUAL PROPERTY. Except as disclosed in or
specifically contemplated by the Private Placement Memorandum or incorporated
by reference therein, the Company has sufficient trademarks, trade names,
patent rights, copyrights, licenses, and governmental authorizations to
conduct its businesses as now conducted; and the Company has no knowledge of
any material infringement by it of trademark, trade name rights, patent
rights, copyrights, licenses, trade secrets or other similar rights of
others, and no claim has been made against the Company regarding trademark,
trade name, patent, copyright, license, trade secrecy or other infringement
which could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company.
4.12. COMPLIANCE. The Company has not been advised, and has no
reason to believe, that either it or any of its subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries.
-6-
<PAGE>
4.13. TAXES. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of tax deficiency which has been or might be asserted or threatened
against the Company or its subsidiaries which could materially and adversely
affect the business, operations or properties of the Company and its
subsidiaries.
4.14. TRANSFER TAXES. On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold to the
Purchaser hereunder will be, or will have been, fully paid or provided for by
the Company and all laws imposing such taxes will be or will have been fully
complied with.
4.15. INVESTMENT COMPANY. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.16. OFFERING MATERIALS. The Company has not distributed and
will not distribute prior to the Closing Date any offering material in
connection with the offering and sale of the Shares other than the Private
Placement Memorandum.
4.17. INSURANCE. Each of the Company and its subsidiaries
maintains insurance of the types and in the amounts generally deemed adequate
for its business, including, but not limited to, insurance covering all real
and personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
4.18. CONTRIBUTIONS. Neither the Company nor any of its
subsidiaries has, directly or indirectly, at any time during the last five
years (i) made any unlawful contribution to any candidate for public office,
or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
4.19. ADDITIONAL INFORMATION. The Company represents and
warrants that the information contained in the following documents, which the
Placement Agent have furnished to the Purchaser, or will furnish prior to the
Closing, is or will be true and correct in all material respects as of their
respective final dates:
-7-
<PAGE>
(a) the Company's 1996 Annual Report to Shareholders;
(b) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (without exhibits);
(c) Notice to Shareholders and Proxy Statement for the Company's
Annual Meeting of Shareholders held on May 15, 1996;
(d) the Confidential Placement Memorandum dated January 27, 1997
containing certain summary information relating to the sale by
the Company of the Shares pursuant to the Agreements,
including all addenda and exhibits thereto (other than the
Appendices) (the "Private Placement Memorandum");
(e) all other documents, if any, filed by the Company
with the Securities and Exchange Commission since December 31,
1995 pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
4.20. LEGAL OPINION. Prior to the Closing, Cooley Godward LLP,
counsel to the Company, will deliver its legal opinion to the Placement Agent
reasonably satisfactory to the Placement Agent and counsel to the Placement
Agent. Such opinion shall also state that each of the Purchasers may rely
thereon as though it were addressed directly to such Purchaser.
4.21. CERTIFICATE. A certificate of the Company executed by the
Chairman of the Board or President and the chief financial or accounting
officer of the Company, dated the Closing Date in form and substance
satisfaction to the Purchasers to the effect that the representations and
warranties of the Company set forth in this Section 4 are true and correct as
of the date of this Agreement and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions on its part
to be performed or satisfied on or prior to such Closing Date.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER. (a) The Purchaser represents and warrants to, and covenants with,
the Company that: (i) the Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Shares
contemplated hereby, is knowledgeable, sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments in
shares representing an investment decision like that involved in the purchase
of the Shares, including investments in securities issued by the Company, and
has requested, received, reviewed and considered all information it deems
relevant in making an
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<PAGE>
informed decision to purchase the Shares; (ii) the Purchaser is acquiring the
number of Shares set forth in Section 2 above in the ordinary course of its
business and for its own account for investment (as defined for purposes of
the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the regulations
thereunder) only and with no present intention of distributing any of such
Shares or any arrangement or understanding with any other persons regarding
the distribution of such Shares; (iii) the Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the Shares except in compliance with the Act, and the Rules and Regulations;
(iv) the Purchaser has completed or caused to be completed the Registration
Statement Questionnaire and the Stock Certificate Questionnaire, both
attached hereto as Appendix I, for use in preparation of the Registration
Statement and the answers thereto are true and correct to the best knowledge
of the Purchaser as of the date hereof and will be true and correct as of the
effective date of the Registration Statement; (v) the Purchaser has, in
connection with its decision to purchase the number of Shares set forth in
Section 2 above, relied solely upon the Private Placement Memorandum and the
documents included therein and the representations and warranties of the
Company contained herein; and (vi) the Purchaser is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
(b) The Purchaser hereby covenants with the Company not to make
any sale of the Shares without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that such Shares are not transferable on the books of
the Company unless the certificate submitted to the transfer agent evidencing
the Shares is accompanied by a separate officer's certificate: (i) in the
form of Appendix II hereto, (ii) executed by an officer of, or other
authorized person designated by, the Purchaser, and (iii) to the effect that
(A) the Shares have been sold in accordance with the Registration Statement,
the Securities Act and the Rules and Regulations and any applicable state
securities or blue sky laws and (B) the requirement of delivering a current
prospectus has been satisfied. The Purchaser acknowledges that there may
occasionally be times when the Company must suspend the use of the prospectus
forming a part of the Registration Statement until such time as an amendment
to the Registration Statement has been filed by the Company and declared
effective by the Commission, or until such time as the Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Purchaser hereby covenants that it will not sell any Shares pursuant to said
prospectus during the period commencing at the time at which the Company
gives the Purchaser
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<PAGE>
notice of the suspension of the use of said prospectus and ending at the time
the Company gives the Purchaser notice that the Purchaser may thereafter
effect sales pursuant to said prospectus. The Purchaser further covenants to
notify the Company promptly of the sale of all of its Shares.
(c) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement, and (ii)
upon the execution and delivery of this Agreement, this Agreement shall
constitute a valid and binding obligation of the Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and except as the indemnification agreements of the Purchaser in Section
7.3 hereof may be legally unenforceable.
SECTION 6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Notwithstanding any investigation made by any party to this
Agreement or by the Placement Agent, all covenants, agreements,
representations and warranties made by the Company and the Purchaser herein
and in the certificates for the Shares delivered pursuant hereto shall
survive the execution of this Agreement, the delivery to the Purchaser of the
Shares being purchased and the payment therefor.
SECTION 7. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE
SECURITIES ACT.
7.1. REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) as soon as practicable, prepare and file
with the Commission the Registration Statement on Form
S-3 relating to the sale of the Shares by the Purchaser
from time to time through the automated quotation system
of The Nasdaq Stock Market or the facilities of any
national securities exchange on which the Company's
common stock is then traded or in privately-negotiated
transactions;
(b) use its reasonable efforts, subject to
receipt of necessary information from the Purchasers, to
cause the Commission to notify the Company of the
Commission's willingness to declare the Registration
Statement effective within 60 days after the Registration
Statement is filed by the Company;
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<PAGE>
(c) prepare and file with the Commission such
amendments and supplements to the Registration Statement
and the prospectus used in connection therewith as may be
necessary to keep the Registration Statement effective
until the date on which the Shares may be resold by the
Purchasers without registration by reason of Rule 144(k)
under the Securities Act or any other rule of similar
effect;
(d) furnish to the Purchaser with respect to
the Shares registered under the Registration Statement
(and to each underwriter, if any, of such Shares) such
reasonable number of copies of prospectuses and such
other documents as the Purchaser may reasonably request,
in order to facilitate the public sale or other
disposition of all or any of the Shares by the Purchaser,
PROVIDED, HOWEVER, that the obligation of the Company to
deliver copies of prospectuses to the Purchaser shall be
subject to the receipt by the Company of reasonable
assurances from the Purchaser that the Purchaser will
comply with the applicable provisions of the Securities
Act and of such other securities or blue sky laws as may
be applicable in connection with any use of such
prospectuses;
(e) file documents required of the Company
for normal blue sky clearance in states specified in
writing by the Purchaser, PROVIDED, HOWEVER, that the
Company shall not be required to qualify to do business
or consent to service of process in any jurisdiction in
which it is not now so qualified or has not so consented;
and
(f) bear all expenses in connection with the
procedures in paragraphs (a) through (e) of this Section
7.1 and the registration of the Shares pursuant to the
Registration Statement, other than fees and expenses, if
any, of counsel or other advisers to the Purchaser or the
Other Purchasers or underwriting discounts, brokerage
fees and commissions incurred by the Purchaser or the
Other Purchasers, if any.
7.2. TRANSFER OF SHARES AFTER REGISTRATION. The Purchaser agrees
that it will not effect any disposition of the Shares or its right to
purchase the Shares that would constitute a sale within the meaning of the
Securities Act except as contemplated in the Registration Statement referred
to in Section 7.1 and that it will promptly notify the Company of any changes
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<PAGE>
in the information set forth in the Registration Statement regarding the
Purchaser or its Plan of Distribution.
7.3. INDEMNIFICATION. For the purpose of this Section 7.3:
(i) the term "Purchaser/Affiliate" shall include the Purchaser
and any affiliate of such Purchaser;
(ii) the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or
relating to the Registration Statement referred to in
Section 7.1.
(a) The Company agrees to indemnify and hold harmless each of the
Purchasers and each person, if any, who controls any Purchaser within the
meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchasers or such
controlling person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, including the prospectus, financial statements and
schedules, and all other documents filed as a part thereof, as amended at the
time of effectiveness of the Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness
pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules
and Regulations, or the prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, or filed as part of
the Registration Statement at the time of effectiveness if no Rule 424(b)
filing is required (the "Prospectus"), or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations
and warranties of the Company contained in this Agreement, or any failure of
the Company to perform its obligations hereunder or under law, and will
reimburse each Purchaser and each such controlling person for any legal and
other expenses as such expenses are reasonably incurred by such Purchaser or
such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage,
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<PAGE>
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company (i) by or on behalf of the Purchaser expressly for use therein or
(ii) the failure of such Purchaser to comply with the covenants and
agreements contained in Sections 5(b) or 7.2 hereof respecting sale of the
Shares, the inaccuracy of any representations made by such Purchaser herein
or any statement or omission in any Prospectus that is corrected in any
subsequent Prospectus that was delivered to the Purchaser prior to the
pertinent sale or sales by the Purchaser.
In addition to its other obligations under this paragraph (a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company in this
Agreement or failure to perform its obligations in this Agreement, all as
described in this paragraph (a), it will reimburse each Purchaser on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligation, to reimburse each Purchaser for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Purchaser shall
promptly return it to the Company together with interest, compounded daily,
determined on the basis of the Prime Rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time by
Bank of America National Trust and Savings Association, San Francisco,
California (the "Prime Rate"). Any such interim reimbursement payments which
are not made to a Purchaser within 30 days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Purchaser will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses to which the Company, each of its directors,
each of its officers who signed the Registration Statement or controlling
person may become subject, under the Securities Act, the Exchange Act, or any
other federal or state statutory law or regulation, or at
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<PAGE>
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Purchaser) insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any failure to
comply with the covenants and agreements contained in Sections 5(b) or 7.2
hereof respecting the sale of the Shares, the inaccuracy of any
representation made by such Purchaser herein or any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Purchaser
expressly for use therein, and will reimburse the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person for any legal and other expense reasonably incurred by the
Company, each of its directors, each of its officers who signed the
Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action. In addition to its other
obligations under this paragraph (b), each Purchaser severally agrees that,
as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
failure to comply, statement or omission, or any alleged failure to comply,
statement or omission, described in this paragraph (b) which relates to
written information furnished to the Company by or on behalf of any
Purchaser, it will reimburse the Company (and, to the extent applicable, each
officer, director or controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Purchaser's obligations to reimburse the
Company (and, to the extent applicable, each officer, director or controlling
person) for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer, director
or controlling person) shall promptly return it to such Purchaser together
with interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the Company
within 30 days of a request for reimbursement shall bear interest
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<PAGE>
at the Prime Rate from the date of such request. This indemnity agreement
will be in addition to any liability which such Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7.3 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 7.3 notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 7.3 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf
of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 7.3 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel, approved by
such indemnifying party in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the indemnified
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
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<PAGE>
(d) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 7.3 in respect to any losses, claims,
damages, liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities or
expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Purchaser from
the placement of Common Stock or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but the relative fault of the Company and the Purchaser in
connection with the statements or omissions or inaccuracies in the
representations and warranties in this Agreement which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received
by the Company on the one hand and each Purchaser on the other shall be
deemed to be in the same proportion as the amount paid by such Purchaser to
the Company pursuant to this Agreement for the Shares purchased by such
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the "Difference") between the amount such Purchaser paid for the
Shares that were sold pursuant to the Registration Statement and the amount
received by such Purchaser from such sale. The relative fault of such
Selling Shareholders and each Purchaser shall be determined by reference to,
among other things, whether the untrue or alleged statement of a material
fact or the omission or alleged omission to state a material fact or the
inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company or by such Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses referred
to above shall be deemed to include, subject to the limitations set forth in
paragraph (c) of this Section 7.3 any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in paragraph (c) of
this Section 7.3 with respect to notice of commencement of any action shall
apply if a claim for contribution is to be made under this paragraph (d);
PROVIDED, HOWEVER, that no additional notice shall be required with respect
to any action for which notice has been give under paragraph (c) for purposes
of indemnification. The Company and each Purchaser agree that it would not
be just and equitable if contribution pursuant to this Section 7.3 were
determined solely by pro rata allocation (even if the Purchaser were treated
as one entity for such purpose) or by any other method of allocation which
does not
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<PAGE>
take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3, no Purchaser shall be
required to contribute any amount in excess of the amount by which the
Difference exceeds the amount of any damages that such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Purchasers' obligations to contribute
pursuant to this Section 7.3 are several and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in paragraphs
(a) and (b) of this Section 7.3, including the amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of The New York Stock Exchange, Inc. Any
such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of any arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Such an arbitration would be limited to the operation of the interim
reimbursement provisions contained in paragraphs (a) and (b) of this Section
7.3 and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
paragraphs (a) and (b).
7.4. TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions
precedent imposed by Section 5 or this Section 7 upon the transferability of
the Shares shall cease and terminate as to any particular number of the
Shares when such Shares shall have been effectively registered under the
Securities Act and sold or otherwise disposed of in accordance with the
intended method of disposition set forth in the Registration Statement
covering such Shares or at such time as an opinion of counsel satisfactory to
the Company shall have been rendered to the effect that such conditions are
not necessary in order to comply with the Securities Act.
7.5. INFORMATION AVAILABLE. So long as the Registration Statement
is effective covering the resale of Shares owned by the Purchaser, the
Company will furnish to the Purchaser:
(a) as soon as practicable after available
(but in the case of the Company's Annual Report to
Shareholders, within 120 days after the end of each
fiscal year of the Company), one copy of (i)
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<PAGE>
its Annual Report to Shareholders (which Annual Report shall
contain financial statements audited in accordance with
generally accepted accounting principles by a national firm of
certified public accountants), (ii) if not included in
substance in the Annual Report to Shareholders, its
Annual Report on Form 10-K, (iii) if not included in
substance in its Quarterly Reports to Shareholders, its
quarterly reports on Form 10-Q, and (iv) a full copy of
the particular Registration Statement covering the Shares
(the foregoing, in each case, excluding exhibits);
(b) upon the reasonable request of the Purchaser, a
reasonable number of copies of the prospectuses to supply
to any other party requiring such prospectuses;
and the Company, upon the reasonable request of the Purchaser, will meet with
the Purchaser or a representative thereof at the Company's headquarters to
discuss all information relevant for disclosure in the Registration Statement
covering the Shares subject to appropriate confidentiality limitations.
SECTION 8. BROKER'S FEE. The Purchaser acknowledges that the
Company intends to pay to the Placement Agent a fee in respect of the sale of
the Shares to the Purchaser. Each of the parties hereto hereby represents
that, on the basis of any actions and agreements by it, there are no other
brokers or finders entitled to compensation in connection with the sale of
the Shares to the Purchaser.
SECTION 9. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, or nationally recognized overnight express
courier postage prepaid, and shall be deemed given when so mailed and shall
be delivered as addressed as follows:
(a) if to the Company, to:
Inhale Therapeutic Systems
1060 East Meadow Circle
Palo Alto, California 94303
Attention: President
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<PAGE>
with a copy so mailed to:
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, California 94025
Attn: Mark P. Tanoury, Esq.
or to such other person at such other place as the Company shall
designate to the Purchaser in writing;
(b) if to the Purchaser, at its address as
set forth at the end of this Agreement, or at such other
address or addresses as may have been furnished to the
Company in writing; and
SECTION 10. CHANGES. This Agreement may not be modified or
amended except pursuant to an instrument in writing signed by the Company and
the Purchaser.
SECTION 11. HEADINGS. The headings of the various sections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be part of this Agreement.
SECTION 12. SEVERABILITY. In case any provision contained in
this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York and the
federal law of the United States of America.
SECTION 14. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and
year first above written.
INHALE THERAPEUTIC SYSTEMS
By_________________________________
Print or Type:
Name of Purchaser
(Individual or Institution):
_________________________________
Name of Individual representing
Purchaser (if an Institution):
_________________________________
Title of Individual representing
Purchaser (if an Institution):
_________________________________
Signature by:
Individual Purchaser or Individual
representing Purchaser:
_________________________________
Address:___________________________
Telephone:_________________________
Telecopier:________________________
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<PAGE>
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(to be read in conjunction with the entire
Purchase Agreement which follows)
A. Complete the following items on BOTH Purchase Agreements:
1. Page 20 - Signature:
(i) Name of Purchaser (Individual or Institution)
(ii) Name of Individual representing Purchaser (if an Institution)
(iii) Title of Individual representing Purchaser (if an Institution)
(iv) Signature of Individual Purchaser or Individual representing
Purchaser
2. Appendix I - Stock Certificate Questionnaire:
Provide the information requested by the Stock Certificate
Questionnaire.
Appendix I - Registration Statement Questionnaire:
Provide the information requested by the Registration Statement
Questionnaire.
3. Return BOTH properly completed and signed Purchase Agreements
including the properly completed Appendix I to:
Vector Securities International, Inc.
Suite 350
1751 Lake Cook Road
Deerfield, Illinois 60015
Attn: Marina S. Bozilenko
B. Instructions regarding the transfer of funds for the purchase of Shares
will be sent by facsimile to the Purchaser by the Placement Agents at a
later date.
C. Upon the resale of the Shares by the Purchasers after the Registration
Statement covering the Shares is effective, as described in the Purchase
Agreement, the Purchaser:
(i) must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the
Purchaser's request); and
<PAGE>
(ii) must send a letter in the form of Appendix II to the Company so
that the Shares may be properly transferred.
<PAGE>
Appendix I
(one of two)
INHALE THERAPEUTIC SYSTEMS
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be registered in (this is the name
that will appear on your stock certificate(s)). You may use a nominee name
if appropriate: _______________________
2. The relationship between the Purchaser of the Shares and the Registered
Holder listed in response to item 1 above: ______________________
3. The mailing address of the Registered Holder listed in
response to item 1 above: ______________________
______________________
______________________
______________________
4. The Social Security Number or Tax Identification Number of the Registered
Holder listed in response to item 1 above: ______________________
<PAGE>
Appendix I
(two of two)
INHALE THERAPEUTIC SYSTEMS
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information:
1. Pursuant to the "Selling Shareholder" section of the
Registration Statement, please state your or your organization's name exactly
as it should appear in the Registration Statement:
2. Please provide the number of shares that you or your
organization will own immediately after Closing, including those Shares
purchased by you or your organization pursuant to this Purchase Agreement and
those shares purchased by you or your organization through other
transactions:
3. Have you or your organization had any position, office or
other material relationship within the past three years with the Company or
its affiliates other than as disclosed in the Prospectus included in the
Registration Statement?
_____ Yes _____ No
If yes, please indicate the nature of any such relationships below:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
<PAGE>
APPENDIX II
Attention:
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly author-
ized by] _____________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she [said institution] is the Purchaser of
the shares evidenced by the attached certificate, and as such,
sold such shares on____________________in accordance with
[date]
Registration Statement number ________________________________________
[fill in the number of or otherwise
________________________________ and the requirement of delivering a
identify Registration Statement]
current prospectus by the Company has been complied with in connection with such
sale.
Print or Type:
Name of Purchaser
(Individual or
Institution): ______________________
Name of Individual
representing
Purchaser (if an
Institution) ______________________
Title of Individual
representing
Purchaser (if an
Institution): ______________________
Signature by:
Individual Purchaser
or Individual repre-
senting Purchaser: ______________________
<PAGE>
EXHIBIT 5.1
[COOLEY GODWARD LETTERHEAD]
January 31, 1997
Inhale Therapeutic Systems
1060 East Meadow Circle
Palo Alto, California 94303
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Inhale Therapeutic Systems (the "Company") of a
Registration Statement on Form S-3 on January 31, 1997 (the "Registration
Statement") with the Securities and Exchange Commission covering the offering
of up to one million eight hundred thousand (1,800,000) shares of the
Company's Common Stock, no par value (the "Shares").
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Restated Articles of Incorporation and Bylaws, as
amended, and such other documents, records, certificates, memoranda and other
instruments as we deem necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as copies thereof,
and the due execution and delivery of all documents where due execution and
delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
COOLEY GODWARD LLP
/s/ Mark P. Tanoury
Mark P. Tanoury
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Inhale Therapeutic
Systems for the registration of 1,800,000 shares of its Common Stock and to the
incorporation by reference therein of our report dated January 19, 1996, with
respect to the financial statements of Inhale Therapeutic Systems included in
its Annual Report (Form 10-K) for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
January 28, 1997
