AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-31109
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8733 56-1808663
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Organization) Industrial Code Number) Identification No.)
</TABLE>
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(919) 419-6050
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
DR. M. ROSS JOHNSON
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF SCIENTIFIC OFFICER
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(919) 419-6050
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<CAPTION>
COUNSEL TO COMPANY COUNSEL TO UNDERWRITERS
------------------------------------------------------------- --------------------------------
<S> <C> <C>
FRED D. HUTCHISON, ESQUIRE JOHN B. WATKINS, ESQUIRE ALEXANDER D. LYNCH, ESQUIRE
HUTCHISON & MASON PLLC WILMER, CUTLER & PICKERING BROBECK, PHLEGER & HARRISON LLP
4011 WESTCHASE BOULEVARD 2445 M ST., N.W. 1633 BROADWAY
SUITE 400 WASHINGTON, D.C. 20037 47TH FLOOR
RALEIGH, NORTH CAROLINA 27607 (202) 663-6000 NEW YORK, NEW YORK 10019
(919) 829-9600 (212) 581-1600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such jurisdiction.
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1997
PROSPECTUS
2,500,000 Shares
[LOGO]
Trimeris, Inc.
Common Stock
---------------------------
All of the 2,500,000 shares of Common Stock offered hereby (the
"Offering") are being sold by Trimeris, Inc., a development stage company with a
limited operating history ("Trimeris" or the "Company"). The Company has
incurred losses since its inception, had an accumulated deficit of approximately
$21.4 million as of June 30, 1997, and expects to incur substantial losses for
the foreseeable future. Prior to this Offering, there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $12.00 and $14.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "TRMS," subject to
official notice of issuance.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.
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.
[CAPTION]
<TABLE>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share............................... $ $ $
Total(3)................................ $ $ $
</TABLE>
1. For information regarding indemnification of the Underwriters, see
"Underwriting."
2. Before deducting expenses of the Offering payable by the Company, estimated
at approximately $800,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 375,000 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, total
Price to Public will be $ , Underwriting Discounts and Commissions will
be $ and Proceeds to the Company will be $ . See "Underwriting."
---------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
---------------------------
UBS Securities NationsBanc
Montgomery Securities, Inc.
, 1997
<PAGE>
[Model for T-20 inhibition of HIV Fusion and
infection of a host cell as more fully described on page 25]
---------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK FACTORS." THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Trimeris is a biopharmaceutical company engaged in the discovery and
development of novel therapeutic agents that block viral infection by inhibiting
viral fusion with host cells. Viral fusion is a complex process by which viruses
attach to and penetrate host cells. The Company's lead product candidate, T-20,
inhibits fusion of the Human Immunodeficiency Virus-1 ("HIV") with host cells.
T-20 has been tested in a multidose Phase I/II clinical trial as a monotherapy
for HIV-infected patients in the United States. The results from this clinical
trial indicate that short-term administration of T-20 in an intravenous
formulation is safe and well tolerated. Furthermore, all four patients in the
clinical trial who received the highest dose of T-20 experienced a reduction in
HIV viral load to below detectable levels (less than 500 copies/ml) during the
treatment period. T-20 and the Company's other product candidates are designed
to inhibit viral fusion, unlike other currently approved therapeutic agents that
target replicating viruses inside already infected cells. The Company has
developed a proprietary technology platform in the field of fusion inhibition,
which is being applied to the discovery and development of novel products for
the treatment of a variety of viral diseases.
T-20 is a proprietary 36 amino acid synthetic peptide which has
demonstrated significant inhibition of HIV in preclinical testing. In the Phase
I/II clinical trial, no drug-related adverse events were recorded and no
dose-limiting toxicities were observed for any patient during the treatment
period. A dose-dependent decrease in HIV viral load and a dose-dependent
increase in the patients' CD4+ T-cell count were also observed. All four
patients who received the highest dose of T-20 (100 mg every 12 hours for 14
consecutive days) experienced a decrease in HIV viral load to below detectable
levels (less than 500 copies/ml) during the treatment period.
The Company is preparing to begin a Phase II clinical trial in HIV-infected
patients in the United States that will compare delivery of a constant
therapeutic dose by a continuous, subcutaneous infusion pump to delivery by
intermittent, subcutaneous injections. The Company believes that delivery of a
continuous therapeutic dose may inhibit viral fusion more effectively than other
delivery mechanisms. After completion of the continuous, subcutaneous infusion
Phase II trial, the Company intends to begin a Phase II pivotal trial in a
larger population of HIV-infected patients who are either resistant to, or
intolerant of, currently approved antiviral therapies. Concurrently with the
start of the pivotal Phase II clinical trial, the Company intends to begin a
trial of T-20 in HIV-infected pediatric patients. In addition, throughout the
T-20 clinical process, the Company intends to work with the United States Food
and Drug Administration (the "FDA") to design and implement a clinical trial
strategy involving the administration of T-20 to HIV-infected patients in
combination with approved HIV antiviral agents.
HIV infection causes Acquired Immunodeficiency Syndrome ("AIDS"), which is
one of the leading causes of death in the United States of men and women between
the ages of 25 and 44. Currently approved HIV antivirals inhibit reverse
transcriptase ("RT") and protease, two viral enzymes which are required for HIV
replication. RT and protease inhibitors must penetrate HIV-infected host cells
in order to be effective. HIV is prone to mutations that produce resistance to
RT and protease inhibitors. In an effort to overcome drug resistance, physicians
have begun to use RT and protease inhibitors in various combinations. While
combination therapy with RT and protease inhibitors represents an advance in the
treatment of HIV infection, it has not yet proven to be a cure. Moreover,
although these combinations have slowed the emergence of resistance, new mutant
strains have been identified which are resistant to several of the drugs
currently used in combination therapy. Due to the complexity of the dosing
regimens for many combination therapies, which can include 14-16 pills taken at
six to eight specific times
3
<PAGE>
during the day, and the toxic side effects that can result from the use of such
drugs, many patients are unable to, or fail to, follow the recommended dosing
regimens. Such noncompliance leads to a reduction in the effectiveness of such
drugs and an increased opportunity for the development of resistance.
The Company believes that T-20 may offer a new paradigm for the treatment
of HIV. Preclinical testing and early clinical trial results suggest that T-20
is less toxic than currently approved HIV antivirals. The Company believes that
T-20's reduced toxicity is due to its unique extracellular mechanism of action
and its chemical structure. Furthermore, the Company believes that the delivery
of a continuous therapeutic dose of T-20 by subcutaneous infusion will enhance
patient compliance, thereby reducing the likelihood of the development of
resistance.
Through its study of the HIV fusion process, the Company has developed a
proprietary technology platform aimed at discovering antiviral compounds to
treat other diseases. The cornerstone of this platform is the Company's
Computerized Anti-Fusion Searching Technology ("CAST"), a proprietary computer
algorithm which identifies target sequences within certain viral proteins that
have the potential to interact during the fusion process. CAST has enabled the
Company to design product candidates for Respiratory Syncytial Virus ("RSV") and
Human Parainfluenza Virus ("HPIV") fusion inhibition. The Company has
identified, and filed patent applications disclosing, numerous discrete peptide
sequences, which include potential fusion targets in other viruses such as
hepatitis B and C, influenza and herpes.
T-786 is the Company's lead product candidate for treatment of RSV
infection, which is a significant cause of pediatric bronchiolitis and
pneumonia. T-786 is a proprietary 35 amino acid synthetic peptide which shows
potent, specific and selective inhibition of RSV infection IN VITRO. T-786
significantly reduced the level of viral infection in an animal model.
Preclinical testing of T-786 is currently in progress. Upon successful
completion of these preclinical tests, the Company anticipates that it will
begin clinical trials with T-786 in 1998.
The Company was incorporated under Delaware law as SL-1 Pharmaceuticals,
Inc. on January 7, 1993 and changed its name to Trimeris, Inc. on February 11,
1993. The Company's principal executive office is located at 4727 University
Drive, Durham, North Carolina 27707, and its telephone number is (919) 419-6050.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) REFLECTS THE
AUTOMATIC CONVERSION UPON THE COMPLETION OF THIS OFFERING OF ALL OUTSTANDING
SHARES OF PREFERRED STOCK INTO 6,261,615 SHARES OF COMMON STOCK (THE "PREFERRED
STOCK CONVERSION"), AND (III) REFLECTS THE FILING OF A THIRD AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS,
WILL AUTHORIZE 10,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK. SEE
"DESCRIPTION OF CAPITAL STOCK," "CAPITALIZATION" AND "UNDERWRITING."
THE COMPANY HAS FILED FOR REGISTRATION OF "TRIMERIS" AND THE COMPANY'S LOGO
AS TRADEMARKS AND SERVICE MARKS OF THE COMPANY. THIS PROSPECTUS ALSO INCLUDES
TRADEMARKS AND TRADE NAMES OF COMPANIES OTHER THAN THE COMPANY.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.................................. 2,500,000 shares
Common Stock Outstanding after this Offering.......... 9,864,676 shares (1)
Use of Proceeds....................................... To fund increased research and development activities, to
fund the expansion of facilities, to provide working
capital and to fund other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol................ TRMS
</TABLE>
- ---------------
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM INCEPTION FOR THE SIX MONTHS ENDED CUMULATIVE
(JANUARY 7, 1993) YEARS ENDED DECEMBER 31, JUNE 30, FROM INCEPTION
THROUGH --------------------------- ----------------- (JANUARY 7, 1993)
DECEMBER 31, 1993 1994 1995 1996 1996 1997 TO JUNE 30, 1997
--------------------- ------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ -- $ -- $ 104 $ 55 $ -- $ 212 $ 371
Research and development
expenses.................... 691 2,747 4,012 5,146 2,278 2,859 15,455
Operating loss................ (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) (20,730)
Other income (expenses)....... 11 (250) (311) (120) (54) (45) (713)
Net loss...................... (1,311) (3,944) (5,739) (6,972) (3,134) (3,478) (21,443)
Pro forma net loss per share
(2) (3)..................... $ (1.48) $ (.59)
Pro forma weighted average
shares used in computing pro
forma net loss per share (2)
(3)......................... 4,705 5,880
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
(UNAUDITED)
------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA (3) ADJUSTED (4)
------- --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 8,912 $ 8,912 $ 38,337
Working capital.............................................................. 8,019 8,019 37,444
Total assets................................................................. 10,585 10,585 40,010
Notes payable and capital lease obligations, less current portion............ 488 488 488
Accumulated deficit.......................................................... (21,443) (21,443) (21,443)
Total stockholders' equity................................................... 8,847 8,847 38,272
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes (i)
260,361 shares of Common Stock reserved for issuance pursuant to stock
options outstanding as of June 30, 1997 and (ii) an aggregate of 56,684
shares of Common Stock issuable upon the exercise of warrants outstanding as
of June 30, 1997. Also excludes an aggregate of 254,188 shares of Common
Stock reserved for future issuance as of June 30, 1997 under the Company's
Amended and Restated Stock Incentive Plan (the "Stock Incentive Plan"). See
"Management -- Stock Option Plans," "Description of Capital Stock" and Note
5 of Notes to Financial Statements.
(2) Computed on the basis described in Note 1 of Notes to Financial Statements.
(3) Pro forma to give effect to the automatic conversion upon the completion of
this Offering of all outstanding shares of the Company's Series A, B, C and
D Preferred Stock, par value $.001 per share (the "Preferred Stock"), into
6,261,615 shares of Common Stock.
(4) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per
share after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds"
and "Capitalization."
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
DEVELOPMENT STAGE COMPANY. The Company commenced operations in January 1993
and is subject to all of the business risks associated with a biopharmaceutical
company in the early stage of development, including constraints on the
Company's financial, personnel and other resources, and uncertainties regarding
the Company's novel product discovery and development programs. Prospective
investors, therefore, have limited historical financial information about the
Company upon which to base their evaluation of the Company's performance and an
investment in the shares offered hereby. Since its inception, substantially all
of the Company's resources have been dedicated to the development, patenting,
preclinical testing and a Phase I/II clinical trial of T-20, the development of
its proprietary technology platform, and research and development and
preclinical testing of other potential product candidates and compounds
discovered by the Company. The Company has yet to generate any revenues from
product sales or royalties, and there can be no assurance that it will be able
to generate any such revenues or royalties in the future. Product candidates and
compounds discovered by the Company and developed through the Company's product
development programs will require significant additional, time-consuming and
costly research and development, preclinical testing and extensive clinical
trials prior to submission of any regulatory application for commercial use. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred losses since its inception. As of June
30, 1997, the Company's accumulated deficit was approximately $21.4 million.
Such losses have resulted principally from expenses incurred in the Company's
research and development activities associated with the development, patenting,
preclinical testing and a Phase I/II clinical trial of T-20, the development of
its proprietary technology platform, research and development and preclinical
testing of other potential product candidates and compounds discovered by the
Company, and from general and administrative expenses. The Company expects to
incur substantial losses for the foreseeable future and expects losses to
increase as the Company's research and development, preclinical testing and
clinical trial efforts expand. The amount and timing of the Company's operating
expenses will depend on several factors, including the status of the Company's
research and development activities, product candidate and compound discovery
and development efforts, including preclinical testing and clinical trials, the
timing of regulatory actions, the costs involved in preparing, filing,
prosecuting, maintaining, protecting and enforcing patent claims and other
proprietary rights, the ability of the Company to establish, internally or
through relationships with third parties, manufacturing, sales, marketing and
distribution capabilities, technological and other changes in the competitive
landscape, changes in the Company's existing research and development
relationships and strategic alliances, evaluation of the commercial viability of
potential product candidates and other factors, many of which are outside of the
Company's control. As a result, the Company believes that period-to-period
comparisons of financial results in the future are not necessarily meaningful
and results of operations in prior periods should not be relied upon as an
indication of future performance. Any deviations in results of operations from
levels expected by securities analysts and investors could have a material
adverse effect on the market price of the Common Stock. The Company's ability to
achieve profitability will depend, in part, upon its or its collaborative
partners' ability to successfully develop and obtain regulatory approval for
T-20 and other product candidates and compounds discovered by the Company, and
to develop the capacity, either internally or through relationships with third
parties, to manufacture, sell, market and distribute approved products, if any.
There can be no assurance that the Company will ever generate significant
revenues or achieve profitable operations. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Programs and Product Candidates Under
Development."
DEPENDENCE ON A SINGLE PRODUCT CANDIDATE. T-20 is the only product
candidate developed by the Company which has been tested in humans. The
Company's success will depend, in significant part, upon the ability of the
Company to establish the safety and effectiveness of T-20 in humans, to obtain
the requisite regulatory approvals
6
<PAGE>
for the commercialization of T-20, to establish relationships for the
commercial-scale production of T-20 at acceptable cost and with appropriate
quality, to successfully market T-20, and to achieve market acceptance of T-20
by the medical community, including health care providers and third-party
payors. Failure of the Company or its collaborative partners to successfully
develop and commercialize T-20 would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Programs and Product Candidates Under Development."
TECHNOLOGICAL UNCERTAINTY. The Company's product development programs are
based upon a novel technology designed to facilitate the discovery of product
candidates and compounds which are designed to treat viral infection through the
inhibition of viral fusion. The Company is not aware of any other approved
antiviral pharmaceutical products which target the inhibition of viral fusion.
Accordingly, product development utilizing the Company's novel mechanism of
action involves a high degree of risk, is highly uncertain, and could result in
unanticipated developments, clinical or regulatory delays, unexpected adverse
side effects or inadequate therapeutic effectiveness, any of which could slow or
suspend the Company's product development efforts which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company's technologies will lead
to the discovery and development of any commercially viable products, that the
Company's research or product development efforts as to any particular product
candidate or compound will be successfully completed, that any such product
candidates or compounds will be proven to be safe and effective, or that
required regulatory approvals will be obtained. The Company's development
programs are subject to the risks inherent in the development of new products
using new technologies and approaches. There can be no assurance that unforeseen
problems will not develop with these technologies or applications, that the
Company will be able to address successfully technological challenges it
encounters in its research and development programs or that commercially
feasible product candidates or compounds will ultimately be developed by the
Company. See "Business -- Programs and Product Candidates Under Development" and
" -- Clinical Development Programs."
UNCERTAINTIES RELATED TO CLINICAL TRIALS AND CLINICAL TRIAL STRATEGY.
Before obtaining required regulatory approvals for the commercial sale of any of
its product candidates or compounds, the Company must demonstrate through
preclinical testing and clinical trials that each product candidate or compound
is safe and effective for use in humans for each target indication. To date, the
Company has conducted initial preclinical testing of certain of its product
candidates and has conducted a Phase I/II clinical trial of T-20. The Company
intends to conduct a Phase II clinical trial and a pivotal clinical trial of
T-20. These clinical trials will involve a relatively small patient population.
No assurance can be given that the results of early clinical trials will support
the commencement of further clinical trials of T-20, that the results of the
clinical trials will support the Company's applications for regulatory approval,
or that regulatory authorities will not require the Company to conduct
additional clinical trials either prior to, or after, regulatory approval is
obtained. The Company may find, at any stage of this complex process, that
potential product candidates or compounds that appeared promising in preclinical
testing and early clinical trials do not demonstrate safety or effectiveness on
a larger scale in advanced clinical trials or do not receive the requisite
regulatory approvals. Accordingly, any product development program undertaken by
the Company may be curtailed, redirected or eliminated at any time, which could
result in delays in conducting further preclinical testing and clinical trials,
in unexpected adverse events in further preclinical testing and clinical trials,
and in additional development expenses. Furthermore, administration of the
Company's potential product candidates or compounds may prove to have
undesirable or unintended side effects in humans. The occurrence of side effects
could interrupt, delay or halt clinical trials of each such product candidate or
compound and could delay or prevent its approval by the FDA or foreign
regulatory authorities for any and all targeted indications. The Company or the
FDA may suspend or terminate clinical trials at any time if it is believed that
the trial participants are being exposed to unacceptable health risks. In
addition, this Prospectus reflects the Company's estimates regarding the timing
of future preclinical testing and clinical trials. Such preclinical testing and
clinical trials may be delayed or cancelled for a number of reasons, including
the receipt of unanticipated, adverse or ambiguous results from preclinical
testing or clinical trials, the demonstration of undesirable or unintended side
effects, the inability to locate, recruit and qualify sufficient numbers of
patients, lack of funding, the inability to locate or recruit scientists to
undertake or complete planned preclinical testing or clinical trials, the
redesign of the Company's preclinical testing or clinical trial programs, the
inability to manufacture or acquire sufficient quantities
7
<PAGE>
of the particular product candidate or any other components required for
preclinical testing or clinical trials, regulatory delays or other regulatory
actions, changes in focus of the Company's or its collaborators' development
efforts, and the disclosure of clinical trial results by competitors.
Accordingly, no assurance can be given that the Company's preclinical testing or
clinical trials will commence on their target dates, or at all. Delays in such
testing and trials could delay regulatory approval for the Company's product
candidates, delay commercialization of the Company's product candidates,
increase operating expenses, result in the expenditure of additional capital,
cause the diversion of management time and attention, or create adverse market
perception about the Company and its product candidates, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The rate of completion of the Company's clinical trials will depend upon,
among other factors, obtaining or manufacturing adequate amounts of the
Company's product candidates from third-party manufacturers and sufficient
patient enrollment. See "Business -- Lack of Manufacturing Capabilities" for a
description of certain risks associated with the manufacturing of the Company's
product candidates and compounds. Patient enrollment is a function of many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the clinical trial. Delays in planned patient enrollment may result
in increased costs or delays or both, which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Programs and Product Candidates Under Development" and
" -- Government Regulation."
DEPENDENCE ON COLLABORATIONS AND LICENSES WITH OTHERS. The Company intends
to consider entering into collaborative and license arrangements with
collaborative partners, licensees and third parties to seek regulatory approval
of and to manufacture and commercialize certain of its existing and potential
product candidates and compounds. Accordingly, the Company's success will
depend, in part, upon the subsequent success of such third parties in performing
preclinical testing and clinical trials, obtaining the requisite regulatory
approvals, scaling up manufacturing, successfully commercializing the licensed
product candidates or compounds and otherwise performing their obligations.
There can be no assurance that the Company will be able to maintain its existing
arrangements or enter into acceptable collaborative and license arrangements in
the future on acceptable terms, if at all, that such arrangements will be
successful, that the parties with which the Company has or may establish
arrangements will perform their obligations under such arrangements, or that
potential collaborators will not compete with the Company by seeking alternative
means of developing therapeutics for the diseases targeted by the Company. There
can also be no assurance that the Company's existing or any future arrangements
will lead to the development of product candidates or compounds with commercial
potential, that the Company will be able to obtain proprietary rights or
licenses for the proprietary rights with respect to any technology or product
candidates or compounds developed in connection with these arrangements, or that
the Company will be able to ensure the confidentiality of any proprietary rights
and information developed in such arrangements or prevent the public disclosure
thereof. The Company currently has a license from Duke University, and in the
future may require additional licenses from these or other parties, to
effectively develop potential product candidates and compounds. Pursuant to a
license agreement with Duke University (the "Duke License"), the Company has
obtained an exclusive, worldwide license to existing and certain future
technologies in the field of antiviral therapeutics developed by several
researchers at Duke University for the life of each particular patent filed in
connection with such technologies. Unless the Duke License is renewed, the
Company will not be entitled to any additional technologies developed after 2000
or after any earlier termination. None of the technologies licensed by the
Company from Duke University is the subject of a separate individual license
agreement. Rather, the Company's rights to such technologies are licensed solely
pursuant to the Duke License. The early termination of the Duke License due to
the Company's failure to develop the licensed technologies or the failure of the
Company to renew the Duke License on acceptable terms, or at all, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Pursuant to a Cooperative and Strategic Alliance
Agreement (the "MiniMed Agreement"), the Company and MiniMed Inc. ("MiniMed")
have agreed to jointly design, develop and implement a system for the continual
delivery of T-20 utilizing the MiniMed continuous infusion pump. The failure of
the Company and MiniMed to achieve their collective objectives could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company has received two Small
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Business Innovation Research ("SBIR") grants from the National Institutes of
Health and entered into an investigative contract with a third party to identify
certain pharmaceutical compounds. There can be no assurance that the funding
provided by such SBIR grants will be sufficient to complete the studies
contemplated by such programs or that the Company will receive any additional
future grants or funding under any of these programs. There can be no assurance
that such license or agreements can be maintained or that additional licenses
can be obtained on acceptable terms, if at all, or will be renewable if
obtained, or that the patents underlying such licenses, if any, will be valid
and enforceable, or that the proprietary nature of the patented technology
underlying such licenses will remain proprietary. See "Business -- License and
Collaborative Agreements."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company has
experienced negative cash flows from operations since its inception and does not
anticipate generating sufficient positive cash flows to fund its operations in
the foreseeable future. The Company has expended, and expects to continue to
expend in the future, substantial funds to pursue its product candidate and
compound discovery and development efforts, including expenditures for continued
clinical trials of T-20, research and development and preclinical testing of
other potential product candidates and compounds discovered by the Company and
the development of its proprietary technology platform. The Company expects that
its existing capital resources, together with the net proceeds of this Offering
and the interest earned thereon, will be adequate to fund its capital
requirements through 1998. However, the Company's future capital requirements
and the adequacy of available funds will depend on many factors, including the
results of the clinical trials relating to T-20, the progress and scope of the
Company's product development programs, the magnitude of these programs, the
results of preclinical testing and clinical trials, the need for additional
facilities based on the results of these clinical trials and other product
development programs, changes in the focus and direction of the Company's
product development programs, the costs involved in preparing, filing,
prosecuting, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through the establishment of relationships with
third parties, for manufacturing, sales, marketing and distribution functions
and other factors, many of which are outside of the Company's control. Thus,
there can be no assurance that the net proceeds of this Offering, together with
the interest earned thereon, will be sufficient to fund the Company's capital
requirements during the period discussed above. The Company believes that
substantial additional funds will be required to continue to fund its operations
and that the Company will be required to obtain additional funds through equity
or debt financings or licenses, agreements or other arrangements with partners
and others, or from other sources. The terms of any such equity financings may
be dilutive to stockholders, and the terms of any debt financings may contain
restrictive covenants which limit the Company's ability to pursue certain
courses of action. There can be no assurance that such funds will be available
to the Company on acceptable terms, if at all, or that any such financings will
be adequate to meet the Company's future capital requirements. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its preclinical testing, clinical trials and research and
development programs or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or product candidates or compounds, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's success
will depend, in part, on its ability, and the ability of its collaborators or
licensors, to obtain protection for its products and technologies under United
States and foreign patent laws, to preserve its trade secrets, and to operate
without infringing the proprietary rights of third parties. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining, and maintaining, patent
and trade secret protection for new technologies, products and processes.
The Company has obtained rights to certain patents and patent applications
and may, in the future, seek rights from third parties to additional patents and
patent applications. In September 1997, the Company obtained from
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The New York Blood Center ("NYBC") an exclusive, worldwide, royalty-bearing
license under certain United States and foreign patents and patent applications
relating to HIV peptides. In addition to annual minimum royalty payments
commencing in 1998, the Company is obligated to pay a one-time fee to NYBC in
the event that a pivotal clinical trial utilizing a product covered by the
license is not commenced by September 2002. The license agreement further
provides that the Company may elect to pay NYBC sponsored research funds in lieu
of a certain percentage of royalties otherwise due. A sponsored research
agreement would be negotiated at that time giving the Company a right of first
negotiation for an exclusive, royalty-bearing license to all intellectual
property arising out of the sponsored research program. There can be no
assurance that patent applications relating to the Company's potential products
or technologies will result in patents being issued, that any issued patents
will afford adequate protection to the Company, or that such patents will not be
challenged, invalidated, infringed or circumvented. Furthermore, there can be no
assurance that others have not developed, or will not develop, similar products
or technologies that will compete with those of the Company without infringing
upon the Company's intellectual property rights.
Legal standards relating to the scope of claims and the validity of patents
in the biopharmaceutical industry are uncertain and still evolving, and no
assurance can be given as to the degree of protection that will be afforded any
patents issued to, or licensed by, the Company. There can be no assurance that,
if challenged by others in litigation, any patents assigned to or licensed by
the Company, will not be found invalid. Furthermore, there can be no assurance
that the Company's activities would not infringe patents owned by others.
Defense and prosecution of patent matters can be expensive and time-consuming
and, regardless of whether the outcome is favorable to the Company, can result
in the diversion of substantial financial, management and other resources. An
adverse outcome could subject the Company to significant liability to third
parties, require the Company to obtain licenses from third parties, or require
the Company to cease any related research and development activities and product
sales. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made available on terms acceptable to the
Company, if at all. Moreover, the laws of certain countries may not protect the
Company's proprietary rights to the same extent as U.S. law.
The Company also relies on trade secrets, know-how and other proprietary
information, which it seeks to protect, in part, through the use of
confidentiality agreements with employees, consultants, advisors, and others.
There can be no assurance that such agreements will provide adequate protection
for the Company's trade secrets, know-how, or other proprietary information in
the event of any unauthorized use or disclosure, that employees of the Company,
consultants, advisors or others will maintain the confidentiality of such trade
secrets or proprietary information, or that the trade secrets or proprietary
know-how of the Company will not otherwise become known, or be independently
developed, by competitors.
In January 1997, the United States Patent and Trademark Office (the
"USPTO") instituted an interference proceeding between an issued patent licensed
by the Company from Duke University and a pending patent application owned by a
third party. An interference proceeding is an action, in the USPTO, to determine
which, of several parties, is entitled to a patent. An interference proceeding
may be instituted when the USPTO believes that a pending patent application and
an issued patent claim the same patentable subject matter. The Company believes
that no interference-in-fact exists, i.e., that the parties to the interference
are not claiming the same patentable invention, and, through its licensor, the
Company is taking all reasonable action to have the interference proceeding
dismissed. However, no assurance can be given that the interference proceeding
will be dismissed. Furthermore, no assurance can be given that, should the
interference proceeding continue, as between the two parties to the
interference, the Company's licensor will be found to be the first inventor of
the invention which is declared to be the subject matter of the interference
proceeding. Failure of the Company's licensor to prevail in the interference
proceeding and any loss of the involved patent rights could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Patents, Proprietary Technology and Trade Secrets."
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL. Human
pharmaceutical products are subject to lengthy and rigorous preclinical testing
and clinical trials and other extensive, costly and time-consuming procedures
mandated by the FDA and foreign regulatory authorities. The regulatory approval
process, which includes the establishment of the safety and effectiveness of
each product candidate and compound for each
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target indication and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing,
typically takes a number of years, varying based upon the type, complexity and
novelty of the pharmaceutical product. This process requires the expenditure of
substantial resources and gives larger companies with greater financial
resources a competitive advantage over the Company. To date, no product
candidate or compound being evaluated by the Company has been submitted for
approval by the FDA or any other regulatory authority for commercialization, and
there can be no assurance that any such product candidate or compound will ever
be approved for commercialization or that the Company will be able to obtain the
labeling claims desired for its product candidates or compounds. There can be no
assurance that submission to the FDA of a request for authorization to conduct
clinical trials on an investigational drug will be approved on a trial basis, if
at all. There can be no assurance that if clinical trials are successfully
completed, the Company will be able to submit a New Drug Application ("NDA") in
a timely manner or that any such NDA will be approved by the FDA. The approval
process is affected by a number of factors, including the severity of the
targeted indications, the availability of alternative treatments and the risks
and benefits demonstrated in the clinical trials. The FDA may reject an NDA if
applicable regulatory criteria are not satisfied, or may require additional
clinical trials or information with respect to the product candidate or
compound. Even if FDA approval is obtained, further clinical trials, including
post-market trials, may be required in order to provide additional data on
safety and will be required in order to obtain approval for the use of a product
as treatment for clinical indications other than those for which the product was
initially approved. The FDA will also require post-market reporting and may
require surveillance programs to monitor the side effects of any approved
products. Results of post-market programs may limit the further marketing,
manufacturing process or labeling, and an NDA supplement may be required to be
submitted to the FDA. Any failure of the Company to successfully complete its
clinical trials and obtain approvals of corresponding NDAs would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is and will continue to be dependent upon the
laboratories conducting its preclinical testing and clinical trials to maintain
both good laboratory and good clinical practices, and, if any of the Company's
product candidates or compounds obtain the requisite regulatory approvals, the
Company will be dependent upon any third-party manufacturers of its products to
maintain compliance with the FDA's good manufacturing practice ("GMP")
requirements. Various federal and foreign statutes and regulations also govern
or influence the manufacturing, safety, labeling, storage, record-keeping and
marketing of pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate United States and foreign statutes and regulations are
time-consuming and will require the expenditure of substantial resources by the
Company. In addition, these requirements and processes vary widely from country
to country. The time required for completing preclinical testing and clinical
trials is uncertain, and the FDA approval process is unpredictable and
uncertain, and no assurance can be given that necessary approvals will be
granted on a timely basis, or at all. The Company may decide to replace a
product candidate or compound in preclinical testing and/or clinical trials with
a modified product candidate or compound, thus extending the development period.
In addition, the FDA or similar foreign regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in legislation, administrative action or FDA policy during
the period of product development and FDA review, including changes in FDA
policy relating to clinical testing guidelines for the use of the Company's
product candidates or compounds in children. Similar delays or rejections may be
encountered in other countries.
While certain of the Company's product candidates and compounds, including
T-20, have been and will continue to be designed to treat serious or
life-threatening illnesses, such product candidates and compounds may not
qualify for accelerated development and/or approval under FDA regulations and,
even if some of the Company's product candidates or compounds qualify for
accelerated development and/or approval, they may not be approved for marketing
on an accelerated basis, or at all. There can be no assurance that, even after
substantial time and expenditures, any of the Company's product candidates or
compounds under development will receive commercialization approval in any
country on a timely basis, or at all. If the Company is unable to demonstrate
the safety and effectiveness of its product candidates and compounds to the
satisfaction of the FDA or foreign regulatory
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authorities, the Company will be unable to commercialize its product candidates
and compounds and the Company's business, financial condition and results of
operations would be materially and adversely affected. Furthermore, even if
regulatory approval of a product candidate or compound is obtained, the approval
may entail limitations on the indicated uses for which the product candidate or
compound may be marketed. A marketed product or compound, its manufacturer and
the manufacturer's facilities are subject to continual review and periodic
inspections, and subsequent discovery of previously unknown problems with a
product, compound, manufacturer or facility may result in restrictions on such
product, compound, manufacturer or facility, including withdrawal of the product
or compound from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, injunctions, civil
penalties, total or partial suspension of regulatory approvals, refusal to
approve pending applications, refusal to permit exports from the United States,
recalls or seizures of products or compounds, operating and production
restrictions and criminal prosecutions. Further, FDA policy may change and
additional government regulations may be established that could prevent or delay
regulatory approval of the Company's product candidates or compounds.
The effect of governmental regulation may be to delay the marketing of new
products or compounds for a considerable period of time, to impose costly
requirements on the Company's activities or to provide a competitive advantage
to other companies that compete with the Company. Adverse clinical results by
others could have a negative impact on the regulatory process and timing with
respect to the development and approval of the Company's product candidates or
compounds. A delay in obtaining or failure to obtain regulatory approvals could
have a material adverse effect on the Company's business, financial condition
and results of operations. The extent and character of potentially adverse
governmental regulation that may arise from future legislation or administrative
action cannot be predicted.
In April 1997, the Company and MiniMed entered into the MiniMed Agreement
pursuant to which the parties have agreed to jointly design, develop and
implement a system for the delivery of T-20 utilizing the MiniMed continuous
infusion pump. There can be no assurance that the FDA will approve, on a timely
basis, if at all, the delivery of T-20 utilizing the MiniMed continuous infusion
pump. The failure of the Company and MiniMed to collectively develop a continual
T-20 delivery system which receives FDA approval on a timely basis could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company and its existing and potential future collaborative partners
are also subject to various federal, state and local laws and regulations
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's product development programs.
Compliance with such laws, regulations and requirements may be costly and
time-consuming and the failure to maintain such compliance by the Company or its
existing and future collaborative partners could have a material adverse effect
on the Company's business, financial condition and results of operations.
In addition, this Prospectus reflects the Company's estimates regarding
future regulatory submission dates. Regulatory submissions can be delayed, or
plans to submit proposed products can be cancelled, for a number of reasons,
including the receipt of unanticipated preclinical testing or clinical trial
reports, changes in regulations, adoption of new, or unanticipated enforcement
of existing, regulations, technological developments and competitive
developments. Accordingly, no assurance can be given that the Company's
anticipated submissions will be made on their target dates, or at all. Delays in
such submissions could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
INTENSE COMPETITION. The Company is engaged in segments of the
biopharmaceutical industry, including the treatment of HIV, that are intensely
competitive and rapidly changing. If successfully developed and approved, the
product candidates and compounds that the Company is currently developing will
compete with numerous existing therapies. For example, 11 drugs are currently
approved for the treatment of HIV. In addition, a number of companies are
pursuing the development of novel pharmaceutical products that target the same
diseases that the Company is targeting, and some companies, including several
multinational pharmaceutical companies, are simultaneously marketing several
different drugs and may therefore be able to market their own combination drug
therapies.
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The Company believes that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.
The Company anticipates that it will face intense and increasing competition in
the future as new products enter the market and advanced technologies become
available. There can be no assurance that existing products or new products for
the treatment of HIV developed by the Company's competitors, including Glaxo
Wellcome plc ("Glaxo"), Merck & Co., Inc. ("Merck") and Abbott Laboratories,
Inc. ("Abbott"), will not be more effective, or more effectively marketed and
sold, than T-20, should it be successfully developed and receive regulatory
approval, or any other therapeutic for HIV that may be developed by the Company.
Competitive products or the development by others of a cure or new treatment
methods may render the Company's technologies and products and compounds
obsolete, noncompetitive or uneconomical prior to the Company's recovery of
development or commercialization expenses incurred with respect to any such
technologies or products or compounds. Many of the Company's competitors have
significantly greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture, sell, market and distribute
products. In addition, many of these companies have extensive experience in
preclinical testing and clinical trials, obtaining FDA and other regulatory
approvals and manufacturing and marketing pharmaceutical products. Many of these
competitors also have products that have been approved or are in late-stage
development and operate large, well-funded research and development programs.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of the
commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
New developments in areas in which the Company is conducting its research
and development are expected to continue at a rapid pace in both industry and
academia. If the Company's product candidates and compounds are successfully
developed and approved, the Company will face competition based on the safety
and effectiveness of its products and compounds, the timing and scope of
regulatory approvals, availability of manufacturing, sales, marketing and
distribution capabilities, reimbursement coverage, price and patent position.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technologies or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."
LACK OF MANUFACTURING CAPABILITIES. The Company has no experience in
manufacturing pharmaceuticals and has no commercial manufacturing capacity. The
Company has established relationships and intends to establish additional
relationships with third-party manufacturers for the production of quantities of
its product candidates or compounds sufficient to conduct its planned
preclinical testing and clinical trials and the commercial production of any
approved products or compounds. There can be no assurance that the Company will
be able to retain or establish relationships with third-party manufacturers on
acceptable terms, if at all, or that such third-party manufacturers will be able
to manufacture products in commercial quantities under GMP requirements on a
cost-effective basis. The Company's anticipated peptide-based therapeutics are
difficult and expensive to manufacture using existing technologies. The Company,
and its third-party manufacturers, are currently using solid-phase sequential
peptide synthesis to manufacture T-20. This chemical methodology is inherently
inefficient and complex. Due to technical limitations, solid-phase sequential
peptide synthesis is the most expensive way to chemically assemble the Company's
current peptide product candidates, including T-20. There can be no assurance
that the Company or its third-party manufacturers will be able to manufacture
T-20 on a cost-effective basis or that the Company will be successful in its
efforts to develop an alternative, more efficient manufacturing method for T-20
or any of its other peptide product candidates. The Company's dependence upon
third parties for the manufacture of its products, product candidates and
compounds may materially and adversely affect the Company's profit margins and
its ability to develop and commercialize product candidates, products and
compounds on a timely and competitive basis. Further, there can be no assurance
that manufacturing or quality control problems will not arise in connection with
the manufacture of the Company's products, product candidates or compounds or
that third-party manufacturers will maintain the necessary governmental licenses
and approvals to continue manufacturing the Company's products, product
candidates or compounds. Any failure to maintain
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existing or establish new relationships with third parties for the Company's
manufacturing requirements on a timely basis and on acceptable terms would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
LACK OF SALES, MARKETING AND DISTRIBUTION CAPABILITIES. The Company has no
experience in sales, marketing or distribution of pharmaceuticals and currently
has no personnel employed in any such capacities. Some therapeutics for HIV can
be marketed to a concentrated group of physicians in a relatively narrow
geographic scope. The Company may consider developing internal sales, marketing
and distribution capabilities for T-20, should it be successfully developed and
receive regulatory approval. For the remainder of the Company's product
candidates and compounds, should they be successfully developed and receive
regulatory approval, the Company may rely on marketing partners or other
arrangements with third parties which have established distribution systems and
direct sales forces for the sales, marketing, and distribution of such products
and compounds. In the event that the Company is unable to reach agreement with
one or more marketing partners to market these other products and compounds, the
Company would be required to develop internal sales, marketing and distribution
capabilities for such products and compounds. There can be no assurance that the
Company will be able to establish sales, marketing or distribution capabilities
or make arrangements with third parties to perform such activities on acceptable
terms, if at all, or that any internal capabilities or third-party arrangements
will be cost-effective. The failure to establish such capabilities would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, any third parties with which the Company establishes sales,
marketing or distribution arrangements may have significant control over
important aspects of the commercialization of the Company's products and
compounds, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. For example, the MiniMed
Agreement contemplates that MiniMed will participate in the sales, marketing and
distribution of any products jointly developed by the parties. There can be no
assurance that the Company will be able to control the amount and timing of
resources that MiniMed or any other third party may devote to the Company's
products or compounds or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with the Company's products and the withdrawal of support for the
Company's products. See "Business -- Sales, Marketing and Distribution."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success will depend upon
the acceptance by the medical community, including health care providers and
third-party payors, of the Company's antifusion technology as a safe and
effective means of treating viral infection. The Company's success will
additionally be dependent upon the acceptance by the medical community,
including health care providers and third-party payors, of any products or
compounds developed by the Company. The degree of market acceptance will depend
upon a number of factors, including the establishment and demonstration in
clinical trials of the safety and effectiveness of the Company's products and
compounds, the receipt and scope of regulatory approvals, the demonstration of
the potential advantages of the Company's products and compounds over existing
treatment methods, and the reimbursement policies of government and third-party
payors with respect to antiviral therapeutics based upon blocking viral fusion.
Moreover, companies that market and sell HIV antivirals and other HIV-related
therapeutics have from time to time been subject to protests and boycotts by
patient advocacy and activist groups. These protests and boycotts have focused
on, among other things, availability of such therapeutics and pricing concerns.
Market acceptance of such therapeutics, including any products or compounds that
the Company may develop, will be dependent, in part, on the continued support by
such groups. There can be no assurance that the Company's products or compounds
will achieve significant market acceptance on a timely basis, or at all. Failure
of some or all of the Company's products, if successfully developed, to achieve
significant market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TRIALS. The Company has engaged,
and intends to continue to engage, third-party contract research organizations
("CROs") to perform certain functions in connection with the development of the
Company's product candidates and compounds. The Company intends to design
clinical trials, but have CROs conduct the clinical trials, and the Company will
rely on the CROs to perform many important aspects of the clinical trials. As a
result, these aspects of the Company's product development programs will be
outside the direct control of the Company. There can be no assurance that the
CROs or other third parties will
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perform all of their obligations under their arrangements with the Company. In
addition, there can be no assurance that any such arrangements will be renewed
or any new arrangements will be available on acceptable terms, if at all, or
that any such arrangements, if entered into, will be successful. In the event
that the CROs do not perform clinical trials in a satisfactory manner or breach
their obligations to the Company, the commercialization of any product candidate
or compound may be delayed or precluded, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES.
In the United States and elsewhere, sales of prescription pharmaceuticals are
dependent, in part, on the availability of reimbursement to the consumer from
third-party payors, such as government agencies and private insurance plans.
Third-party payors are increasingly challenging the prices charged for medical
products and services in an effort to promote cost containment measures and
alternative health care delivery systems and they may mandate predetermined
discounts from list prices. If the Company succeeds in bringing one or more
products or compounds to the market, there can be no assurance that these
products or compounds will be considered cost-effective or that reimbursement to
the consumer will be available or will be sufficient to allow the Company or its
potential collaborative partners to sell the Company's products or compounds on
a competitive basis. The business and financial condition of pharmaceutical
companies will continue to be affected by economic, political and regulatory
influences, including the efforts of governments and third-party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. Because of the high cost of the treatment of
AIDS or HIV using combination therapy, many state legislatures are reassessing
reimbursement policies for such therapy. In addition, an increasing emphasis on
managed care in the United States to reduce the overall costs of health care has
and will continue to increase the pressure on pharmaceutical pricing. While the
Company cannot predict whether legislative or regulatory proposals will be
adopted or the effect those proposals or managed care efforts may have, the
announcement and/or adoption of such proposals or efforts could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Third Party Reimbursement and Health Care Reform
Measures."
HAZARDOUS MATERIALS. The Company's product development programs involve the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds, including Class IV type hazardous materials. Although the
Company believes that its handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company. The Company may incur substantial additional costs to
comply with environmental regulations if the Company develops manufacturing
capacity.
ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS. The Company's
business will expose it to potential product liability risks that are inherent
in the testing, manufacturing and marketing of pharmaceutical products. There
can be no assurance that product liability claims will not be asserted against
the Company. In addition, the use of pharmaceutical products that may be
developed by the Company's potential collaborators in clinical trials and the
subsequent sale of products by the Company or its potential collaborators may
cause the Company to bear a portion of those risks. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not currently have any product liability
insurance relating to clinical trials or any products or compounds it may
develop and there can be no assurance that the Company will be able to obtain or
maintain adequate product liability insurance on acceptable terms, if at all, or
that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of the Company will agree to indemnify the Company, be sufficiently
insured, or have a net worth sufficient to satisfy any product liability claims.
Claims or losses in excess of any product liability insurance coverage that may
be obtained by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations.
NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. The
Company is highly dependent upon the efforts of the principal members of its
scientific and management staff. The loss of the services of one or more
15
<PAGE>
members of the Company's scientific or management staff could significantly
delay or prevent the achievement of the Company's research, development or
business objectives and could have a material adverse effect on the Company's
business, financial condition and results of operations. At present, the Company
only has individual employment agreements with Dr. Johnson, the Company's
President, Chief Executive Officer and Chief Scientific Officer, and Mr. Megaro,
the Company's Chief Operating Officer, Chief Financial Officer, Executive Vice
President and Secretary. In addition, the Company relies on consultants and
advisors, including the members of its Scientific Advisory Board, to assist the
Company in formulating its research and development strategy. The loss of the
services of certain members of the Company's Scientific Advisory Board or
certain consultants could materially and adversely affect the Company to the
extent that the Company is pursuing research or development in areas of such
scientific advisor's or consultant's expertise. Due to the specialized
scientific nature of the Company's business, the Company is also highly
dependent upon its ability to attract and retain qualified scientific, technical
and key management personnel. There is intense competition for qualified
personnel in the areas of the Company's activities by academic institutions,
biotechnology companies and pharmaceutical companies and there can be no
assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise. The loss
of, or failure to recruit, scientific, technical, and managerial personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's scientific advisors and consultants may be employed by or
have consulting agreements with entities other than the Company, some of which
may compete with the Company. To the extent that members of the Company's
Scientific Advisory Board or the consultants have consulting arrangements with
or become employed by any competitor of the Company, the Company's business,
financial condition or results of operations could be materially and adversely
affected. Under certain circumstances, inventions or processes independently
discovered by the scientific advisors or the consultants will remain the
property of such persons or their employers. In addition, the institutions with
which the scientific advisors and the consultants are affiliated may make
available the research services of their scientific and other skilled personnel,
including the scientific advisors and the consultants, to competitors of the
Company pursuant to sponsored research agreements. Under such sponsored research
agreements, such institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary information that may
result from research sponsored by an entity other than the Company, including
research performed by a scientific advisor or a consultant for a competitor of
the Company.
The Company requires all employees, consultants and certain of its
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and assignment to the Company of their ideas, developments,
discoveries or inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of the Company will
not gain access to trade secrets and other proprietary information developed by
the Company and disclosed to the scientific advisors and the consultants. See
"Business -- Human Resources," " -- Scientific Advisory Board" and "Management."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock (including shares issued upon the exercise of outstanding options and
warrants) in the public market after this Offering or the prospect of such sales
could materially and adversely affect the market price of the Common Stock and
may have a material adverse effect on the Company's ability to raise any
necessary capital to fund its future operations. Upon completion of this
Offering, the Company will have 9,880,329 shares of Common Stock outstanding
(assuming no exercise of options and warrants outstanding as of September 15,
1997). Of these shares, the 2,500,000 shares offered hereby will be freely
tradeable without restrictions or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares held by
"affiliates" of the Company within the meaning of the Securities Act will be
subject to the resale limitations of Rule 144 promulgated under the Securities
Act ("Rule 144"). The remaining 7,380,329 outstanding shares are "restricted"
securities that may be sold only if registered under the Securities Act, or sold
in accordance with an applicable exemption from registration, such as Rule 144.
Rule 144 imposes a holding period with respect to securities purchased directly
from an issuer or an "affiliate" of an issuer.
The officers and directors of the Company and other holders of Common Stock
who together hold 7,366,307 shares of Common Stock have agreed not to sell,
offer, make any short sale or otherwise dispose of or enter into
16
<PAGE>
any contract, arrangement or commitment to sell or otherwise dispose of any
Common Stock without the prior written consent of UBS Securities LLC for a
period of 180 days from the date of this Prospectus (the "Lock-up Agreements").
Approximately 231,117 shares of Common Stock will be eligible for resale in the
public market without restriction in reliance on Rule 144(k) immediately
following the completion of this Offering, 225,944 shares of which are subject
to the Lock-up Agreements. An additional 769,238 (763,331 shares of which are
subject to the Lock-up Agreements) will be eligible for resale in the public
market pursuant to Rule 701 under the Securities Act beginning approximately 90
days after the effective date of this Prospectus, except to the extent that such
shares are subject to vesting restrictions or certain contractual restrictions
on sale or transfer pursuant to agreements with the Company. After the
expiration of the 180-day lock-up period, an additional 3,739,158 shares of
Common Stock will be eligible for resale in the public market pursuant to Rule
144. From time to time thereafter, the remaining shares of Common Stock
outstanding will become eligible for resale in the public market pursuant to
Rule 144.
Approximately 90 days after the completion of this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the future issuance of shares of Common Stock reserved for issuance
under the Company's Stock Option Plan. As of September 15, 1997, 268,506 shares
of Common Stock were reserved for issuance pursuant to outstanding options and
230,394 shares of Common Stock were reserved for future issuance under the
Company's Stock Incentive Plan. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered thereunder will,
subject to Rule 144 limitations applicable to affiliates, be available for sale
in the public market, except to the extent that such shares are subject to
vesting restrictions with the Company or certain contractual restrictions on
sale or transfer (including options covering 267,329 shares which are subject to
Lock-up Agreements). After this Offering, the holders of approximately 6,261,615
shares of Common Stock and the holders of warrants to purchase an aggregate of
56,684 shares of Common Stock will be entitled to certain demand and piggyback
rights with respect to the registration of such shares under the Securities Act.
If such holders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price of the Company's Common Stock.
If the Company, either on its own behalf or on behalf of certain stockholders,
were to initiate a registration and include shares held by such holders pursuant
to the exercise of their piggyback registration rights, such sales could have a
material adverse effect on the Company's ability to raise needed capital. See
"Certain Transactions," "Shares Eligible for Future Sale," "Description of
Capital Stock -- Registration Rights" and "Underwriting."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES. The
Company's directors, executive officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 35.1% of the Company's
outstanding shares of Common Stock following the completion of this Offering (or
approximately 33.8% if the Underwriters exercise their over-allotment option in
full). As a result, these stockholders, if acting together, would be able to
significantly influence all matters requiring approval by the stockholders of
the Company, including the election of directors and the approval of mergers and
consolidations, sales of all or substantially all of the assets of the Company
or other business combination transactions. This may discourage a tender offer
for the Company's Common Stock or a change in control of the Company. See
"Principal Stockholders" and "Description of Capital Stock."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's
Board of Directors is authorized to issue up to 10,000,000 shares of Preferred
Stock and to determine the price, rights, preferences and limitations of those
shares without any further vote or action by the Company's stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. While the Company has no present intention to issue shares of
Preferred Stock, such issuance could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, the Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law (the "DGCL") which, subject to certain
exceptions, prohibits the Company from engaging in certain business combinations
with certain stockholders (each, an "interested stockholder") for a period of
three years after the date of the transaction in which the stockholder became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 could have the effect of
delaying or preventing a change of control of the Company. The Company's Third
Amended and Restated Certificate of Incorporation provides for staggered terms
for the members of the Board of Directors. The staggered Board of Directors, the
Company's Third Amended and Certificate of Incorporation and certain provisions
of the
17
<PAGE>
DGCL may have the effect of delaying, deterring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price and may adversely affect the market price, and the voting
and other rights of the holders, of the Common Stock. See "Description of
Capital Stock -- Delaware Law and Certain Charter Provisions."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Company's Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after this Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the market price at which the Common Stock of the Company will trade after this
Offering. Among the factors to be considered in such negotiations, in addition
to prevailing market conditions, are certain financial information of the
Company, market valuations of other companies that the Company and the
representatives of the several underwriters believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant. The initial
public offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this Offering at or above the initial offering price.
The market price of the Common Stock, like that of the securities of many
other biotechnology and pharmaceutical companies, is likely to be highly
volatile. Factors such as announcements of technological innovations or new
products by the Company or its competitors, preclinical testing or clinical
trial results relating to or regulatory approvals or disapprovals of the
Company's or competitors' product candidates, government regulation, health care
legislation, developments or disputes concerning patent or other proprietary
rights of the Company or its competitors, including litigation, fluctuations in
the Company's operating results, and market prices of the capital stock of
biotechnology and pharmaceutical companies in general could have a significant
impact on the future market price of the Common Stock. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations
that may be unrelated to the operating performance of particular companies. In
addition, in the past, following periods of volatility in the market price of
the securities of companies in the biotechnology and pharmaceutical industries,
securities class action litigation has often been instituted against those
companies. Such litigation, if instituted against the Company, could result in
substantial costs and a diversion of management attention and resources, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. The realization of any of the risks
described in these "Risk Factors" could have a dramatic and adverse impact on
the market price of the Common Stock. See "Underwriting."
BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds of the Offering will
be added to the Company's working capital and will be available for research and
development, capital expenditures, working capital and general corporate
purposes. As of the date of this Prospectus, the Company cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of this Offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will incur an immediate and substantial dilution in the net tangible book
value of the Common Stock from the initial public offering price. The current
stockholders of the Company, including the Company's directors and officers,
acquired their shares of Common Stock for consideration substantially less than
the initial public offering price of the shares of Common Stock offered hereby.
Additionally, the Company has issued options to acquire shares of the Common
Stock at prices significantly below the initial public offering price. To the
extent outstanding options to purchase the Common Stock are exercised, there
will be further dilution. See "Dilution."
NO DIVIDENDS. The Company has not paid cash dividends on its Common Stock
since its inception and does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$13.00 per share are estimated to be approximately $29.4 million (approximately
$34.0 million if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company intends to use the net proceeds of this Offering to fund the
continued clinical trials of T-20, increased research and development
activities, including ongoing development of the Company's technologies,
preclinical testing and clinical trials, and other costs associated with the
Company's product discovery and development programs. The Company also intends,
depending on the results of ongoing preclinical testing and clinical trials, to
use some of the net proceeds for the expansion of its facilities. The remainder
of the aggregate net proceeds will be used to provide working capital and to
fund other general corporate purposes. The amounts actually expended for each
purpose and the timing of such expenditures may vary significantly depending
upon a number of factors, including the status of the Company's research,
product candidate and compound discovery and development efforts, including
preclinical testing and clinical trials, the timing of regulatory actions, the
costs involved in preparing, filing, prosecuting, maintaining, protecting and
enforcing patent claims and other proprietary rights, the ability of the Company
to establish, internally or through relationships with third parties,
manufacturing, sales, marketing and distribution capabilities, technological and
other changes in the competitive landscape, changes in the Company's existing
research and development relationships and strategic alliances, evaluation of
the commercial viability of potential product candidates and compounds, needs
for additional facilities and other factors, many of which are outside of the
Company's control. As of the date of this Prospectus, the Company cannot specify
with certainty the particular uses for the net proceeds to be received upon
completion of this Offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. The Company may also
use a portion of the net proceeds to acquire or invest in businesses, products
and technologies that are complementary to those of the Company, although the
Company currently has no agreements and is not involved in any negotiations with
respect to any such transactions.
Pending such uses, the Company intends to invest the net proceeds in
investment grade, interest-bearing securities, including, without limitation,
obligations of the U.S. government or U.S. government agencies and other highly
rated liquid debt instruments.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception. The Company currently intends to retain any future earnings to fund
its operations and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Preferred Stock Conversion and the filing of the
Company's Third Amended and Restated Certificate of Incorporation upon the
completion of the Offering, and (iii) the pro forma capitalization of the
Company as adjusted to give effect to the sale of the 2,500,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $13.00 per
share and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company. The table should be read in
conjunction with the Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Notes payable and obligations under capital leases,
excluding current installments.............................................. $ 488 $ 488 $ 488
Stockholders' equity (deficit):
Series A, B, C and D Preferred Stock........................................ 53 -- --
Preferred Stock, $.001 par value
per share, 10,000,000 shares authorized and no shares issued and
outstanding.............................................................. -- -- --
Common Stock, $.001 par value per share,
80,000,000 shares authorized 1,092,472 shares issued
and outstanding, actual; 7,354,087 shares issued and outstanding, pro
forma and 9,854,087 shares issued and outstanding, pro forma as adjusted
(1)...................................................................... 1 7 10
Additional paid-in capital.................................................. 32,435 32,482 61,904
Deficit accumulated during the development stage............................ (21,443) (21,443 ) (21,443)
Deferred compensation....................................................... (1,935) (1,935 ) (1,935)
Notes receivable from stockholders............................................ (264) (264 ) (264)
-------- --------- -----------
Total stockholders' equity............................................... 8,847 8,847 38,272
-------- --------- -----------
Total capitalization..................................................... $ 9,335 $ 9,335 $ 38,760
-------- --------- -----------
-------- --------- -----------
</TABLE>
- ---------------
(1) Excludes (i) 10,589 shares of Common Stock issued by the Company after June
30, 1997, (ii) 260,361 shares of Common Stock reserved for issuance pursuant
to stock options outstanding as of June 30, 1997 at a weighted average
exercise price of $.36 per share, and (iii) 56,684 shares of Common Stock
issuable upon exercise of warrants outstanding as of June 30, 1997 at a
weighted average exercise price of $4.25 per share. Also excludes an
aggregate of 254,188 shares of Common Stock reserved for future issuance
under the Company's Stock Incentive Plan as of June 30, 1997. See
"Management -- Stock Option Plans," "Description of Capital Stock" and Note
1 of Notes to Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1997 was approximately $8.3 million, or $1.13 per share, after giving
effect to the Preferred Stock Conversion. After giving effect to the sale by the
Company of the 2,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $13.00 per share (after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company), the pro forma net tangible book value of the Company as of June
30, 1997 would have been approximately $37.8 million, or $3.83 per share. This
represents an immediate increase in net tangible book value of $2.70 per share
to existing stockholders and an immediate dilution in net tangible book value of
$9.17 per share to purchasers in this Offering. "Net tangible book value"
represents the amount of tangible assets of the Company less total liabilities.
Dilution represents the difference between the amount per share paid by
purchasers in this Offering and the pro forma net tangible book value per share
upon completion of this Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $13.00
Pro forma net tangible book value per share as of June 30, 1997........ $1.13
Increase in book value per share attributable to new investors......... 2.70
Pro forma net tangible book value per share after this Offering.......... 3.83
------
Dilution per share to new investors (1).................................. $ 9.17
------
------
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment is exercised in full, the dilution to
new investors will be $8.86 per share.
The following table sets forth, on a pro forma basis as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock and by the new investors, after giving
effect to the Preferred Stock Conversion and before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company, at an assumed initial public offering price of $13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 7,354,087 75% $30,488,588 48% $ 4.15
New investors......................................... 2,500,000 25 32,500,000 52 13.00
--------- ------- ----------- ------- ----------
Total.......................................... 9,854,087 100% $62,988,588 100% $ 6.39
--------- ------- ----------- ------- ----------
--------- ------- ----------- ------- ----------
</TABLE>
The foregoing tables assume no exercise of outstanding options or warrants.
As of June 30, 1997, (i) 260,361 shares of Common Stock were issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$.36 per share, and (ii) an aggregate of 56,684 shares of Common Stock were
issuable upon the exercise of outstanding warrants at a weighted-average
exercise price of $4.25 per share. Also excludes an aggregate of 254,188 shares
of Common Stock reserved for future issuance under the Company's Stock Incentive
Plan as of June 30, 1997. To the extent the outstanding options are exercised,
there will be further dilution to new investors. See "Capitalization," and
"Management -- Stock Option Plans," "Description of Capital Stock" and Note 1 of
Notes to Financial Statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and
with respect to the Company's Balance Sheets as of December 31, 1995 and 1996
are derived from the audited Financial Statements of the Company which are
included elsewhere in this Prospectus and are qualified by reference to such
Financial Statements and the related Notes thereto. Statements of Operations
data for the period from inception (January 7, 1993) through December 31, 1993
and Balance Sheet data at December 31, 1993 and 1994 are derived from audited
Financial Statements of the Company not included herein. The selected financial
data as of June 30, 1997 and for the six months ended June 30, 1996 and 1997 are
derived from unaudited Financial Statements included elsewhere in this
Prospectus. The unaudited Financial Statements include all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for the fair presentation of its financial position and the results of
its operations for those periods. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. The selected financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
the Financial Statements, the related Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PERIOD FROM FOR THE
INCEPTION FOR THE SIX MONTHS ENDED CUMULATIVE
(JANUARY 7, 1993) YEARS ENDED DECEMBER 31, JUNE 30, FROM INCEPTION
THROUGH DECEMBER 31, --------------------------- ----------------- (JANUARY 7, 1993)
1993 1994 1995 1996 1996 1997 TO JUNE 30, 1997
-------------------- ------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Revenue......................... $ -- $ -- $ 104 $ 55 $ -- $ 212 $ 371
-------- ------- ------- ------- ------- ------- -----------------
Operating expense:
Research and development
expenses...................... 691 2,747 4,012 5,146 2,278 2,859 15,455
General and administrative
expenses...................... 631 947 1,520 1,761 802 786 5,646
-------- ------- ------- ------- ------- ------- -----------------
Total operating expenses.... 1,322 3,694 5,532 6,907 3,080 3,645 21,101
-------- ------- ------- ------- ------- ------- -----------------
Operating loss.................. (1,322) (3,694) (5,428) (6,852) (3,080) (3,433) (20,730)
-------- ------- ------- ------- ------- ------- -----------------
Interest income................. 16 8 49 47 32 33 154
Interest expense................ (5) (258) (360) (167) (86) (78) (867)
-------- ------- ------- ------- ------- ------- -----------------
Total other income
(expense)................... 11 (250) (311) (120) (54) (45) (713)
-------- ------- ------- ------- ------- ------- -----------------
Net loss.................... $ (1,311) $(3,944) $(5,739) $(6,972) $(3,134) $(3,478) $ (21,443)
-------- ------- ------- ------- ------- ------- -----------------
-------- ------- ------- ------- ------- ------- -----------------
Pro forma net loss per share
(1)(2)........................ $ (1.48) $ (.59)
------- -------
------- -------
Pro forma weighted average
shares used in computing pro
forma net loss per share
(1)(2)........................ 4,705 5,880
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------- JUNE 30,
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 509 $ 277 $ 1,343 $ 132 $ 8,912
Working capital (deficiency)............................................. 183 (4,067) 322 (1,305) 8,019
Total assets............................................................. 1,802 1,873 3,058 1,684 10,585
Long-term notes payable and capital lease obligations, less current
portion................................................................ 401 751 703 576 488
Accumulated deficit...................................................... (1,311) (5,254) (10,994) (17,965) (21,443)
Total stockholders' equity............................................... 701 (3,236) 1,324 (409) 8,847
</TABLE>
- ---------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
(2) Pro forma to give effect to the Preferred Stock Conversion.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Trimeris commenced operations in January 1993, has a limited operating
history and is a development stage company. Since its inception, substantially
all of the Company's resources have been dedicated to the development,
patenting, preclinical testing and a Phase I/II clinical trial of T-20, the
development of its proprietary technology platform and research and development
and preclinical testing of other potential product candidates and compounds
discovered by the Company. The Company has incurred losses since its inception
and, as of June 30, 1997, had an accumulated deficit of approximately $21.4
million. The Company has received revenue solely from SBIR grants and an
investigative contract and has yet to generate any revenue from product sales or
royalties, and there can be no assurance that it will be able to generate any
such revenues or royalties in the future.
Product candidates and compounds discovered by the Company and developed
through the Company's product development programs will require significant
additional, time-consuming and costly research and development, preclinical
testing and extensive clinical trials prior to submission of any regulatory
application for commercial use. The Company has incurred losses since its
inception. Such losses have resulted principally from expenses incurred in the
Company's research and development activities associated with the development,
patenting, preclinical testing and a Phase I/II clinical trial of T-20, the
development of its proprietary technology platform, research and development and
preclinical testing of other potential product candidates and compounds
discovered by the Company, and from general and administrative expenses. The
Company expects to incur substantial losses for the foreseeable future and
expects losses to increase as the Company's research and development,
preclinical testing and clinical trial efforts expand. The amount and timing of
the Company's operating expenses will depend on several factors, including the
status of the Company's research and development activities, product candidate
and compound discovery and development efforts, including preclinical testing
and clinical trials, the timing of regulatory actions, the costs involved in
preparing, filing, prosecuting, maintaining, protecting and enforcing patent
claims and other proprietary rights, the ability of the Company to establish,
internally or through relationships with third parties, manufacturing, sales,
marketing and distribution capabilities, technological and other changes in the
competitive landscape, changes in the Company's existing research and
development relationships and strategic alliances, evaluation of the commercial
viability of potential product candidates and other factors, many of which are
outside of the Company's control. As a result, the Company believes that
period-to-period comparisons of financial results in the future are not
necessarily meaningful and results of operations in prior periods should not be
relied upon as an indication of future performance. Any deviations in results
from operations from levels expected by securities analysts and investors could
have a material adverse effect on the market price of the Common Stock. The
Company's ability to achieve profitability will depend, in part, upon its or its
collaborated partners' ability to successfully develop and obtain regulatory
approval for T-20 and other product candidates and compounds discovered by the
Company, and to develop the capacity, either internally or through relationships
with third parties, to manufacture, sell, market and distribute approved
products, if any. There can be no assurance that the Company will ever generate
significant revenues or achieve profitable operations. See "Risk
Factors -- Development Stage Company" and " -- History of Operating Losses;
Accumulated Deficit; Uncertainty of Future Profitability."
23
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997
REVENUE. There was no revenue recognized for the six months ended June 30,
1996. Revenue recognized for the six months ended June 30, 1997 consisted of
approximately $112,000 of income from SBIR grants, and $100,000 from an
investigative contract.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
increased from approximately $2.3 million for the six months ended June 30, 1996
to approximately $2.9 million for the six months ended June 30, 1997. The
increase is primarily due to increased costs related to additional personnel and
related laboratory research supplies to support these personnel and the
continuation of a Phase I/II clinical trial for T-20. Total research personnel
were 24 and 28 at June 30, 1996 and 1997, respectively. The Company expects its
research and development expenses to increase substantially in the future due to
continued expansion of product development activities, including preclinical
testing and clinical trials.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses decreased from approximately $802,000 for the six months ended June 30,
1996 to approximately $786,000 for the six months ended June 30, 1997. The
Company expects its administrative expenses to increase in the future to support
the expansion of its product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expenses decreased from approximately $55,000 for the
six months ended June 30, 1996 to $45,000 for the six months ended June 30,
1997. This change was primarily due to fluctuations in cash balances and
borrowings.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
REVENUE. Total revenue was approximately $0, $104,000 and $54,000 for 1994,
1995 and 1996, respectively. An SBIR grant was received in 1995, and revenue was
recognized as earned under this grant in 1995 and 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
increased from $2.7 million in 1994 to approximately $4.0 million in 1995 and
increased to approximately $5.1 million in 1996. The increases are primarily due
to increased costs related to additional personnel and related laboratory
research supplies to support these personnel. During 1996, the Company began a
Phase I/II clinical trial for T-20 and incurred costs associated with these
clinical trials. Total research personnel were 17, 25 and 25 at December 31,
1994, 1995 and 1996, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses increased from approximately $948,000 in 1994 to approximately $1.5
million in 1995, and increased to approximately $1.8 million in 1996. These
increases are primarily due to increased costs related to additional personnel
and professional fees incurred in the patent application process.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expense increased from approximately $250,000 in 1994
to approximately $311,000 in 1995 and decreased to approximately $120,000 in
1996. The increase from 1994 to 1995 was primarily due to an increase in
interest expense of approximately $102,000 net of an increase in interest income
of approximately $41,000. The decrease from 1995 to 1996 was primarily due to a
reduction in interest expense of approximately $193,000 as a result of the
exchange of notes payable for preferred stock during 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
the private placement of equity securities, the issuance of notes to
stockholders and equipment lease financing. Net cash used by operating
activities was approximately $3.8 million, approximately $4.8 million and
approximately $5.8 million in 1994, 1995 and 1996, respectively, and
approximately $2.9 million and approximately $3.5 million for the six months
ended June 30, 1996 and June 30, 1997, respectively. The cash used by operating
activities was used primarily to fund research and development and general and
administrative expenses. Cash provided by financing activities was approximately
$3.6 million, approximately $6.1 million, and approximately $4.8 million in
1994, 1995 and 1996,
24
<PAGE>
respectively, and approximately $3.3 million and approximately $12.4 million for
the six months ended June 30, 1996 and 1997, respectively. The cash provided by
financing activities was primarily from the sale of equity securities and notes
to stockholders.
As of June 30, 1997, the Company had approximately $8.9 million in cash and
cash equivalents compared to approximately $132,000 as of December 31, 1996. The
increase resulted from the receipt of approximately $12.8 million from the sale
of equity securities during 1997, partially offset by approximately $3.5 million
used by operations.
The Company has experienced negative cash flows from operations since its
inception and does not anticipate generating sufficient positive cash flows to
fund its operations in the foreseeable future. The Company has expended, and
expects to continue to expend in the future, substantial funds to pursue its
product candidate and compound discovery and development efforts, including
expenditures for continued clinical trials of T-20, research and development and
preclinical testing of other product candidates and compounds discovered by the
Company and the development of its proprietary technology platform. As of June
30, 1997, the Company had commitments to purchase approximately $2.0 million of
product candidate materials and expects to expend approximately $900,000 in
capital expenditures through the end of 1997. These expenditures may be financed
with capital or operating leases, debt or working capital. The Company expects
that its existing capital resources, together with the net proceeds of the
Offering and the interest earned thereon, will be adequate to fund its capital
requirements through 1998. However, the Company's future capital requirements
and the adequacy of available funds will depend on many factors, including the
results of the clinical trials relating to T-20, the progress and scope of the
Company's product development programs, the magnitude of these programs, the
results of preclinical testing and clinical trials, the need for additional
facilities based on the results of these clinical trials and other product
development programs, changes in the focus and direction of the Company's
product development programs, the costs involved in preparing, filing,
processing, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through relationships with third parties, for
manufacturing, sales, marketing and distribution functions and other factors,
many of which are outside of the Company's control. Thus, there can be no
assurance that the net proceeds of this Offering, together with the interest
earned thereon, will be sufficient to fund the Company's capital requirements
during the period discussed above. The Company believes that substantial
additional funds will be required to continue to fund its operations and that
the Company will be required to obtain additional funds through equity or debt
financing or licenses, agreements or other arrangements with collaborative
partners and others, or from other sources. The terms of any such equity
financings may be dilutive to stockholders and the terms of any debt financings
may contain restrictive covenants which limit the Company's ability to pursue
certain courses of action. There can be no assurance that such funds will be
available to the Company on acceptable terms, if at all, or that such financings
will be adequate to meet the Company's future capital requirements. If adequate
funds are not available, the Company may be required to delay, scale-back or
eliminate certain aspects of its preclinical testing, clinical trials and
research and development programs or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies or product candidates or
compounds, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Future
Capital Needs; Uncertainty of Additional Funding" and "Use of Proceeds."
NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1997, the Company had a net operating loss carryforward of
approximately $21 million. The Company has recognized a valuation allowance
equal to the deferred asset represented by this net operating loss carryforward
and therefore recognized no tax benefit. The Company's ability to utilize its
net operating loss carryforwards may be subject to an annual limitation in
future periods pursuant to the "change in ownership rules" under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"). See Note 6 of Notes
to Financial Statements.
25
<PAGE>
BUSINESS
THE COMPANY
Trimeris is a biopharmaceutical company engaged in the discovery and
development of novel therapeutic agents that block viral infection by inhibiting
viral fusion with host cells. Viral fusion is a complex process by which viruses
attach to and penetrate host cells. The Company's lead product candidate, T-20,
inhibits fusion of HIV with host cells. T-20 has been tested in a multidose
Phase I/II clinical trial as a monotherapy for HIV-infected patients in the
United States. The results from this clinical trial indicate that short-term
administration of T-20 in an intravenous formulation is safe and well tolerated.
Furthermore, all four patients in the clinical trial who received the highest
dose of T-20 experienced a reduction in HIV viral load to below detectable
levels (less than 500 copies/ml) during the treatment period. T-20 and the
Company's other product candidates are designed to inhibit viral fusion, unlike
other currently approved therapeutic agents that target replicating viruses
inside already infected cells. The Company has developed a proprietary
technology platform in the field of fusion inhibition, which is being applied to
the discovery and development of novel products for the treatment of a variety
of viral diseases.
The Company is a development stage company. Since its inception,
substantially all of the Company's resources have been dedicated to the
development, patenting, preclinical testing and a Phase I/II clinical trial of
T-20, the development of the Company's proprietary technology platform, and
research and development and preclinical testing of other potential product
candidates and compounds discovered by the Company.
OVERVIEW OF VIRAL DISEASE
Viruses are infectious particles which contain either RNA or DNA and rely
on host cells to maintain their life cycle. Outside a host cell, a virus
particle cannot replicate. However, after infecting a host cell, a virus
exploits the metabolic mechanisms of that host cell to reproduce and make new
infectious virus particles that can infect other cells.
The genetic material of viruses is surrounded by a protein coat, called a
nucleocapsid. The nucleocapsid of certain viruses, known as enveloped viruses
(HIV, RSV, HPIV, influenza and hepatitis B and C), is surrounded by a bilayer
membrane consisting of both lipids and proteins. Certain of these viral proteins
facilitate the binding process of the virus to the host cell. These proteins
contain peptide domains that associate with one another to form coiled coils
during the infection process. These coiled-coil protein domains come together in
very specific structural rearrangements that help the viral membrane fuse with
the host cell membrane. This coiled-coil interaction permits the viral fusion
process to take place, thereby allowing the virus to inject its genetic material
into the host cell. Using HIV as an example, the following diagrams illustrate a
typical life cycle of a virus and the process by which certain viruses infect a
host cell.
HIV LIFE CYCLE
[ILLUSTRATION]
STEP 1: HIV attaches to the surface of a human immune cell when the gp120
protein binds to a particular host cell receptor. After attachment, gp120 is
stripped away from the virus and certain peptide domains within the gp41
transmembrane protein
26
<PAGE>
rearrange and bind to each other very tightly to form coiled coils which mediate
the fusion of the viral and host cell membranes. STEP 2: The virus injects its
genetic material (RNA) into the cell. An HIV viral enzyme (reverse
transcriptase) then converts this RNA into DNA. STEP 3: The viral DNA is
transported to the nucleus and is integrated into the host cell's chromosomes.
STEP 4: The infected cell begins to produce new viral RNA, which then uses a
portion of the host cell's protein synthesis machinery to make many different
viral proteins. STEP 5: The viral enzyme called protease cuts these new proteins
into smaller pieces. STEP 6: These protein pieces assemble with the HIV RNA and
lipids to make new infectious virus particles. STEP 7: Mature HIV particles are
released from the surface of the infected cell to begin a new cycle of
infection.
MODEL FOR HIV FUSION
[ILLUSTRATION]
(1) PRE-FUSION: The HIV gp41 protein contains two peptide domains which are
predicted to associate with one another to help the virus fuse with the host
cell membrane. However, these two peptide domains are presumably kept apart by
the gp120 protein in a pre-fusion state until the virus attaches to a host cell.
(2) ATTACHMENT: The gp120 protein is stripped away from the virus after gp120
binds to host cell receptors. The two specific peptide domains within the gp41
protein can then rearrange and bind to each other very tightly to form a
coiled-coil structure. In doing so, the tip of the gp41 protein is now
positioned to penetrate the host cell membrane. (3) FUSION: The virus is now
drawn closer to the host cell membrane surface and the viral and host cell
membranes fuse together. (4) PENETRATION: Once the membranes fuse together, the
virus can inject its genetic material into the host cell and the infection
process is completed. NOTE: The gp120 and gp41 protein structures are enlarged
in comparison to the size of the virus to show detail.
27
<PAGE>
THE COMPANY'S TECHNOLOGY
The Company's academic founders, Dr. Dani Bolognesi and Dr. Thomas
Matthews, both of the Duke University Center for AIDS Research, have discovered
a novel method to block HIV infection by inhibiting viral fusion with host
cells. This discovery was licensed to the Company and led to the Company's
development of its proprietary technology platform. The Company is using its
proprietary techonology platform to support its discovery and development
programs. Unlike therapeutic agents targeting viral replication processes inside
host cells, the Company's product candidates prevent one of the first steps in
the infection process that occurs outside of the host cell. The Company's goal
is to use its expertise in the field of fusion inhibition to discover, develop
and market novel peptides or small molecules to inhibit viral fusion for the
treatment of a variety of diseases.
T-20, the Company's lead product candidate, inhibits HIV infection. T-20 is
a proprietary 36 amino acid synthetic peptide that binds to a key peptide domain
of the HIV gp41 protein and blocks HIV viral fusion by interfering with the
interactions between peptide domains within viral proteins that are required for
HIV entry into a host cell. In a multidose Phase I/II clinical trial, T-20
exhibited dose-dependent anti-HIV activity while eliciting no drug-related
adverse events and no dose-limiting toxicities during the treatment period. The
following diagram illustrates the use of T-20 to inhibit viral fusion.
MODEL FOR T-20 INHIBITION OF HIV FUSION
[ILLUSTRATION]
The gp120 protein is stripped away from the virus after gp120 binds to a
particular host cell receptor. Two specific peptide domains in the gp41 protein
are thus freed and can bind to one another to form a coiled coil. However, if
T-20 is present in the bloodstream, it binds very tightly to one of the two
peptide domains within the gp41 protein. Therefore, T-20 blocks the ability of
gp41 to form a natural, coiled-coil structure. As a result, the tip of the gp41
protein does not effectively penetrate the host cell membrane. Since the virus
cannot penetrate and inject its genetic material into the cell, HIV infection of
the host cell is inhibited. NOTE: The gp120 and gp41 protein structures are
enlarged in comparison to the size of the virus to show detail.
28
<PAGE>
Through its study of the HIV fusion process, the Company has developed a
proprietary technology platform aimed at discovering antiviral compounds. The
cornerstone of this platform is CAST, a proprietary computer algorithm which
identifies target sequences within certain viral proteins that have the
potential to interact during the fusion process. Once identified by the CAST
algorithm, these target sequences form the basis for designing highly selective
and potent peptide inhibitors of viral fusion. CAST has enabled the Company to
design product candidates for RSV and HPIV fusion inhibition. The Company has
identified, and has filed patent applications disclosing, numerous discrete
peptide sequences, which include potential fusion targets in other viruses such
as hepatitis B and C, influenza and herpes.
In addition to viral targets, CAST has identified protein sequences which
may have a role in bacterial pathogenesis, thus providing the Company with the
basis for future work aimed at the potential discovery of antibiotic agents.
Ultimately, the Company plans to explore CAST-identified sequences across a wide
range of targets, including those associated with cancer, immunology and
neurology.
PROGRAMS AND PRODUCT CANDIDATES UNDER DEVELOPMENT
The following table describes the various stages of development of the
Company's programs and product candidates.
<TABLE>
<CAPTION>
INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
- ------------------------------ ----------------------------- ------------------------------
HIV T-20 Phase I/II Completed
<S> <C> <C>
RSV T-786 Preclinical
HIV Second generation inhibitors Preclinical
RSV Small molecules Preclinical
HPIV T-205 Research
HPIV Small molecules Research
HIV Small molecules Research
Influenza Virus Small molecules Discovery
Hepatitis B Virus Small molecules Discovery
Hepatitis C Virus Small molecules Discovery
Epstein-Barr Virus Small molecules Discovery
- ---------------
(1) "Phase I/II Completed" indicates that the product candidate has been tested in a Phase I/II
clinical trial for safety and preliminary indications of biological activity in a limited
patient population. "Preclinical" indicates that the Company is testing a product candidate
in animal models. "Research" indicates the Company is pursuing the discovery of prototype
compounds and evaluating prototype compounds in IN VITRO testing. "Discovery" indicates that
the Company is developing assay systems to screen chemical libraries of small molecules. See
"Risk Factors -- Uncertainties Related to Clinical Trials and Clinical Trial Strategy,"
" -- Extensive Government Regulation; No Assurance of Regulatory Approval" and
"Business -- Government Regulation."
</TABLE>
CLINICAL DEVELOPMENT PROGRAM
T-20
T-20 is a proprietary compound which has demonstrated significant
inhibition of HIV in preclinical testing. T-20 has been tested in a Phase I/II
clinical trial in which T-20 exhibited dose-dependent anti-HIV activity while
eliciting no drug-related adverse events and no dose-limiting toxicities during
the treatment period. T-20 inhibits HIV viral fusion with host cells and thus
operates by a completely different mechanism of action than any other currently
approved HIV antiviral. HIV targets primarily the human immune cells known as
CD4+ T-cells and macrophages. HIV-infected cells ultimately lose their immune
function, leading to eventual degeneration of the immune system, which results
in opportunistic infections, neurological dysfunctions, neoplasms and death.
T-20 is a 36 amino acid synthetic peptide whose sequence is derived from
the gp41 protein of HIV. In preclinical testing, T-20 displayed potent antiviral
activity and reduced HIV viral load significantly in animal
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<PAGE>
models. In those tests, T-20 displayed notable pharmaceutical properties,
including long half-life, significant bioavailability, chemical stability and
rapid distribution into lymphatic tissue, a major reservoir of HIV. In August
1997, the Company concluded a Phase I/II clinical trial in which an intravenous
formulation of T-20 was administered to HIV-infected patients. The clinical
trial consisted of four groups of four patients, with each group receiving a
different dose of T-20. Patients received doses of T-20 at either 3 mg, 10 mg,
30 mg or 100 mg by bolus intravenous infusion every 12 hours for 14 consecutive
days. No drug-related adverse events were recorded and no dose-limiting
toxicities were observed for any patient during the treatment period.
Furthermore, a dose-dependent decrease in HIV viral load and a dose-dependent
increase in CD4+ T-cell count were observed.
All four patients who received the 100 mg dose experienced a decrease in
HIV viral load to below detectable levels (less than 500 copies/ml) during the
treatment period. The lower limit of detection of the assay used for this trial
is 500 copies/ml, which is equivalent to 2.70 log10 . The data from the clinical
trial thus indicate that the 100 mg dose group of patients experienced a minimum
decrease of at least 1.50 log10 in HIV viral load. The following table
summarizes the results of this clinical trial.
T-20 PHASE I/II CLINICAL TRIAL RESULTS
<TABLE>
<CAPTION>
MEAN HIV VIRAL LOAD (1)
-------------------------------------------------------------------
CHANGE
-------------------------------
T-20 DOSE (2) BASELINE DAY 14 LOG10 PERCENT
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
3 mg 4.82 4.71 (0.11) (22)%
10 mg 5.12 5.06 (0.06) (13)
30 mg 4.95 4.47 (0.48) (61)
100 mg 4.20 2.70(3) (1.50) (97)
</TABLE>
-----------------
(1) Copies/ml plasma (reported in log10).
(2) Administered every 12 hours for 14 consecutive days.
(3) 2.70 log10 is the lower limit of detection of the assay used for this
trial.
The criteria for enrollment set forth in the trial protocol required that
participants (1) either have stopped taking antiretroviral drug therapy at least
15 days prior to initiating treatment with T-20 or have never received such drug
therapy, (2) have CD4+ T-cell counts above 100 cells/ml and (3) have HIV viral
loads of in excess of 10,000 copies/ml.
There can be no assurance that the results from the Phase I/II clinical
trial will support future clinical trials or will be predictive of results that
will be obtained in pivotal clinical trials.
T-20 CLINICAL DEVELOPMENT
The Company believes that delivery of a continuous therapeutic dose of T-20
using a subcutaneous infusion delivery system may suppress HIV more effectively
than other delivery mechanisms. Accordingly, the Company, together with MiniMed,
is developing a continuous, subcutaneous infusion delivery system for
administering T-20. The Company believes that the ease of use of a continuous,
subcutaneous infusion delivery system may increase patient compliance. In
addition, the Company believes that such a system may reduce the amount of T-20
necessary to maintain effective HIV suppression. The Company is preparing to
begin a Phase II clinical trial that will compare delivery of a constant
therapeutic dose of T-20 by a continuous, subcutaneous infusion pump to delivery
by intermittent, subcutaneous injections. The Company anticipates that this
clinical trial will be conducted at the University of Alabama at Birmingham
under the supervision of Dr. Michael Saag and at the UCLA Medical Center under
the supervision of Dr. Ron Mitsuyasu. Each site is expected to enroll 16 to 24
HIV-infected patients and measure pharmacokinetics of T-20 drug delivery using
the continuous, subcutaneous infusion pump and the effect of this treatment
approach on primary surrogate markers. This trial will also analyze the T-20
dosing range
30
<PAGE>
when using the MiniMed continuous, subcutaneous infusion pump. The Company
anticipates that this Phase II clinical trial will be completed in the first
quarter of 1998.
After completion of the continuous, subcutaneous infusion Phase II trial,
the Company intends to begin a pivotal Phase II trial in a larger population of
HIV-infected patients who are either resistant to, or intolerant of, currently
approved antiviral therapies (RT and protease inhibitors). Historically, pivotal
Phase II trials of this type involving HIV antivirals have included
approximately 300-400 patients and have taken approximately 18-24 months to
complete. The Company anticipates that this pivotal Phase II trial will begin in
the first half of 1998. Concurrently with the start of the pivotal Phase II
trial, the Company intends to begin a study of T-20 in HIV-infected pediatric
patients. Historically, studies of this type involving HIV antivirals have
included approximately 40-60 pediatric patients and have taken approximately
18-30 months to complete.
Throughout the T-20 clinical trial process, the Company intends to work
with the FDA to design and implement a clinical trial strategy involving the
administration of T-20 to HIV-infected patients in combination with approved HIV
antiviral agents. The Company also believes that it will be able to conduct its
T-20 clinical trial programs pursuant to the accelerated approval procedure
authorized by the FDA for drugs intended to treat serious or life-threatening
illnesses. However, there can be no assurance that T-20 will be eligible for
accelerated development and/or approval under these regulations. Further, there
can be no assurance that T-20 (if eligible for accelerated development and/or
approval under these regulations) will be approved by the FDA for marketing on
an accelerated basis, or at all. The anticipated timing of the Company's T-20
clinical trials may be delayed or cancelled for a number of reasons, including
the receipt of unanticipated T-20 clinical trial results, changes in the focus
of the Company or its collaborators, financial requirements and resources,
manufacturing issues, technological developments and competitive factors.
Accordingly, no assurance can be given that the Company's T-20 clinical trials
will commence on their target dates, or at all. Delays in such clinical trials
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Extensive Government
Regulation; No Assurance of Regulatory Approval," " -- Uncertainties Related to
Clinical Trials and Clinical Trial Strategy" and "Business -- Government
Regulation."
HIV MARKET AND EXISTING THERAPIES
HIV infection causes AIDS, which is one of the leading causes of death in
the United States in men and women between the ages of 25 and 44. The World
Health Organization estimates that, as of late 1996, approximately 750,000
people were infected with HIV in the United States, and approximately 510,000
people were infected in Western Europe.
The first drugs approved in the United States to treat HIV infection
inhibit the synthesis of virus DNA from viral RNA in infected cells by targeting
RT, the viral enzyme essential for such synthesis. Approved RT inhibitors
include AZT, 3TC, ddI, ddC, d4T, nevirapine and delavirdine. Worldwide sales of
RT inhibitors were approximately $1.0 billion in 1996. A second class of HIV
antivirals inhibits HIV protease, a viral enzyme required to cleave newly
synthesized viral proteins into the correct size so the virus can assemble
itself into new infectious virus particles. Approved HIV protease inhibitors
include indinavir, ritonavir, saquinavir and nelfinavir mesilate. Worldwide
sales of protease inhibitors were approximately $400 million in 1996 and are
projected to grow significantly over the next several years.
HIV is prone to mutations that produce resistance to RT and protease
inhibitors. Once resistance emerges to one drug, these strains may also be
resistant to most, if not all, of the drugs in the same chemical or functional
class (a phenomenon known as cross-resistance). In an effort to overcome such
resistance, physicians have begun to use RT and protease inhibitors in various
combinations. While combination therapy with RT and protease inhibitors
represents an advance in treatment of HIV infection, combination therapy has not
yet proven to be a cure. Moreover, although these combination therapies have
slowed the emergence of resistance, new mutant strains have been identified
which are resistant to several of the drugs currently used in combination
therapy.
Equally problematic is that even brief instances of non-compliance with the
strict drug dosing regimens associated with these combination therapies may
reduce the effectiveness of combination therapy and can accelerate the emergence
of resistance. For example, in order to maintain a high blood level of the drug
and to present a
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<PAGE>
continuous challenge to the targeted virus, many current drugs require complex
dosing, with some medications to be taken with meals and some on an empty
stomach. A typical combination therapy regimen includes 14 to 16 pills taken at
six to eight times during the day. This type of complex dosing regimen can
easily lead to noncompliance or only partial compliance. Orally administered,
small molecule drugs such as RT and protease inhibitors generally reach peak
levels in the bloodstream within a short period of time after being taken by the
patient. Drug levels then gradually fall over time as the drug is either
absorbed into tissues or is eliminated from the body. At the point in the day
when the drug level reaches its lowest concentration in the bloodstream (prior
to the patient's taking another dose), the drug level may not be sufficiently
high to effectively inhibit the virus. If a patient misses a dose or delays
taking the drug for a short period of time, the drug level in the body will fall
even lower, thus allowing the virus to replicate and potentially develop
resistant strains. The Company believes that one solution to this problem is
drug delivery using a continuous, subcutaneous infusion system through which a
controlled, programmable amount of the drug could be delivered throughout the
day.
Toxicity is also an issue associated with the use of RT and protease
inhibitors. Accumulating data indicate that certain patients are unable to take
RT and protease inhibitors, either alone or in combination, due to toxic side
effects, including gastrointestinal disorders, peripheral neuropathy and kidney
stones. Furthermore, recent information has suggested that protease inhibitors
may cause diabetes-like symptoms in some patients. Clinical studies with some RT
and protease inhibitors indicate that a significant number of HIV-positive
patients discontinue therapy soon after they begin treatment because (i) they
cannot tolerate the toxic side effects, (ii) they rapidly become resistant to
these therapies, or (iii) demands of the drug dosing regimen (the number of
pills the patients are required to take on a strict schedule) are too great. If
the side effects of the drugs prove too severe, or if a patient's virus becomes
resistant to available drug combinations, there are no other antiviral
treatments currently available.
T-20 COMMERCIALIZATION STRATEGY
The Company has entered into a strategic alliance with MiniMed under which
the parties will collaborate to deliver T-20 using MiniMed's continuous infusion
pump. MiniMed pumps, currently used for insulin therapy, are generally attached
to a belt, strapped to a leg or draped on a cord around the neck. These pumps
weigh approximately 3.5 ounces and are approximately the size of a pager. The
Company expects that MiniMed will play an active role in the marketing of its
pump for T-20 delivery and will provide patient support and product service for
the pump and related disposable products. The Company plans to work directly
with MiniMed to pursue necessary regulatory approvals for the delivery of T-20
using the MiniMed pump. See "Risk Factors -- Dependence on Collaborations and
Licenses with Others," " -- Extensive Government Regulation; No Assurance of
Regulatory Approvals," "Business -- License and Collaborative Agreements" and
" -- Government Regulation."
The manufacture of peptides requires significant expertise, facilities and
equipment. Accordingly, the Company has elected to work with several third-party
contract manufacturers to supply quantities of T-20 to be used in the Company's
currently planned clinical trials. The Company may continue to rely on
third-party manufacturers throughout the clinical and initial commercialization
phases of T-20 development. The Company has also established an in-house T-20
manufacturing process development and control team that is attempting to develop
an improved process for the synthetic manufacture of T-20, which may result in
increased production volume and lower unit costs. See
"Business -- Manufacturing" and "Risk Factors -- Lack of Manufacturing
Capabilities" for a discussion of manufacturing processes and certain risks
associated with manufacturing peptides.
The Company does not currently have sales, marketing or distribution
capabilities and is evaluating strategies for the sale, marketing and
distribution of T-20, including developing internal capabilities and entering
into collaborative arrangements. The Company believes that it may be feasible to
develop internal sales, marketing and distribution capability for T-20, since
the market for HIV therapeutics is comprised of a concentrated group of
physicians in medical practices that treat HIV patients. The Company will
continue to explore alternative opportunities to market T-20, either internally
or in conjunction with appropriate marketing partners. See "Risk Factors -- Lack
of Sales, Marketing and Distribution Capabilities" and "Business -- Sales,
Marketing and Distribution."
32
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PRECLINICAL DEVELOPMENT PROGRAMS
The Company is using its proprietary technology platform to discover and
develop fusion inhibitors for other viral diseases where there are substantial
unmet medical needs.
T-786
T-786 is the Company's lead product candidate for the treatment of RSV
infection, which is a significant cause of pediatric bronchiolitis and
pneumonia. Each year in the United States, 11 out of 100 children younger than
one year of age are infected with RSV, more than 90,000 infants are hospitalized
with RSV infections, and over 4,500 deaths are attributed to RSV. There is
currently only one product approved for the treatment of RSV infection, and the
Company believes that this product is used sparingly because its effectiveness
is limited and its side effects are significant.
T-786 is a proprietary 35 amino acid synthetic peptide derived from a CAST
predicted domain of the RSV fusion protein. T-786 shows potent, specific and
selective inhibition of RSV infection IN VITRO. In preclinical testing, T-786
significantly reduced the level of viral infection in an animal model. Because
RSV infects lung tissue primarily, the Company believes that aerosol delivery of
its RSV therapeutic directly to the lung may be the most effective method for
administering T-786. The Company is currently developing an aerosol formulation
of T-786 for preclinical evaluation. Preclinical testing of T-786 is currently
in progress. Upon successful completion of these tests, the Company anticipates
that it will begin clinical trials for T-786 in 1998.
SECOND-GENERATION HIV FUSION INHIBITORS
Using CAST, the Company has designed proprietary second-generation, peptide
HIV fusion inhibitors which bind to regions of the HIV fusion protein target
that are different from the region bound by T-20. In preclinical testing, these
second-generation compounds have been shown to be highly effective against a
wide range of HIV strains IN VITRO. In preclinical testing, these compounds have
demonstrated pharmaceutical characteristics distinct from T-20. The Company
believes that these second-generation compounds could provide a range of future
options for the continuing treatment of HIV infection. The Company expects to
begin testing its lead second-generation HIV fusion inhibitor in animal models
in the fourth quarter of 1997.
ANTI-RSV SMALL MOLECULES
The Company has identified a series of small-molecule inhibitors of RSV
infection using its high-throughput screening assays. These assays were designed
based upon the CAST platform. Using its proprietary knowledge of the chemical
structure of these compounds, the Company has developed a number of analogs
which have demonstrated potency against RSV in preclinical testing. Several of
these analogs have also demonstrated low toxicity. The Company is continuing to
synthesize analogs of these compounds to evaluate their pharmaceutical
properties and will continue preclinical testing to identify lead compounds.
RESEARCH AND DISCOVERY PROGRAMS
The Company is leveraging its proprietary technology platform and expertise
in viral fusion to discover and develop lead compounds and product candidates to
treat a variety of diseases caused by other viruses.
ANTI-HPIV COMPOUNDS
Using CAST, the Company has developed a series of proprietary peptides
which inhibit HPIV IN VITRO. T-205, the Company's lead anti-HPIV peptide, was
derived from a coiled-coil domain of the HPIV fusion protein. T-205 shows
specific, selective and potent inhibition of HPIV infection IN VITRO. HPIV is a
cause of respiratory disease in young infants. There are no drugs currently
approved for the treatment of HPIV. The Company is conducting a research program
to evaluate T-205 and other peptide candidates for possible advancement to
preclinical development.
The Company has also discovered several small-molecule inhibitors of HPIV
using the Company's high-throughput HPIV screening assay. This assay was
designed based on the CAST platform. These compounds show
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potent, dose-response inhibition of HPIV IN VITRO. The Company is currently
synthesizing analogs of these compounds to evaluate their pharmaceutical
properties.
ANTI-HIV SMALL MOLECULES
The Company has indentified a series of small-molecule compounds which
inhibit HIV infection IN VITRO using the Company's high-throughput HIV screening
assays. These assays were designed based on the CAST platform. The Company plans
to continue screening its chemical libraries to discover additional anti-HIV
small-molecule compounds.
INFLUENZA VIRUS
The Company has initiated an early-stage discovery program to create a
high-throughput screening assay based on CAST to identify potential
small-molecule inhibitors of influenza viral fusion. The Company has established
a collaboration with Dr. Judith White at the University of Virginia to assist in
the discovery and development of fusion inhibitors for influenza virus.
HEPATITIS B AND C VIRUS
The Company has initiated early-stage discovery programs to create
high-throughput screening assays that can identify potential small-molecule
inhibitors of the hepatitis B and C viruses. Additionally, in collaboration with
Dr. Timothy Block of the Thomas Jefferson Medical School, the Company plans to
synthesize and test peptides derived from CAST-identified regions of the
hepatitis B virus. The Company has been awarded a Phase I SBIR grant from the
Department of Health and Human Services for this program.
EPSTEIN-BARR VIRUS
The Company has initiated an early-stage discovery program in Epstein-Barr
virus ("EBV") through a collaboration with Dr. Joseph Pagano of the University
of North Carolina at Chapel Hill. EBV causes infectious mononucleosis and has
been linked to a variety of cancers. Dr. Pagano is working with the Company's
scientists to develop a strategy for inhibiting a key protein required for EBV
replication. Using CAST, the Company has identified key interactive peptide
domains within this molecular target and has synthesized peptide inhibitors for
the molecular target IN VITRO.
BUSINESS STRATEGY
The Company's goal is to become a leader in anti-fusion viral therapy. To
achieve this objective, the principal elements of the Company's strategy are to:
(Bullet) VALIDATE FUSION INHIBITION THERAPY BY OBTAINING REGULATORY
APPROVAL FOR T-20. T-20 has been shown in preclinical testing to
inhibit HIV fusion. T-20 has been tested in a Phase I/II clinical
trial, and the Company anticipates that a Phase II pivotal trial
will begin in the first half of 1998. The Company believes that it
will be able to conduct its pivotal T-20 clinical trials program
pursuant to the accelerated approval procedure authorized by the
FDA for drugs intended to treat serious or life-threatening
illnesses. The Company believes that regulatory approval of T-20,
if obtained, will provide important evidence to support the
validity of viral fusion inhibition therapy.
(Bullet) LEVERAGE ANTI-FUSION EXPERTISE TO DEVELOP OTHER ANTIVIRAL
THERAPIES. The Company believes that its proprietary technology
platform, including CAST, is applicable to many other viral
targets that may be susceptible to fusion inhibition. For example,
using CAST, the Company designed T-786 for treatment of RSV
infection. Upon the successful completion of preclinical testing,
the Company anticipates that it will begin clinical trials of
T-786 in 1998. The Company also has research and discovery
programs to identify compounds to inhibit fusion of other viruses,
including HPIV, influenza, hepatitis B and C, and EBV.
Additionally, as the Company refines and enhances CAST, the
Company believes that it will be able to develop new,
high-throughput screening assays for multiple targets.
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(Bullet) TAILOR COMMERCIALIZATION CAPABILITIES TO SPECIFIC PRODUCT MARKETS.
The Company intends to evaluate the appropriate commercializaton
strategy for each of its product candidates, depending on the size
and nature of the market. For example, the Company believes that
it may develop its own capability to sell and market T-20 in the
United States because a relatively small number of physicians
write the majority of prescriptions for HIV drugs in the United
States.
MANUFACTURING
The Company has no experience in manufacturing pharmaceuticals and has no
commercial manufacturing capacity. The Company has established relationships and
intends to establish additional relationships with third-party manufacturers for
the production of quantities of its product candidates or compounds sufficient
to conduct its planned preclinical testing and clinical trials and the
commercial production of any approved products or compounds.
Three different methods are currently available for the synthetic
manufacture of peptides such as T-20, namely solid-phase sequential peptide
synthesis, peptide synthesis by fragment condensation and solution-phase peptide
synthesis. In solid-phase sequential peptide synthesis, peptides are
synthetically manufactured by sequentially linking together amino acids to form
a peptide chain. The peptide chain is attached to a solid support from which the
finished peptide is chemically released after completion of this amino acid
assembly process. Because of certain technical limitations inherent in this
process that limit its efficiency, solid-phase sequential peptide synthesis is
the most expensive way to chemically assemble the Company's current peptide
product candidates, including T-20. Peptides may also be manufactured using a
process known as peptide synthesis by fragment condensation, in which peptide
segments that match sequential regions along the parent peptide sequence are
synthesized using solid-phase peptide chemistry techniques. This process is
technically more difficult to accomplish than solid-phase sequential peptide
synthesis and may not lead to a process that is commercially feasible. However,
if successful, this process is generally more economical than solid-phase
sequential peptide synthesis for peptides that are longer than approximately 15
amino acids in length. In the third peptide manufacturing method, solution-phase
peptide synthesis, peptides are synthetically manufactured by linking all amino
acids together in the peptide chain entirely in solution. This chemical assembly
process is technically the most difficult to design and implement and may be
technically infeasible on a commercial scale for peptides longer than
approximately 15 amino acids. However, the Company believes that cost savings
may be achieved beyond those possible using fragment condensation peptide
synthesis if technical difficulties with the technology are overcome.
The Company and its third-party manufacturers have manufactured sufficient
quantities of T-20 using solid-phase sequential peptide synthesis to complete
preclinical testing and the Phase I/II clinical trial. The Company has entered
into agreements with two contract manufacturers for the solid-phase sequential
peptide synthetic manufacture of T-20 for use in clinical trials. The Company
has also established a manufacturing process development and control team
consisting of four individuals with significant pharmaceutical experience in
peptide and small organic molecule process development and manufacturing. This
team is currently working to implement a strategy to manufacture T-20 using
peptide synthesis by fragment condensation. The Company anticipates that such a
process may be available to support later-stage T-20 clinical trial needs. This
team will also coordinate process implementation with third-party manufacturers
and help to ensure regulatory compliance in the manufacturing process. Although
the Company has no plans at present to evaluate solution-phase peptide synthesis
for T-20, the Company may chose to evaluate the use of this process for T-20 in
the future. There can be no assurance that the Company or its third-party
manufacturers will be able to manufacture T-20 on a cost-effective basis or that
the Company will be successful in its efforts to develop an alternative, more
efficient manufacturing method for T-20 or any of its other peptide product
candidates.
There can be no assurance that the Company will be able to retain or
establish relationships with any third-party manufacturers on acceptable terms,
if at all, or that such third-party manufacturers will be able to manufacture
products in commercial quantities under GMP requirements on a cost-effective
basis. The Company's dependence upon third parties for the manufacture of its
products, product candidates and compounds may adversely affect the Company's
profit margins and its ability to develop and commercialize product candidates,
products and compounds on a timely and competitive basis. Further, there can be
no assurance that manufacturing or quality
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control problems will not arise in connection with the manufacture of the
Company's products, product candidates or compounds or that third-party
manufacturers will maintain the necessary governmental licenses and approvals to
continue manufacturing the Company's products, product candidates or compounds.
Any failure to maintain existing or establish new relationships with third
parties for the Company's manufacturing requirements on a timely basis and on
acceptable terms would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Lack of
Manufacturing Capabilities" and " -- Extensive Government Regulation; No
Assurance of Regulatory Approval."
LICENSING AND COLLABORATIVE AGREEMENTS
The Company intends to consider entering into collaborative and licensing
arrangements with collaborative partners, licensees and third parties to seek
regulatory approval of and to manufacture and commercialize certain of its
existing and potential product candidates and compounds. These collaborations
could provide the Company with funding, research and development resources,
access to libraries of diverse compounds and clinical development,
manufacturing, sales, marketing and distribution capabilities. Accordingly, the
Company's success will depend, in part, upon the subsequent success of such
third parties in performing preclinical testing and clinical trials, obtaining
the requisite regulatory approvals, scaling up manufacturing, successfully
commercializing the licensed product candidates or compounds and otherwise
performing their obligations. There can be no assurance that the Company will be
able to maintain its existing arrangements or enter into acceptable
collaborative and license arrangements in the future on acceptable terms, if at
all, that such arrangements will be successful, that the parties with which the
Company has or may establish arrangements will perform their obligations under
the arrangements, or that potential collaborators will not compete with the
Company by seeking alternative means of developing therapeutics for the diseases
targeted by the Company. There can also be no assurance that the Company's
existing or any future arrangements will lead to the development of product
candidates or compounds with commercial potential, that the Company will be able
to obtain proprietary rights or licenses for proprietary rights with respect to
any technology developed in connection with these arrangements, or that the
Company will be able to ensure the confidentiality of any proprietary rights and
information developed in such arrangements or prevent the public disclosure
thereof. The Company currently has a license from Duke University (as described
below), and in the future may require additional licenses from these or other
parties, to effectively develop potential product candidates and compounds.
The Company has received approximately $300,000 from SBIR grants. The first
grant, "Screens for Identifying HIV Fusion Inhibitors -- Phase I," was completed
during 1995. Phase II of that grant, in the amount of $365,000, is currently in
progress with a projected completion date in March 1998. Another grant, "Peptide
Therapeutics for the Liver Cancer Pathogen HBV," was begun during 1996 and
completed in 1997. There can be no assurance that the funding provided by such
grants will be sufficient to complete the studies contemplated by such programs
or that the Company will receive any additional future grants under any of these
programs.
The Company also received approximately $100,000 from a third party under
an investigative contract. The purpose of this contract was to identify
pharmaceutical compounds in late stage clinical development that may be licensed
for sale in the United States and other foreign countries. There can be no
assurance that the Company will receive any additional funding under this or any
other similar contract.
In April 1997, the Company and MiniMed entered into the MiniMed Agreement.
Under the agreement, the Company and MiniMed will collaborate in the development
and delivery of therapies for the treatment of targeted indications by combining
the continuous infusion delivery pump of MiniMed and the antiviral product
candidates and compounds being developed by the Company. The first collaborative
project under the terms of the agreement will involve the continuous delivery of
T-20. The parties intend to initiate clinical trials for the delivery of T-20
with MiniMed's continuous infusion delivery pump in the third quarter of 1997.
While MiniMed's continuous infusion pump has been approved for the continuous,
subcutaneous infusion of other therapies, there can be no assurance that the FDA
will approve on a timely basis, if at all, the use of the delivery of T-20
utilizing the MiniMed continuous infusion pump. The parties are evaluating other
product candidates and compounds for inclusion under the agreement. Under the
terms of the agreement, a joint management committee will determine an
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implementation strategy for each collaborative project. The agreement contains
certain exclusivity and noncompetition provisions, subject to the Company's
right, under certain circumstances, to terminate such obligations with respect
to T-20 in exchange for certain royalty payments. The failure of the Company and
MiniMed to achieve their collective objectives could have a material adverse
effect on the Company's business, financial condition and results of operations.
Pursuant to the Duke License, the Company has obtained from Duke University
an exclusive, worldwide, royalty-free license to all discoveries and inventions
in the field of antiviral therapeutics emanating from the laboratories of Drs.
Dani Bolognesi, Thomas J. Matthews, Michael Greenberg and Kent Weinhold of the
Duke University Center for AIDS Research for the period from February 3, 1993
until February 2, 2000. The Company's rights to each of these discoveries and
inventions expire upon the expiration of the life of the particular patent.
Multiple discoveries and inventions have flowed to the Company under the Duke
License and include those upon which United States patents have been issued.
None of the technologies licensed by the Company from Duke University is the
subject of a separate license agreement. Rather, the Company's rights to such
technologies are licensed solely pursuant to the Duke License. While the Company
believes it will be able to successfully negotiate an extension or renewal of
the Duke License, there can be no assurance that the Company will be able to
obtain such an extension or renewal or that such an extension or renewal will be
on acceptable terms. The early termination of the Duke License or the failure of
the Company to renew the Duke License on acceptable terms, if at all, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- License and Collaborative
Agreements" and " -- Extensive Government Regulation; No Assurance of Regulatory
Approval."
SALES, MARKETING AND DISTRIBUTION
The Company has no experience in sales, marketing or distribution of
pharmaceuticals and currently has no personnel employed in any such capacities.
However, the Company intends to develop such capability in certain areas. For
example, because a relatively small number of physicians write the majority of
prescriptions for HIV drugs in the United States, the Company intends to
consider developing in-house sales, marketing and distribution capabilities to
address the market. In other areas, however, the Company may rely on marketing
partners or other arrangements with third parties which have established
distribution systems and direct sales forces for the sales, marketing and
distribution of such products and compounds. In the event that the Company is
unable to reach agreement with one or more marketing partners to market these
other products and compounds, it may be required to develop internal sales,
marketing and distribution capabilities for such products and compounds. There
can be no assurance that the Company will be able to establish sales, marketing
or distribution capabilities or make arrangements with third parties to perform
such activities on acceptable terms, if at all, or that any internal
capabilities or third-party arrangements will be cost-effective. The failure to
establish such capabilities would have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, any third parties with which the Company establishes sales,
marketing or distribution arrangements may have significant control over
important aspects of the commercialization of the Company's products, and
compounds including market identification, marketing methods, pricing,
composition of sales force and promotional activities. For example, the MiniMed
Agreement contemplates that MiniMed will participate in the sales, marketing and
distribution of any products jointly developed by the parties. There can be no
assurance that the Company will be able to control the amount and timing of
resources that MiniMed or any other third party may devote to the Company's
products or compounds or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with the Company's products and compounds and the withdrawal of support
for the Company's products and compounds. See "Risk Factors -- Lack of Sales,
Marketing and Distribution Capabilities."
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
The Company's success will depend, in part, on its ability, and the ability
of its collaborators or licensors, to obtain protection for its products and
technologies under United States and foreign patent laws, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. Because of the substantial
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length of time and expense associated with bringing new products through
development to the marketplace, the pharmaceutical and biotechnology industries
place considerable importance on obtaining, and maintaining, patent and trade
secret protection for new technologies, products and processes.
As of September 30, 1997, the Company was the sole assignee of one pending
United States patent application and one pending patent application under the
Patent Cooperation Treaty designating the United States, directed to
combinatorial therapy employing its proprietary antifusion peptides and other
therapeutic agents, and the owner of one pending provisional application,
directed to certain antifusion chemical compounds discovered by the Company's
proprietary screening method. In addition, as of September 30, 1997, the Company
was the assignee or owner, along with Duke University, of 16 pending United
States applications, along with certain corresponding foreign patent
applications, directed to numerous antifusion peptides and their therapeutic
uses. Under the Duke License, the Company is the exclusive licensee under Duke
University's rights in these jointly-owned patent applications, as well as the
exclusive licensee under three issued United States patents which expire in
2013, 2013 and 2014, respectively, six pending United States patent
applications, and certain corresponding foreign patent applications directed to
antifusion peptides. In September 1997, the Company obtained from NYBC an
exclusive, worldwide, royalty-bearing license under certain United States and
foreign patents and patent applications relating to HIV peptides. In addition to
annual minimum royalty payments commencing in 1998, the Company is obligated to
pay a one-time fee to NYBC in the event that a pivotal clinical trial utilizing
a product covered by the license is not commenced by September 2002. The license
agreement further provides that the Company may elect to pay NYBC sponsored
research funds in lieu of a certain percentage of royalties otherwise due. A
sponsored research agreement would be negotiated at that time giving the Company
a right of first negotiation for an exclusive, royalty-bearing license to all
intellectual property arising out of the sponsored research program.
Legal standards relating to the scope of claims and the validity of patents
in the biotechnology industry are uncertain and still evolving, and no assurance
can be given as to the degree of protection that will be afforded any patents
issued to, or licensed by, the Company. There can be no assurance that, if
challenged by others in litigation, any patents assigned to, or licensed by, the
Company, will not be found invalid. Furthermore, there can be no assurance that
the Company's activities will not infringe patents owned by others. Defense and
prosecution of patent matters can be expensive and time-consuming, and
regardless of whether the outcome is favorable to the Company, can result in the
diversion of substantial financial, management and other resources. An adverse
outcome could subject the Company to significant liability to third parties,
require the Company to obtain licenses from third parties, or require the
Company to cease any related product sales. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. Moreover, the laws of
certain countries may not protect the Company's proprietary rights to the same
extent as U.S. law.
The Company also relies on trade secrets, know-how and other proprietary
information, which it seeks to protect, in part, through the use of
confidentiality agreements with employees, consultants, advisors and others.
There can be no assurance that such agreements will provide adequate protection
for the Company's trade secrets, know-how, or other proprietary information in
the event of any unauthorized disclosure, that employees of the Company,
consultants, advisors, or others, will maintain the confidentiality of such
trade secrets or proprietary information, or that the trade secrets or
proprietary know-how of the Company will not otherwise become known, or be
independently developed by, competitors.
In January 1997, the USPTO instituted an interference proceeding between an
issued patent licensed by the Company from Duke University and a pending patent
application owned by a third party. An interference proceeding is an action, in
the USPTO, to determine which, of several parties, is entitled to a patent. An
interference proceeding may be instituted when the USPTO believes that a pending
patent application and an issued patent claim the same patentable subject
matter. The Company believes that no interference-in-fact exists, i.e., that the
parties to the interference are not claiming the same patentable invention, and,
through its licensor, the Company is taking all reasonable action to have the
interference proceeding dismissed. However, no assurance can be given that the
interference proceeding will be dismissed. Furthermore, no assurance can be
given that, should the interference proceeding continue, as between the two
parties to the interference, the Company's licensor will be found to be the
first inventor of the invention which is declared to be the subject matter of
the interference proceeding.
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Failure of the Company's licensor to prevail in the interference proceeding and
any loss of the involved patent rights could have a material adverse effect on
the Company's business, financial results and results of operations. See "Risk
Factors -- Patents, Proprietary, Technology and Trade Secrets."
COMPETITION
The Company is engaged in segments of the biopharmaceutical industry,
including the treatment of HIV, that are intensely competitive and rapidly
changing. If successfully developed and approved, the product candidates and
compounds that the Company is currently developing will compete with numerous
existing therapies. For example, 11 drugs are currently approved for the
treatment of HIV. In addition, a number of companies are pursuing the
development of novel pharmaceutical products that target the same diseases that
the Company is targeting, and some companies, including several multinational
pharmaceutical companies, are simultaneously marketing several different drugs
and may therefore be able to market their own combination drug therapies. The
Company believes that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.
Although the Company believes that there is a significant future market for
therapeutics that treat HIV and other viral diseases, the Company anticipates
that it will face intense and increasing competition in the future as new
products enter the market and advanced technologies become available. There can
be no assurance that existing products or new products for the treatment of HIV
developed by the Company's competitors, including Glaxo, Merck and Abbott, will
not be more effective, or more effectively marketed and sold, than T-20, should
it be successfully developed and receive regulatory approval, or any other
therapeutic for HIV that may be developed by the Company. Competitive products
or the development by others of a cure or new treatment methods may render the
Company's technologies and products and compounds obsolete, noncompetitive or
uneconomical prior to the Company's recovery of development or commercialization
expenses incurred with respect to any such technologies or products or
compounds. Many of the Company's competitors have significantly greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture, sell, market and distribute products. In
addition, many of these companies have extensive experience in preclinical
testing and clinical trials, obtaining FDA and other regulatory approvals and
manufacturing and marketing pharmaceutical products. For use individually or in
combination therapy, many of these competitors also have products that have been
approved or are in late-stage development and operate large, well-funded
research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
New developments in areas in which the Company is conducting its research
and development are expected to continue at a rapid pace in both industry and
academia. If the Company's product candidates and compounds are successfully
developed and approved, the Company will face competition based on the safety
and effectiveness of its products and compounds, the timing and scope of
regulatory approvals, availability of manufacturing, sales, marketing and
distribution capabilities, reimbursement coverage, price and patent position.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technology or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Intense Competition."
GOVERNMENT REGULATION
Human pharmaceutical products are subject to lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. The regulatory approval process, which includes the establishment
of the safety and effectiveness of each product candidate and compound for each
target indication and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing,
typically takes a number of years,
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varying based upon the type, complexity and novelty of the pharmaceutical
product. This process requires the expenditure of substantial resources and
gives larger companies with greater financial resources a competitive advantage
over the Company. To date, no product candidate or compound being evaluated by
the Company has been submitted for approval by the FDA or any other regulatory
authority for commercialization, and there can be no assurance that any such
product candidate or compound will ever be approved for commercialization or
that the Company will be able to obtain the labeling claims desired for its
product candidates or compounds.
The steps required by the FDA before new drugs may be marketed in the
United States include: (i) preclinical studies; (ii) the submission to the FDA
of a request for authorization to conduct clinical trials on an investigational
drug (an "IND"); (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug for its intended use; (iv) submission to the
FDA of an NDA; and (v) review and approval of the NDA by the FDA before the drug
may be shipped or sold commercially.
In the United States, preclinical testing includes both IN VITRO and IN
VIVO laboratory evaluation and characterization of the safety and efficacy of a
drug and its formulation. Laboratories involved in preclinical testing must
comply with FDA regulations regarding good laboratory practices. Preclinical
testing results are submitted to the FDA as part of the IND and, unless there is
objection by the FDA, the IND will become effective 30 days following its
receipt by the FDA. There can be no assurance that submission of an IND will
result in the commencement of human clinical trials.
Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with good clinical procedures under protocols that
detail the objectives of the clinical trial, the parameters to be used to
monitor safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical trial
must be conducted under the auspices of an independent Institutional Review
Board (an "IRB") at the institution where the clinical trial will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution. Compounds must be
formulated according to GMP requirements.
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with a targeted disease or disorder. The goal of
Phase I clinical trials is typically to test for safety (adverse effects), dose
tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacokinetics.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the effectiveness of the drug for the
specific targeted indications, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects.
Once the investigational drug is found to have some effectiveness and the
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and effectiveness of
the investigational drug in a broader sample of the general patient population
at geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for all
physician labeling. The results of the research and product development,
manufacturing, preclinical testing, clinical trials and related information are
submitted to the FDA in the form of an NDA for approval of the marketing and
shipment of the drug.
The approval process is affected by a number of factors, including the
severity of the targeted indications, the availability of alternative treatments
and the risks and benefits demonstrated in the clinical trials. The FDA may
reject an NDA if applicable regulatory criteria are not satisfied, or may
require additional testing or information with respect to the product candidate
or compound. Even if FDA approval is obtained, further clinical trials,
including post-market trials, may be required in order to provide additional
data on safety and will be required in order to obtain approval for the use of a
product as treatment for clinical indications other than those for which the
product was initially approved. The FDA will also require post-market reporting
and may require surveillance programs to monitor the side effects of any
approved products. Results of post-market programs may limit the
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further marketing, manufacturing process or labeling, and an NDA supplement may
be required to be submitted to the FDA. Any failure of the Company to
successfully complete its clinical trials and obtain approvals of corresponding
NDAs would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is and will continue to be
dependent upon the laboratories conducting its preclinical testing and clinical
trials to maintain both good laboratory and good clinical practices, and, if any
of the Company's product candidates or compounds obtain the requisite regulatory
approvals, the Company will be dependent upon the manufacturers of its products
to maintain compliance with GMP requirements. Various federal and foreign
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record-keeping and marketing of pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate United States and foreign statutes and regulations are
time-consuming and will require the expenditure of substantial resources by the
Company. In addition, these requirements and processes vary widely from country
to country. The time required for completing preclinical testing and clinical
trials is uncertain, and the FDA approval process is unpredictable and
uncertain, and no assurance can be given that necessary approvals will be
granted on a timely basis, or at all. The Company may decide to replace a
product candidate or compound in preclinical testing and/or clinical trials with
a modified product candidate or compound, thus extending the development period.
In addition, the FDA or similar foreign regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in legislation, administrative action or FDA policy during
the period of product development and FDA review, including changes in FDA
policy relating to clinical testing guidelines for the use of the Company's
product candidates or compounds in children. Similar delays or rejections may be
encountered in other countries.
In 1988, the FDA issued regulations to expedite the development, evaluation
and marketing of drugs for life-threatening and severely debilitating illnesses,
especially where no alternative therapy exists. These procedures encourage early
consultation between the IND sponsors and the FDA in the preclinical testing and
clinical trial phases to determine what evidence will be necessary for marketing
approval and to assist the sponsors in designing clinical trials. Under this
program, the FDA works closely with the IND sponsors to accelerate and condense
Phase II clinical trials, which may, in some cases, eliminate the need to
conduct Phase III trials or limit the scope of Phase III trials. Under these
regulations, the FDA may require postmarketing clinical trials ("Phase IV
trials") to obtain additional information on the drug's risks, benefits and
optimal use. In 1992, the FDA issued regulations establishing an accelerated NDA
approval procedure for certain drugs under Subpart H of the agency's NDA
approval regulations ("Subpart H Regulations"). The Subpart H Regulations
provide for accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effect on a surrogate endpoint that reasonably suggest
clinical benefits, or on evidence of the drug's effect on a clinical endpoint
other than survival or irreversible morbidity. This approval is conditional on
the favorable completion of trials to establish and define the degree of
clinical benefits to the patient. Such post-market clinical trials would usually
be underway when the product obtains this accelerated approval. If, after
approval, a post-market clinical trial establishes that the drug does not
perform as expected, or if post-market restrictions are not adhered to or are
not adequate to ensure the safe use of the drug, or other evidence demonstrates
that the product is not safe and/or effective under its conditions of use, the
FDA may withdraw approval. These two accelerated approval procedures for
expediting the clinical evaluation and approval of certain drugs may shorten the
drug development process by as much as two to three years.
While certain of the Company's product candidates and compounds, including
T-20, have been designed to treat serious or life-threatening illnesses, such
product candidates and compounds may not qualify for accelerated development
and/or approval under FDA regulations and, even if some of the Company's product
candidates qualify for accelerated development and/or approval, they may not be
approved for marketing on an accelerated basis, or at all. There can be no
assurance that, even after substantial time and expenditures, any of the
Company's product candidates or compounds under development will receive
commercialization approval in any country on a timely basis, or at all. If the
Company is unable to demonstrate the safety and effectiveness of its product
candidates and compounds to the satisfaction of the FDA or foreign regulatory
authorities, the Company will be unable
41
<PAGE>
to commercialize its product candidates and compounds; and the Company's
business, financial condition and results of operations would be materially and
adversely affected. Furthermore, even if regulatory approval of a product
candidate or compound is obtained, the approval may entail limitations on the
indicated uses for which the product candidate or compound may be marketed. A
marketed product or compound, its manufacturer and the manufacturer's facilities
are subject to continual review and periodic inspections, and subsequent
discovery of previously unknown problems with a product, compound, manufacturer
or facility may result in restrictions on such product, compound, manufacturer
or facility, including withdrawal of the product or compound from the market.
The failure to comply with applicable regulatory requirements can, among other
things, result in fines, injunctions, civil penalties, total or partial
suspension of regulatory approvals, refusal to approve pending applications,
refusal to permit exports from the United States, recalls or seizures of
products, operating and production restrictions and criminal prosecutions.
Further, FDA policy may change and additional government regulations may be
established that could prevent or delay regulatory approval of the Company's
product candidates or compounds.
The effect of governmental regulation may be to delay the marketing of new
products or compounds for a considerable period of time, to impose costly
requirements on the Company's activities or to provide a competitive advantage
to other companies that compete with the Company. Adverse clinical results by
others could have a negative impact on the regulatory process and timing with
respect to the development and approval of the Company's product candidates or
compounds. A delay in obtaining or failure to obtain regulatory approvals could
have a material adverse effect on the Company's business, financial condition
and results of operations. The extent and character of potentially adverse
governmental regulation that may arise from future legislation or administrative
action cannot be predicted.
In April 1997, the Company and MiniMed entered into the MiniMed Agreement
pursuant to which the parties have agreed to jointly design, develop and
implement a system for the continual delivery of T-20 utilizing the MiniMed
continuous infusion pump. There can be no assurance that the FDA will approve
the delivery of T-20 utilizing the MiniMed continuous infusion pump on a timely
basis, if at all. The failure of the Company and MiniMed to collectively develop
a continual T-20 delivery system which receives FDA approval on a timely basis
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company and its existing and potential future collaborative partners
are also subject to various federal, state and local laws and regulations
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's product development programs.
Compliance with such laws, regulations and requirements may be costly and
time-consuming and the failure to maintain such compliance by the Company or its
existing and future collaborative partners could have a material adverse effect
on the Company's business, financial condition and results of operations.
In addition, this Prospectus reflects the Company's estimates regarding
future regulatory submission dates. Regulatory submissions can be delayed, or
plans to submit proposed products can be cancelled, for a number of reasons,
including the receipt of unanticipated, adverse or ambiguous results from
preclinical testing or clinical trials, the demonstration of undesirable or
unintended side effects, the inability to locate, recruit and qualify sufficient
numbers of patients, lack of funding, the inability to locate or recruit
scientists to undertake or complete planned preclinical testing or clinical
trials, the redesign of the Company's preclinical testing or clinical trial
programs, the inability to manufacture or acquire sufficient quantities of the
particular product candidate or any other components required for preclinical
testing or clinical trials, regulatory delays or other regulatory actions,
changes in focus of the Company's or its collaborators' development efforts, and
the disclosure of clinical trial results by competitors. Accordingly, no
assurances can be given that the Company's anticipated submissions will be made
on their target dates, or at all. Delays in such submissions could delay
regulatory approval for the Company's product candidates, delay
commercialization of the Company's product candidates, increase operating
expenses, result in the expenditure of additional capital, cause the diversion
of management time and attention, or create adverse market perception about the
Company and its product candidates, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
42
<PAGE>
THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES
In the United States and elsewhere, sales of prescription pharmaceuticals
are dependent, in part, on the availability of reimbursement to the consumer
from third-party payors, such as government agencies and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services in an effort to promote cost containment measures
and alternative health care delivery systems and they may mandate predetermined
discounts from list prices. If the Company succeeds in bringing one or more
products or compounds to the market, there can be no assurance that these
products or compounds will be considered cost-effective or that reimbursement to
the consumer will be available or will be sufficient to allow the Company to
sell its products or compounds on a competitive basis. The business and
financial condition of pharmaceutical companies will continue to be affected by
economic, political and regulatory influences, including the efforts of
governments and third-party payors to contain or reduce the cost of health care
through various means. A number of legislative and regulatory proposals aimed at
changing the health care system have been proposed in recent years. Because of
the high cost of the treatment of AIDS or HIV using combination therapy, many
state legislatures are reassessing reimbursement policies for such therapy. In
addition, an increasing emphasis on managed care in the United States to reduce
the overall costs of health care has and will continue to increase the pressure
on pharmaceutical pricing. While the Company cannot predict whether legislative
or regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Uncertainty of Third Party Reimbursement and Health Care Reform
Measures."
FACILITIES
The Company currently leases approximately 21,000 square feet of laboratory
and office space at 4727 University Drive, Suite 100, Durham, North Carolina.
The Company leases this space under a sublease agreement which expires on
September 30, 1999. Depending on the results of clinical trials and the progress
of the Company's product development programs, the Company may require
facilities in addition to those currently under lease. The Company believes that
there will be suitable facilities available as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
HUMAN RESOURCES
As of June 30, 1997, the Company had 37 full-time employees, including a
technical scientific staff of 29. None of the Company's employees are covered by
collective bargaining arrangements, and management considers relations with its
employees to be good. See "Risk Factors -- Need to Attract and Retain Key
Officers, Employees and Consultants."
SCIENTIFIC ADVISORY BOARD
The Company has assembled a Scientific Advisory Board (the "SAB") comprised
of eight individuals (the "Scientific Advisors") who are leaders in the fields
of viral disease research and treatment.
Members of the SAB review the Company's research, development and operating
activities and are available for consultation with the Company's management and
staff relating to their respective areas of expertise. The SAB holds regular
meetings. Several of the individual Scientific Advisors have separate consulting
relationships with the Company and meet more frequently, on an individual basis,
with the Company's management and staff to discuss the Company's ongoing
research and development projects. Certain of the Scientific Advisors own Common
Stock and/or hold options to purchase Common Stock. The Scientific Advisors are
expected to devote only a small portion of their time to the business of the
Company.
The Scientific Advisors are all employed by entities other than the
Company. Each Scientific Advisor has entered into a letter agreement with the
Company that contains confidentiality and non-disclosure provisions that
prohibit the disclosure of confidential information to anyone outside the
Company. Such letter agreements also provide that all inventions, discoveries or
other intellectual property that come to the attention of or are discovered
43
<PAGE>
by the Scientific Advisor while performing services under the letter agreement
with the Company will be assigned to the Company. The current members of the SAB
are as follows:
DANI P. BOLOGNESI, PH.D. James B. Duke Professor of Surgery, Professor of
Microbiology/Immunology, Vice Chairman of the Department of Surgery for Research
and Development, Director of the Duke University Center for AIDS
Research -- Duke University.
ROBERT C. GALLO, M.D. Professor and Director, Institute of Human
Virology -- University of Maryland Biotechnology Institute.
ERIC HUNTER, PH.D. Professor of Microbiology, Director, Center for AIDS
Research -- The University of Alabama at Birmingham.
THOMAS J. MATTHEWS, PH.D. Associate Professor of Experimental
Surgery -- Duke University.
JOSEPH S. PAGANO, M.D. Professor of Medicine and Microbiology and
Immunology, Director of The Lineberger Comprehensive Cancer Center -- The
University of North Carolina at Chapel Hill.
JEROME J. SCHENTAG, PHARM.D. Professor of Pharmacy and Pharmaceutics,
Director, The Clinical Pharmacokinetics Laboratory, Millard Fillmore Hospital,
Director, Center for Clinical Pharmacy Research -- The State University of New
York at Buffalo School of Pharmacy.
JUDITH M. WHITE, PH.D. Professor of Cell Biology and
Microbiology -- University of Virginia.
RICHARD J. WHITLEY, M.D. Loeb Eminent Scholar Chair in Pediatrics,
Professor of Pediatrics, Microbiology and Medicine -- The University of Alabama
at Birmingham.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to
executive officers, directors and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ------- --------
<S> <C> <C>
M. Ross Johnson, Ph.D............................... 52 President, Chief Executive Officer, Chief Scientific
Officer and Director
Matthew A. Megaro................................... 39 Chief Operating Officer, Chief Financial Officer,
Executive Vice President and Secretary
Samuel Hopkins, Ph.D................................ 39 Vice President of Medical Affairs
Dennis M. Lambert, Ph.D............................. 50 Vice President of Biological and Molecular Sciences
M.C. Kang, Ph.D..................................... 46 Director of Chemistry
Michael A. Recny, Ph.D.............................. 41 Director of Business Development
Timothy J. Creech................................... 36 Director of Finance
Jesse I. Treu, Ph.D.(1)............................. 50 Chairman of the Board of Directors
Dani P. Bolognesi, Ph.D.(2)......................... 56 Director
Brian H. Dovey(2)................................... 55 Director
Andrew S. McCreath(1)............................... 41 Director
Charles A. Sanders, M.D.(1)(2)...................... 65 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
M. ROSS JOHNSON, PH.D. joined the Company as Chief Scientific Officer and a
Director in January 1995 and was named President and Chief Executive Officer in
March 1996. Prior to joining the Company, Dr. Johnson was President and Chief
Executive Officer of Parnassus Pharmaceuticals, Inc. ("Parnassus"), a
biopharmaceutical company, from March 1994 to October 1994. In October 1994,
Parnassus filed for protection under the United States Bankruptcy Code. From
1987 to March 1994, Dr. Johnson served as Vice President of the Chemical
Development Division and Division of Chemistry, respectively, at Glaxo, a
multinational pharmaceutical company. Prior to joining Glaxo, Dr. Johnson held a
number of scientific management positions at Pfizer Inc., a multinational
pharmaceutical company. Dr. Johnson received his Ph.D. degree in Organic
Chemistry from the University of California at Santa Barbara.
MATTHEW A. MEGARO joined the Company as Chief Financial Officer and Vice
President of Business Development in March 1995 and was named Chief Operating
Officer, Executive Vice President and Secretary of the Company in June 1997.
Prior to joining the Company, Mr. Megaro was Chief Operating Officer of
Parnassus from January 1994 to October 1994. In October 1994, Parnassus filed
for protection under the United States Bankruptcy Code. Prior to joining
Parnassus, Mr. Megaro was Chief Financial Officer and Vice President of Finance
and Administration of Athena Neurosciences, Inc., a biopharmaceutical company,
from 1988 to January 1994.
SAMUEL HOPKINS, PH.D. joined the Company as Director of Drug Development in
April 1995 and was named Vice President of Medical Affairs in June 1997. Prior
to joining the Company, Dr. Hopkins was Director of Oncology and Antiviral Drug
Product Development and Senior Clinical Research Scientist, respectively, at
Cato Research, Ltd., a contract research organization from 1991 to April 1995.
From 1987 to 1991, Dr. Hopkins was a Senior Research Scientist in the Division
of Virology at Burroughs Wellcome Co., a multinational pharmaceutical company.
Dr. Hopkins received his Ph.D. degree in Biochemisty and Biophysics from the
Medical College of Virginia.
DENNIS M. LAMBERT, PH.D. joined the Company as Director of Virology in March
1993, was named Senior Director of Virology and Molecular Biology in September
1995, and was named Vice President of Biological Molecular
45
<PAGE>
Sciences in June 1997. Prior to joining the Company, Dr. Lambert was Assistant
Director, Department of Molecular Virology and Host Defense, at SmithKline
Beecham Corp., a pharmaceutical company, from 1988 to July 1993. Dr. Lambert
received his Ph.D. degree in Microbiology/Virology from Indiana State University
at Terre Haute.
M.C. KANG, PH.D. joined the Company as a consultant in October 1995 and was
named Director of Chemistry in August 1996. Prior to joining the Company, Dr.
Kang held various positions at Glaxo from 1990 to October 1995, most recently
serving as Director of Chemical Development. Prior to joining Glaxo, Dr. Kang
was a Development Chemist in the Medical Products Division at E.I. DuPont de
Nemours and Company, a chemical company from 1986 to 1990. Dr. Kang received his
Ph.D. degree in Synthetic Organic Chemistry from Oregon State University.
MICHAEL A. RECNY, PH.D. joined the Company as Director of Biochemical Sciences
in March 1995, and was named Director of Business Development in November 1996.
Prior to joining the Company, Dr. Recny was Senior Director of Biological
Sciences at Parnassus from November 1993 to October 1994. From 1988 to November
1993, Dr. Recny was Director of Protein Biochemistry at Procept, Inc., a
biopharmaceutical company. Prior to joining Procept, Inc., Dr. Recny was a Staff
Scientist/Laboratory Head at Genetics Institute Inc., a biopharmaceutical
company. Dr. Recny received his Ph.D. degree in Biochemistry from the University
of Illinois at Urbana-Champaign.
TIMOTHY J. CREECH, C.P.A. joined the Company as Director of Finance in July
1997. Prior to joining the Company, Mr. Creech was Corporate Controller at
Performance Awareness Corporation, a software company, from July 1996 to June
1997. From December 1993 to July 1996, Mr. Creech was Director of Finance at
Avant! Corporation, a software company. From 1990 to December 1993, Mr. Creech
was a senior manager at KPMG Peat Marwick LLP, independent auditors for the
Company.
JESSE I. TREU, PH.D. has been Chairman of the Board of Directors of the Company
since its inception. Dr. Treu has been a general partner of Domain Associates, a
venture capital firm specializing in investments in life sciences, since 1986.
Dr. Treu serves on the Boards of Directors of Biosite Diagnostics, Inc. and
GelTex Pharmaceuticals, Inc. Dr. Treu received his Ph.D. in Physics from
Princeton University.
DANI P. BOLOGNESI, PH.D. was a founder of the Company and has been a Director
since its inception. Dr. Bolognesi has held a number of positions at Duke
University since 1971, and now serves as James B. Duke Professor of Surgery,
Professor of Microbiology/Immunology, Vice Chairman of the Department of Surgery
for Research and Development and Director of the Duke University Center for AIDS
Research. Dr. Bolognesi is the Co-Chair of the National Institute of Allergy and
Infectious Diseases Vaccine Working Group ("NIAID"), Chair of the Office of AIDS
Research Coordinating Committee for Vaccines, Chair of the Office of AIDS
Research Task Force Vaccine Reasearch and Development Area Review Panel, Chair
of the panel to recommend strategies for the long-term care of the United States
biomedical chimpanzee population, and is a member of the NIAID Vaccine Selection
Committee. Dr. Bolognesi received his Ph.D. in Virology from Duke University.
BRIAN H. DOVEY has been a Director of the Company since its inception. Mr. Dovey
has been a general partner of Domain Associates, a venture capital firm
specializing in investments in life sciences, since 1988. Mr. Dovey is President
of the National Venture Capital Association and is a member of the Boards of
Trustees of the Coriell Institute and the University of Pennsylvania School of
Nursing. Mr. Dovey is Chairman of the Board of Directors of Creative
BioMolecules and also serves on the Boards of Directors of Connetics
Corporation, Geron Corporation, NABI and Vivus, Inc.
ANDREW S. MCCREATH, C.F.A. has been a Director of the Company since October
1996. In January 1996, Mr. McCreath became a founding partner of Lawrence &
Company Inc., a private investment firm in Toronto, Canada, which specializes in
the technology, health care, and leisure industries. From 1991 to December 1995,
Mr. McCreath served as a partner and director of Gordon Capital Corporation, a
Canadian investment bank. Mr. McCreath serves on the Board of Directors of
Galaxy Brands International.
CHARLES A. SANDERS, M.D. has been a Director of the Company since October 1996.
From 1989 to May 1995, Dr. Sanders was Chairman of the Board of Directors and
Chief Executive Officer of Glaxo and a member of the Board of Directors of Glaxo
plc. Prior to joining Glaxo, Dr. Sanders held a number of positions at Squibb
Corporation, a multinational pharmaceutical corporation, including Vice
Chairman, Chief Executive Officer of the Science
46
<PAGE>
and Technology Group and Chairman of the Science and Technology Committee of the
Board. Dr. Sanders serves on the Boards of Directors of Magainin
Pharmaceuticals, Vertex Pharmaceuticals and Staff Mark, Inc. Dr. Sanders
received an M.D. degree from Southwestern Medical College of the University of
Texas.
BOARD OF DIRECTORS
In accordance with the terms of the Company's Third Amended and Restated
Certificate of Incorporation to be filed upon the completion of this Offering,
the Board of Directors of the Company will be divided into three classes,
denominated Class I, Class II and Class III, with members of each class holding
office for staggered three-year terms. At each annual stockholder meeting
commencing with the 1998 annual meeting, the successors to the Directors whose
terms expire will be elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following their
election or until a successor has been duly elected and qualified. Officers
serve at the discretion of the Board.
The Compensation Committee of the Board was established in April 1997 to
determine the salaries and incentive compensation of the executive officers of
the Company and to provide recommendations for the salaries and incentive
compensation of the other employees and consultants of the Company. The
Compensation Committee also administers the Company's benefit plans, including
the Stock Option Plan. Mr. Dovey serves as the Chairman of the Compensation
Committee and the other members of the committee are Drs. Bolognesi and Sanders.
The Audit Committee of the Board was established in July 1997 to review,
act on and report to the Board with respect to various auditing and accounting
matters, including the selection of the Company's independent auditors, the
scope of the annual audits, the fees to be paid to the independent auditors, the
performance of the Company's independent auditors and the accounting practices
of the Company. Dr. Treu serves as the Chairman of the Audit Committee and the
other members of the committee are Mr. McCreath and Dr. Sanders.
47
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company during the fiscal year
ended December 31, 1996 to the Company's President and Chief Executive Officer
and to the Company's two other most highly compensated executive officers who
were serving as executive officers and whose 1996 compensation exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- ----------------------------- ---- ---------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
M. Ross Johnson (1) 1996 $ 238,800 $50,000 117,648(2) $ --
President, Chief Executive Officer and Chief
Scientific Officer
Richard A. Franco (3) 1996 60,000 -- 94,118(2) 244,897(4)
Former President and Chief Executive Officer
Matthew A. Megaro 1996 160,300 34,000 51,765(2) --
Chief Operating Officer, Chief Financial
Officer,
Executive Vice President and Secretary
Max N. Wallace (5) 1996 144,900 26,000 52,765(2) --
Former Executive Vice President, General
Counsel and Secretary
</TABLE>
- ---------------
(1) Dr. Johnson was named President and Chief Executive Officer of the Company
in March 1996.
(2) For information regarding the vesting and subsequent exercise of these
options, see the table entitled Option Grants in the Year Ended December 31,
1996 and the notes thereto and "Certain Transactions."
(3) Mr. Franco resigned as President and Chief Executive Officer of the Company
in March 1996.
(4) Consists of amounts paid to Mr. Franco following the termination of his
employment with the Company pursuant to a severance arrangement with the
Company.
(5) Mr. Wallace resigned as Executive Vice President, General Counsel and
Secretary in July 1997.
48
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers of the Company during the year ended
December 31, 1996. No stock appreciation rights were granted to any of the Named
Executive Officers during 1996 and no stock appreciation rights were outstanding
as of December 31, 1996.
OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------------- OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(#)(1) 1996 SHARE(2) DATE 5% 10%
- ----- ------------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
M. Ross Johnson 117,648(4) 24% $ .34 05/01/06 $25,156 $63,750
Richard A. Franco 94,118 19 .34 03/25/06 20,125 51,000
Matthew A. Megaro 51,765(5) 11 .34 05/01/06 11,069 28,050
Max N. Wallace 52,765(6) 11 .34 05/01/06 11,282 28,592
</TABLE>
- ---------------
(1) These options were granted under the Company's Stock Incentive Plan.
(2) The exercise price per share of the options was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(3) The potential realizable value of the options reported above was calculated
by assuming that the market price of the Common Stock of the Company
appreciates 5% and 10% compounded annually over the term of the options (10
years). These assumed annual rates of appreciation were used in compliance
with the rules of the Securities and Exchange Commission and are not
intended to forecast future prices appreciation of the Common Stock of the
Company. These amounts do not represent the Company's estimate of future
stock price performance. The actual value realized from the options could be
substantially higher or lower than the values reported above, depending upon
the future appreciation or depreciation of the Common Stock during the
option period and the timing of exercise of the options.
(4) In October 1996, the Board of Directors granted options to purchase 35,295
shares, 35,295 shares and 47,058 shares which were scheduled to vest ratably
over a 48-month period which commenced in January 1995, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. See "Certain Transactions."
(5) In October 1996, the Board of Directors granted options to purchase 23,530
shares, 23,530 shares and 4,705 shares which were scheduled to vest ratably
over a 48-month period which commenced in March 1995, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. See "Certain Transactions."
(6) In October 1996, the Board of Directors granted options to purchase 17,648
shares, 27,648 shares and 7,469 shares which were scheduled to vest ratably
over a 48-month period which commenced in March 1993, July 1995 and March
1996, respectively. In May 1997, the Board of Directors accelerated the
vesting of these options subject to certain restrictions on the underlying
shares of Common Stock which lapse over the same period of time over which
the options were to vest. On July 10, 1997, Mr. Wallace resigned as an
officer and Director of the Company and entered into an agreement with the
Company pursuant to which the vesting of 3,971 of such underlying shares was
accelerated and the other restrictions applicable to such 3,971 shares
terminated. See "Certain Transactions."
49
<PAGE>
YEAR-END OPTION TABLE
The following table sets forth certain information concerning stock options
exercised by the Named Executive Officers during 1996, the number of options
held by the Named Executive Officers as of December 31, 1996, and the value of
any in-the-money options as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1996 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS AS
DECEMBER 31, 1996 (1)(#) OF DECEMBER 31, 1996 (2)
SHARES ACQUIRED ----------------------------- -----------------------------
NAME ON EXERCISE (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
M. Ross Johnson -- 39,718 77,930 $ 502,830 $ 986,594
Richard A. Franco 27,452 -- -- -- --
Matthew A. Megaro -- 20,322 31,443 257,281 398,061
Max N. Wallace -- 28,232 24,533 357,419 310,588
</TABLE>
- ---------------
(1) In May 1997, the Board of Directors accelerated all options set forth below
subject to certain restrictions on the underlying shares of Common Stock
which lapse over time. See the table entitled Options Granted in the Year
Ended December 31, 1996 and the notes thereto and "Certain Transactions."
(2) There was no public trading market for the Common Stock as of December 31,
1996. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $13.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
STOCK OPTION PLANS
The Trimeris, Inc. Amended and Restated Stock Incentive Plan (the "Stock
Incentive Plan") (formerly the Trimeris, Inc. New Stock Option Plan) was adopted
by the Board of Directors and approved by the stockholders in September 1997.
The Stock Incentive Plan amends and restates, and replaces, the Trimeris, Inc.
New Stock Option Plan, which was adopted by the Board of Directors in May 1996
and approved by the stockholders in May 1996, and was subsequently amended in
April 1997 to increase the number of shares available for issuance thereunder.
This subsequent amendment was approved by the stockholders in September 1997.
Under the Stock Incentive Plan, options, restricted stock or other
stock-based awards (each, an "Award") may be granted to employees, officers,
directors, consultants and advisors of the Company. Incentive stock options may
be granted only to employees and to directors who are also employees of the
Company.
The Stock Incentive Plan is administered by the Board of Directors (the
"Board"), which may, to the extent permitted by applicable law, delegate to one
or more committees of the Board any or all of its powers under the Stock
Incentive Plan. Certain powers may also, to the extent permitted by applicable
law, be delegated to executive officers of the Company. For so long as the
Company's Common Stock is registered under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Board shall appoint one committee of not
less than two members, each of whom shall be a "non-employee director" as
defined in Rule 16b-3 promulgated under the Exchange Act, to grant Awards and
take other action under the Stock Incentive Plan with respect to individuals
deemed to be insiders for purposes of Section 16 of the Exchange Act.
The Board determines the terms and conditions applicable to all Awards
granted under the Stock Incentive Plan. Subject to adjustment for stock splits,
stock dividends, recapitalizations, consolidations or other similar events, a
maximum of 852,941 shares are authorized for Awards under the Stock Incentive
Plan, of which 264,975 shares are the subject of existing options granted under
the Trimeris, Inc. New Stock Option Plan prior to the adoption of the Stock
Incentive Plan.
Both incentive stock options and nonstatutory stock options may be granted
under the Stock Incentive Plan. The Stock Incentive Plan provides that any
option granted to a participant who is subject to the provisions of Section 16
of the Exchange Act shall not become exercisable for a period of at least six
(6) months following the date of grant. Certain restrictions on the terms of
incentive stock options are imposed under the Stock Incentive Plan to ensure
compliance with the requirements for incentive stock options under Section 422
of the Internal Revenue Code.
50
<PAGE>
In the event an optionee ceases to be employed by the Company for any
reason other than death or disability, each outstanding option held by such
optionee will terminate and cease to be exercisable no later than three months
after the date of such cessation of employment. Should the optionee's employment
terminate by reason of death or disability (including death within three months
following cessation of employment), each outstanding option held by such
optionee will terminate and cease to be exercisable no later than twelve months
after the date of such cessation of employment.
The Stock Incentive Plan permits Common Stock purchased upon the exercise
of options to be paid (i) in cash or by check, (ii) through a broker-facilitated
cashless exercise procedure, or, to the extent permitted by applicable law,
(iii) by delivery of shares owned by the optionee, provided such shares have
been held for at least six (6) months, (iv) by delivery of a promissory note
secured by valuable collateral, or (v) by payment of such other lawful
consideration as the Board may determine.
The Board may grant restricted stock Awards under the Stock Incentive Plan
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares and upon such other terms
and conditions as the Board may determine. Stock certificates issued in respect
of a restricted stock Award are registered in the name of the participant and
held in escrow by the Company until expiration of the applicable restriction
periods. Any restricted stock Award granted to a participant who is subject to
the provisions of Section 16 of the Exchange Act shall restrict the release of
the shares subject to the Award for a period of at least six (6) months
following the date of grant.
The Board has the authority under the Stock Incentive Plan to grant other
Awards based on the Common Stock having such terms and conditions as the Board
may determine. Except as the Board may otherwise provide in a particular Award,
no Awards granted under the Stock Incentive Plan may be transferred or assigned
by the holder other than by will or the laws of descent or distribution.
The Stock Incentive Plan provides for the automatic acceleration of vesting
of Awards in the event of a merger, consolidation, sale of all or substantially
all of the assets of the Company, complete liquidation of the Company, or the
acquisition by someone of 50% or more of the voting power of the Company's then
outstanding securities (other than through a merger, consolidation or
acquisition of securities directly from the Company) (a "Change of Control
Event"). Each of the foregoing events is referred to as an "Acquisition Event."
Except as may be otherwise provided in the agreement governing a particular
Award, upon an Acquisition Event, all outstanding restricted stock and
stock-based Awards, options and stock appreciation rights shall become fully
vested and immediately exercisable or realizable; provided, however, that the
Board may additionally provide, upon the execution by the Company of an
agreement to effect an Acquisition Event other than a Change of Control Event,
for the assumption or substitution of options and stock appreciation rights by
the acquiring or succeeding corporation, or the termination of any unexercised
options or stock appreciation rights to the extent not exercised prior to the
consummation of the Acquisition Event.
The Board may terminate or amend the Stock Incentive Plan at any time;
provided however, that without the approval of the Company's stockholders, there
shall be no increase in the total number of shares available for Awards or for
grants of incentive stock options under the Stock Incentive Plan. No Awards may
be made under the Stock Option Plan after the earlier of ten (10) years from the
date of adoption by the Board or approval by the stockholders of the Stock
Incentive Plan.
As of September 15, 1997, the Company had outstanding 3,531 nonqualifed
stock options under its previous stock option plan at a weighted average
exercise price of $.425 per share. The Board of Directors has determined not to
grant additional options under such plan.
EMPLOYEE STOCK PURCHASE PLAN
In August 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1997 Employee Stock Purchase Plan (the "ESPP"),
contingent upon and subject to the consummation of the Offering. The ESPP is
intended to encourage ownership of the Company's Common Stock by employees of
the Company. A maximum of 250,000 shares of Common Stock have been reserved for
purchase under the ESPP (subject to certain adjustments under the ESPP). No
options to purchase shares of Common Stock have been granted and no shares of
Common Stock have been purchased under the ESPP. The ESPP is administered by the
51
<PAGE>
Compensation Committee of the Board of Directors, or such other committee as the
Board designates (the "Committee").
For eligible employees who have become participants in the ESPP, the ESPP
provides for the automatic grant of options to purchase shares of Common Stock
("Options"). The Options are granted on the first day of an offering period
("Offering Period"). Offering Periods are successive and overlapping 24 month
periods beginning on the first trading day on or after December 1 and June 1 of
each year, and each Offering Period contains four exercise periods ("Purchase
Period"), each of which is approximately six months. The first Offering Period,
however, will run from completion of the Offering through May 31, 1999, and the
first Purchase Period will run from completion of the Offering through May 31,
1998. Employees of the Company who have been employed by the Company before the
beginning of an Offering Period may participate in the ESPP for that Offering
Period.
Payroll deductions are accumulated in an account for each participant,
based on the amounts the participant requests be withheld. The accumulated
amounts are used at the end of each Purchase Period to purchase shares of Common
Stock pursuant to the Option. The purchase price of a share of Common Stock
under an Option will equal 85% of the lower of the fair market value of a share
(a) on the first day of the Offering Period or (b) on the last day of the
relevant Exercise Period. Options may not be assigned or transferred. No
participant may purchase shares having a fair market value (determined as of the
beginning of the Offering Period) exceeding $25,000 in any calendar year, nor
may a participant purchase shares if the participant would own shares or hold
outstanding options to purchase shares, or both, possessing 5% or more of the
total combined voting power or value of all classes of shares of the Company. A
participant may withdraw from an Offering Period at any time without affecting
his or her eligibility to participate in future Offering Periods.
There are no tax consequences to either the participant or the Company when
the Option is issued. When shares are issued upon the exercise of the Option,
there are no tax consequences to the participant (except to the extent that any
excess in the fair market value of the Common Stock over the exercise price
constitutes a tax preference item which requires payment of the alternative
minimum tax) or to the Company. A participant's Option will terminate and his or
her accumulated account balance will be returned if such participant ceases to
be employed by the Company.
If a participant disposes of shares purchased under the ESPP at least two
years after the first day of the applicable Offering Period and at least one
year after the date of purchase, the participant will recognize ordinary income
in the year of disposition equal to the amount of the discount. The amount of
ordinary income recognized by a participant will be added to the participant's
basis in the shares. Any additional gain recognized upon the disposition will be
long-term capital gain. The Company will not generally be entitled to a
deduction if the participant complies with these holding periods.
If a participant disposes of shares purchased under the ESPP within two
years from the first day of the applicable Offering Period or within one year
from the date of purchase (a "disqualifying disposition"), the participant will
recognize ordinary income in the year of such disposition equal to the lesser of
(i) the amount by which the fair market value of the shares on the date the
shares were purchased exceeded the purchase price and (ii) the amount by which
the fair market value of the shares on the date of disposition exceeded the
purchase price. The amount of ordinary income will be added to the participant's
basis in the shares, and any additional gain or resulting loss recognized on the
disposition of the shares will be a capital gain or loss. The Company will
generally be entitled to a deduction in the year of the disqualifying
disposition equal to the amount of ordinary income recognized by the participant
as a result of the disposition.
The ESPP provides that in the event of a "Substantial Corporate Change" the
offering will terminate unless provision is made in writing for (i) the
assumption or continuation of outstanding elections or (ii) the substitution for
Options or grants of Options covering securities of a successor corporation. For
purposes of the ESPP, events constituting a "Substantial Corporate Change" are
(i) dissolution or liquidation of the Company, (ii) a merger, consolidation or
reorganization of the Company in which the Company is not the surviving
corporation, (iii) the sale of substantially all of the Company's assets or (iv)
any transaction approved by the Board of Directors that results in any person or
entity owning 100% of the combined voting power of all classes of stock of the
Company. The Board of Directors may terminate or amend the ESPP at any time. Any
amendment to the ESPP that (i) materially increases the benefits to
participants, (ii) materially increases the number of securities that may be
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<PAGE>
issued under the ESPP, or (iii) materially modifies the eligibility requirements
for participation in the ESPP must be approved by the stockholders of the
Company.
If any change is made to the stock issuable under the ESPP by reason of any
recapitalization, reclassification, stock split, reverse stock split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or some other increase or decrease in such Common
Stock occurs without the Company's receiving consideration, appropriate
adjustment will be made to the shares subject to the ESPP and the number of
shares that a participant may purchase with respect to an Option.
EMPLOYMENT AGREEMENTS
In December 1994, the Company entered into an employment arrangement with
Dr. Johnson, its President, Chief Executive Officer and Chief Scientific
Officer. Pursuant to this arrangement, Dr. Johnson is entitled to receive
minimum annual compensation of $225,000, an annual bonus based upon the
achievement of certain milestones and all health insurance and other benefits
generally made available to the Company's employees. In the event that Dr.
Johnson's employment is terminated for any reason other than for cause, Dr.
Johnson's employment arrangement provides that Dr. Johnson is entitled to his
base salary and benefits for one year from the date of such termination.
In February 1995, the Company entered into an employment arrangement with
Mr. Megaro, its Chief Operating Officer, Chief Financial Officer, Executive Vice
President and Secretary. Pursuant to this arrangement, Mr. Megaro is entitled to
receive minimum annual compensation of $130,000, an annual bonus based upon the
achievement of certain milestones and all health insurance and other benefits
generally made available to the Company's employees. In the event that Mr.
Megaro's employment is terminated for any reason other than for cause, Mr.
Megaro's employment arrangement provides that Mr. Megaro is entitled to his base
salary and benefits for up to six months from the date of such termination,
subject to certain limitations.
On July 10, 1997, Mr. Wallace resigned as an officer and Director of the
Company and entered into an agreement with the Company pursuant to which he will
serve as a consultant to the Company until December 31, 1997. Thereafter, Mr.
Wallace will receive severance payments until June 30, 1998 based on his annual
salary at the time of his resignation. In addition, the Company has agreed to
terminate its right of repurchase and other restrictions with respect to
approximately 24,015 shares of Common Stock held by Mr. Wallace for which such
restrictions would not otherwise have lapsed at the time of his resignation.
COMPENSATION OF DIRECTORS
The Company does not currently compensate its Directors for attending Board
or committee meetings, but reimburses Directors for their reasonable travel
expenses incurred in connection with attending meetings of the Board or
committees of the Board. Also, non-employee Directors are entitled to be granted
options under the Company's Stock Option Plan. The Company intends to reevaluate
its policy with respect to compensation of non-employee Directors after
completion of this Offering. On October 21, 1996, the Company granted Dr.
Sanders options to purchase 5,883 shares of Common Stock at an exercise price of
$.34 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective April 10, 1997, the Board of Directors established a Compensation
Committee which is responsible for determining the salaries and incentive
compensation of the executive officers of the Company and to provide
recommendations for the salaries and incentive compensation of the other
employees and consultants of the Company. The Compensation Committe also
administers the Company's benefit plans, including the Stock Option Plan. Mr.
Dovey serves as the Chairman of the Compensation Committee and the other members
of the committee are Drs. Bolognesi and Sanders. None of Mr. Dovey, Dr.
Bolognesi, nor Dr. Sanders was an officer or employee of the Company during 1996
or any prior year. During 1996 and prior to the formation of the Compensation
Committee, the Board of Directors as a whole made decisions relating to
compensation of the Company's executive officers. Dr. Johnson, the Company's
President, Chief Executive Officer and Chief Scientific Officer, Mr. Wallace,
the Company's former Executive Vice President, General Counsel and Secretary and
Mr. Franco, the Company's former President and Chief Executive Officer,
participated in all such discussions and decisions concerning the compensation
of executive officers of the Company, except that Dr. Johnson and Messrs.
Wallace and Franco were excluded from discussions regarding their own
compensation.
53
<PAGE>
CERTAIN TRANSACTIONS
Since February 1995, the Company has issued an aggregate of 274,512 shares
of Common Stock to Dr. Johnson, the Company's President, Chief Executive Officer
and Chief Scientific Officer at an aggregate purchase price of $123,300, or a
weighted average purchase price of $.45 per share. In June 1997, the Company
issued to Dr. Johnson an aggregate of 127,060 shares of Common Stock at an
aggregate purchase price of $54,000, or $.425 per share, in consideration for a
full recourse secured promissory note payable to the Company, which bears
interest at eight percent per annum and is due in June 1999. In May 1997, the
Company issued to Dr. Johnson an aggregate of 117,648 shares of Common Stock
upon the exercise of certain options granted to Dr. Johnson at an aggregate
exercise price of $40,000, or $.34 per share, in consideration for a full
recourse secured promissory note payable to the Company, which bears interest at
eight percent per annum and is due in May 1999. In April 1997, the Company
issued to Dr. Johnson an aggregate of 33,333 shares of Series C Preferred Stock
(convertible into 3,922 shares of Common Stock upon the completion of the
Offering) at an aggregate purchase price of $20,000, or $.60 per share. Certain
shares of Common Stock purchased from the Company by Dr. Johnson are subject to
the Company's right of repurchase and certain other restrictions which lapse
over a period of time.
Since March 1995, the Company has issued an aggregate of 146,080 shares of
Common Stock to Mr. Megaro, the Company's Chief Operating Officer, Chief
Financial Officer, Executive Vice President and Secretary at an aggregate
purchase price of $80,000, or a weighted average purchase price of $.55 per
share. In June 1997, the Company issued Mr. Megaro an aggregate of 76,470 shares
of Common Stock at an aggregate purchase price of $32,500, or $.425 per share,
in consideration for a full recourse secured promissory note payable to the
Company which bears interest at eight percent per annum and is due in June 1999.
In May 1997, the Company issued Mr. Megaro an aggregate of 51,766 shares of
Common Stock upon the exercise of certain options granted to Mr. Megaro at an
aggregate exercise price of $17,600, or $.34 per share, in consideration for a
full recourse secured promissory note payable to the Company which bears
interest at eight percent per annum and is due in May 1999. In April 1997, the
Company issued Mr. Megaro an aggregate of 41,667 shares of Series C Preferred
Stock (convertible into 4,902 shares of Common Stock upon the completion of the
Offering) at an aggregate purchase price of $25,000, or $.60 per share. Certain
shares of Common Stock purchased from the Company by Mr. Megaro are subject to
the Company's right of repurchase and certain other restrictions which lapse
over a period of time.
Since March 1995, the Company has issued an aggregate of 100,294 shares of
Common Stock to Mr. Wallace, the Company's former Executive Vice President,
General Counsel and Secretary at an aggregate purchase price of $37,540, or a
weighted average purchase price of $.29 per share. In June 1997, the Company
issued Mr. Wallace an aggregate of 34,588 shares of Common Stock at an aggregate
purchase price of $14,700, or $.425 per share, in consideration for a full
recourse secured promissory note payable to the Company which bears interest at
eight percent per annum and is due in June 1999. In May 1997, the Company issued
Mr. Wallace an aggregate of 52,765 shares of Common Stock upon the exercise of
certain options granted to Mr. Wallace at an aggregate exercise price of
$17,940, or $.34 per share, in consideration for a full recourse secured
promissory note payable to the Company which bears interest at eight percent per
annum and is due in May 1999.
On July 10, 1997, Mr. Wallace resigned as an officer and Director of the
Company and entered into an agreement with the Company pursuant to which he will
serve as a consultant to the Company until December 31, 1997. Thereafter, Mr.
Wallace will receive severance payments until June 30, 1998 based on his annual
salary at the time of his resignation. In addition, the Company has agreed to
terminate its right of repurchase and other restrictions with respect to
approximately 24,015 shares of Common Stock held by Mr. Wallace for which such
restrictions would not otherwise have lapsed at the time of his resignation.
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<PAGE>
The following table summarizes the shares of Preferred Stock purchased by
affiliates of the Directors and the holders of more than five percent (5%) of
the Common Stock. See the table entitled "Principal Stockholders" and the notes
thereto for further information relating to the beneficial ownership of such
shares.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------- --------------- ---------------
<S> <C> <C> <C>
Domain Partners II, L.P. (1).............. 2,000,000 11,095,920
Domain Partners III, L.P. (2)............. 5,932,528 2,061,997
DP III Associates, L.P. (2)............... 206,466 71,336
Biotechnology Investments Limited (3)..... 1,000,000 6,900,650 2,866,668
Lawrence & Company Inc. (4)............... 2,283,334
Sentron Medical, Inc...................... 2,000,000 1,333,334
</TABLE>
- ---------------
(1) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates,
II, L.P., the general partner of Domain Partners II, L.P.
(2) Dr. Treu and Mr. Dovey are general partners of One Palmer Square Associates,
III, L.P., the general partner of Domain Partners III, L.P. and DP III
Associates, L.P.
(3) Pursuant to a contractual agreement, Domain Associates is the U.S. venture
capital advisor to Biotechnology Investments Limited. Dr. Treu and Mr. Dovey
are general partners of Domain Associates.
(4) Mr. McCreath is a founding partner of Lawrence & Company Inc.
For information regarding employment agreements with Named Executive
Officers, see "Management -- Employment Agreements." For information regarding
compensation of Directors, see "Management -- Compensation of Directors."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 15, 1997 (after giving
effect to the Preferred Stock Conversion) and as adjusted to give effect to the
sale of the shares of Common Stock offered hereby, by (i) each person (or group
of affiliated persons) who is known by the Company to own beneficially 5% or
more of the outstanding shares of Common Stock, (ii) each Named Executive
Officer, (iii) each of the Company's Directors, and (iv) all Directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OWNERSHIP(1)
SHARES --------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------------------------ -------------- -------- --------
<S> <C> <C> <C>
Domain Partners II, L.P. (2).................................................. 2,570,559 34.8% 26.0%
Domain Partners III, L.P. (2)................................................. 2,570,559 34.8 26.0
DP III Associates, L.P. (2)................................................... 2,570,559 34.8 26.0
Biotechnology Investments Limited (3)......................................... 1,295,068 17.5 13.1
Sentron Medical, Inc. (4)..................................................... 392,158 5.3 4.0
M. Ross Johnson (5)........................................................... 188,994 2.6 1.9
Matthew A. Megaro (6)......................................................... 146,080 2.0 1.5
Max N. Wallace (7)............................................................ 132,149 1.8 1.3
Richard A. Franco (8)......................................................... 40,334 * *
Jesse I. Treu (2)............................................................. 2,570,559 34.8 26.0
Dani P. Bolognesi (9)......................................................... 99,515 1.3 1.0
Brian H. Dovey (2)............................................................ 2,570,559 34.8 26.0
Charles A. Sanders (10)....................................................... 11,765 * *
Andrew A. McCreath (11)....................................................... 268,628 3.7 2.7
All executive officers and directors as a
group (eight persons) (12).................................................... 3,589,621 46.9 35.1
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage ownership is based on 7,380,329 shares of Common
Stock outstanding as of September 15, 1997 after giving effect to the
Preferred Stock Conversion. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission based
on factors including voting or investment power with respect to securities.
Shares of Common Stock subject to options, warrants and convertible notes
currently exercisable or convertible, or exercisable or convertible within
60 days after September 15, 1997, are deemed outstanding for computing the
percentage ownership of the person or entity holding such securities, but
are not deemed outstanding for computing the percentage ownership of any
other person or entity. Except as indicated, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
as beneficially owned by them, and there are no other affiliations among
the stockholders listed in the table.
(2) Consists of shares held by affiliated entities as follows: (i) 1,597,342
shares beneficially owned by Domain Partners II, L.P., whose general
partner is One Palmer Square Associates II, L.P.; (ii) 940,533 shares
beneficially owned by Domain Partners III, L.P., whose general partner is
One Palmer Square Associates III, L.P.; and (iii) 32,684 shares
beneficially owned by DP III Associates, L.P., whose general partner is One
Palmer Square Associates III, L.P. Dr. Treu and Mr. Dovey are general
partners of One Palmer Square Associates II, L.P. and One Palmer Square
Associates III, L.P. In such capacities, Dr. Treu and Mr. Dovey each may be
deemed to be the beneficial owner of such shares, although each disclaims
such beneficial ownership except to the extent of his pecuniary interest,
if any. The address for Domain Partners II, L.P., Domain Partners III,
L.P., DP III Associates, L.P., Dr. Treu and Mr. Dovey is One Palmer Square,
Princeton, New Jersey 08542.
(3) Biotechnology Investments Limited ("BIL") has entered into a contractual
arrangement with Domain Associates whereby Domain Associates serves as the
United States venture capital advisor to BIL. Domain Associates has neither
voting nor investment power over BIL's shares. Dr. Treu and Mr. Dovey are
general partners of Domain Associates. The address for BIL is St. Peter
Port House, Sausmarez Street, St. Peter Port, Guernsey, GY13PH, Channel
Islands.
(4) The address for Sentron Medical, Inc. is 4445 Lake Forest Drive, Suite 600,
Cincinnati, Ohio 45242.
(5) Includes 177,035 shares subject to certain contractual restrictions, which
restrictions lapse with respect to 6,956 shares within 60 days after
September 15, 1997. Does not include an aggregate of 85,518 shares
beneficially owned by Michael Johnson and Greg Johnson, Dr. Johnson's sons,
who have sole voting and investment power of such shares and as to which
shares Dr. Johnson disclaims beneficial ownership.
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<PAGE>
(6) Includes (i) 90,147 shares subject to certain contractual restrictions,
which restrictions lapse with respect to 3,622 shares within 60 days after
September 15, 1997, and (ii) an aggregate of 47,076 shares beneficially
owned by Matthew A. Megaro as custodian for Anthony Megaro and Arianna
Megaro, Mr. Megaro's son and daughter.
(7) Includes (i) 28,824 shares subject to certain contractual restrictions,
which restrictions lapse with respect to 1,441 shares within 60 days after
September 15, 1997 and (ii) 2,443 shares beneficially owned by Diana
Parrish, Mr. Wallace's wife. For information concerning the subsequent
lapsing of these restrictions, see "Certain Transactions."
(8) Includes 20,100 shares beneficially owned by Dianne M. Franco, Mr. Franco's
wife. Does not include the following aggregate of 13,000 shares as to which
Mr. Franco disclaims beneficial ownership: (i) 6,500 shares beneficially
owned by Danielle Franco, Mr. Franco's daughter; (ii) 2,000 shares
beneficially owned by Richard A. Franco, Jr., Mr. Franco's son; (iii) 2,000
shares owned by Kathleen S. Franco, Richard A. Franco, Jr.'s wife; (iv)
1,250 shares beneficially owned by Richard A. Franco, Jr., Custodian for
Alyssa M. Franco under the North Carolina Uniform Transfers to Minors Act
for which Alyssa M. Franco, Mr. Franco's grandchild, is the sole
beneficiary and Richard A. Franco, Jr. is the sole custodian; and (v) 1,250
shares beneficially owned by Richard A. Franco, Jr., Custodian for Richard
A. Franco, III under the North Carolina Uniform Transfers to Minors Act for
which Richard A. Franco, III, Mr. Franco's grandchild, is the sole
beneficiary and Richard A. Franco, Jr. is the sole custodian.
(9) Includes 14,147 shares that Dr. Bolognesi may acquire pursuant to stock
options exercisable within 60 days after September 15, 1997 and the
following shares as to which Dr. Bolognesi disclaims beneficial ownership:
(i) 11,765 shares beneficially owned by James C. Bolognesi Irrevocable
Trust, for which James C. Bolognesi, Dr. Bolognesi's son, is the sole
beneficiary and Sarah Bolognesi, Dr. Bolognesi's wife, is the sole trustee;
(ii) 11,765 shares beneficially owned by Michael P. Bolognesi Irrevocable
Trust, for which Michael P. Bolognesi, Dr. Bolognesi's son, is the sole
beneficiary and Sarah Bolognesi is the sole trustee; and (iii) 5,955 shares
that Sarah Bolognesi may acquire pursuant to certain stock options
exercisable within 60 days after September 15, 1997.
(10) Includes 1,961 shares that Dr. Sanders may acquire pursuant to stock
options exercisable within 60 days after September 15, 1997.
(11) Includes 268,628 shares beneficially owned by Lawrence & Company Inc., of
which Mr. McCreath is a partner. In such capacity, Mr. McCreath may be
deemed to be the beneficial owner of such shares, although he disclaims
such beneficial ownership except to the extent of his pecuniary interest,
if any.
(12) See notes (2)-(11).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.001 per share and 10,000,000 shares of Preferred
Stock, par value $.001 per share (after giving effect to the Preferred Stock
Conversion and the filing of the Third Amended and Restated Certificate of
Incorporation upon the completion of this Offering). The following description
of the capital stock of the Company is a summary, does not purport to be
complete, is subject to, and qualified in its entirety by, the provisions of the
Third Amended and Restated Certificate of Incorporation, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and by
applicable law.
COMMON STOCK
As of September 15, 1997, there were 7,380,329 shares of Common Stock
outstanding, as adjusted to reflect the Preferred Stock Conversion upon the
completion of this Offering, held of record by 88 stockholders.
The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights applicable to any outstanding Preferred Stock that may be issued
in the future. The Company has not declared or paid cash dividends on its
capital stock. The Company currently intends to retain any future earnings to
fund its operations and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. See "Dividend Policy."
In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets of the
Company remaining after the payment of all debts and other liabilities, subject
to the prior distribution rights of shares of Preferred Stock if any, then
outstanding. There are no preemptive, subscription or conversion rights
applicable to the Common Stock. The outstanding shares of Common Stock are, and
the shares offered by the Company in this Offering will be, when issued and paid
for, validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of the holders
of shares of any class or series of Preferred Stock that the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue 10,000,000 shares of Preferred Stock in one
or more series and to designate the rights, preferences and limitations of all
series, any or all of which may be superior to the rights of the Common Stock.
It is not possible to state the actual effect of the issuance of any shares of
Preferred Stock upon the rights of the holders of Common Stock until the Board
of Directors determines the specific rights of the holders of Preferred Stock.
However, the effects might include, among others, restricting dividends on
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock, and making it more difficult for a third
party to acquire the Company, which could have the effect of discouraging a
third party from acquiring, or deterring a third party from paying a premium to
acquire, a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Anti-Takeover Effect of Certain Charter and Bylaw Provisions."
WARRANTS
As of September 15, 1997, the Company had outstanding warrants entitling
the purchasers thereof to purchase a total of 56,684 shares of Common Stock at a
weighted-average exercise price of $4.25 per share (the "Warrants"). The
Warrants have expiration dates ranging from 2003 to 2005.
58
<PAGE>
REGISTRATION RIGHTS
The holders, or their permitted transferees, of approximately 6,261,615
shares of Common Stock and 56,684 shares of Common Stock issuable upon exercise
of the Warrants (the "Registrable Securities") are entitled to certain rights
with respect to the registration of such shares under the Securities Act. These
rights are provided under the terms of certain agreements between the Company
and holders of Registrable Securities. Subject to certain limitations set forth
in the agreements, holders of Registrable Securities may require the Company, at
its expense, on not more than two occasions, to file a registration statement
under the Securities Act with respect to the public resale of Registrable
Securities. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the holders of Registrable Securities are entitled to notice of the
registration and are entitled to include, at the Company's expense, such shares
therein, subject to certain conditions and limitations. Further, the holders of
Registrable Securities may require the Company, at its expense, to register
their shares on Form S-3 when the use of such form becomes available to the
Company, subject to certain conditions and limitations. All registration
expenses must be borne by the Company and all selling expenses relating to
Registrable Securities must be borne by the holder of the securities being
registered.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of DGCL Section 203 which, subject
to certain exceptions, prohibits the Company from engaging in certain business
combinations with interested stockholders for a period of three years after the
date of the transaction in which the stockholder became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. The application of Section 203 could have the effect
of delaying or preventing a change of control of the Company.
The Company's Third Amended and Restated Certificate of Incorporation
provides that effective upon this Offering, each director will serve for a
three-year term and that approximately one-third of the directors are to be
elected annually. Candidates for directors shall be nominated only by the Board
of Directors or by a stockholder who gives written notice to the Company in the
manner prescribed by the Bylaws. The number of directors may be fixed by
resolution of the Board of Directors. The Board currently consists of six
members and the Board may appoint new directors to fill vacancies or newly
created directorships between stockholder meetings. The Third Amended and
Restated Certificate of Incorporation does not provide for cumulative voting at
stockholder meetings for election of directors. A director may be removed from
office with cause by the affirmative vote of at least seventy-five percent (75%)
of all eligible votes present in person or by proxy at a meeting of stockholders
at which a quorum is present or without cause by the affirmative vote of
seventy-five percent (75%) of all eligible votes present in person or by proxy
at a meeting of stockholders at which a quorum is present, provided that removal
without cause is recommended to the stockholders by the Board of Directors
pursuant to a vote of not less than seventy-five percent (75%) of the Directors
then in office. Any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. The staggered Board of
Directors, the Company's Third Amended and Restated Certificate of Incorporation
and certain other provisions of the DGCL may have the effect of delaying,
deterring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price and may adversely affect
the market price, and the voting and other rights of the holders, of the Common
Stock.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Wachovia Bank of North
Carolina, N.A.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market after this Offering or the prospect of such sales could materially
and adversely affect the market price of the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions described below lapse could also materially
and adversely affect the prevailing market price of the Common Stock and the
ability of the Company to raise equity capital in the future.
Upon the completion of this Offering, the Company will have 9,880,329
shares of Common Stock outstanding (assuming no exercise of options and warrants
outstanding as of September 15, 1997). Of these shares, the 2,500,000 shares
sold in this Offering will be freely tradeable without restrictions unless held
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 7,380,329 shares were issued and sold in reliance
upon certain exemptions from the registration requirements of the Securities
Act. These shares may be sold in the public market only if registered, or
pursuant to an exemption from such registration, such as Rule 144 or Rule 144(k)
under the Securities Act.
Approximately 231,117 shares of Common Stock will be eligible for resale in
the public market without restriction in reliance on Rule 144(k) immediately
following the completion of this Offering, 225,944 shares of which are subject
to the Lock-up Agreements described below. An additional 769,238 shares (763,331
shares of which are subject to the Lock-up Agreements) will be eligible for
resale in the public market pursuant to Rule 701 under the Securities Act
beginning approximately 90 days after the effective date of this Prospectus,
except to the extent that such shares are subject to vesting restrictions or
certain contractual restrictions on sale or transfer pursuant to agreements with
the Company. After the expiration of the 180-day lock-up period described below,
an additional 3,739,158 shares of Common Stock will be eligible for resale in
the public market pursuant to Rule 144. From time to time thereafter, the
remaining shares of Common Stock outstanding will become eligible for resale in
the public market pursuant to Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
(as that term is defined in Rule 144) for at least one year is entitled to sell,
within any three month period, a number of such securities that does not exceed
the greater of one percent of the then outstanding class of securities (in the
case of the Common Stock, approximately 98,803 shares, based on the number of
shares to be outstanding after this Offering) or the average weekly trading
volume in such securities in the public market during the four calendar weeks
preceding the filing of the seller's Form 144, provided certain requirements
concerning availability of public information concerning the issuer of the
restricted securities, manner of sale and notice of sale are satisfied. A person
who is not an affiliate of the issuer, has not been an affiliate within three
months prior to the sale and has beneficially owned the restricted securities
for at least two years is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above. Rule 144 also provides that
any person who sells securities that are not restricted securities must
nonetheless comply with the same restrictions applicable to restricted
securities for the account of an affiliate with the exception of the holding
period requirement. The one-year and two-year holding periods described above do
not begin to run until the full purchase price or other consideration is paid by
the person acquiring the restricted securities from the issuer or an affiliate
of the issuer and may include the holding period of a prior owner.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
issued before the completion of this Offering upon the exercise of options) are
also restricted securities and, beginning approximately 90 days after the
effective date of this Prospectus, may be resold by persons other than
affiliates of the Company subject only to the manner of sale provisions of Rule
144 and may be resold by affiliates under Rule 144 without compliance with the
one-year holding period.
The executive officers, directors, employees and certain other stockholders
of the Company, who together beneficially own or have dispositive power over
7,366,307 shares of Common Stock outstanding prior to this Offering, have agreed
that they will not sell, offer, make any short sale or otherwise dispose of or
enter into any contract, arrangement or commitment to sell or otherwise dispose
of any shares of Common Stock or securities
60
<PAGE>
exerciseable into or convertible into shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of UBS Securities LLC.
Approximately 90 days after the completion of this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the future issuance of shares of Common Stock reserved for issuance
under the Company's stock option plan. As of September 15, 1997, 268,506 shares
of Common Stock were reserved for issuance pursuant to outstanding options and
230,394 shares of Common Stock were reserved for future issuance under the
Company's stock option plan. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered thereunder will,
subject to Rule 144 limitations applicable to affiliates, be available for sale
in the public market, except to the extent that such shares are subject to
vesting restrictions with the Company or certain contractual restrictions on
sale or transfer (including options covering 267,329 shares which are subject to
Lock-up Agreements). After this Offering, the holders of approximately 6,261,615
shares of Common Stock and the holders of warrants to purchase an aggregate of
56,684 shares of Common Stock will be entitled to certain demand and piggyback
rights with respect to the registration of such shares under the Securities Act.
If such holders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price of the Company's Common Stock.
If the Company, either on its own behalf or on behalf of certain stockholders,
were to initiate a registration and include shares held by such holders pursuant
to the exercise of their piggyback registration rights, such sales could have a
material adverse effect on the Company's ability to raise needed capital. See
"Certain Transactions," "Shares Eligible for Future Sale," "Description of
Capital Stock -- Registration Rights" and "Underwriting."
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Montgomery Securities are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
- ----------- ---------
<S> <C>
UBS Securities LLC.................................................
NationsBanc Montgomery Securities, Inc.............................
---------
Total....................................................... 2,500,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligations to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed ten percent of the
shares offered hereby, the remaining Underwriters, or some of them, must assume
such obligations.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of the Common Stock directly to the public at the offering
price set forth on the cover of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per share
to certain other dealers. After the public offering of the shares of Common
Stock, the Offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
Underwriters may reclaim selling concessions from syndicate members in the
Offering if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions, in stabilizing transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
62
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own or have dispositive power over substantially
all of the shares of Common Stock outstanding prior to this Offering, including
Common Stock to be issued upon the completion of this Offering pursuant to the
Preferred Stock Conversion, have agreed that they will not, without the prior
written consent of UBS Securities LLC, offer, sell or otherwise dispose of any
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock owned by them for a period of 180 days after the date of this
Prospectus. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus, except
that the Company may grant options under the Stock Option Plan and may issue
shares pursuant to other currently outstanding options.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of five percent of the number of shares of Common Stock
offered hereby.
In June 1997, an entity affiliated with UBS Securities LLC purchased in
connection with the Company's Series D Preferred Stock financing an aggregate of
2,000,000 shares of Series D Preferred Stock at a price of $.75 per share. Such
Preferred Stock will convert into 235,295 shares of Common Stock upon the
completion of this Offering.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined by
negotiations between the Company and the Representatives and may not be
indicative of the market price at which the Common Stock of the Company will
trade after this Offering. Among the factors to be considered in such
negotiations, in addition to prevailing market conditions, are certain financial
information of the Company, market valuations of other companies that the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant. The initial public
offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this Offering at or above the initial offering price.
63
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hutchison & Mason PLLC, Raleigh, North Carolina, counsel
to the Company. Certain legal matters will be passed upon for the Company by
Wilmer, Cutler & Pickering, Washington D.C., special counsel to the Company. As
of the date of this Prospectus, two members of Hutchison & Mason PLLC
beneficially own an aggregate of 3,530 shares of the Company's Common Stock and
a partner of Wilmer, Cutler & Pickering beneficially owns 9,804 shares of the
Company's Common Stock. A principal of AspenTree Capital, consultant to the
Company and beneficial owner of 26,865 shares of the Company's Common Stock and
options to purchase Common Stock, exercisable as to 4,020 shares within 60 days
after September 15, 1997, serves as a consultant to Wilmer, Cutler & Pickering
on certain matters other than those relating to the Company. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, New York, New York.
EXPERTS
The financial statements of the Company, as of December 31, 1995 and 1996
and for each of the years in the three-year period ended December 31, 1996, and
the period from inception (January 7, 1993) to December 31, 1996 have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and
"Business -- Patents, Proprietary Technology and Trade Secrets", relating to
U.S. patent matters, have been reviewed and approved by Pennie & Edmonds LLP,
New York, New York, patent counsel to the Company, and are included herein in
reliance upon such review and approval by the firm as experts in U.S. patent
law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-l under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules hereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement and to the exhibits and
schedules filed as a part thereof. Statements made in this Prospectus concerning
the contents of any contracts or documents are not necessarily complete, and, in
each such instance, if such contract or document is filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description, and each such statement is qualified in its entirety by reference
to such exhibit. Any interested party may inspect the Registration Statement,
without charge, at the public reference facilities of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies
of all or any portion of the Registration Statement, including exhibits and
schedules thereto, may be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's public reference
facilities in Chicago, Illinois and New York, New York. The Commission maintains
a World Wide Web site that will contain reports, proxy and information
statements and other information regarding the Company. The address of such site
is http://www.sec.gov.
As a result of the filing of this Registration Statement and the completion
of the Offering contemplated hereby, the Company will become subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith will be required to file reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices.
The Company intends to furnish its stockholders annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year.
64
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................................ F-2
Balance Sheets at December 31, 1995 and 1996 and June 30, 1997 (unaudited).................................. F-3
Statements of Operations for the Years Ended December 31, 1994, 1995,
and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997
(unaudited) and for the period from Inception to December 31, 1996........................................ F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994,
1995, and 1996 and for the Six Months Ended June 30, 1997 (unaudited)..................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995,
and 1996 and for the Six Months Ended June 30, 1996 (unaudited) and 1997
(unaudited) and for the period from Inception to December 31, 1996........................................ F-6
Notes to Financial Statements............................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Trimeris, Inc.:
We have audited the accompanying balance sheets of Trimeris, Inc. (A
Development Stage Company) (the "Company") as of December 31, 1995 and 1996, and
the related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1996 and
for the cumulative period from the date of inception to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, and for the
cumulative period from the date of inception to December 31, 1996, in conformity
with generally accepted accounting principles.
March 17, 1997 except for
Note 11(a) as to which the
date is June 30, 1997
Raleigh, North Carolina KPMG PEAT MARWICK
LLP
F-2
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, AS OF JUNE STOCKHOLDERS'
----------------------------- 30, EQUITY AS OF
1995 1996 1997 JUNE 30, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 1,343,346 $ 131,540 $ 8,912,343
Accounts receivable.......................................... 793 32,752 44,758
Loans to employees........................................... -- 2,985 --
Prepaid expenses............................................. 9,564 45,470 311,753
------------- ------------ -------------
Total current assets..................................... 1,353,703 212,747 9,268,854
------------- ------------ -------------
Property, furniture and equipment, net of accumulated
depreciation of $921,135, $1,611,544 and $1,911,663 at
December 31, 1995, 1996 and June 30, 1997 (unaudited),
respectively................................................. 1,230,394 896,672 698,372
------------- ------------ -------------
Other assets:
Equipment held for resale, less allowance of $60,972, $54,029
and $54,029 at December 31, 1995, 1996 and June 30, 1997
(unaudited), respectively.................................. 60,972 54,029 54,029
Exclusive license agreement, net of accumulated amortizaton
of $6,632, $9,044 and $10,250 at December 31, 1995, 1996
and June 30, 1997 (unaudited), respectively................ 34,368 31,956 30,750
Patent costs................................................. 298,154 412,619 444,949
Equipment deposits........................................... 58,830 58,830 58,830
Other assets, net of accumulated amortization of $10,233,
$14,531 and $16,518 at December 31, 1995, 1996 and June 30, X
1997
(unaudited), respectively.................................. 21,427 16,876 28,967
------------- ------------ -------------
Total other assets....................................... 473,751 574,310 617,525
------------- ------------ -------------
Total assets............................................. $ 3,057,848 $ 1,683,729 $ 10,584,751
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................. $ 118,016 $ 254,845 $ 337,173
Current installments of obligations under capital leases..... 527,406 500,248 332,332
Accrued expenses............................................. 385,797 762,548 580,012
------------- ------------ -------------
Total current liabilities................................ 1,031,219 1,517,641 1,249,517
Notes payable.................................................. 166,718 259,000 260,000
Obligations under capital leases, excluding current
installments................................................. 536,184 316,537 228,111
------------- ------------ -------------
Total liabilities........................................ 1,734,121 2,093,178 1,737,628
------------- ------------ -------------
Stockholders' equity (deficit):
Series A Preferred Stock at $.001 par value per share.
3,000,000 shares authorized, issued and outstanding........ 3,000 3,000 3,000 $ --
Series B Preferred Stock at $.001 par value per share.
29,000,000 shares authorized; issued and outstanding
20,635,564 and 27,135,564 shares at December 31, 1995, 1996 X
and June 30, 1997 (unaudited), respectively................ 20,636 27,136 27,136 --
Series C Preferred Stock at $.001 per share. 20,000,000
shares authorized; issued and outstanding 3,333,335 and
13,317,740 shares at December 31, 1996 and June 30, 1997
(unaudited), respectively.................................. -- 3,333 13,317 --
Series D Preferred Stock at $.001 par value per share
10,666,667 shares authorized; issued and outstanding
9,047,962 at
June 30, 1997 (unaudited).................................. -- -- 9,048 --
Common Stock at $.001 par value per share. Authorized
80,000,000 shares; issued and outstanding 352,412, 436,688
and 1,092,472 shares at December 31, 1995, 1996 and June
30, 1997 (unaudited), respectively......................... 353 437 1,092 7,354
Additional paid-in capital................................... 12,293,582 17,535,897 32,434,995 32,481,234
Deficit accumulated during the development stage............. (10,993,844) (17,965,252) (21,442,925) (21,442,925 )
Deferred compensation........................................ -- -- (1,935,000) (1,935,000 )
Notes receivable from stockholders........................... -- (14,000) (263,540) (263,540 )
------------- ------------ ------------- -------------
Total stockholders' equity (deficit)..................... 1,323,727 (409,449) 8,847,123 $ 8,847,123
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Commitments and contingencies (notes 2, 10, and 11)
Total liabilities and stockholders' equity (deficit)..... $ 3,057,848 $ 1,683,729 $ 10,584,751
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION FOR THE
(JANUARY 7, SIX MONTHS ENDED CUMULATIVE
FOR THE YEARS ENDED DECEMBER 31, 1993) JUNE 30, FROM INCEPTION
--------------------------------------- TO DECEMBER 31, ------------------------- (JANUARY 7, 1993)
1994 1995 1996 1996 1996 1997 TO JUNE 30, 1997
----------- ----------- ----------- --------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue............... $ -- $ 104,453 $ 54,465 $ 158,918 $ -- $ 211,875 $ 370,793
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Operating expenses:
Research and
development....... 2,746,867 4,011,875 5,146,072 12,596,163 2,278,084 2,858,785 15,454,948
General and
administrative.... 947,518 1,520,974 1,759,965 4,859,704 801,547 786,445 5,646,149
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Total operating
expenses..... 3,694,385 5,532,849 6,906,037 17,455,867 3,079,631 3,645,230 21,101,097
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Operating loss...... (3,694,385) (5,428,396) (6,851,572) (17,296,949) (3,079,631) (3,433,355) (20,730,304)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Other income
(expense):
Interest income..... 8,611 49,176 46,992 121,449 31,672 33,319 154,768
Interest expense.... (258,191) (360,158) (166,828) (789,752) (85,623) (77,637) (867,389)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
(249,580) (310,982) (119,836) (668,303) (53,951) (44,318) (712,621)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Net loss............ $(3,943,965) $(5,739,378) $(6,971,408) $ (17,965,252) $(3,133,582) $(3,477,673) $ (21,442,925)
----------- ----------- ----------- --------------- ----------- ----------- -----------------
----------- ----------- ----------- --------------- ----------- ----------- -----------------
Pro forma net loss
per share............ $ (1.48) $ (0.59)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro forma weighted
average shares used
in per share
computations......... 4,705,000 5,880,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND 1996, AND THE SIX MONTHS ENDED
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED NOTES
------------------- ------------------ ADDITIONAL DURING THE RECEIVABLE
NUMBER PAR NUMBER PAR PAID-IN DEVELOPMENT DEFERRED FROM
OF SHARES VALUE OF SHARES VALUE CAPITAL STAGE COMPENSATION STOCKHOLDERS
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 7,
1993..................... -- $ -- -- $ -- $ -- $ -- -- -- $ --
Issuances of Common
Stock.................... -- -- 217,647 218 1,632 -- -- --
Issuances of Series A
Preferred Stock.......... 3,000,000 3,000 -- -- 1,997,000 -- -- --
Stock issuance costs...... -- -- -- -- (33,813) -- -- --
Common Stock issued in
exchange for exclusive
license.................. -- -- 96,471 96 40,904 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 5,882 6 2,494 -- -- --
Loss for the period....... -- -- -- -- -- (1,310,501) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1993..................... 3,000,000 3,000 320,000 320 2,008,217 (1,310,501) -- --
Issuances of Common
Stock.................... -- -- 11,911 12 5,051 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 4,706 5 1,995 -- -- --
Loss for the period....... -- -- -- -- -- (3,943,965) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1994..................... 3,000,000 3,000 336,617 337 2,015,263 (5,254,466) -- --
Issuances of Common
Stock.................... -- -- 15,795 16 7,894 -- -- --
Issuance of Series B
Preferred Stock.......... 20,635,564 20,636 -- -- 10,297,146 -- -- --
Stock issuance costs...... -- -- -- -- (26,721) -- -- --
Loss for the period....... -- -- -- -- -- (5,739,378) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1995..................... 23,635,564 23,636 352,412 353 12,293,582 (10,993,844) -- --
Issuances of Common
Stock.................... -- -- 83,688 84 28,370 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 588 -- 200 -- -- --
Issuances of Series B
Preferred Stock.......... 6,500,000 6,500 -- -- 3,243,500 -- -- --
Issuances of Series C
Preferred Stock.......... 3,333,335 3,333 -- -- 1,996,668 -- -- --
Stock issuance costs...... -- -- -- -- (26,423) -- -- --
Loss for the period....... -- -- -- -- -- (6,971,408) -- --
Notes receivable from
stockholders for the
purchase of shares....... -- -- -- -- -- -- -- (14,000)
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of December 31,
1996..................... 33,468,899 33,469 436,688 437 17,535,897 (17,965,252) -- (14,000)
Issuances of Series C
Preferred Stock.......... 9,984,405 9,984 -- -- 5,980,658 -- -- --
Issuances of Series D
Preferred Stock.......... 9,047,962 9,048 -- -- 6,776,923 -- -- --
Issuances of Common
Stock.................... -- -- 656,494 656 251,198 -- -- (249,540)
Repurchase of Common
Stock.................... -- -- (710) (1) (301) -- -- --
Stock issuance costs...... -- -- -- -- (109,380) -- -- --
Issuance of Common Stock
and options at below
market value............. -- -- -- -- 2,000,000 -- (2,000,000) --
Amortization of deferred
compensation............. -- -- -- -- -- -- 65,000 --
Loss for the period....... -- -- -- -- -- (3,477,673) -- --
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
Balance as of June 30,
1997 (unaudited)......... 52,501,266 $52,501 1,092,472 $1,092 $32,434,995 $ (21,442,925) $ (1,935,000) $ (263,540)
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
---------- ------- ---------- ------ ----------- ------------- ------------- ------------
<CAPTION>
NET
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at January 7,
1993..................... $ --
Issuances of Common
Stock.................... 1,850
Issuances of Series A
Preferred Stock.......... 2,000,000
Stock issuance costs...... (33,813)
Common Stock issued in
exchange for exclusive
license.................. 41,000
Common Stock issued in
exchange for consulting
services................. 2,500
Loss for the period....... (1,310,501)
-------------
Balance as of December 31,
1993..................... 701,036
Issuances of Common
Stock.................... 5,063
Common Stock issued in
exchange for consulting
services................. 2,000
Loss for the period....... (3,943,965)
-------------
Balance as of December 31,
1994..................... (3,235,866)
Issuances of Common
Stock.................... 7,910
Issuance of Series B
Preferred Stock.......... 10,317,782
Stock issuance costs...... (26,721)
Loss for the period....... (5,739,378)
-------------
Balance as of December 31,
1995..................... 1,323,727
Issuances of Common
Stock.................... 28,454
Common Stock issued in
exchange for consulting
services................. 200
Issuances of Series B
Preferred Stock.......... 3,250,000
Issuances of Series C
Preferred Stock.......... 2,000,001
Stock issuance costs...... (26,423)
Loss for the period....... (6,971,408)
Notes receivable from
stockholders for the
purchase of shares....... (14,000)
-------------
Balance as of December 31,
1996..................... (409,449)
Issuances of Series C
Preferred Stock.......... 5,990,642
Issuances of Series D
Preferred Stock.......... 6,785,971
Issuances of Common
Stock.................... 2,314
Repurchase of Common
Stock.................... (302)
Stock issuance costs...... (109,380)
Issuance of Common Stock
and options at below
market value............. --
Amortization of deferred
compensation............. 65,000
Loss for the period....... (3,477,673)
-------------
Balance as of June 30,
1997 (unaudited)......... $ 8,847,123
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION FOR THE SIX MONTHS ENDED
(JANUARY 7,
FOR THE YEARS ENDED DECEMBER 31, 1993) JUNE 30,
--------------------------------------- TO DECEMBER 31, -------------------------
1994 1995 1996 1996 1996 1997
----------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net Loss............................... $(3,943,965) $(5,739,378) $(6,971,408) $ (17,965,252) $(3,133,582) $(3,477,673)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization of
property, furniture and
equipment.......................... 356,009 543,796 690,419 1,631,486 324,270 300,109
Other amortization................... 7,055 6,707 8,699 25,565 1,206 66,206
Provision for equipment held for
resale............................. 16,821 -- -- 60,972 -- --
Stock issued for consulting
services........................... 2,000 -- 200 4,700 -- --
Stock issued to repay interest on
notes to stockholders.............. -- 194,521 -- 194,521 -- --
Debt issued for research and
development........................ -- -- 193,350 193,350 -- --
Loss on disposal of property and
equipment.......................... 16,686 -- -- 16,686 -- --
Decrease (increase) in assets:
Accounts receivable and loans to
employees.......................... (8,223) 7,430 (34,944) (35,737) (7,449) (9,021)
Prepaid expenses..................... 2,680 (3,574) (35,906) (45,470) (112) (266,283)
Other assets......................... (719) (16,260) 253 (68,651) 2,401 (12,091)
Increase (decrease) in liabilities:
Accounts payable..................... (351,554) (20,409) 136,829 254,845 45,605 82,328
Accrued expenses..................... 137,275 270,778 183,401 673,292 (111,906) (182,536)
----------- ----------- ----------- --------------- ----------- -----------
Net cash used by operating
activities......................... (3,765,935) (4,756,389) (5,829,107) (15,059,693) (2,879,567) (3,498,961)
----------- ----------- ----------- --------------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment..... (57,608) (97,467) (26,529) (430,469) (234,032) (101,809)
Equipment held for resale.............. 21,475 -- 6,943 (115,001) 6,943 --
Organizational costs................... -- -- -- (8,217) -- --
Patent costs........................... (20,474) (213,454) (116,454) (414,608) (76,418) (32,330)
----------- ----------- ----------- --------------- ----------- -----------
Net cash used in investing
activities......................... (56,607) (310,921) (136,040) (968,295) (303,507) (134,139)
----------- ----------- ----------- --------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable.............................. 3,600,000 2,716,718 92,282 6,409,000 71,782 1,000
Lease costs............................ -- -- -- (13,371) -- --
Proceeds from financing................ 265,650 -- -- -- -- --
Principal payments under capital lease
obligations.......................... (281,067) (432,958) (576,973) (1,297,589) (62,659) (256,342)
Proceeds from issuance of Common
Stock................................ 5,063 7,910 14,454 29,277 -- 2,314
Proceeds from issuance of Preferred
Stock................................ -- 3,869,167 5,250,001 11,119,168 3,244,664 12,776,613
Repurchase of Common Stock............. -- -- -- -- -- (302)
Stock issuance costs................... -- (26,721) (26,423) (86,957) -- (109,380)
----------- ----------- ----------- --------------- ----------- -----------
Net cash provided by financing
activities......................... 3,589,646 6,134,116 4,753,341 16,159,528 3,253,787 12,413,903
----------- ----------- ----------- --------------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... (232,896) 1,066,806 (1,211,806) 131,540 70,713 8,780,803
Cash and cash equivalents at beginning of
period................................. 509,436 276,540 1,343,346 -- 1,343,346 131,540
----------- ----------- ----------- --------------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 276,540 $ 1,343,346 $ 131,540 $ 131,540 $ 1,414,059 $ 8,912,343
----------- ----------- ----------- --------------- ----------- -----------
----------- ----------- ----------- --------------- ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................. $ 154,097 $ 178,913 $ 154,228 $ 691,728 $ 85,623 $ 56,233
----------- ----------- ----------- --------------- ----------- -----------
----------- ----------- ----------- --------------- ----------- -----------
</TABLE>
Supplemental disclosures of noncash investing and financing activities are
described in Note 8.
See accompanying notes to financial statements.
F-6
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trimeris, Inc. was incorporated on January 7, 1993 to discover and develop
novel therapeutic agents that block viral infection by inhibiting viral fusion
with host cells. The financial statements have been prepared in accordance with
Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises," to recognize the fact that the Company is
devoting substantially all of its efforts to establishing a new business and
planned principal operations have not commenced.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment are recorded at cost. Property, furniture
and equipment under capital leases are initially recorded at the present value
of minimum lease payments at the inception of the lease.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Property, furniture and equipment held
under capital leases and leasehold improvements are amortized using the straight
line method over the lesser of the lease term or estimated useful life of the
asset.
ORGANIZATION COSTS
Organization costs are amortized using the straight-line method over five
years.
EXCLUSIVE LICENSE
The exclusive license is amortized using the straight-line method over
seventeen years.
PATENTS
The costs of patents are capitalized and will be amortized using the
straight-line method over the remaining lives of the patents from the date the
patents are granted.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
DEFERRED FINANCING COSTS
Financing costs were incurred as part of the Company's capital lease
agreements and are amortized straight-line over the lease term.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Upon the completion of the Company's initial public offering (the
"Offering") of Common Stock (the "Common Stock"), all of the outstanding shares
of Series A, B, C, and D Preferred Stock (the "Preferred Stock") will convert
into 6,261,615 shares of Common Stock. The unaudited pro forma presentation of
stockholders' equity has been prepared giving effect to the conversion of all
the Preferred Stock into Common Stock on June 30, 1997, assuming that the
initial public offering price per share in connection with this Offering is
$13.00.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The pro forma net loss per share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period prior
to the initial filing of the registration statement relating to the Offering,
even when anti-dilutive, have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and an assumed
initial public offering price of $13.00 per share. The pro forma net loss per
common share gives effect to the mandatory conversion of all outstanding shares
of Preferred Stock into 6,261,615 shares of Common Stock upon the completion of
this Offering.
HISTORICAL NET LOSS PER COMMON SHARE
Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that Series A, B, C and D
Preferred Stock are not assumed to be converted. Net loss per common share on a
historical basis is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net loss to common stockholders.......... $(3,943,965) $(5,739,378) $(6,971,408) $(3,133,582) $(3,477,673)
Net loss per common share................ $ (3.57) $ (5.06) $ (6.04) $ (2.77) $ (2.96)
Weighted average number of common and
common equivalent shares outstanding... 1,105,000 1,134,000 1,154,000 1,133,000 1,173,000
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
STOCK SPLIT
Effective July 11, 1997, the Company declared a one for eight and one-half
reverse stock split for common shareholders. This stock split has been
retroactively applied and all periods presented have been restated. The
conversion prices for the Preferred Stock discussed in Note 4 will be adjusted
for this reverse stock split.
F-8
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. LEASES
The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next four years. The gross
amount of furniture and equipment and related accumulated amortization recorded
under capital leases and included in property, furniture and equipment were as
follows at December 31, 1995, 1996 and June 30, 1997 (unaudited):
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Furniture and equipment......................... $1,790,110 $ 1,930,423 $ 1,980,665
Less accumulated amortization................... (780,082) (1,084,160) (1,347,996)
---------- ----------- -----------
$1,010,028 $ 846,263 $ 632,669
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The Company also has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through September 1999. Rental
expense, including maintenance charges, for operating leases during 1994, 1995,
1996 and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited) was
$454,307, $532,146, $552,001, $254,717 and $300,018 respectively.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
Year ending December 31:
1997........................................................... $552,675 $ 514,774
1998........................................................... 274,991 520,721
1999........................................................... 114,871 419,255
2000........................................................... 7,117 --
-------- ----------
Total minimum lease payments................................... 949,654 $1,454,750
----------
----------
Less amount representing interest.............................. 132,869
--------
Present value of net minimum capital lease payments............ 816,785
Less current installments of obligations under capital leases.... 500,248
--------
Obligations under capital leases, excluding current
installments................................................ $316,537
--------
--------
</TABLE>
Additionally, under a warrant agreement dated August 24, 1993 with a
lessor, the Company issued warrants to acquire Series B Preferred Stock at the
initial Series B Preferred Stock per share offering price, such that the
aggregate purchase price for the shares equals $118,756. The warrants shall be
exercisable prior to the earlier of the tenth annual anniversary date of the
grant date or fifth anniversary date of Trimeris' Initial Public Offering. The
shares have not been issued as of December 31, 1996.
During the year ended December 31, 1995, the lease with the aforementioned
lessor was amended to increase the credit limit by $750,000 to $2.0 million. As
part of this amendment, Trimeris granted the lessor additional warrants to
purchase shares valued at $71,250 of Series B Preferred Stock at the initial per
share offering price.
3. NOTES PAYABLE
In March 1995, the Company entered into a Financial Assistance Agreement
with the North Carolina Biotechnology Center (the "Center"). Under this
agreement, the Center agreed to extend to the Company a line of credit up
F-9
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. NOTES PAYABLE -- Continued
to $250,000 for the funding of certain research performed by the Company. This
note payable is unsecured and bears interest at 8.5% on the balance of all
outstanding principal. The note matures in March 2000, at which time principal
and accrued interest is to be repaid. At December 31, 1995, 1996 and June 30,
1997 (unaudited), the total principal and interest due were $162,218, $262,600
and $284,000, respectively.
In November 1995, the Company entered into a Collaborative Funding
Assistance Agreement with the Center. Under this agreement, the Center agreed to
lend the Company up to $10,000 for the funding of certain research performed by
the Company. This note payable is unsecured and bears interest at 8.75% on the
balance of all outstanding principal. The note matures in December 2000, at
which time principal and accrued interest is to be repaid. At December 31, 1995,
1996 and June 30, 1997 (unaudited), the total principal due was $4,500, $9,000
and $10,000, respectively.
4. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has the authority to issue 121,750,000 shares of stock
consisting of 69,750,000 shares of Common Stock, par value $0.001 per share, and
52,000,000 shares of Preferred Stock, par value $0.001 per share, of which
3,000,000 shares shall be designated Series A Preferred Stock, 29,000,000 shares
shall be designated Series B Preferred Stock, and 20,000,000 shares shall be
designated Series C Preferred Stock.
During 1996 and the six months ended June 30, 1997 (unaudited), loans with
an interest rate of 8% totaling $14,000 and $249,540, respectively, were issued
to employees of the Company for purchase of shares of the Company's Common
Stock. This amount has been presented as contra-equity in the statement of
stockholders' equity (deficit).
PREFERRED STOCK
DIVIDENDS
Holders of the Preferred Stock are not entitled to receive dividends,
provided however, that in the event the Company shall at any time declare or pay
a dividend on the Common Stock, other than a stock dividend, each holder of
Preferred Stock shall receive a dividend equal to the dividend that would have
been payable to such holder if the Preferred Stock had been converted into
Common Stock on the date of record for holders of the Common Stock.
In the event of a merger or consolidation, holders of Preferred Stock will
have the right to redeem the shares within 15 days of receipt of such notice.
Any redeemed shares will be considered permanently retired.
LIQUIDATION
Upon any liquidation, dissolution, or winding up of the Company, holders of
the Preferred Stock shall be entitled, before any distribution is made upon the
Common Stock, to be paid for each share in cash an amount equal to (i) $0.67 per
share in the case of the Series A Preferred Stock, (ii) $0.50 per share in the
case of the Series B Preferred Stock or (iii) $0.60 per share in the case of
Series C Preferred Stock in addition to other considerations. If the assets to
be distributed are insufficient to permit full payment to the preferred
stockholders, then the assets of the Company shall be distributed on a pro rata
basis to each class of preferred stockholders. The value of any noncash
distribution shall be determined by an independent appraiser or securities
exchange if the item is an actively traded security.
F-10
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
CONVERSION
Holders of Preferred Stock have the right, at any time, to convert into
such number of shares of common stock as is obtained by multiplying the number
of shares to be converted by the preferred stock's "Basic Liquidation
Preference" ($0.67 for Series A Preferred Stock, $0.50 for Series B Preferred
Stock $0.60 for Series C Preferred Stock and $0.75 for Series D Preferred Stock)
and dividing such amount by the Preferred Stock's conversion price in effect at
the time of conversion.
The respective preferred stock conversion prices are as follows as of
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Series A.............................. $0.670 $0.534 $0.524
Series B.............................. -- 0.500 0.500
Series C.............................. -- -- 0.600
</TABLE>
The Preferred Stock conversion price will be reduced in the event of the
Company's issuing any shares of its Common Stock without consideration or for a
consideration per share of less than the conversion price of any series of
Preferred Stock in effect immediately prior to the time of such issue or sale,
subject to certain limitations.
The Company shall at times reserve and keep available out of its authorized
Common Stock or treasury shares, such number of common shares sufficient to
cover the conversion of all outstanding Preferred Stock.
The Company may at its option, require the conversion of all (but not less
than all) the shares at the time outstanding if the Company shall complete a
firm commitment underwritten public offering involving the sale of the Company's
Common Stock (i) at a price to the public of at least $10 per share
appropriately adjusted for stock splits and dividends and stock combinations,
and (ii) yielding gross proceeds to the Company of at least $20 million.
VOTING
Each holder of Preferred Stock shall be entitled to one vote for each share
of Common Stock which would be issuable to holder upon conversion. Each holder
of Common Stock is entitled to one vote per share. Preferred and common
stockholders shall vote together as a class.
RESTRICTIONS
The Company cannot, without the consent of the preferred stockholders: (i)
authorize any new classes of stock unless that class ranks junior to the
Preferred Stock, (ii) increase the authorized amount of Preferred Stock, or
(iii) authorize any obligation or security which is convertible into Preferred
Stock.
COMMON STOCK
DIVIDENDS
The holders of Common Stock shall be entitled to receive dividends as from
time to time may be declared by the Board of Directors taking into account the
rights of the preferred stockholders.
LIQUIDATION
After payment to the preferred stockholders as discussed above, holders of
Common Stock shall be entitled, together with the holders of Preferred Stock, to
share ratably, according to the number of shares held by them in all remaining
assets of the Company available for distribution.
F-11
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. STOCK OPTION PLAN
In 1993, the Company adopted a stock option plan which allows for the
issuance of non-qualified and incentive stock options. During 1996, the
Trimeris, Inc. New Stock Option Plan (the "Stock Option Plan") was implemented
that replaced the 1993 plan. Under this new Stock Option Plan, the Company may
grant non-qualified or incentive stock options for up to 852,941 shares of
Common Stock. The exercise price of each option shall not be less than the fair
market value of the Company's Common Stock on the date of grant and an option's
maximum term is ten years. All outstanding incentive stock options have been
issued at $.34. The vesting period occurs ratably over four years. All incentive
stock options which had been granted under the 1993 plan were cancelled at
inception of the new Stock Option Plan while the non-qualified stock options
remain outstanding at an exercise price of $.43. No more grants will be made
under the 1993 plan.
Stock option transactions for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Options outstanding at January 1.............................. 27,276 141,411 166,191 482,804
Granted....................................................... 114,341 37,753 572,206 100,782
Exercised (at $.43/share)..................................... (147) (4,755) (28,394) (319,540)
Cancelled..................................................... (59) (8,218) (227,199) (3,685)
--------- --------- ---------- ----------
Options outstanding at end of period.......................... 141,411 166,191 482,804 260,361
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, compensation cost related to stock
options issued to employees would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. For
the period ended June 30, the Company has recorded a deferred charge of $2.0
million, representing the difference between the exercise price and the deemed
fair value of the Company's Common Stock for 347,529 shares of Common Stock and
79,959 shares subject to Common Stock Options granted in the second quarter of
1997. The deferred compensation will be amortized to expense over the period the
shares and options vest, generally four years.
SFAS 123, Accounting for Stock-Based Compensation, permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25. The pro forma disclosures have not been included as the fair
value of the options granted in 1996 and 1995 are immaterial. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<S> <C>
Estimated dividend yield......................................... 0.00%
Expected stock price volatility.................................. 0.00%
Risk-free interest rate.......................................... 5.07-6.00%
Expected life of options......................................... 5-7 years
</TABLE>
6. INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $17.4 million which
expire in varying amounts between 2009 and 2012. The Company
F-12
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES -- Continued
has NOL's for state tax purposes of approximately $17.4 million which expire in
varying amounts between 1999 and 2002. Additionally, the Company has research
and development credits of $261,000 which expire in varying amounts between 2008
and 2011.
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events including
significant changes in ownership interests. If the Company's NOL's are limited,
and the Company has taxable income which exceeds the permissible yearly NOL, the
Company would incur a federal income tax liability even though NOL's would be
available in future years.
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1995 and 1996 and June 30, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Tax loss carryforwards............................................... $ 4,100,000 $ 6,823,000 $ 8,165,000
Tax credits.......................................................... 158,000 261,000 297,000
Reserves and accruals................................................ 76,000 211,000 56,000
Start-up costs....................................................... 114,000 109,000 57,000
----------- ----------- -----------
4,448,000 7,404,000 8,575,000
Valuation allowance.................................................... (4,448,000) (7,404,000) (8,575,000)
----------- ----------- -----------
Net deferred asset................................................... -- -- --
Deferred tax liabilities:
Deferred tax liability............................................... -- -- --
----------- ----------- -----------
Net deferred tax assets and (liability)........................... $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
7. PROFIT SHARING PLAN
The Company has adopted a 401(k) Profit Sharing Plan (the "Plan") covering
all qualified employees. The effective date of the Plan is January 1, 1994.
Participants may elect a salary reduction from 1% to 10% as a contribution
to the Plan. Modifications of the salary reductions may be made annually. The
Plan permits the Company to match up to 8% of a participant's salary, but to
date, the Company has elected not to match participants' contributions.
The normal retirement age shall be the later of a participant's 65th
birthday or the fifth anniversary of the first day of the Plan year in which
participation commenced. The Plan does not have an early retirement provision.
8. SUPPLEMENTARY CASH FLOW INFORMATION
Capital lease obligations of $345,104, $330,168 and $195,179 were incurred
in 1995 and 1996 and for the six months ended June 30, 1997 (unaudited),
respectively, for leases of new furniture and equipment.
During 1995, the Company exchanged notes payable to stockholders, including
accrued interest of $6.4 million for Series B Preferred Stock.
F-13
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. SUPPLEMENTARY CASH FLOW INFORMATION -- Continued
Shares issued under the license and consulting agreements have been valued
by the Board of Directors taking into consideration the fair value of the most
recently issued preferred stock or the value of the services, whichever is more
readily determinable.
9. EQUITY FINANCING
An initial investment of $2 million was provided by Domain Partners II,
L.P. ("Domain") and Biotechnology Investments Limited ("BIL") to fund the start
up phase of the Company.
During the year ended December 31, 1995, Domain, BIL and others invested an
additional $3.9 million to fund continued operations of the Company through the
purchase of shares of Series B Preferred Stock. In addition, the Company
exchanged notes payable, including accrued interest, of $6.4 million for shares
of Series B Preferred Stock. These notes were payable to Domain and BIL and were
entered into during the years ended December 31, 1994 and 1995. A total of
20,635,564 shares were issued for a total consideration of $10.3 million.
In March and October 1996, Domain, BIL, and others invested an additional
$5.3 million to fund continued operations of the Company through the purchase of
6,500,000 shares of Series B Preferred Stock and 3,333,335 shares of Series C
Preferred Stock, respectively.
Common stock was issued during 1994, 1995, and 1996 through purchase by
Company personnel and also through the exercise of stock options.
10. CONTINGENCIES
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial position or results of operations of the Company.
11. SUBSEQUENT EVENTS
(a) During the six months ended June 30, 1997 equity financing of
approximately $12.8 million has been received from current and new
investors.
(b) The Company's Certificate of Incorporation was amended on July 11,
1997, giving the Company the authority to issue 142,666,667 shares of
stock consisting of 80,000,000 shares of Common Stock, par value $.001
per share, and 62,666,667 shares of Preferred Stock, par value $0.001
per share, of which 3,000,000 shares shall be designated Series A
Preferred Stock, 29,000,000 shares shall be designated Series B
Preferred Stock, 20,000,000 shares shall be designated Series C
Preferred Stock, and 10,666,667 shares shall be designated Series D
Preferred Stock.
(c) During 1997, the Company entered into agreements for the production of
drug material which require maximum payments of approximately $2.3
million, subject to acceptance of the material under the terms of the
contracts.
(d) On August 26, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the Trimeris, Inc. 1997 Employee
Stock Purchase Plan, subject to and contingent upon the consummation of
the Offering.
(e) On September 30, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the Trimeris, Inc. Amended and
Restated Stock Incentive Plan, subject to and contingent upon the
consummation of the Offering.
F-14
<PAGE>
- -------------------------------------------------------
- -------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION 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 ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 19
Dividend Policy.................................. 19
Capitalization................................... 20
Dilution......................................... 21
Selected Financial Data.......................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
Business......................................... 26
Management....................................... 45
Certain Transactions............................. 54
Principal Stockholders........................... 56
Description of Capital Stock..................... 58
Shares Eligible for Future Sale.................. 60
Underwriting..................................... 62
Legal Matters.................................... 64
Experts.......................................... 64
Additional Information........................... 64
Index to Financial Statements.................... F-1
</TABLE>
---------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,500,000 Shares
[LOGO]
Trimeris, Inc.
Common Stock
----------------------------
PROSPECTUS
, 1997
----------------------------
UBS Securities
NationsBanc Montgomery
Securities, Inc.
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be paid by Trimeris, Inc.
(the "Registrant" or the "Company") in connection with the issuance and
distribution of the securities being registered hereby other than underwriting
discounts and commissions.
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................................................. $ 12,197
Filing Fee -- National Association of Securities Dealers, Inc........................................... 4,525
Filing and Listing Fee -- Nasdaq National Market........................................................ 42,177
Transfer Agent's Fee and Expenses*...................................................................... 5,000
Legal Fees and Expenses*................................................................................ 325,000
Printing and Engraving Expenses*........................................................................ 175,000
Accounting Fees and Expenses*........................................................................... 150,000
Blue Sky Fees and Expenses (including legal fees)*...................................................... 15,000
Miscellaneous*.......................................................................................... 71,101
--------
Total............................................................................................ $800,000
--------
--------
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
indemnification of officers and directors of the Company under certain
conditions and subject to certain limitations. Section 145 of the DGCL also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him and her in such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section 145
of the DGCL.
The Company's Third Amended and Restated Certificate of Incorporation to be
filed upon the completion of this Offering contains certain provisions permitted
under DGCL relating to the liability of directors. These provisions eliminate a
director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in certain circumstances involving certain wrongful acts,
such as (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, (iv) for any transaction from which the director derives an improper
personal benefit or (v) acts or omissions occurring prior to the date of these
provisions. These provisions do not limit or eliminate the rights of the Company
or any stockholder to seek equitable relief, such as an injunction or
rescission, in the event of a breach of director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Company's Third Amended and Restated Certificate of Incorporation also
contains provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by DGCL.
The Amended and Restated Bylaws of the Company to be effective upon the
completion of this Offering provide that the Company shall indemnify its
directors and executive officers to the fullest extent permitted by the DGCL.
The rights to indemnity thereunder continue as to a person who has ceased to be
a director, officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of the person. In addition, expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company (or was serving at the Company's
request as a director or officer of another corporation) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company as authorized by the relevant section
of the DGCL.
II-1
<PAGE>
The Company has entered into indemnification agreements with each of its
directors and executive officers prior to the completion of the Offering.
Generally, the indemnification agreements will provide the maximum protection
available under the Third Amended and Restated Certificate of Incorporation, the
Amended and Restated Bylaws and the DGCL as it may be amended from time to time.
Under such indemnification agreements, however, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to the Company (except to the extent the court determines he or she is
fairly and reasonably entitled to indemnity for expenses), for settlements not
approved by the Company or for settlements and expenses if the settlement is not
approved by the court. The indemnification agreements provide for the Company to
advance to the individual any and all expenses (including attorneys' fees)
incurred in investigating or defending any such action, suit or proceeding.
Also, the individual must repay such advances upon a final judicial decision
that he or she is not entitled to indemnification.
The Underwriting Agreement (filed as Exhibit 1.1 to this Registration
Statement) contains provisions by which the Underwriters have agreed, severally
and not jointly, to indemnify and hold harmless the Company, each person, if
any, who controls the Company, within the meaning of Section 15 of the
Securities Act, each director of the Company, and each officer of the Company
who signs this Registration Statement, from and against any liability caused by
any information furnished in writing by the Underwriters for use in the
Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except as hereinafter set forth, there have been no securities sold by the
Registrant within the last three years which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). Common Stock amounts
and prices in this Item 15 have been adjusted to reflect the 1-for-8.5 reverse
stock split of the Registrant effected on July 11, 1997.
(a) Issuances of Securities
On July 1, 1997, the Registrant issued 10,589 shares of Common Stock
to a key employee of the Registrant at a purchase price of $.43 per share.
On June 27, 1997, the Registrant issued 9,047,962 shares of Series D
Preferred Stock to certain existing stockholders and new investors at a
purchase price of $.75 per share.
On June 11, 1997, the Registrant issued an aggregate of 117,648 shares
of Common Stock to certain executive officers and key employees of the
Registrant at a purchase price of $.43 per share payable pursuant to the
terms of certain promissory notes.
On June 2, 1997, the Registrant issued an aggregate of 219,295 shares
of Common Stock to certain executive officers and key employees of the
Registrant at a purchase price of $.43 per share payable pursuant to the
terms of certain promissory notes.
In a series of closings held on October 7, 1996, January 16, 1997,
March 27, 1997 and April 29, 1997, the Registrant issued an aggregate of
13,317,739 shares of Series C Preferred Stock to certain existing
stockholders and new investors at a purchase price of $.60 per share.
On October 31, 1996, the Registrant issued an aggregate of 41,177
shares of Common Stock to certain executive officers and key employees of
the Registrant at a purchase price of $.34 per share payable pursuant to
the terms of certain promissory notes.
On June 25, 1996, the Registrant issued an aggregate of 14,118 shares
of Common Stock to a former executive officer of the Registrant at a
purchase price of $.34 per share.
On January 26, 1996, the Registrant issued an aggregate of 589 shares
of Common Stock to consultants of the Registrant at a purchase price of
$.43 per share.
On July 31, 1995, the Registrant issued a warrant to purchase up to an
aggregate of 100,000 shares of Series B Preferred Stock (which warrant has
been amended to provide for the purchase shares of Common Stock upon the
completion of this Offering) at an exercise price of $0.50 per share to
North Carolina Biotechnology Center.
II-2
<PAGE>
In a series of closings held on July 17, 1995, August 16, 1995, and
March 22, 1996, the Registrant issued an aggregate of 27,135,564 shares of
Series B Preferred Stock to existing stockholders and new investors at a
purchase price of $.50 per share.
On March 1, 1995, the Registrant issued an aggregate of 17,648 shares
of Common Stock to certain executive officers and key employees of the
Registrant at a purchase price of $.43 per share.
On February 21, 1995, the Registrant issued 5,883 shares of Common
Stock to an executive officer of the Registrant at a purchase price of $.43
per share.
On September 16, 1994, the Registrant sold 11,765 shares of Common
Stock to a former executive officer at a purchase price of $.43 per share.
In a series of transactions on August 24, 1993, October 26, 1994 and
February 7, 1995, the Registrant issued warrants to purchase an aggregate
of 381,808 shares of Series B Preferred Stock (which warrant has been
amended to provide for the purchase of shares of Common Stock upon the
completion of this Offering) at an exercise price of $.50 per share to its
venture leasing partner in consideration for certain leasing arrangements.
Since June 1994, the Registrant has issued options to certain
employees, directors, consultants and others to purchase an aggregate of
706,782 shares of Common Stock at a weighted average exercise price of $.44
per share. 357,634 of such options have been exercised, 265,562 of such
options remain outstanding at a weighted average exercise price of $.39 per
share and 83,586 of such options have been terminated.
(b) No underwriters were involved in connection with the sales of
securities referred to in paragraph (a) of this Item 15.
(c) The shares of Series B, Series C and Series D Preferred Stock described
in paragraph (a) of this Item 15 were issued in reliance on the exemption
provided by Rule 506 of Regulation D promulgated pursuant to the Securities Act,
as well as Section 4(2) of the Securities Act. The issuances of compensatory
stock awards, stock options and the shares of Common Stock upon the exercise
thereof as described in paragraph (a) of this Item 15 were issued in reliance
upon the exemption provided by Section 3(b) of the Securities Act and Rule 701
promulgated thereunder, as well as Section 4(2) of the Securities Act. The
warrants described in paragraph (a) of this Item 15 were issued upon reliance on
exemption provided by Section 4(2) of the Securities Act. Appropriate legends
are affixed to the stock certificates and warrant certificates issued in the
aforementioned transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 ** Form of Underwriting Agreement.
3.1 Second Restated Certificate of Incorporation of the Registrant.
3.2 Form of Third Amended and Restated Certificate of Incorporation of the Registrant (to be filed
with the Secretary of State of Delaware upon the completion of the Offering).
3.3 Bylaws of the Registrant.
3.4 Form of Amended and Restated Bylaws of the Registrant (to be adopted upon the completion of the
Offering).
4.1 Specimen certificate for shares of Common Stock.
4.2 Description of Capital Stock (contained in the Third Amended and Restated Certificate of
Incorporation of the Corporation of the Registrant, filed as Exhibit 3.2).
5.1 Opinion of Hutchison & Mason PLLC with respect to the legality of the shares being registered.
10.1 License Agreement dated February 3, 1993, between the Registrant and Duke University.
10.2 Sublease Agreement dated November 19, 1993, by and among the Registrant, Sphinx Pharmaceuticals
Corporation and University Place Associates and as amended by the Lease Amendment dated August
15, 1994, and Second Agreement of Sublease dated January 16, 1995.
10.3 Cooperation and Strategic Alliance Agreement dated April 21, 1997, between the Registrant and
MiniMed Inc.
10.4 ** Trimeris, Inc. Amended and Restated Stock Incentive Plan.
10.5 Trimeris, Inc. Employee Stock Purchase Plan.
10.6 Form of Promissory Notes executed by certain executive officers in favor of the Registrant, and
related collateral documents.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.7 Form of Stock Restriction Agreements between the Registrant and certain executive officers.
10.8 Form of Stock Pledge Agreement between the Registrant and certain executive officers.
10.9 Employment Offer Letter with M. Ross Johnson dated December 15, 1994.
10.10 Employment Offer Letter with Matthew A. Megaro dated February 23, 1995.
10.11 Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by and among the
Registrant and certain stockholders of the Registrant.
10.12 Agreement with Max N. Wallace dated July 10, 1997.
10.13 Form of Indemnification Agreements.
+10.14** License Agreement dated September 9, 1997 between the Registrant and The New York Blood Center.
11.1 Computation of Net Income (Loss) Per Share.
23.1 Consent of Hutchison & Mason PLLC (included in Exhibit 5.1).
23.2 ** Consent of KPMG Peat Marwick, LLP, Independent Auditors.
23.3 ** Consent of Pennie & Edmonds.
24.1 Power of Attorney (included in signature page to Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
+ Confidential treatment has been requested from The Securities and Exchange
Commission for certain portions of this document.
(b) Financial Statement Schedules.
All financial statement schedules have been omitted because either they are not
required, are not applicable, or the information is otherwise set forth in the
Financial Statements and Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing or closings specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriters to permit promt delivery to each purchaser.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of 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
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, 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 of 1933, as amended, and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Durham,
County of Durham, State of North Carolina, on this 1st day of October, 1997.
TRIMERIS, INC.
By: /s/______M. ROSS JOHNSON________
M. ROSS JOHNSON,
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHIEF SCIENTIFIC OFFICER
WITNESS our hands on this 1st day of October, 1997.
<TABLE>
<S> <C>
/s/ JESSE I. TREU* /s/ ANDREW MCCREATH*
- ---------------------------------------- ----------------------------------------
Jesse I. Treu, Ph.D. Andrew McCreath
Chairman of the Board of Directors Director
/s/ DANI P. BOLOGNESI* /s/ MATTHEW A. MEGARO
- ---------------------------------------- ----------------------------------------
Dani P. Bolognesi, Ph.D. Matthew A. Megaro
Director Chief Operating Officer, Chief Financial
Officer, Executive Vice President and
Secretary (Principal Accounting and
Financial Officer)
/s/ BRIAN H. DOVEY* /s/ CHARLES A. SANDERS*
- ---------------------------------------- ----------------------------------------
Brian H. Dovey Charles A. Sanders, M.D.
Director Director
/s/ M. ROSS JOHNSON
- ----------------------------------------
M. Ross Johnson, Ph.D.
President, Chief Executive Officer,
Chief Scientific Officer and Director
(Principal Executive Officer)
* Executed on behalf of these persons by
Matthew A. Megaro, duly appointed
Attorney-in-fact of each such person.
/s/ MATTHEW A. MEGARO
- ----------------------------------------
Matthew A. Megaro
Attorney-in-Fact
</TABLE>
2,500,000 Shares
TRIMERIS, INC.
Common Stock
UNDERWRITING AGREEMENT
_________ __, 1997
UBS Securities LLC
NationsBanc Montgomery Securities, Inc.
As Representatives of the Several Underwriters named in Schedule A
hereto c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Trimeris, Inc., a Delaware corporation (the "Company), proposes
to issue and sell 2,500,000 shares (the "Firm Shares") of its authorized but
unissued Common Stock, $.001 par value per share (the "Common Stock"), to the
several underwriters listed on Schedule A to this Agreement (collectively, the
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 375,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 2(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you
(the "Representatives") and the other Underwriters on whose behalf you are
acting in connection with the several purchases by the Underwriters of the
Shares.
1. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
(a) A registration statement on Form S-1 (File No. 333-31109)
including a prospectus relating to the Shares, and each amendment thereto, has
been prepared by the
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Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. There have been delivered to you three copies of
such registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing all Rule 430A
Information (as hereinafter defined) will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement (including all exhibits and financial statements at
the time such registration statement becomes or became effective) and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall include all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and shall also mean any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus included
in the Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations. The term "Offering
Memorandum" as used in this Agreement shall mean the Offering Memorandum
consisting of the Prospectus and a Canadian wrap-around used in connection with
the offering of the Shares in Canada.
(b) The Commission has not issued any stop order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or instituted proceedings for
that purpose, and each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, did not include any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement
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became or becomes, as the case may be, effective (the "Effective Date") and at
all times subsequent thereto up to and at the Closing Date, any later date on
which Option Shares are to be purchased (the "Option Closing Date") and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, (i) the
Registration Statement and Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by, and will comply with the requirements of, the Act and the
Rules and Regulations, and (ii) neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
foregoing representations and warranties in this section 1(b) do not apply to
any statements or omissions made in reliance on and in conformity with the
information contained in the first (including the table), third, fifth and
eighth paragraphs of the section of the Prospectus entitled "Underwriting". The
Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, the
Preliminary Prospectus, the Prospectus, the Offering Memorandum or any other
materials, if any, permitted by the Act and applicable Canadian securities laws.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company (a "Material Adverse
Effect"). The Company has no subsidiaries (as defined in the Rules and
Regulations) and does not own, directly or indirectly, any shares of stock or
any other equity or long-term debt securities of any corporation or have any
equity interest in any firm, partnership, joint venture, association or other
entity. Complete and correct copies of the certificate of incorporation and of
the bylaws of the Company and all amendments thereto have been delivered to the
Representatives, and except as set forth in the exhibits to the Registration
Statement no changes therein will be made subsequent to the date hereof and
prior to the Closing Date or, if later, the Option Closing Date.
(d) The Company has full corporate power and authority to enter into
this Agreement and to perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable against
the Company in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws or equitable principles
and except as enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. The performance
of this Agreement by the Company and the consummation by the Company of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, (i) any
indenture, mortgage, deed
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of trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, or any lease, contract or other agreement or instrument to which
the Company is a party or by which it or its properties are bound, which breach,
violation or default would have a Material Adverse Effect, (ii) the certificate
of incorporation or bylaws of the Company, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court or governmental
agency or body to which the Company is subject. The Company is not required to
obtain or make (as the case may be) any consent, approval, authorization, order,
designation or declaration of or filing by or with any court or regulatory,
administrative or other governmental agency or body as a requirement for the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or under state securities or blue sky ("Blue Sky")
laws or under the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD") or under applicable Canadian securities
law.
(e) The Company is not (i) in violation of its certificate of
incorporation or bylaws, (ii) in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness, which default would have a Material
Adverse Effect, (iii) in default in the performance or observance of any
contract, indenture, mortgage, loan agreement, joint venture or other agreement
or instrument to which it is a party or by which it or any of its properties are
bound, which default would have a Material Adverse Effect, (iv) in violation
of any law, order, rule or regulation of any court or governmental agency or
body to which the Company is subject, including, but not limited to, the United
States Food and Drug Administration (the "FDA"), which violation would have a
Material Adverse Effect, or (v) in violation of any writ, injunction, judgment
or decree of any court or governmental agency or body to which the Company is
subject, including, but not limited to, the FDA.
(f) Except as disclosed in the Prospectus, there is not pending or, to
the Company's knowledge, threatened, any action, suit, claim, proceeding or
investigation against the Company or any of its officers or any of its
properties, assets or rights before any court or governmental agency or body or
otherwise which might result in a Material Adverse Effect or prevent
consummation of the transactions contemplated hereby. There are no statutes,
rules, regulations, agreements, contracts, leases or documents that are required
to be described in the Prospectus, or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have not
been accurately described in all material respects in the Prospectus or filed as
exhibits to the Registration Statement.
(g) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and were
not issued in violation of any preemptive right, resale right, right of first
refusal or similar right. The authorized and outstanding capital stock of the
Company conforms in all material respects to the description thereof contained
in the Registration Statement, the Offering Memorandum and the Prospectus (and
such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
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therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable and will be sold free and clear
of any pledge, lien, security interest, charge, encumbrance, claim, equitable
interest, or restriction. Except as set forth in the Prospectus, no preemptive
right, co-sale right, right of first refusal or other similar rights of
securityholders exists with respect to any of the Shares or the issue and sale
thereof other than those that have been expressly waived prior to the date
hereof. No holder of securities of the Company has the right to cause the
Company to include such holder's securities in the Registration Statement. No
further approval or authorization of any securityholder, the Board of Directors
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of the Shares, except as may be required under the Act, the
Exchange Act, under Blue Sky laws or under applicable Canadian securities laws.
Except as disclosed in or contemplated by the Prospectus, the Offering
Memorandum and the financial statements of the Company, and the related notes
thereto, included in the Prospectus and the Offering Memorandum, the Company
does not have outstanding any options or warrants 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 option and other plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus and the Offering Memorandum accurately and fairly
presents, in all material respects, the information required to be shown with
respect to such plans, arrangements, options and rights.
(h) KPMG Peat Marwick LLP, independent public accountants (the
"Accountants"), who have examined the financial statements, together with the
related schedules and notes, of the Company filed with the Commission as a part
of the Registration Statement, which are included in the Prospectus, are
independent public accountants within the meaning of the Act and the Rules and
Regulations. The financial statements of the Company, together with the related
schedules and notes, forming part of the Registration Statement, the Offering
Memorandum and the Prospectus, fairly present the financial position and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply. All financial statements, together with
the related schedules and notes, filed with the Commission as part of the
Registration Statement have been prepared in accordance with generally accepted
accounting principles as in effect in the United States consistently applied
throughout the periods involved ("GAAP") except as may be otherwise stated in
the Registration Statement. The selected and summary financial data included in
the Registration Statement, the Offering Memorandum and the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No other financial
statements or schedules are required by the Act or the Rules and Regulations to
be included in the Registration Statement. The statistical data included in the
Registration Statement and the Offering Memorandum is accurate in all material
respects and presents fairly the information shown therein.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement, the Offering Memorandum and the Prospectus,
there has not been (i) any
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material adverse change in the business, properties or assets described or
referred to in the Registration Statement, or the results of operations,
condition (financial or otherwise), business, business prospects or operations
of the Company (a "Material Adverse Change"), or any development which is likely
to cause a Material Adverse Change, (ii) any transaction which is material to
the Company, except transactions in the ordinary course of business, (iii) any
obligation, direct or contingent, which is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
other than shares of Common Stock that may be issued upon the exercise of
outstanding stock options and warrants in amounts not to exceed those which are
disclosed in the Prospectus, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company which has been
sustained, or will be sustained, which resulted in, or will result in, a
Material Adverse Change. The Company has no material contingent obligation which
is not disclosed in the Registration Statement. Except as set forth in the
Registration Statement, the Offering Memorandum and Prospectus, the Company owns
or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted in the foreseeable future.
(j) Except as set forth in the Prospectus and the Offering Memorandum,
(i) the Company has good and marketable title to all material properties and
assets described in the Prospectus and the Offering Memorandum as owned by it,
free and clear of any pledge, lien, security interest, charge, encumbrance,
claim, equitable interest, or restriction, (ii) the agreements to which the
Company is a party are valid agreements, enforceable by and against the Company
in accordance with their terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles, and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or default under
any of such agreements and (iii) the Company has valid and enforceable leases
for the properties described in the Prospectus and the Offering Memorandum as
leased by it, and such leases conform in all material respects to the
description thereof, if any, set forth in the Registration Statement.
(k) The Company now holds and at the Closing Date and any later Option
Closing Date, as the case may be, will hold, all licenses, consents,
certificates, orders, approvals and permits from all state, United States,
foreign and other governmental or regulatory authorities, including, but not
limited to, the FDA and any foreign governmental or regulatory authorities
performing functions similar to those performed by the FDA, that are required
for the conduct of the business of the Company as such business is currently
conducted and as proposed to be conducted as described in the Prospectus, except
for such licenses, certificates approvals and permits the failure of which to
maintain would not have a Material Adverse Effect, all of which are valid and in
full force and effect (and there is no proceeding pending or, to the best
knowledge of the Company, threatened which may cause any such license, consent,
certificate, order, approval or permit to be withdrawn, cancelled, suspended or
not renewed). All of the descriptions in the Registration Statement and
Prospectus of the legal and governmental
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proceedings by or before the FDA or any foreign, state or local government body
exercising comparable authority are true, complete and accurate in all material
respects. The Company is in compliance in all material respects with all
applicable FDA, state and local rules, regulations, guidelines and policies,
including, without limitation, applicable FDA, state and local rules,
regulations and policies relating to good laboratory practice, and good
manufacturing practices.
(l) The Company has filed on a timely basis all necessary federal,
state and foreign income, franchise and other tax returns and has paid all taxes
shown thereon as due, and the Company has no knowledge of any tax deficiency
which has been or might be asserted against the Company which might have a
Material Adverse Effect. All tax liabilities are adequately provided for within
the financial statements of the Company.
(m) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts adequate for its
business and consistent with insurance coverage maintained by similar companies
in similar businesses, including, but not limited to, insurance covering
clinical trial liability, and real and personal property owned or leased against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(n) The Company is not involved in any labor dispute or disturbance
nor, to the best knowledge of the Company, is any such dispute or disturbance
threatened. No collective bargaining agreement exists with any of the Company's
employees and, to the best knowledge of the Company, no such agreement is
imminent.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(p) Except as set forth in the Prospectus and the Offering Memorandum
under the captions "Risk Factors--Uncertainties Regarding Patents and
Proprietary Rights" and "Business--Patents, Proprietary Technology and Trade
Secrets," (i) the Company owns or possesses valid and enforceable licenses or
other rights to use all inventions, patents, patent applications, patent rights,
trademarks (registered or unregistered), trademark applications, tradenames,
service marks, service mark applications, copyrights, manufacturing processes,
formulae, trade secrets, know-how, franchises and other intangible property and
assets (collectively, "Intellectual Property") necessary to the conduct of its
business as currently conducted or proposed to be conducted as described in the
Prospectus and the Offering Memorandum; (ii) the Company has no knowledge that
it lacks or will be unable to obtain or retain any rights or licenses to use any
of the Intellectual Property necessary to conduct the
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business now conducted or proposed to be conducted by it as described in the
Prospectus and the Offering Memorandum; (iii) the Company has no knowledge of
any third parties who have or will be able to establish rights to any of the
Intellectual Property, except for the ownership rights of the owners of the
Intellectual Property which is licensed to the Company; (iv) to the Company's
knowledge, there is no infringement by third parties of any of the Intellectual
Property; (v) there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others challenging the Company's rights of
title or other interest in or to any Intellectual Property, and the Company is
unaware of any facts which would form a reasonable basis for any such claim;
(vi) there is no pending or, to the Company's knowledge, threatened action,
suit, proceeding or claim by others challenging the validity or scope of any
Intellectual Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; (vii) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others that
the Company or its products or processes infringe or otherwise violate any
patent, trademark, copyright, trade secret or other proprietary right of others,
and the Company is unaware of any facts which would form a reasonable basis for
any such claim; (viii) to the Company's knowledge, there is no patent or patent
application which contains claims that interfere with the issued or pending
claims of any of the Intellectual Property; (ix) to the Company's knowledge,
there are no facts which would bar the grant of a patent from each of the patent
applications within the Intellectual Property; (x) other than the patents and
patent applications identified on Schedule 1(p) attached hereto, there are no
patents or patent applications owned or licensed by the Company which are
material to its business as now conducted or proposed to be conducted as
described in the Prospectus and the Offering Memorandum; (xi) there is no
pending or, to the Company's knowledge, threatened action, suit, proceeding or
claim by any current or former employee, consultant or agent of the Company
seeking either ownership rights to any invention or compensation from the
Company for any invention made by such employee, consultant or agent in the
course of his/her employment with the Company, nor, to the Company's knowledge,
can any such action, suit, proceeding or claim, if instituted, be sustained; and
(xii) to the knowledge of the Company, none of the patents owned or licensed by
the Company are unenforceable or invalid and there is no act or omission of
which the Company is aware that may render any patent or patent application
within the Intellectual Property unpatentable, unenforceable or invalid. The
Company has clear title to its patents and patent applications described or
referred to in the Prospectus and the Offering Memorandum, free and clear of any
pledges, liens, security interests, charges, encumbrances, claims, equitable
interests or restrictions. The Prospectus and the Offering Memorandum fairly and
accurately describe the Company's rights with respect to the Intellectual
Property. The Company has duly and properly filed or caused to be filed with the
United States Patent and Trademark Office (the "PTO") and applicable foreign and
international patent authorities all patent applications described or referred
to in the Prospectus and the Offering Memorandum, and believes it has complied
with the PTO's duty of candor and disclosure for each of the United States
patent applications described or referred to in the Prospectus or the Offering
Memorandum.
(q) The Company is conducting its business in compliance with all of
the laws, rules and regulations of the jurisdictions in which it is conducting
business, including, but not limited to, (i) the laws, rules and regulations
administered or promulgated by the FDA or any
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foreign, state or local governmental or regulatory authorities, performing
functions similar to those performed by the FDA body exercising comparable
authority and (ii) all laws, rules and regulations applicable to the import and
export of the Company's products, except where any such failure to be in
compliance would not have a Material Adverse Effect.
(r) The Company is not, and, upon the issuance and sale of the Shares
and application of the net proceeds from such issuance and sale as described in
the Prospectus under the caption "Use of Proceeds" will not be, an "investment
company," or a "promoter" or "principal underwriter" for a registered investment
company, as such terms are defined in the Investment Company Act of 1940, as
amended.
(s) The Company has not incurred any liability for a fee, commission,
or other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than the
underwriting discounts and commissions contemplated hereby.
(t) The Company (i) is in compliance with any and all applicable
United States, foreign, state and local environmental laws, rules, regulations,
treaties, statutes and codes promulgated by any and all governmental authorities
relating to the protection of human health and safety, the environment or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business as currently conducted,
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permit licenses or other approvals would not,
individually or in the aggregate, have a Material Adverse Effect. No action,
proceeding, revocation proceeding, writ, injunction or claim is pending or, to
the best knowledge of the Company, threatened relating to the Environmental Laws
or to the Company's activities involving Hazardous Materials. "Hazardous
Materials" means any material or substance (i) that is prohibited or regulated
by any environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment. No Hazardous Materials have been treated or
disposed of on any of the Company's properties or on properties formerly owned
or leased by the Company during the time of such ownership or lease, except in
compliance with Environmental Laws. No spills, discharges, releases, deposits,
emplacements, leaks or disposal of any Hazardous Materials have occurred on or
under or have emanated from any of the Company's properties or former properties
during the time of the Company's ownership or lease thereof and the Company is
not aware of any spills, discharges, releases, deposits, emplacements, leaks or
disposal of any Hazardous Materials that have occurred on or under or have
emanated from any of the Company's properties or former properties prior to the
Company's ownership or lease thereof.
(u) The Company has not engaged in the generation, use, manufacture,
transportation or storage of any Hazardous Materials on any of the Company's
properties or
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former properties, except where such use, manufacture, transportation or storage
has been in compliance with Environmental Laws.
(v) The Company has not at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any foreign, United States 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.
(w) The Company has obtained agreements from each beneficial owner of
the Company's Common Stock listed on Schedule B to this Agreement, in form and
substance identical to the agreement attached as Appendix B. Furthermore, such
person or entity has also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such person or entity, except in compliance with the
foregoing restriction. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and stockholders
have agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of UBS Securities LLC.
(x) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The Shares have been duly authorized for quotation on The Nasdaq
Stock Market, Inc. Automated Quotation National Market System (the "Nasdaq
National Market"). The Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the Nasdaq
National Market is contemplating terminating such registration or listing.
(y) Neither the Company nor, to its best knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its best knowledge, any
of its officers, directors or affiliates will have taken, directly or
indirectly, any action which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of sale or resale of
the Shares.
(z) The Company has timely and properly filed with the Commission all
reports and other documents required to have been filed by it with the
Commission pursuant to the Act and the Rules and Regulations. True and complete
copies of all such reports and other documents have been delivered to you.
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(aa) The Company is in compliance with all provisions of Florida
Statutes SS. 517.075 and the regulations thereunder, relating to issuers doing
business with Cuba.
(bb) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them
that are required to be disclosed in the Registration Statement, the Offering
Memorandum and the Prospectus that are not so disclosed. Except as disclosed in
Prospectus, there are no business relationships or related party transactions
required to be disclosed therein by Item 404 of Regulation S-K of the
Commission.
2. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
the Firm Shares to the several Underwriters, and each of the Underwriters agrees
to purchase from the Company the respective aggregate number of Firm Shares set
forth opposite its name on Schedule A, plus such additional number of Firm
Shares which such Underwriter may become obligated to purchase pursuant to
Section 2(b) hereof. The price at which such Firm Shares shall be sold by the
Company and purchased by the several Underwriters shall be $_____ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 2, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 hereof) to purchase and pay for
the number of Shares agreed to be purchased by such Underwriter or Underwriters,
the non-defaulting Underwriters shall have the right within twenty-four (24)
hours after such default to purchase, or procure one or more other Underwriters
to purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth, all
or any part of the Shares which such defaulting Underwriter or Underwriters
agreed to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such Shares and portion, the number of Shares
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis (as adjusted
by you in such manner as you deem advisable to avoid fractional shares) to
absorb the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder. If the total number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24)
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hours next succeeding the twenty-four (24) hour period referred to above, to
make arrangements with other underwriters or purchasers reasonably satisfactory
to you for purchase of such Shares and portion on the terms herein set forth. In
any such case, either you or the Company shall have the right to postpone the
Closing Date determined as provided in Section 4 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 4 in order that any necessary changes in the Registration
Statement, the Offering Memorandum, the Prospectus or any other documents or
arrangements may be made. If the aggregate number of Shares which the defaulting
Underwriter or Underwriters agreed to purchase exceeds 10% of the total number
of Shares which all Underwriters agreed to purchase hereunder, and if neither
the non-defaulting Underwriters nor the Company shall make arrangements within
the twenty-four (24) hour periods stated above for the purchase of all the
Shares which the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action
taken hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase all or any
portion of the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telecopied
notice by you to the Company setting forth the aggregate number of shares of the
Option Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Shares, and payment therefor,
shall be made as provided in Section 4 hereof. Each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, the exact number of shares to be
adjusted by you in such manner as you deem advisable to avoid fractional shares.
3. Offering by Underwriters.
(a) The terms of the initial public offering of the Shares in the
United States by the Underwriters shall be as set forth in the Prospectus. The
terms of the private placement of the Shares in Canada by the Underwriters shall
be as set forth in the Offering Memorandum. The Underwriters may from time to
time change the public offering and private placement prices after the closing
of the initial public offering and the private placement in Canada,
respectively, and increase or decrease the concessions and discounts to dealers
as they may determine.
(b) You, on behalf of the Underwriters, represent and warrant that (i)
the information set forth in the last paragraph on the front cover page and the
information contained in the first (including the table), third, fifth and
eighth paragraphs of the section of the Prospectus entitled
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"Underwriting" contained in the Registration Statement, the Offering Memorandum,
any Preliminary Prospectus and the Prospectus relating to the Shares (insofar as
such information relates to the Underwriters) constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, the Offering Memorandum, any Preliminary Prospectus, and the
Prospectus, and that the statements made therein are correct and do not omit to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were made
not misleading, and (ii) the Underwriters have not distributed and will not
distribute prior to the Closing Date or on any Option Closing Date, as the case
may be, any of offering material in connection with the offering and sale of the
shares other than the Preliminary Prospectus, the Prospectus, the Registration
Statement, the Offering Memorandum and other materials permitted by the Act and
applicable Canadian securities law.
4. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Option Shares
(if the option granted pursuant to Section 2(c) hereof shall have been exercised
not later than 1:00 p.m., New York time, on the date at least two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Brobeck, Phleger & Harrison LLP, 1633 Broadway, New York, New York 10019 at
10:00 a.m., New York time, on the third or fourth business day after the date of
this Agreement, or, subject to applicable law, at such time on such other day,
not later than seven full business days after such fourth business day, as shall
be agreed upon in writing by the Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 2(c) hereof shall be
exercised after 1:00 p.m., New York time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of this
Agreement, delivery of certificates for the Option Shares, and payment therefor,
shall be made at the office of Brobeck, Phleger & Harrison LLP, 1633 Broadway,
New York, New York 10019 at 10:00 a.m., New York time, on the third business day
after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order, by wire transfer of federal funds to the account
specified by the Company or by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Shares to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Shares
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least three business days before the
Closing Date, in the case of Firm Shares, and at least two business days prior
to the Option Closing Date, in the case of the Option Shares. Such certificates
will be made available to the Underwriters for inspection, checking and
packaging at a location in New York, New York, designated by the Underwriters
not less than one full business day prior to the Closing Date or, in the case of
the Option Shares, by 3:00 p.m., New York time, on the business day preceding
the Option Closing Date.
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It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
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5. Further Agreements of the Company. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission. If for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed. The
Company will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information. Promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the reasonable opinion of counsel to the several
Underwriters (the "Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters. The Company
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In case any Underwriter is required to
deliver a prospectus within the nine-month period referred to in Section
10(a)(3) of the Act in connection with the sale of the Shares, the Company will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act. The Company will file no amendment or supplement to
the Registration Statement or Prospectus that shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing or which is not in compliance with
the Act and Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the initiation or
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threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any such stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation, or to execute a general consent to service
of process in any jurisdiction, or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified, the Company will make and file such statements, reports and
other documents in each year as are or may be reasonably required by the laws of
such jurisdictions so as to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus, the Offering
Memorandum and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve (12) month period beginning after the
effective date of the Registration Statement, and will advise you in writing
when such statement has been made available.
(f) During a period of five years after the date hereof, the Company,
as soon as practicable after the end of each respective period, will furnish to
its stockholders annual reports (including financial statements audited by
independent certified public accountants) and will furnish to its stockholders
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder (i) concurrently with making such reports available to its
stockholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's stockholders; (ii)
concurrently with the furnishing thereof to its stockholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity and of cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all
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reports (financial or other) mailed to stockholders; (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the Nasdaq National Market by
the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company are consolidated with any subsidiaries, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, file a registration statement covering any of its shares of
capital stock, except that one or more registration statements on Form S-8 may
be filed at any time following the effective date of the Registration Statement.
(h) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, issue, sell, offer or agree to sell, grant, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
options, rights or warrants with respect to shares of Common Stock, or any
securities convertible into or exchangeable for Common Stock, other than (i) the
sale of Shares hereunder, (ii) the grant of options or the issuance of shares of
Common Stock under the Company's stock incentive plans or stock purchase plan,
as the case may be, existing on the date hereof, and (iii) the issuance of
shares of Common Stock upon exercise of the currently outstanding options or
warrants described in the Registration Statement or upon conversion of the
Company's outstanding preferred stock, $.001 par value per share, described in
the Registration Statement, the Offering Memorandum and the Prospectus.
(i) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(j) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be the
same entity as the Transfer Agent) for its Common Stock.
(k) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market.
(l) The Company will file Form SR in conformity with the requirements
of the Act and the Rules and Regulations.
(m) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and
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will in the future conduct its affairs, in such a manner so as to ensure that
the Company was not and will not be an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(n) If at any time during the 180-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, consult with you in good faith regarding the necessity of disseminating a
press release or other public statement responding to or commenting on such
rumor, publication or event and, if the Company in its reasonable judgment
determines that such a press release or other public statement is appropriate,
the substance of any press release or other public statement.
6. Expenses.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), the Offering
Memorandum (including fees relating to the filing of reports in Canada),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the reproduction of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Preliminary Blue Sky Memoranda and any
Supplemental Blue Sky Memoranda and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any; the cost of all stock
certificates representing the Shares and Transfer Agents' and Registrars' fees;
the fees and disbursements of corporate, patent and regulatory counsel for the
Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), the Offering
Memorandum, Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and expenses incident to
securing any required review and the cost of qualifying the Shares under the
laws of such jurisdictions within the United States as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the Nasdaq National Market; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder.
(b) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company will, in
addition to paying the expenses described in clause (a) above, reimburse the
several Underwriters for all out-of-pocket expenses (including reasonable fees
and disbursements
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of Underwriters' Counsel) incurred by the Underwriters in reviewing the
Registration Statement and the Prospectus and in preparing the Offering
Memorandum and in otherwise investigating, preparing to market or marketing the
Shares. The Company will in no event be liable to any of the several
Underwriters for any loss of anticipated profits from the sale by them of the
Shares.
7. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 9:00 a.m., New York time, on the date following the date of this Agreement,
or such later time or date as shall be consented to in writing by you. If the
filing of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b) and Rule 430A of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule 424(b)
and Rule 430A of the Rules and Regulations. No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement, the Offering Memorandum
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such documents and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing Date
and on any later Option Closing Date, as the case may be, the opinions of (i)
Hutchison & Mason PLLC corporate counsel to the Company, (ii) Wilmer, Cutler &
Pickering, special securities counsel to the Company, and (iii) Pennie &
Edmonds, special patent counsel to the Company, dated the Closing Date or such
later Option Closing Date, in the forms attached hereto on Appendix A, addressed
to the Underwriters and with reproduced copies of signed counterparts thereof
for each of the Representatives.
(d) You shall have received from Brobeck, Phleger & Harrison LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal
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matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such counsel
such documents as it may have reasonably requested for the purpose of enabling
it to pass upon such matters.
(e) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a letter from the Accountants addressed
to the Company and the Underwriters, dated the Closing Date or such later Option
Closing Date, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and based upon the procedures described in
its letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
three days prior to the Closing Date or any such later Option Closing Date, as
the case may be, (i) confirming that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later Option
Closing Date, as the case may be; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not disclose
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company which, in your reasonable judgment,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In addition, you shall have received
from the Accountants a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent it deemed necessary in
establishing the scope of its latest examination of the Company's financial
statements, did not disclose any weaknesses in internal controls that it
considered to be material weaknesses. All such letters shall be in a form
reasonably satisfactory to the Representatives and their counsel.
(f) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date or such later
date, to the effect that as of such date (and you shall be satisfied that as of
such date):
(i) The representations and warranties of the Company in this
Agreement are true and correct, on and as of the Closing Date or any
later Option Closing Date, as the case may be, as if made on such
date; and the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later Option Closing
Date, as the case may be;
(ii) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has
been issued, and no proceedings for that purpose have been instituted
or are pending or, to the best of their knowledge, threatened under
the Act;
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(iii) They have carefully reviewed the Registration Statement,
the Offering Memorandum and the Prospectus; and, when the Registration
Statement became effective and at all times subsequent thereto up to
the delivery of such certificate, the Registration Statement and the
Prospectus and any amendments or supplements thereto contained all
statements and information required to be included therein or
necessary to make the statements therein not misleading; and when the
Registration Statement became effective, and at all times subsequent
thereto up to the delivery of such certificate, none of the
Registration Statement, the Prospectus or the Offering Memorandum or
any amendment or supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus or Offering Memorandum that has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement, the Offering Memorandum and
the Prospectus, there has not been (A) any Material Adverse Change in
the properties or assets described or referred to in the Registration
Statement, the Offering Memorandum and the Prospectus or in the
condition (financial or otherwise), operations, business or prospects
of the Company, (B) any transaction which is material to the Company,
except transactions entered into in the ordinary course of business,
(C) any obligation, direct or contingent, incurred by the Company
which is material to the Company, (D) any change in the capital stock
or outstanding indebtedness of the Company which is material to the
Company, (E) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (F) any loss or damage
(whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a Material Adverse
Effect.
(g) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder,
including, but not limited to, a certificate setting forth the material U.S. or
foreign patents and patent applications owned by, or licensed to, the Company.
(h) The Firm Shares and the Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company
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will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
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8. Indemnification and Contribution.
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(a) Subject to the provisions of paragraph (f) below, the Company
agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration statement)
or in the Offering Memorandum or any post-effective amendment thereto (including
any 462(b) registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or in the
Offering Memorandum or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission is contained in the first (including the table),
third, fifth and eighth paragraphs of the section of the Prospectus entitled
"Underwriting" or the last paragraph of text on the cover page of the Prospectus
or in the [ ] paragraph of the section of the Offering Memorandum entitled
"Representation by Purchasers," and (2) the indemnity agreement contained in
this paragraph (a) with respect to any Preliminary Prospectus or Offering
Memorandum shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages, liabilities or expenses
purchased the Shares which is the subject thereof (or to the benefit of any
person controlling such Underwriter) if at or prior to the written confirmation
of the sale of such Shares a copy of the Prospectus (or the Prospectus as
amended or supplemented or, in the case of purchasers resident in Ontario,
Canada, the revised Offering Memorandum) was not sent or delivered to such
person (excluding any documents incorporated therein by reference) and the
untrue statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented or, in the case of purchasers resident in Ontario, Canada, the
revised Offering Memorandum) unless the failure is the result of noncompliance
by the Company with paragraph (a) of Section 5 hereof. The indemnity agreements
of the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 1 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Shares.
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<PAGE>
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its executive officers, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of such Underwriter contained in this Agreement,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or in the Offering
Memorandum or any post-effective amendment thereto (including any 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or in the Offering Memorandum or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that in the cases of
clauses (i) and (ii) above, such statement or omission is contained in the first
(including the table), third, fifth and eighth paragraphs of the section of the
Prospectus entitled "Underwriting" or the last paragraph on the cover page of
the Prospectus or in the section of the Offering Memorandum entitled
"Representations by Purchasers." The indemnity agreement of each Underwriter
contained in this paragraph (b) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 8 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any
25
<PAGE>
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the second preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 8, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 8 (i) in such
proportion as is
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<PAGE>
appropriate to reflect the relative benefits received by each indemnifying party
from the offering of the Shares 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
also the relative fault of each indemnifying party in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Underwriters, on the other, shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Shares
received by the Company and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this paragraph (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 8).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within
27
<PAGE>
the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 8 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act or in the Offering Memorandum as required by Canadian securities law.
9. Termination. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect regardless
of whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in the sole judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representatives, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement, the Offering Memorandum and the Prospectus, there
shall have occurred any Material Adverse Change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company or the business affairs, management, or business
prospects of the Company, whether or not arising in the ordinary course of
business, or (vii) if any foreign, federal or state statute, regulation, rule or
order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise promulgated which in the judgment of the
Representatives materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or
28
<PAGE>
trading in the Common Stock shall have been suspended, or (viii) there shall
have occurred a material adverse decline in the value of securities generally on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market or (ix) action shall be taken by any foreign, federal, state or local
government or agency in respect of its monetary or fiscal affairs which, in the
judgment of the Representatives, has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated in
accordance with this Section 9, there shall be no liability of the Company to
the Underwriters and no liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in Section 6.
If you elect to terminate this Agreement as provided in this Section 9, the
Company shall be notified promptly by you by telephone, telecopy or telegram,
confirmed by letter.
10. Reimbursement of Certain Expenses.
(a) In addition to their other obligations under Section 8 of this
Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 8 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 10 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 8 of this
Agreement, the Underwriters hereby agree to reimburse on a quarterly basis the
Company for all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 8 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 10 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
11. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of Section 8 hereof, the several parties (in addition to the Company
and the several Underwriters)
29
<PAGE>
indemnified under the provisions of said Section 8, and their respective
personal representatives, successors and assigns. Nothing in this Agreement is
intended or shall be construed to give to any other person, firm or corporation
any legal or equitable remedy or claim under or in respect of this Agreement or
any provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Shares from
any of the several Underwriters.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telecopy and, if to the Underwriters, shall
be mailed, telecopied or delivered to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171, Attention: Mr. Richard Messina, with a copy to Brobeck, Phleger
& Harrison LLP, 1633 Broadway, 47th Floor, 10019, Attention: Alexander D. Lynch,
Esq.; and if to the Company, shall be mailed, telecopied or delivered to it at
its office, Trimeris, Inc., 4727 University Drive, Suite 100, Durham, North
Carolina 27707, Attention: Dr. M. Ross Johnson, with a copy to each of Hutchison
& Mason PLLC, 4011 Westchase Boulevard, Suite 400, Raleigh, North Carolina
27607, Attention: Fred D. Hutchison, Esq., and Wilmer, Cutler & Pickering, 100
Light Street, Baltimore, Maryland 21202, Attention: John B. Watkins, Esq. All
notices given by telecopy shall be promptly confirmed by letter.
13. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
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Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
TRIMERIS, INC.
By:_____________________________________
M. Ross Johnson
President, Chief Executive Officer and
Chief Scientific Officer
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: UBS SECURITIES LLC
By: ______________________________
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
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SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
UBS Securities LLC
NationsBanc Montgomery Securities, Inc.
Total [ ]
<PAGE>
SCHEDULE B
Lock-Up Agreements
<PAGE>
APPENDIX A
B. Opinion of Counsel to the Company
Hutchison & Mason PLLC, counsel to the Company, shall opine to the
effect that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a Material Adverse Effect;
2. The Company has full corporate power and authority to own, lease
and operate its properties and conduct its business as described in the
Registration Statement;
3. The Company has no subsidiaries and does not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity;
4. The Company has full corporate power and authority to enter into
this Agreement and to perform the transactions contemplated hereby, including,
without limitation, the power and authority to issue, sell and deliver to the
Underwriters the Firm Shares or the Option Shares, as the case may be;
5. This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and is a valid and binding agreement on the part of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by applicable laws or
equitable principles and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights generally or by general equitable principles;
6. The authorized capital stock of the Company consists of 10,000,000
shares of Preferred Stock, $.001 par value per share, of which there are no
outstanding shares, and 30,000,000 shares of Common Stock, $.001 par value per
share, of which there are outstanding [ ] shares (including the Firm Shares plus
the number of Option Shares issued on the date hereof); all outstanding shares
of capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of any
preemptive right, resale right, right of first refusal or similar right known to
such counsel. The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by
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<PAGE>
such counsel and is correct, and the form of certificate evidencing the Common
Stock complies with the applicable provisions of Delaware law;
7. The Shares to be issued by the Company have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable and will be sold free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, and,
to the best knowledge of such counsel, not in violation of any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right, which rights have not previously been waived, in connection with the
purchase or sale of any of the Shares;
8. The statements under the captions "Risk Factors Dependence on
Collaborations and Licenses with Others" "Shares Eligible for Future Sale,"
"Anti-Takeover Effect of Certain Charter and Bylaw Provisions," "Management
Stock Option Plans," "Employment Agreements," "Compensation Committee
Interlocks and Insider Participation," "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, and in
Items 14 or 15 of the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present, in all material respects,
the information called for with respect to such documents and matters;
9. The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Delaware General
Corporation Law, and the description of the certificate of incorporation and
bylaws are accurate and fairly and correctly present the information required to
be presented by the Act or the Rules and Regulations in all material respects;
and such counsel does not know of any statutes, rules or regulations required to
be described in the Registration Statement or the Prospectus that are not
described or referred to therein as required;
10. To the best of such counsel's knowledge, there are no agreements,
contracts, leases or documents of a character required to be described in, or
filed as an exhibit to, the Registration Statement which are not described or
filed as required by the Act and the applicable Rules and Regulations;
11. The Company is not (i) in violation of its certificate of
incorporation or bylaws, or (ii) to the best of such counsel's knowledge, in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness, which default would have a Material Adverse Effect, or (iii) to
the best of such counsel's knowledge, in default in the performance or
observance of any contract, indenture, mortgage, loan agreement, joint venture
or other agreement or instrument to which it is a party or by which it or any of
its properties are bound, which default would have a Material Adverse Effect, or
(iv) in violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court or governmental agency or body to which the
Company is
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<PAGE>
subject, including, but not limited to, the FDA, which violation would have a
Material Adverse Effect;
12. The execution, delivery and performance of this Agreement will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) to the best of such counsel's knowledge, any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company is a party or by which its
properties are bound, (ii) the certificate of incorporation or bylaws of the
Company, any agreement or document filed as an exhibit to the Registration
Statement, or (iii) any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body to which the Company is
subject;
13. The Company has the corporate power and authority to own or lease
all of the assets owned or leased by it and to conduct its business, in each
case as described in the Registration Statement and the Prospectus, except where
failure to have such power and authority would not have a Material Adverse
Effect, and has all licenses, consents, certificates, orders, approvals and
permits from all state, United States, foreign and other regulatory authorities,
including, but not limited to, the FDA and any foreign regulatory authorities
performing functions similar to those performed by the FDA, that are material to
the conduct of the business of the Company as described in the Registration
Statement and the Prospectus, all of which are valid and in full force and
effect (and there is no proceeding pending or, to the best knowledge of the such
counsel, threatened which may cause any such license, consent, certificate,
order, approval or permit to be withdrawn, cancelled, suspended or not renewed),
except where failure to have such licenses, consents, certificates, orders,
approvals and permits would not have a Material Adverse Effect;
14. To the best knowledge of such counsel, (i) the Company has good
and marketable title to all material properties and assets described in the
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, (ii)
the agreements to which the Company is a party are valid agreements, enforceable
by and against the Company in accordance with their terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles, and, to the best of such counsel's knowledge, the
other contracting party or parties thereto are not in material breach or default
under any of such agreements and (iii) the Company has valid and enforceable
leases for the properties described in the Prospectus as leased by it, and such
leases conform in all material respects to the description thereof, if any, set
forth in the Registration Statement;
15. There is not pending or, to the best of such counsel's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or any of its officers or any of its properties, assets or rights before
any court or governmental agency or body or otherwise which might result in a
Material Adverse Effect or prevent consummation of the
A-3
<PAGE>
transactions contemplated hereby, or would limit, revoke, cancel, suspend, or
cause not to be renewed any existing license, certificate, registration,
approval or permit, known to such counsel, from any state, federal, or
regulatory authority that is material to the conduct of the business of the
Company as presently conducted, or that is of a character otherwise required to
be disclosed in the Registration Statement or the Prospectus under the Act or
the applicable Rules and Regulations;
16. To the best of such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of shares of Common Stock
or other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company have registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
17. No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
18. The Company is not, and, upon the issuance and sale of the Shares
and application of the net proceeds from such issuance and sale as described in
the Prospectus under the caption "Use of Proceeds" will not be, an "investment
company," or a "promoter" or "principal underwriter" for a registered investment
company, as such terms are defined in the Investment Company Act of 1940, as
amended; and
19. The information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items; and
20. No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under foreign or state securities or Blue Sky laws or by
the bylaws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters.
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement, the Prospectus and the Offering
Memorandum and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement, the
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Prospectus or the Offering Memorandum, nothing has come to the attention of such
counsel which caused them to believe that, at the time the Registration
Statement became effective the Registration Statement (except as to financial
statements, financial and statistical data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or at
the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement, the Prospectus or the Offering Memorandum (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under,which they were made,
not misleading.
Counsel rendering the foregoing may rely as to questions of fact upon
representations or certificates of officers of the Company and of governmental
officials, as the case may be, in which case its opinion is to state that it is
so doing and that it has no actual knowledge of any material misstatement or
inaccuracy in such opinions, representations or certificates, and that they
believe that they and the Underwriters are justified in relying on such opinions
or certificates. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
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C. Opinion of Special Counsel to the Company.
Wilmer, Cutler & Pickering, special counsel to the Company, shall
opine to the effect that:
1. The Registration Statement has become effective under the Act and,
to the best of such counsel's knowledge, the Commission has not issued any stop
order suspending the effectiveness of the Registration Statement or suspending
or preventing the use of the Prospectus and no proceedings for that purpose have
been instituted or are pending or threatened under the Act; any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and within the time period
required by such Rule 424(b) and any required filing of an abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 462(b);
2. The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included therein, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations and to the best of such counsel's knowledge, there are no
agreements, contracts, leases or documents of a character required to be
described in, or filed as an exhibit to, the Registration Statement which are
not described or filed as required by the Act and the applicable Rules and
Regulations;
3. The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of Delaware law.
4. The statements under the captions "Risk Factors Dependence on
Collaborations and Licenses with Others" "Shares Eligible for Future Sale,"
"Anti- Takeover Effect of Certain Charter and Bylaw Provisions," "Management
Stock Option Plans," "Employment Agreements," "Compensation Committee
Interlocks and Insider Participation," "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, and in
Items 14 or 15 of the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present, in all material respects,
the information called for with respect to such documents and matters;
5. The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Delaware General
Corporation Law, and the description of the certificate of incorporation and
bylaws are accurate and fairly and
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correctly present the information required to be presented by the Act or the
Rules and Regulations in all material respects; and such counsel does not know
of any statutes, rules or regulations required to be described in the
Registration Statement or the Prospectus that are not described or referred to
therein as required;
6. The information required to be set forth in the Registration
Statement in answer to Items 9 and 10 (insofar as it relates to such counsel) of
Form S-1 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items; and
7. No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
8. The Company is not, and, upon the issuance and sale of the Shares
and application of the net proceeds from such issuance and sale as described in
the Prospectus under the caption "Use of Proceeds" will not be, an "investment
company," or a "promoter" or "principal underwriter" for a registered investment
company, as such terms are defined in the Investment Company Act of 1940, as
amended; and
9. No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under foreign or state securities or Blue Sky laws or by
the bylaws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters.
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement, the Prospectus and the Offering
Memorandum and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement, the Prospectus or the Offering Memorandum, and such
counsel does not assume any responsibility for the accuracy, completeness or
fairness of such statements, on the basis of the such counsel's review of
documents relating to the Company and on the basis of the foregoing (relying as
to materiality to a large extent upon discussions with, and representations and
opinions of, officers and other representatives of the Company), nothing has
come to the attention of such counsel which caused them to believe that, at the
time the Registration Statement became effective the Registration Statement
(except as to financial statements and the notes thereto, financial and
statistical data and supporting schedules contained therein, as to which such
counsel need express no opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later Option Closing Date, as the case may be, the Registration
Statement,
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the Prospectus or the Offering Memorandum (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under,which they were made, not misleading.
Counsel rendering the foregoing may rely as to questions of fact upon
representations or certificates of officers of the Company and of governmental
officials, as the case may be, in which case its opinion is to state that it is
so doing and that it has no actual knowledge of any material misstatement or
inaccuracy in such opinions, representations or certificates, and that they
believe that they and the Underwriters are justified in relying on such opinions
or certificates. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
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D. Opinion of Patent Counsel to the Company.
Pennie & Edmonds shall indicate that they served as special counsel to
the Company, with respect to patents and proprietary rights, and shall opine to
the effect that:
(A) To the best of such counsel's knowledge, the statements in the
Prospectus relating to United States patent and licensing matters under the
captions "Risk Factors Uncertainty Regarding Patents and Proprietary Rights" and
"Business Patents, Proprietary Technology and Trade Secrets," and other
references in the Prospectus to United States patent and licensing matters,
insofar as such statements constitute a summary of legal matters, documents, or
proceedings, are accurate and present fairly the information purported to be
shown; and
(B) To the best of such counsel's knowledge, the statements in the
Prospectus relating to United States patent and licensing matters under the
captions "Risk Factors Uncertainty Regarding Patents and Proprietary Rights" and
"Business Patents, Proprietary Technology and Trade Secrets," and other
references in the Prospectus to United States patent and licensing matters, do
not contain an untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
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TRIMERIS, INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
(formerly, the Trimeris, Inc. New Stock Option Plan)
1. Purpose
The Trimeris, Inc. Amended and Restated Stock Incentive Plan (formerly,
the Trimeris, Inc. New Stock Option Plan) (the "Plan") is established to advance
the interests of the Company's stockholders by creating an incentive for, and
enhancing the Company's ability to attract, retain and motivate, key employees,
directors and consultants or advisors of Trimeris, Inc. and any successor
corporations thereto (collectively, the "Company") or future parent and/or
subsidiary corporations of such corporation (as defined in Sections 424(e) and
424(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the "Code")) (all of whom, along with the Company,
sometimes being individually referred to as a "Participating Company" and
collectively referred to as the "Participating Company Group") by providing such
persons with equity ownership opportunities and performance-based incentives and
thereby better aligning the interests of such persons with those of the
Company's stockholders.
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant." The Board of
Directors of the Company (the "Board"), in its sole discretion, shall determine
which persons shall be granted Awards under the Plan. A director of the Company
shall be eligible to be granted an Incentive Stock Option (as hereinafter
defined) only if the director is also an employee of the Company. A consultant
or advisor to the Company or a non-employee director of the Company shall be
eligible to be granted only Awards other than Incentive Stock Options.
Participants may, if otherwise eligible, be granted additional Awards.
3. Administration; Delegation
(a) ADMINISTRATION BY BOARD. The Plan shall be administered by the
Board. The Board shall have authority to grant Awards and to adopt, amend and
repeal such administrative rules, guidelines and practices relating to the Plan
as it shall deem advisable from time to time. The Board may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or any Award in
the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No member of
the Board shall be liable for any action or determination relating to the Plan.
All decisions by the Board shall be made in the Board's sole discretion and
shall be final and binding on all persons having or claiming any interest in the
Plan or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination under the
Plan made in good faith.
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(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (each, a "Committee"). For so long
as the common stock, $.001 par value per share (the "Common Stock"), of the
Company is registered under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be a "non-employee director" as defined in Rule 16b-3
promulgated under the Exchange Act. All references in the Plan to the "Board"
shall mean a Committee or the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. Stock Available For Awards
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(b), Awards
may be made under the Plan for up to a maximum of Eight Hundred Fifty Two
Thousand Nine Hundred Forty-One (852,941) shares of Common Stock. If any Award
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options, to any limitation required under the Code. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) ADJUSTMENTS TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option (as defined below), (iii) the
repurchase price per security subject to each outstanding Restricted Stock Award
(as defined below), and (iv) the terms of each other outstanding stock-based
Award, if any, shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(b) applies and Section 9(a) also applies to any
event, Section 9(a) shall be applicable to such event, and this Section 4(b)
shall not be applicable.
5. Stock Options
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option,
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the exercise price of each Option and the conditions and limitations applicable
to the exercise of each Option, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable. Any
Option granted to a Participant who is subject to the provisions of Section 16
of the Exchange Act shall not become exercisable for a period of at least six
(6) months following the date of grant. An Option which is not intended to be an
Incentive Stock Option shall be designated a "Nonstatutory Stock Option."
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and construed consistently with the requirements of Section 422 of
the Code. The Company shall have no liability to a Participant who has been
awarded an Option (an "Optionee"), or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an Incentive
Stock Option.
(c) EXERCISE PRICE. The Board shall establish, in its sole discretion,
the exercise price at the time each Option is granted and specify it in the
applicable option agreement; provided, however, that (i) the exercise price per
share for an Incentive Stock Option shall be not less than the fair market value
of a share of Common Stock on the date of grant of such Incentive Stock Option,
as determined by the Board in good faith (the "Fair Market Value"), and (ii) the
exercise price per share of an Incentive Stock Option granted to an Optionee who
at the time the Incentive Stock Option is granted owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code (a "Ten Percent Owner Optionee") shall be not less than one hundred ten
percent (110%) of the Fair Market Value. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted by the Board in its discretion with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code. Nothing hereinabove shall require that
any such assumption or modification result in the Option having the same
characteristics, attributes or tax treatment as the Option for which it is
substituted.
(d) $100,000 LIMITATION. The aggregate fair market value, determined as
of the date on which an Incentive Stock Option is granted, of the shares of
Common Stock with respect to which Incentive Stock Options (determined without
regard to this subsection) are first exercisable during any calendar year (under
this Plan or under any other plan of the Participating Company Group) by any
Optionee shall not exceed $100,000. If such limitation would be exceeded with
respect to an Optionee for a calendar year, the Incentive Stock Option shall be
deemed a Nonstatutory Stock Option to the extent of such excess.
(e) TIME FOR GRANTING INCENTIVE STOCK OPTIONS. All Incentive Stock
Options must be granted, if at all, within ten (10) years from the earlier of
the date the Plan is adopted by the Board or the date the Plan is duly approved
by the stockholders of the Company.
(f) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however, that (i) no Incentive Stock
Option shall be exercisable after the expiration of
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ten (10) years after the date such Incentive Stock Option is granted, (ii) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the date such Incentive
Stock Option is granted and (iii) no Incentive Stock Option shall be exercisable
after the date the Optionee's employment with the Participating Company Group is
terminated for cause (as determined in the sole discretion of the Board); and
provided, further, that an Option shall terminate and cease to be exercisable no
later than three (3) months after the date on which the Optionee terminates
employment with the Participating Company Group, unless the Optionee's
employment with the Participating Company Group shall have terminated as a
result of the Optionee's death or disability (within the meaning of Section
22(e)(3) of the Code), in which event the Option shall terminate and cease to be
exercisable no later than twelve (12) months from the date on which the
Optionee's employment terminated. For this purpose, an Optionee's employment
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months following the Optionee's termination of employment.
(g) EXERCISE OF OPTIONS. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(h) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an option
agreement, by delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Optionee to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and expressly
provided in an option agreement, (i) by delivery of shares of Common Stock owned
by the Optionee valued at their Fair Market Value, which Common Stock was owned
by the Optionee at least six (6) months prior to such delivery, (ii) to the
extent permitted by applicable law, by delivery of a promissory note of the
Optionee to the Company secured by valuable collateral acceptable to the Board
and on other terms determined by the Board, or (iii) by payment of such other
lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable
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Award are not satisfied prior to the end of the applicable restriction period or
periods established by the Board for such Award, and subject to such other terms
and conditions as the Board shall determine (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the duration of
restrictions, conditions for repurchase (or forfeiture) and the issue price, if
any; provided, however, that any Restricted Stock Award granted to a Participant
who is subject to the provisions of Section 16 of the Exchange Act shall
restrict the release of shares under the Restricted Stock Award for a period of
at least six (6) months from the date of grant. Any stock certificates issued in
respect of a Restricted Stock Award shall be registered in the name of the
Participant and held in escrow by the Company, together with a stock power
endorsed in blank, with the Company (or its designee). At the expiration of the
applicable restriction periods, the Company (or such designee) shall deliver the
certificates no longer subject to such restrictions to the Participant or if the
Participant has died, to the beneficiary designated, in a manner determined by
the Board, by a Participant to receive amounts due or exercise rights of the
Participant in the event of the Participant's death (the "Designated
Beneficiary"). In the absence of an effective designation by a Participant,
Designated Beneficiary shall mean the Participant's estate.
7. Other Stock-based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. General Provisions Applicable to Awards
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, to the
extent relevant in the context, shall include references to authorized
transferees.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant,
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the Participant's legal representative, conservator, guardian or Designated
Beneficiary may exercise rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same of a different type, changing the date or exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company shall not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
9. Acquisition Events
(a) CONSEQUENCES OF ACQUISITION EVENTS. Except to the extent otherwise
provided in the instrument evidencing the Award or in any other agreement
between the Participant and the Company:
(i) Upon the occurrence of an Acquisition Event (as
hereinafter defined),
(A) all Restricted Stock Awards then outstanding
shall become fully vested and immediately free of all restrictions; and
(B) all other stock-based Awards other than Options
and stock appreciation rights shall become immediately exercisable, realizable
or vested in full, or shall be immediately free of all restrictions or
conditions, as the case may be.
(ii) Upon the execution by the Company of an agreement to
effect an Acquisition Event other than a Change of Control Event (as hereinafter
defined), all Options and
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stock appreciation rights then outstanding shall become fully vested and
immediately exercisable in full upon the occurrence of the Acquisition Event or
such earlier date as may be specified by the Board by written notice to the
Participants, and the Board may take one or both of the following additional
actions with respect to then outstanding Options and stock appreciation rights:
(A) provide that such Options and stock appreciation rights shall be assumed, or
equivalent Options or stock appreciation rights be substituted by the acquiring
or succeeding corporation (or an affiliate thereof), or (B) upon written notice
to the Participants, provide that all then unexercised Options and stock
appreciation rights will terminate to the extent not exercised by the
Participants prior to the consummation of such Acquisition Event or such earlier
date as may be specified by the Board by written notice to Participants.
(iii) Upon the occurrence of a Change of Control Event, all
Options and stock appreciation rights then outstanding shall become fully vested
and immediately exercisable in full.
As used herein, an "Acquisition Event" shall mean: (a) any merger or
consolidation which results in the voting securities of the Company outstanding
immediately prior thereto representing (either by remaining outstanding or by
being converted into voting securities of the surviving or acquiring entity)
less than 60% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; (c) the complete liquidation of the Company; or (d) the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities (other than
through a merger or consolidation or an acquisition of securities directly from
the Company) by any "person," as such term is used in Section 13(d) and 14(d) of
the Exchange Act, other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any corporation
owned directly or indirectly by the stockholders of the Company (an event
specified in this clause (d) being referred to as a "Change of Control Event").
(b) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may grant
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
10. Miscellaneous
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
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(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any right
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) STATUS OF RIGHTS TO PAYMENTS UNDER PLAN. To the extent that any
person acquires a right to receive payments from the Company under the Plan,
such right shall, except as otherwise provided by the Board, be no greater than
the right of an unsecured general creditor of the Company. All payments to be
made hereunder shall be paid from the general funds of the Company, and no
special or separate fund shall be established and no segregation of assets shall
be made to assure payment of such amounts, except as otherwise provided by the
Committee. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Optionee any rights that
are greater than those of a general creditor of the Company.
(d) SUBJECT TO LAW. The Plan and the grant of Awards hereunder shall be
subject to all applicable federal and state laws, rules, and regulations and to
such approvals by any United States government or regulatory agency as may be
required.
(e) SEVERABILITY. If any provision of this Plan or an option agreement
is or becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any agreement evidencing an Award
under any law deemed applicable by the Board, such provision shall be construed
or deemed amended to conform to applicable laws or, if it cannot be construed or
deemed amended without, in the determination of the Board, materially altering
the intent of the Plan or the agreement, it shall be stricken and the remainder
of the Plan or the agreement shall remain in full force and effect.
(f) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Incentive Stock Option
granted to an Optionee shall be effective unless and until the Plan has been
approved by the Company's stockholders. No Awards shall be granted under the
Plan after the completion of ten years from the earlier of (i) the date on which
the Plan was adopted by the Board or (ii) the date the Plan was approved by the
Company's stockholders, but Awards previously granted may extend beyond that
date.
(g) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no increase in the total
number of shares available for Awards under the Plan (except by operation of the
provisions of Section 4(b) above) or for grants of Incentive Stock Options under
the Plan may be made, unless and until such amendment shall have been approved
by the Company's stockholders.
(h) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 422 of the Code.
8
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<PAGE>
(i) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
On September 30, 1997.
Approved by the stockholders of
the Company on September 30, 1997.
9
LICENSE AGREEMENT
This License Agreement ("LICENSE AGREEMENT"), effective as of September
9, 1997 ("EFFECTIVE DATE"), is by and between THE NEW YORK BLOOD CENTER, a
not-for profit corporation duly organized and existing under the laws of New
York and having an office at 310 East 67th Street, New York, New York 10021
("NYBC"), and TRIMERIS, INC., a corporation duly organized and existing under
the laws of Delaware and having a principal place of business at 4727 University
Drive, Durham, North Carolina 27707 ("TRIMERIS").
ARTICLE 1 - DEFINITIONS
For the purposes of this License Agreement, the following words and
phrases have the following meanings:
1.1 PATENT RIGHTS means:
1.1.1 United States Patent 5,444,044, as more fully described in
Appendix I;
1.1.2 United States Patent Application Serial No. 08/484,107, as
more fully described in Appendix I;
1.1.3 European Patent 565 164, as more fully described in Appendix
I;
1.1.4 Australian Patent No. 667078, as more fully described in
Appendix I;
1.1.5 Canadian Patent Application No. 2,092,519, as more fully
described in Appendix I;
1.1.6 Japanese Patent Application No.5-68199, as more fully
described in Appendix I;
1.1.7 South Korean Patent Application No. 93-4698, as more fully
described in Appendix I;
1.1.8 Any later-filed United States and foreign patent applications based
on the patents or patent applications listed in Appendix I, or corresponding
thereto, including any continuations, continuations-in-part,
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divisionals, reissues, reexaminations, or extensions thereof; and
1.1.9 Any United States and foreign patents issuing from any of
the foregoing.
1.2 LICENSED PRODUCT includes the following:
1.2.1 NYBC PRODUCT means any product which incorporates an HIV-1
polypeptide having any one of the following sequences, as set forth in U.S.
Patent No. 5,444,044, appended as Appendix II: amino acid residues 637 to
666 of the HIVIIIB1 envelope glycoprotein (Glu Trp Asp Arg Glu Ile Asn Asn
Tyr Thr Ser Leu Ile His Ser Leu Ile Glu Glu Ser Gln Asn Gln Gln Glu Lys Asn
Glu Gln Glu), SEQ ID NO's. 1 - 20, or which sequence is covered, in whole
or in part, by a claim contained in the Patent Rights.
1.2.2 TRIMERIS PRODUCT means any product which incorporates an
HIV-1 polypeptide having greater than fifty percent (50%) of an amino acid
sequence which is identical in amino acid sequence composition and amino
acid sequence order with an HIV polypeptide having any one of sequences set
forth in Paragraph 1.2.1.
1.2.3 OTHER PRODUCT means any product other than one specifically
defined in Paragraphs 1.2.1 and 1.2.2, which TRIMERIS may develop or sell,
at any time, during, or subsequent to, the term of this LICENSE AGREEMENT.
1.3 LICENSED PROCESS means any process or method which is covered in whole,
or in part, by a claim contained in the Patent Rights.
ARTICLE 2 - GRANT
2.1 NYBC hereby grants to TRIMERIS an exclusive, worldwide license to
practice under the PATENT RIGHTS and to make, have made, use, lease, offer to
sell, sell and import the LICENSED PRODUCTS and to practice the LICENSED
PROCESSES,
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to the full end of the term for which the PATENT RIGHTS are granted, unless
sooner terminated as hereinafter provided, said license to include the right to
sublicense and to be exclusive to TRIMERIS subject only to any license
heretofore granted to the United States government.
2.2 TRIMERIS agrees that any sublicenses granted by it will provide for
privity of contract between NYBC and sublicensee such that the obligations of
this LICENSE AGREEMENT will be binding upon the sublicensee as if it were in the
place of TRIMERIS.
ARTICLE 3 - DUE DILIGENCE
3.1 TRIMERIS will use its reasonable efforts to evaluate the commercial
potential of the PATENT RIGHTS. Subsequent to such evaluation, TRIMERIS, in its
sole discretion, will decide whether to commercialize any technology covered by
the PATENT RIGHTS.
3.2 TRIMERIS will use its best efforts to initiate a Pivotal Human Clinical
Trial, with any one NYBC PRODUCT or TRIMERIS PRODUCT, within five (5) years of
the EFFECTIVE DATE. In the event such trial is not initiated on any one such
royalty-bearing product, TRIMERIS will pay NYBC a one-time fee of ***********
******** Dollars (*******) such fee to be in addition to any other amounts that
otherwise might be due under Section 5.6.
ARTICLE 4 - LICENSE ISSUE FEE
Within fifteen (15) days of the EFFECTIVE DATE of this Agreement, TRIMERIS
will pay NYBC a License Issue Fee of *************** Dollars (*******).
ARTICLE 5 - ROYALTIES
For the rights, privileges and license granted hereunder, TRIMERIS agrees
to pay royalties to NYBC, to the end of the term of the PATENT RIGHTS [whether
by expiration,
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<PAGE>
invalidation, abandonment, or other means] or until this Agreement is
terminated, whichever occurs first, as follows:
5.1 A royalty in an amount equal to **** Percent (*****) of NET SALES of
NYBC PRODUCTS, sold by TRIMERIS, or by any sublicensee, in any calendar year,
which are covered, in whole, or in part, by one or more issued, unexpired, and
valid claims contained in the PATENT RIGHTS, in the country in which the product
is sold.
5.2 A royalty in an amount equal to ***** Percent (******) of NET SALES of
NYBC PRODUCTS, sold by TRIMERIS, or by any sublicensee, in any calendar year,
which are covered, in whole, or in part, by one or more pending claims contained
in the PATENT RIGHTS, in the country in which the product is sold.
5.3 A royalty in an amount equal to ***** of NET SALES of TRIMERIS PRODUCTS
sold by TRIMERIS, or by any sublicensee, in any calendar year, until such time
as ************ of NET SALES of TRIMERIS PRODUCTS is attained; after which
TRIMERIS will pay NYBC a royalty in an amount equal to ***** of NET SALES of
TRIMERIS PRODUCTS sold by TRIMERIS and any sublicensee in any calendar year in
any country where the TRIMERIS PRODUCT is sold and NYBC has a pending, or
issued, unexpired and valid claim contained in the Patent Rights. Within one
year of the EFFECTIVE DATE, TRIMERIS, at its sole discretion, may substitute
TRIMERIS equity for up to ***** percent (***) of the royalties otherwise due
under this subsection.
5.4 Neither TRIMERIS nor any sublicensee will have any obligation during,
or subsequent to, the term of this LICENSE AGREEMENT, to pay any royalties to
NYBC for the manufacture, use, lease, sale, or offer to sell, of any OTHER
PRODUCT.
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<PAGE>
5.5 Any royalties paid by TRIMERIS or any sublicensee to a third party, in
any calendar year, as a condition of the manufacture, use, lease or sale of any
LICENSED PRODUCTS, or practice of any LICENSED PROCESS, may be deducted from the
amounts otherwise due under Paragraph 5.1, 5.2 and 5.3; provided, however, that,
in no event, will NYBC receive less than ***** percent (***) of the amounts
otherwise due under Paragraphs 5.1 5.2, and 5.3.
5.6 Commencing with calendar year 1998 and for each calendar year
thereafter in which the LICENSE AGREEMENT remains in effect, should royalties
paid on LICENSED PRODUCTS not aggregate to the minimum set forth below,
TRIMERIS, with its last report for that year, will pay NYBC an amount equal to
the difference between the amount shown and the royalties already paid for that
year.
1998: $******
1999: $******
2000: $******
2001 and subsequent years $******
5.7 As used herein, the term NET SALES means the amount invoiced by
TRIMERIS or any sublicensee with respect to sale of any LICENSED PRODUCTS, less
the sum of the following:
(a) Discounts allowed in amounts customary in the trade;
(b) Sales, tariff duties, use taxes and/or insurance, directly
imposed and with reference to particular sales;
(c) Outbound transportation prepaid or allowed;
(d) Amounts allowed or credited on returns.
(e) Actual losses incurred due to changes in foreign currency
exchange rates.
5.8 Only one royalty will be payable to NYBC on NET SALES of LICENSED
PRODUCTS by TRIMERIS and/or by a sublicensee and/or by a subsidiary.
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<PAGE>
5.9 At any time during the term of this LICENSE AGREEMENT, TRIMERIS may
elect to pay NYBC sponsored research funds in an amount equal to, and in lieu
of, up to ***** percent (***) of the total royalties otherwise due NYBC during
that calendar year, pursuant to Paragraphs 5.1, 5.2, and 5.3. TRIMERIS and NYBC
agree to enter into a Sponsored Research Agreement, to be negotiated in good
faith and to include such provisions as are reasonable and customary for such
agreements. With respect to any Sponsored Research Program funded, in any part,
by TRIMERIS pursuant to this Paragraph, NYBC hereby agrees to grant TRIMERIS a
right of first negotiation for an exclusive, royalty-bearing license to all
intellectual property arising out of such Sponsored Research Program, said
license to be negotiated in good faith and to include such provisions as are
reasonable and customary for such agreements.
5.10 Royalty payments shall be paid in United States dollars at the address
set forth in Article 14 or at such other place as NYBC may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank in New York City, on the last business
day of the calendar quarterly reporting period to which such royalty payments
relate.
ARTICLE 6 - REPORTS AND RECORDS
6.1 TRIMERIS will keep and preserve complete and accurate books, records,
and accounts relating to the manufacture, use, and sale of LICENSED PRODUCTS and
TRIMERIS PRODUCTS, in accordance with generally accepted accounting
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<PAGE>
principles and procedures. NYBC, including its designated accountants,
attorneys, agents, and other representatives, will have the right, twice per
year upon reasonable notice to TRIMERIS, to examine, inspect, and audit, the
books and records and accounts, kept and preserved by TRIMERIS, to verify the
accuracy and correctness of the royalty payments made by TRIMERIS. All such
examinations, inspections, and audits, shall be made by NYBC, or its designated
accountants, attorneys, agents, or other representatives, at reasonable times
and places, during business hours.
6.2 TRIMERIS, within thirty (30) days after the end of each quarter of each
calendar year, shall deliver to NYBC true and accurate reports, giving such
particulars of the business conducted by TRIMERIS during the preceding three (3)
month period under this LICENSE AGREEMENT as shall be pertinent to a royalty
accounting hereunder. These shall include at least the following:
(a) Number and type of NYBC PRODUCTS and TRIMERIS PRODUCTS sold
by TRIMERIS or by any sublicensee;
(b) Total billings for NYBC PRODUCTS and TRIMERIS PRODUCTS
sold;
(c) Detailed listing of all deductions applicable as provided
in Paragraph 5.7.
6.3 With each such report submitted, TRIMERIS will pay to NYBC the
royalties due and payable under this License Agreement. If no royalties are due,
TRIMERIS will so report.
ARTICLE 7 - PATENT PROSECUTION
7.1 Subject to Paragraph 7.3, NYBC will maintain the PATENT RIGHTS during
the term of this LICENSE AGREEMENT. All documents relating to the PATENT RIGHTS
will be forwarded to
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<PAGE>
TRIMERIS within ten (10) business days of receipt by NYBC or its patent counsel,
whichever is earlier. NYBC will take no action with respect to the PATENT RIGHTS
without providing TRIMERIS a timely opportunity to review and comment upon such
action. NYBC will use its best efforts to ensure that all actions taken with
respect to any of the PATENT RIGHTS address the commercial and business needs of
TRIMERIS, as communicated by TRIMERIS hereunder.
7.2 Within fifteen (15) business days after the receipt of an itemized
bill, TRIMERIS will reimburse NYBC for fifty percent (50%) of all reasonable and
ordinary fees and costs related to the filing, prosecution, and maintenance of
the PATENT RIGHTS, which were incurred prior to the EFFECTIVE DATE, the
remaining fifty percent (50%) to be paid within six months of the EFFECTIVE
DATE.
7.3 Within thirty (30) days of receipt of an invoice, TRIMERIS will
reimburse NYBC for all reasonable and ordinary fees and costs relating to the
filing, prosecution, and maintenance of the PATENT RIGHTS, which are incurred
subsequent to the EFFECTIVE DATE.
7.4 TRIMERIS will have the sole right to decide whether to file, prosecute,
and/or maintain any patent application or patent contained in the PATENT RIGHTS.
Should TRIMERIS decide not to file, prosecute, and/or maintain any patent
application or patent contained in the Patent Rights, TRIMERIS, no later than
thirty (30) days prior to the applicable filing or other deadline, will provide
written notice to NYBC to this effect, which then shall have the right, but not
the obligation to file, prosecute and/or maintain the patent application or
patent at its own expense. TRIMERIS will have no further rights in any such
patent application and/or patent.
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<PAGE>
ARTICLE 8 - TERMINATION
8.1 In the event that either party shall become bankrupt or insolvent, or
shall file a petition in bankruptcy, or if its business shall be placed in the
hands of a receiver, assignee or trustee for the benefit of creditors, whether
by voluntary act or otherwise, then to the extent permitted by law, the other
party may terminate this Agreement by giving written notice of termination to
the disabled party. This Agreement shall terminate upon receipt of such notice,
except with respect to all accrued, unpaid royalties and sales.
8.2 Should TRIMERIS fail in its payment to NYBC of royalties due in
accordance with the terms of this License Agreement, NYBC will have the right to
serve notice upon TRIMERIS, by certified mail to the address designated in
Article 15 hereof, of its intention to terminate this License Agreement within
thirty (30) days after receipt of said notice of termination unless TRIMERIS
shall pay to NYBC, within the thirty (30) day period, all such royalties due and
payable. Upon the expiration of the thirty (30) day period, if TRIMERIS shall
not have paid all such royalties due and payable, the rights, privileges and
license granted hereunder shall thereupon immediately terminate.
8.3 Upon any material breach or default of this License Agreement by
TRIMERIS, NYBC will have the right to terminate this License Agreement and the
rights, privileges and license granted hereunder by ninety (90) days' notice to
TRIMERIS by certified mail to the address designated in Article 14 hereof. Such
termination will become effective unless TRIMERIS will have cured any such
breach or default prior to the expiration of the ninety (90) day period from
receipt of the notice of termination.
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<PAGE>
8.4 At any time subsequent to September 9, 2001, TRIMERIS will have the
right to terminate this LICENSE AGREEMENT on six (6) months' written notice to
NYBC.
8.5 Upon termination of this LICENSE AGREEMENT for any reason, nothing
herein shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. TRIMERIS and/or any
sublicensee thereof may, however, after the effective date of such termination,
sell all Licensed Products, and complete Licensed Products in the process of
manufacture at the time of such termination, and sell the same, provided that
TRIMERIS shall pay to NYBC the royalties thereon as required by Article 5 of
this License Agreement and shall submit the reports required by Article 6 hereof
on the sales of Licensed Products.
ARTICLE 9 - INFRINGEMENT AND OTHER ACTIONS
9.1 TRIMERIS and NYBC will promptly provide written notice, to the other
party, of any alleged infringement by a third party of the Patent Rights and
provide such other party with any available evidence of such infringement.
9.2 During the term of this LICENSE AGREEMENT, TRIMERIS will have the
right, but not the obligation, to prosecute and/or defend, at its own expense
and utilizing counsel of its choice, any infringement of, and/or challenge to,
the PATENT RIGHTS. In furtherance of such right, NYBC hereby agrees that
TRIMERIS may join NYBC as a party in any such suit, without expense to NYBC. No
settlement, consent judgment or other voluntary final disposition of any such
suit may be entered into without the consent of NYBC, which consent shall not
unreasonably be withheld. TRIMERIS shall indemnify NYBC against any order for
costs that may be made against NYBC in any such suit.
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9.3 In the event that TRIMERIS shall undertake the enforcement and/or
defense of the Patent Rights, as provided in Paragraph 9.2, TRIMERIS may
withhold up to fifty percent (50%) of the royalties otherwise thereafter due
NYBC and apply the same toward reimbursement of its expenses, including
attorneys' fees, in connection therewith. Any recovery of damages by TRIMERIS,
in any such suit, shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of TRIMERIS relating to the suit, and next toward
reimbursement of NYBC for any royalties past due or withheld and applied
pursuant to this paragraph. The balance remaining from any such recovery shall
belong to TRIMERIS.
9.4 If within six (6) months after receiving notice of any alleged
infringement, TRIMERIS shall have been unsuccessful in persuading the alleged
infringer to desist, or shall not have brought and shall not be diligently
prosecuting an infringement action, or if TRIMERIS shall notify NYBC, at any
time prior thereto, of its intention not to bring suit against the alleged
infringer, then, and in those events only, NYBC shall have the right, but not
the obligation, to prosecute, at its own expense and utilizing counsel of its
choice, any infringement of the Patent Rights, and NYBC may, for such purposes,
join the TRIMERIS as a party plaintiff. The total cost of any such infringement
action commenced solely by NYBC shall be borne by NYBC and NYBC shall keep any
recovery or damages for past infringement derived therefrom.
9.5 In any suit to enforce and/or defend the Patent Rights pursuant to this
License Agreement, the party not in control of such suit shall, at the request
and expense of the controlling party, cooperate in all respects and, to the
extent possible, have its employees testify when requested and
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<PAGE>
make available relevant records, papers, information, samples, specimens, and
the like.
ARTICLE 10 - PATENT MARKING
TRIMERIS agrees to mark the LICENSED PRODUCTS sold in the United States
with all applicable United States patent numbers. All LICENSED PRODUCTS shipped
to, or sold in, other countries shall be marked in such a manner as to conform
with the patent laws and practice of the country of manufacture or sale.
ARTICLE 11- WARRANTY AND INDEMNIFICATION
11.1 NYBC warrants and represents that it has the full right and power to
grant the license set forth in Article 2 hereof, subject to the approval of both
parties at the time license negotiations are concluded, and shall take no action
to negate such right and power, and further warrants and represents that there
are no outstanding agreements, assignments, or encumbrances inconsistent with
the provisions of this License Agreement. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH IN THIS LICENSE AGREEMENT, NYBC MAKES NO REPRESENTATIONS AND EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
VALIDITY OR NON-INFRINGEMENT OF PATENT RIGHT CLAIMS WHICH ARE ISSUED, OR
PENDING, RELATIVE TO INVENTION.
11.2 TRIMERIS shall, at all times during the term of this License Agreement
and thereafter, indemnify, defend and hold harmless NYBC, its officers,
employees, and affiliates, harmless against any claims, liabilities, judgments
and expenses, arising out of the death of, or injury to, any person or persons,
or out of any damage to property, and against any other claims of any kind
resulting from the production,
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manufacture, sale, advertising, lease, or transfer of Licensed Products or
Licensed Processes.
ARTICLE 12 - ASSIGNMENT
TRIMERIS may, without prior written consent, assign or otherwise transfer
this LICENSE AGREEMENT and the license granted hereunder and the rights acquired
by it hereunder so long as such assignment or transfer is to a subsidiary or
shall be accompanied by a sale or other transfer of TRIMERIS's entire business
or of that part of TRIMERIS's business to which the license granted hereunder
relates and so long as the transferee party expressly assumes, in writing, the
performance of all terms and conditions of this License Agreement. Any other
assignment of this LICENSE AGREEMENT by TRIMERIS will be permitted with NYBC's
written approval, such approval not to be unreasonably withheld and to be given
by NYBC within thirty (30) days of TRIMERIS providing the proposed Assignment to
NYBC for review. This License Agreement shall not be assignable by NYBC without
the prior written consent of TRIMERIS.
ARTICLE 13 - NON-USE OF NAMES
13.1 TRIMERIS shall not use the name of NYBC, or any of its employees, or
any adaptation thereof, in any advertising, promotional or sales literature
without prior written consent obtained from NYBC, in each case, except that
TRIMERIS may, without prior written consent, state that it is licensed by NYBC,
under one or more of the patents and/or applications comprising the PATENT
RIGHTS.
ARTICLE 14 - PAYMENTS, NOTICES
AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this
License Agreement shall be sufficiently made or given on the date of mailing if
sent to such party by certified first class mail, postage prepaid, addressed to
it at its
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<PAGE>
address below or as it shall designate by written notice given to the other
party:
In the case of NYBC
Attn: Office of Patents and Licensing
Mark De Wyngaert, Ph.D.
The New York Blood Center
310 East 67th Street
New York, New York
cc: General Counsel
In the case of TRIMERIS:
Attn: Matthew A. Megaro
Chief Operating Officer
Trimeris, Inc.
4727 University Drive, Suite 100
Durham, North Carolina 27707
ARTICLE 15 - MISCELLANEOUS PROVISIONS
15.1 This LICENSE AGREEMENT shall be construed, governed, interpreted and
applied in accordance with the laws of New York, except that questions affecting
the validity, enforceability, or infringement of any patent contained in the
Patent Rights shall be determined by the law of the country in which the patent
was granted.
15.2 The parties hereto acknowledge that this License Agreement sets forth
the entire agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
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15.3 The provisions of this License Agreement are severable, and in the
event that any provision of this License Agreement shall be determined to be
invalid or unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this License Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
15.5 This LICENSE AGREEMENT may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this License
Agreement, in duplicate, by proper persons thereunto duly authorized.
NEW YORK BLOOD CENTER
By: /s/John F. Wurmser
Name: John F. Wurmser
Title: CEO
Date: Sept. 9, 1997
TRIMERIS
By: /s/M. Ross Johnson
Name: M. Ross Johnson
Title: President, Chief Executive Officer
Date: September 10, 1997
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NYBC/TRIMERIS
LICENSE AGREEMENT
APPENDIX I
1. U.S. Patent No. 5,444,044
Granted: August 22, 1995
To: Jiang and Neurath
For: Synthetic Polypeptides As Inhibitors Of HIV-1
Assignee: New York Blood Center
New York, New York
Based on: Appln. Serial No. 859,923
Filed March 26, 1992
2. U.S. Serial No.: 08/484,107
Filed: June 7, 1995
As a continuation of Ser. No. 859,923
(U.S. Pat. No. 5,444,044)
3. Foreign Counterparts of U.S. Patent No. 5,444,044:
<TABLE>
<CAPTION>
======================= ====================== ================================= ============================
COUNTRY SERIAL NO. FILING/ISSUE DATE STATUS
======================= ====================== ================================= ============================
<S> <C> <C> <C>
Australia 667078 Granted 6/25/1996 Patented
======================= ---------------------- --------------------------------- ============================
EPO 0 565 164 Granted 6/11/1997 Patented
======================= ---------------------- --------------------------------- ============================
Canada 2,092,519 Filed 3/25/1993 Pending
======================= ---------------------- --------------------------------- ============================
Japan 5-68199 Filed 3/26/1993 Pending
======================= ====================== ================================= ============================
S. Korea 93-4698 Filed 3/25/1993 Pending
======================= ====================== ================================= ============================
</TABLE>
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Trimeris, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
---------------------------------------
Raleigh, North Carolina
October 1, 1997
EXHIBIT 23.3
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Experts" in Amendment No. 2 to
the Registration Statement on Form S-1 of of Trimeris, Inc.
/s/ PENNIE & EDMONDS LLP
---------------------------------------
PENNIE & EDMONDS LLP
New York, New York
October 1, 1997
